Von Mises Institute
Sunday, August 5th, 2012
Submitted by James Miller of the Ludwig von Mises Institute of Canada
A sacred cow is usually defined as that which is regarded as far too valuable or prestigious to even think about altering. Any proposition that comes close to complete abolition is met with astounding ridicule. In the realm of legalized harlotry (politics), careers are made out of defending sacred cows no matter how expensive, socially corroding, or intentionally dishonest they are. Compulsory public education is one of the first to come to mind. The various vote buying schemes that masquerade as a welfare safety net are another. Whenever the political class or its apologists in the media find themselves in a bind trying to validate the government’s latest plot to fill its coffers or grind already-undermined liberties further into the curb, they often resort to evoking the greatest sacred cow of all: democracy.
Starting from the earliest years of basic comprehension, children in the Western world are propagandized into believing that without democracy, society would descend into unlivable chaos. Schools, both public and private, perpetuate the fantasy to millions of forced attendees every year. They are told that the government which has a hand in practically anything they encounter was formed with only the best intentions. In America especially, the representative democracy constructed out of the collective genius of the country’s founding fathers is lauded as a gift to humanity. And though its influence is waning in recent years, the Constitution served as a model for developing nation-states around the globe. Back in 1987, Time magazine estimated that of the 170 countries that existed at the time, “more than 160 have written charters modeled directly or indirectly on the U.S. version.”
The Constitution is presented as the miraculous creation of divine individuals when, in fact, it was nothing of the sort. Like any attempt to centralize state power, the Constitution was formed out of the economic desires of its framers. Thomas Jefferson, John Adams, Thomas Paine, and Henry Adams weren’t even present at the Philadelphia Convention as it was drafted. Many Americans at the time were suspicious at what ended up being a coup to toss out the decentralized Articles of Confederation in return for an institution powerful enough to be co-opted for the purposes of rent seeking. As Albert Jay Nock noted:
The Constitution had been laid down under unacceptable auspices; its history had been that of a coup d’état.
It had been drafted, in the first place, by men representing special economic interests. Four-fifths of them were public creditors, one-third were land speculators, and one-fifth represented interests in shipping, manufacturing, and merchandising. Most of them were lawyers. Not one of them represented the interest of production
when the Constitution was promulgated, similar economic interests in the several states had laid hold of it and pushed it through to ratification in the state conventions as a minority measure, often — indeed, in the majority of cases — by methods that had obvious intent to defeat the popular will. Moreover, and most disturbing fact of all, the administration of government under the Constitution remained wholly in the hands of the men who had devised the document, or who had been leaders in the movement for ratification in the several states.
Unvarnished history like this is never taught in public schools and is hardly known by the public at large. There is a reason for this of course. When the rose tinted glasses are removed, the state appears as the organized criminal racket it really is. Those entrusted as “representatives of the people” are really looking out for themselves and their financial well-being. As government grows and regulatory bureaucracies flourish in size and scope, law formation becomes not just a job for the elected legislature but also of the executive enforcers. In other words, the same people tasked with enforcing the law are also given discretion over what rules they wish to impose. These unelected bureaucrats, in a constant effort to validate their positions of authority, will never seek to cut the tax money that is their lifeblood. Instead, they will spend the whole of their budget every year as they live out their desire to have meaningful employment through crushing freedom. The people’s will is sold off to ensure a new bloc of state-privileged voters.
Leviathan’s growth by bureaucracy has been occurring all over the Western world but it is accelerating at a worrisome rate in the United States and Europe. In the 2012 edition of the Competitive Enterprise Institute’s 10,000 Commandments which provides a type of snapshot of the American regulatory state, it is documented that federal agencies were responsible for the implementation of 3,807 rules. These economically destructive regulations were set in stone despite only 81 bills passing Congress and being signed by the President. Representative democracy has been replaced by the rule of the unaccountable. In an environment where the power players are shielded from public backlash, the opportunity for cronyism, corruption, and back room deals increases tenfold. Revolving door politics becomes the norm as the regulators who write the laws end up being employed at the same firms that avoid their punitive nature.
Across the pond in Europe, unelected technocrats continue to try and save the floundering currency union. Austerity measures, which amount to more tax increases than cuts in government spending, have been imposed by bureaucrats who have little to no identification with the people they are levied against. It is centralized planning on continent-wide scale. The person with the most sway in the crisis has been European Central Bank President Mario Draghi. Though Draghi only has one vote in the body that controls the printing press, he is seen as its mouthpiece. Last week as the Olympic Games kicked off, he infamously made the off-the-cuff remark on doing “whatever it takes to preserve the euro”. The remark, whether Draghi admits it or not, carried with it the bought-and-sold notion that the printing presses would soon be put on overdrive in an effort to quell the crisis by buying sovereign debt. Stocks in both the U.S. and Europe rallied on the news but sunk soon after the plan was revealed as a farce. There was no trick up his sleeve; Draghi’s remark was pure posturing.
However the event was highly revealing of the reliance the global economy has on a constant injection of cheap, fiduciary currency. Under central banking, consumer preferences which normally guide the free market’s structure of production take a backseat to the whims of the operators of the printing press. Financial markets begin centering their operations around fresh batches of newly created digital currency. Fractional reserve banking becomes even more emboldened. Because money isn’t neutral and always enters the economy at specific points, the first receivers are able to spend and invest before overall prices are affected. The last receivers must deal with prices rising prices as their wages stagnate; thus lowering their real income.
The free market economy is analogous to democracy because consumers vote with their wallets on who produces the best product. Under central banking, few individuals are granted the monopolistic license to produce that which facilitates all transactions. There is nothing democratic about central banking in practice; it is a system of top-down governance based on the fantastical idea that there exists an ideal amount of money that only a few intellectually gifted economists can determine. With one hundred years of operation under its belt, all the central banker profession has learned through the various recessions which plagued the 20th century is that money printing appears to solve everything.
From the beginning of the Eurozone crisis, anyone not quenching their thirst with the Kool-Aid of good, honest government recognized that the large banks were the true beneficiaries of the various bailout schemes. Because commercial banks in Northern Europe are exposed to sovereign debt, it is in their best interest for default to be avoided even if it means receiving interest payments in a devaluing currency. The people of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are told their governments are being bailed out as a benefit to them. What’s really happening is the bankers are pulling the reigns of an unscrupulous political class looking to ultimately cash out by helping their friends in high places. The rhetoric of preserving democracy by EU officials amounts to nothing but a childish ploy when contrasted with the brazen, systematic exploitation the state embodies.
To the ruling establishment, the approval of “we the people” matters insomuch that they don’t recognize their oppressors. Democracy is a charade to convince the masses that they are in charge of their future when they are servants to authoritarianism. Economist and philosopher Hans-Herman Hoppe was spot on when he recognized that
Democracy has nothing to do with freedom. Democracy is a soft variant of communism, and rarely in the history of ideas has it been taken for anything else.
Rather than give the people a voice, democracy allows for the choking of life by men and women of state authority. When Occupy protestors were chanting “this is what democracy looks like” last fall, they wrongly saw the power of government as the best means to alleviate poverty. What modern day democracy really looks like is endless bailouts, special privileges, and imperial warfare all paid for on the back of the common man.
None of this is to suggest that a transition to real democracy is the answer. The popular adage of democracy being “two wolves and lamb voting on what’s for lunch” is undeniably accurate. A system where one group of people can vote its hands into another’s pockets is not economically sustainable. Democracy’s pitting of individuals against each other leads to moral degeneration and impairs capital accumulation. It is no panacea for the rottenness that follows from centers of power. True human liberty with respect to property rights is the only foundation from which civilization can grow and thrive.
Tags: Abolition, Apologists, Attendees, Best Intentions, Coffers, Collective Genius, Comprehension, Founding Fathers, James Miller, Ludwig Von Mises, Ludwig Von Mises Institute, Nation States, Public Education, Representative Democracy, Ridicule, Sacred Cow, Sacred Cows, Safety Net, Time Magazine, Von Mises Institute
Posted in Markets | Comments Off
Wednesday, July 11th, 2012
Submitted by James Miller of the Ludwig von Mises Institute of Canada
Josh Barro’s and David Frum’s Pathetic Attack on Austrian Economics
Josh Barro of Bloomberg has an interesting theory. According to him, conservatives in modern day America have become so infatuated with the school of Austrian economics that they no longer listen to reason. It is because of this diehard obsession that they reject all empirical evidence and refuse to change their favorable views of laissez faire capitalism following the financial crisis. Basically, because the conservative movement is so smitten with the works of Ludwig von Mises and F.A. Hayek, they see no need to pose any intellectual challenge to the idea that the economy desperately needs to be guided along by an “always knows best” government; much like a parent to a child. CNN and Newsweek contributor David Frum has jumped on board with Barro and levels the same critique of conservatives while complaining that not enough of them follow Milton Friedman anymore.
To put this as nicely as possible, Barro and Frum aren’t just incorrect; they have put their embarrassingly ignorant understandings of Austrian economics on full display for all to see.
First off, no conservative, besides perhaps Michele Bachman, has shown any interest in the Austrian school as of late. In most aspects, Ron Paul can hardly be considered a conservative. If Frum, with all his political credentials, can show me another true blooded conservative that has read through Human Action or Man, Economy, and State, I am all ears. The fact remains that traditional conservatives aren’t brushing up on their Mises when they aren’t attending Tea Party rallies or asking their Congressman to nuke Iran into smithereens.
On the subject of Austrian economics itself; the school isn’t against empirical evidence per say. What it opposes is methodological positivism which is using empirical data by itself to formulate theories about how an economy functions.
Austrians don’t see the social sciences as one in the same with the physical sciences like chemistry. Closed experiments can’t be conducted on humans that will always yield the exact same results. Because humans posses the ability to make choices, there are no constants in human behavior. As economist Robert Wenzel puts it
In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed.
There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time.
Austrian economics relies on deductive reasoning and one a priori law that Ludwig von Mises worded as “human action is purposeful behavior.” That is, man acts to achieve ends or otherwise he would not act. This statement is what Murray Rothbard, considerably the most known Austrian economist next to Mises and Hayek, called “radically empirical” since it is absolutely self evident to any observer. A few subsidiary axioms can then be derived from the human action axiom such as “individuals vary” and that people “regard leisure as a valuable good.”
Austrians don’t reject empirical evidence but look at it with the theory of human action in mind. They don’t see an increase in ice cream sales coinciding with an increase in kidnappings and automatically assume that as people eat more ice cream, they become more prone to abducting people. They may consider that because warmer weather tends to result in more people going outside for leisurely activity, the opportunities for kidnappings to occur increases as does the appetite for ice cream. This isn’t a rejection of empirical evidence but merely viewing the world with a theory to help explain the complex happenings of society.
As for the financial crisis which should have changed the minds of the true believers, if Barro or Frum were paying even the slightest amount of attention to the Austrian school during the run up to the housing bubble burst, they would have seen a number of warnings from those versed in Misean economics. This includes Gary North, Robert Wenzel, Doug French, Jim Rogers, Hans Sennholz, Frank Shostak, Ron Paul, and Peter Schiff. Austrian economist Mark Thorton even wrote this back in 2004:
It has now been three years since the U.S. stock market crash. Greenspan has indicated that interest rates could soon reverse their course, while longer-term interest rates have already moved higher. Higher interest rates should trigger a reversal in the housing market and expose the fallacies of the new paradigm, including how the housing boom has helped cover up increases in price inflation. Unfortunately, this exposure will hurt homeowners and the larger problem could hit the American taxpayer, who could be forced to bailout the banks and government-sponsored mortgage guarantors who have encouraged irresponsible lending practices.
So how did so many observers that understood Austrian economics see a crisis on the horizon? Unbeknownst to Barro and Frum, the school has a theory that explains why economic booms and busts are a product of money supply manipulation by a central bank and fractional reserve banking. The Austrian Business Cycle theory stipulates that as credit expansion occurs unbacked by real savings, an inflationary boom takes hold where many are deceived into believing themselves richer than they truly are. As the money supply is increased by a central bank, so too are banks enticed to expand credit. As Rothbard explains:
Businesses, in short, happily borrow the newly expanded bank money that is coming to them at cheaper rates; they use the money to invest in capital goods, and eventually this money gets paid out in higher rents to land, and higher wages to workers in the capital goods industries. The increased business demand bids up labor costs, but businesses think they can pay these higher costs because they have been fooled by the government-and-bank intervention in the loan market and its decisively important tampering with the interest-rate signal of the marketplace.
This credit expansion is fully sanctioned by the government that not only provides a public backstop to banks that may find themselves insolvent but also join the bandwagon of taking advantage of cheap borrowing costs. As the inflationary boom wears on, capital is consumed as more and more of the public get caught up in the exuberance. When the money supply expansion inevitably ends (as it must less the complete destruction of the currency takes hold), the market and prices must readjust accordingly as malinvestments finally come to light. During the boom the production structure of the economy is distorted to the point where both increased investment in capital goods and increased consumer spending tend to take place. Put simply, credit expansion throws off what would otherwise be a natural rate of consumption and saving. Once it is realized that producer goods have been bid up far too high to be purchased with existing savings, prices must fall and losses are felt. This is precisely how the recent housing bubble played out as the price of homes, which are generally considered good investments, reached a point too high to be mass marketable. As economist Joseph Salerno documents:
The events of 9/11 led the Fed to ratchet up its expansionary monetary policy. From the beginning of 2001 to the end of 2005, the Fed’s MZM monetary aggregate increased by about $1 billon per week and the M2 aggregate by about $750 million per week. During the same period the monetary base, which is completely controlled by the Fed, increased by about $200 billion, a cumulative increase of 33.3 percent.
The Federal Funds rate was driven down below 2 percent and held there for almost three years, pegged at 1 percent for a year (Figure 5). The result was that the real interest rate, as measured by the difference between the Federal Funds rate and headline CPI, was negative from roughly 2003 to 2005. Rates on 30-year conventional mortgages fell sharply from over 7 percent in 2002 to a low of 5.25 percent in 2003 and, aside from brief upticks in 2003 and again in 2004, fluctuated between 5.5 percent and 6.0 percent until late 2005 (Figure 6). Perhaps, more significantly, 1-year ARM rates plummeted from a high of 7.17 percent in 2000 to a low of 3.74 percent in 2003, rising to 4.1 percent in 2004 and to slightly over 5 percent in 2005. In addition, credit standards were loosened and unconventional mortgages, including interest-only, negative equity, and no-down-payment mortgages, proliferated.
When housing prices began to fall, so did the perception of wealth by homeowners, mortgage lenders, and house flippers. Because the global economy is so interconnected, the unemployment that occurs in just one industry has a devastating ripple effect. When the housing bubble finally popped, recession set in as the economy contracted.
Barro and Frum have given no indication that they are familiar with the Austrian theory of the trade cycle. Where they come off as critical of the school is its preferred solution to economic recession.
Austrians stress the importance of prices as signals to all economic actors. Because prices are so vital to market coordination, they must be allowed to adjust to a new normal defined by the new spending and investment patterns. Anything the government does to prevent the painful but necessary readjustment from occurring (such as bailing out politically favored industries, enacting price and wage controls, subsidizing the unemployed, or providing loans in the form of taxpayer dollars to businesses that would otherwise be unable to afford their borrowing costs) puts the brakes on the recovery. This is why Austrians are against all government interference in the marketplace to prevent a much needed correction following a bust caused predominantly by the government’s own inflationist agenda.
None of this is a blind allegiance to an ideology. The laissez faire attitude among Austrians is rooted in an understanding of the complexities of the marketplace and the vital importance of capital and production. Perhaps more importantly, many followers of the school see modern day banking for what it really is: a racket based on fractional reserve lending that is held together by both the government and its central bank’s promise to guarantee its solvency. Barro claims that his own opinions on monetary policy and banking regulation have changed since the financial crisis. Unlike many Austrians, he never saw the crisis coming. He has no systematic theory to explain why the bubble occurred and what steps are needed to prevent it from happening again. Hilariously, Barro has admitted to attempting to read Mises’ grand treatise Human Action but that he couldn’t understand it and therefore claims “it actually makes no sense.” Upon reading select chapters from Human Action, even the most casual reader would see that Mises doesn’t completely reject the use of empirical data as Barro claims. What the economist needs, according to Mises, is “the power to think clearly and to discern in the wilderness of events what is essential from what is merely accidental.” That means looking at historical data with a correct understanding on market functions to be able to interpret it so it makes sense and provides a possible explanation for outliers.
When it comes to conservatives “dumping” Milton Friedman as David Frum laments, all this writer can say is good riddance. Friedman was as statist as they come. From his advocacy for the dreaded “withholding tax” while employed by the U.S. Treasury to his comfortableness with the Federal Reserve, Friedman was hardly the liberty fighter he is often made out to be. Yes, he has provided some eloquent defenses of capitalism and the morality of free choice. But as Rothbard made sure to point out way back in 1971:
And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all.
At the same time, we find Friedman calling for absolute control by the State over the supply of money – a crucial part of the market economy. Whenever the government has, fitfully and almost by accident, stopped increasing the money supply (as Nixon did for several months in the latter half of 1969), Milton Friedman has been there to raise the banner of inflation once again. And wherever we turn, we find Milton Friedman, proposing not measures on behalf of liberty, not programs to whittle away the Leviathan State, but measures to make the power of that State more efficient, and hence, at bottom, more terrible.
And while Friedman famously argued, along with Anna Schwartz, that blame for the Great Depression should be laid on the Federal Reserve’s reluctance to offset the declining money supply, Rothbard (alone at the time) argued that it was because of the Fed’s previous inflationary policy in the latter half of the 1920s that a stock market bubble and real estate really took off. Because the inflation was hidden in the rise of certain asset prices and overall increases in productivity, many economists missed the Fed’s role in the boom. Additionally, Rothbard concluded in his much overlooked book America’s Great Depression that the Depression really became great because of Herbert Hoover’s unprecedented interventionist policy of massive increases in government expenditures, the propping up of wages, price supports, and the enactment of protectionist tariffs. Though Friedman’s view is still held as the conventional explanation for the Depression, especially by Federal Reserve chairman Ben Bernanke, Rothbard’s explanation is attracting more followers by the day. Back in 2009, eminent UCLA economist Lee E. Ohanian even published a working paper for the Journal of Economic Theory that supported much of Rothbard’s explanation for the Depression.
In the end, all Josh Barro’s attack on Austrian economics shows is his utter lack of knowledge on the subject. To claim that conservatives are devout followers of the school is incredibly misleading. Mitt Romney isn’t brushing up on his Mises or Hayek during campaign stops. Rush Limbaugh isn’t reciting essays by Rothbard on his radio show. And Sean Hannity isn’t lecturing his viewers on the nuances of the Austrian Business Cycle theory. The Federal Reserve only became a topic of discussion during the past Republican primary race because of Ron Paul’s ability to make it a relevant issue.
Barro claims to have a bookshelf of Austrian literature. He would do well to crack open a book sometime as he desperately needs a refresher course. David Frum would be just as wise to check out the Austrian school for himself rather than learn it second hand from someone who clearly doesn’t have a firm grasp on the subject.
Tags: Austrian Economics, Austrian School, Cnn, Conservative Movement, David Frum, Empirical Data, F A Hayek, Favorable Views, Intellectual Challenge, Laissez Faire Capitalism, Ludwig Von Mises, Ludwig Von Mises Institute, Michele Bachman, Milton Friedman, Nuke Iran, Political Credentials, Positivism, Ron Paul, Smithereens, Von Mises Institute
Posted in Markets | Comments Off
Friday, July 6th, 2012
by James E. Miller of the Ludwig von Mises Institute of Canada
The Morality of Choice
Picture yourself walking into a department store to purchase some laundry detergent. As you approach the aisle stocked full of brightly-labeled containers, you come face to face with a crucial decision. Which detergent do you choose? Do you go with the tried-and-trusted brand? Do you save money with the generic variety? What’s on sale? What about the high-efficiency kind?
The choice between something as inexpensive as laundry detergent seems trivial in a modern economy marked by mass production and the division of labor. But the large selection of goods that consumers are faced with today is an incredible betterment relative to the past thousand years of human existence. Indeed, the lives of even the most impoverished in Western economies far surpasses that of kings centuries ago.
For all the condemnation it receives by those considered on the forefront of intellectual thought, capitalism is responsible for lifting mankind out of a dreary life of hand to mouth survival. Economic freedom is ultimately to blame for the higher standard of living the West enjoys compared to the once Communist East. Material prosperity is a phenomenon not brought to the world by governments but by entrepreneurial spirit. The state just is a reactionary institution that derives its power from the gun it puts to the back of public’s head. Those who succeed in the marketplace only do so by appealing to consumers. Businessmen force no one to purchase their wares less they play footsie with the political class for special privilege. The pursuit of profit is what drives competition and expanded choice. Without it, societal progress stagnates as living standards lower.
In Canada, the demand is growing for the country to allow a private alternative to its public health care program to emerge. In a new poll conducted by Ipsos Reid for Postmedia News and Global Television, almost three quarters of the respondents were in support of a mixed model of health care delivery.
From the Vancouver Sun:
The majority of Canadians support a “mixed” model of health care that would give them the option of spending their own money for care in a private system, according to the results of a new poll.
And three-quarters of them support being able to buy private health insurance for all forms of medically necessary treatment, including cancer care and heart surgery, which they could then obtain outside of the public health care system.
In recent years, the very health of the system has come into question and there has been persistent debate about whether the federal government should allow the emergence of a “mixed” model in which the non-profit public system and for-profit private system operate side-by-side to give patients greater choice.
As many know, the Canadian health care system is publicly funded and under strict government control. Care is administered in so-called “private entities” that receive their funding from the various levels of government. In reality there is little private competition. It has been this way since 1984 with the passage of the Canada Health Act. The only exceptions are dental work and drug coverage which aren’t usually covered by the government but by private insurance.
According to the Vancouver Sun article, the mixed model would allow Canadians to purchase private insurance “for all forms of medically necessary treatment, including cancer care and heart surgery, which they could then obtain outside of the public health care system.” It is believed that such an option would relieve the wait times for major surgeries. While the extending of private competition is certainly a step in the right direction, it will by no means be the definitive cure to a non-market model that lacks the necessary characteristics which allow markets to function.
The problem with Canada’s health care system is the same problem every socialized industry faces: the lack of price signaling. Doctors are prevented from charging extra and user fees are prohibited. Services can’t be rationally allocated because consumers have little indication of prices. Government acts as a third party by picking up the tab and concealing the true cost of care. State administered health care almost always has the same results of high demand, low supply, and scarcity of service.
Economic issues aside, Canada’s health care system isn’t lacking in just market incentives. What is missing is the allowance for something so simple and taken for granted, it hardly receives serious consideration.
What I am referring to is the option of having a real choice when it comes to medical care.
Choice itself is really an extension of the moral basis for capitalism. In exercising your preference for a particular good or service, you are really exercising your free will to consume. Choice is the embodiment of freedom, private property, and is the key ingredient to rising living standards. As long as people aren’t obstructed from pursuing their interests, they will act in a way to improve their own lot.
What government does through its various regulatory edicts is stomp down upon the free interactions of others. The political class can only inhibit commerce; it can’t enhance what would otherwise be unrestricted.
To imagine what the prevalence of choice in healthcare would look like, it helps to picture the world of television’s The Simpsons. In the famous cartoon show, two reoccurring characters are that of Dr. Julius Hibbert and Dr. Nick Riviera (typically referred to as Dr. Nick). Fans of the show should easily remember that Dr. Hibbert is considered the more competent of the two while Dr. Nick is horribly inept. Given his track record and blatant incompetence, few would trust Dr. Nick to perform major medical procedures. However, despite all of his shortcomings in being a professional, he might still be able to perform relatively simple medical procedures and check ups. Because of the low quality of care he offers, Dr. Nick would thus have to bid down his prices to appease consumers. As the old saying goes, “you get what you pay for.”
The question is, why should consumers not be able to choose Dr. Nick over Dr. Hibbert even with their clear differences in ability? Surely Dr. Nick would botch any complex procedure, but should he be barred by the state from practicing medicine? Should consenting adults not be allowed to pay for his services?
Recommending that someone reconsider their choice in doctors and forcefully prohibiting them from doing so are two starkly opposed positions. The former is a recommendation without the threat of violence to back it up. The latter is the crushing of liberty by dictatorial insistence. In erecting legal barriers to industries, what the political class is effectively telling the public is that they are incapable of making sound decisions without the help of the paternalistic state. The real objective is instilling an all-encompassing dependency to a nanny government that is always on the prowl for excuses to increase its own power.
It is a shame that Canadians currently have little choice in medical care. It is equally disheartening that “for-profit” industry is demonized while a system built up on the violent suppression of genuine competition is dominant. What’s really perplexing to hear big government supporters antagonize over the threat of monopolies when they give full dedication to the greatest monopoly of all.
With the outlawing of a complete private option, the Canadian authorities have denied the people the right to do as they see fit with their own property. It has, in essence, disallowed them to be human and exercise their own free will. As Ludwig von Mises wrote, “under capitalism, private property is the consummation of the self-determination of the consumers.” With “government knows best” superseding consumer choice, Canada’s health care system will only continue to suffer in terms of quality and service. And it is all because the most human of all aspects has been forcibly removed; that is the ability to choose for oneself.
Tags: Division Of Labor, Dreary Life, Economic Freedom, Entrepreneurial Spirit, Hand To Mouth, Health Care Program, High Efficiency, Human Existence, Ipsos Reid, James E Miller, Laundry Detergent, Ludwig Von Mises, Ludwig Von Mises Institute, Mass Production, Material Prosperity, New Poll, Public Health Care, Societal Progress, Von Mises Institute, Western Economies
Posted in Markets | Comments Off
Sunday, June 10th, 2012
Submitted by James Miller of the Ludwig von Mises Institute of Canada
Mark Carney Kicks The Can
Bank of Canada Governor Mark Carney takes a lot of cues from his U.S. equivalent and fellow central banker Ben Bernanke. Both took interest rates to anorexic levels in light of the financial crisis in 2008. Both used their positions of power as stewards of the people’s money to bail out the big banks. Both take credit for the gains of their respective stock markets and for guiding their economies through the global recession. Both are forever on a quest to rid of the world of the boogeyman of deflation.
And both are sewing the seeds of their own destruction by keeping interest rates artificially low and ultimately driving unsustainable investment that must eventually be liquidated. All around the world, the boom bust cycle continues to occur due to central banks attempting to induce economic growth with money printing. China’s economy is continuing to come apart as manufacturing output and real estate prices plummet. These sectors were bid up by double digit increases per annum in the country’s money supply over the past decade. Since inflationary growth, by definition, can’t go on forever, as its continuance results in what Ludwig von Mises called the “crack-up boom” and destruction of the currency, the chickens of the People’s Bank of China’s reckless monetary policy are finally coming home to roost. The PBOC has responded to the downturn by recently cutting interest rates for the first time since 2008 in what will likely be a vain effort to reinflate the bubble.
Over in Europe, the year over year change in the broad money supply has dropped dramatically since 2010. This provided the spark for the sovereign debt crisis which shows no sign of slowing down unless Angela Merkel and Germany concede to further inflationary measures by the European Central Bank. Just like her support for the big banks and the austerity measures that ensure idiotic bankers don’t take too much of a loss on their holdings of euro government bonds, Merkel will likely give in to money printing in the end as she has already endorsed the push for a political union.
And now in Canada, Mark Carney announced a few days ago the Bank of Canada will keep its benchmark interest rate steady at 1%. This announcement comes despite his previous warnings over the enormous increase in Canadian private debt. But of course the run up in debt couldn’t have occurred if interest rates were determined by market factors only. Had supply and demand been allowed to function freely, interest rates would have risen as a check on the swell in debt accumulation. Carney won’t admit this though. Like all central bankers, he has made a habit of boasting the positive effects of his low interest rates policies while avoiding blame for the negative consequences.
He is a bartender who gleefully takes the drunk’s cash while replying with “who, me?” when said drunk drinks himself to death.
What makes the promise of continually low interest rates especially worrisome is not only does it tell the market to keep accumulating debt, but it is also an attempt to keep what some are calling a nation-wide housing bubble from deflating. Over the past decade, Canadian home prices have shot up at a far steeper pace compared to the decades that preceded it. In recent years, the acceleration in home prices has been fueled by the Bank of Canada’s historically low overnight lending rate which went from 3% before the financial crisis to .25% in 2009 and now rests steadily at 1%. The BoC has already acknowledged that its interest rate policies directly affect mortgage rates. Many Canadian media publications and investment newsletters are pointing out this trend and warning of a potential collapse. The BBC even did a report on it. There is nothing potential about a sharp downturn in home prices however; it will happen. It’s only a question of when.
With China and Europe leading the pack, the world economy is beginning to take a turn for the worse. The orgy of money printing which took place over the past few years has slowed down significantly; even in the U.S. Central bankers are standing at a precipice in which they must decide if they will forge ahead and prime the monetary pump to paper over the various malinvestments caused by their previous interventions or actually allow for a contraction and the market to adjust to a new path of sustainable growth. If history is any indication, the latter is not a considerable option as it would be devastating to the banking sector which is reliant on piggybacking credit expansion off of an uninterrupted flow of newly printed monies.
Carney’s decision to keep interest rates suppressed is yet another instance of a central banker unable to face reality. The malinvestments will continue to accumulate and will have to be liquidated at another date. What Carney has done to mitigate the looming debt and housing bubble is effectively kick the can down the road. He has revealed through his actions the undeniable truth which holds for all central bankers: that they have no other card to play but the printing press. As legendary investor Marc Faber has noted,
“I do not believe that the central banks around the world will ever, and I repeat ever, reduce their balance sheets. They’ve gone the path of money printing… And once you choose that path, you’re in it and you have to print more money.”
The Austrian theory of the trade cycle developed by Mises a century ago tells us that credit expansion is bound to end in depression. To quote Herbert Stein’s Law, the business cycle theory essentially boils down to “if something cannot go on forever, it will stop.” The debt fueled boom in Canada is a house of cards. No matter how much money printing or interest rate manipulation Carney attempts, the collapse in inevitable. His record, along with Ben Bernanke’s, will eventually be one of dismal failure.
Tags: Angela Merkel, Bank Of Canada, Bank Of Canada Governor, Bank Of China, Ben Bernanke, Bust Cycle, Central Banks, China, Crack Up, Debt Crisis, Digit Increases, Global Recession, Ludwig Von Mises, Ludwig Von Mises Institute, Mark Carney, Money Printing, Money Supply, Pboc, Sovereign Debt, Vain Effort, Von Mises Institute
Posted in Markets | Comments Off
Tuesday, June 5th, 2012
Submitted by James Miller from the Ludwig von Mises Institute of Canada
Canada Oil Sands And The Precautionary Principle
The precautionary principle is typically defined as “if an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific evidence that the action or policy is harmful, the burden of proof that it is not harmful falls on those taking the action.” In practice, the principle is utilized by government policy makers to ensure technological advances don’t pose too dire of an effect on the surrounding environment. This may appear a noble goal if one accepts the premise that the prime function of government is the protection of life and property. History proves otherwise as easily corruptible politicians have tended to grant exceptions to wealthy business interests which look to dump their waste in public-owned natural resources such as waterways. It is also clear judging by historical cases that socialization often results in environmental degradation. One look at the pollution in once-communist nations such as China or the former Soviet Union reveals that a lack of private property results in a type of moral hazard en masse as there is little incentive to preserve what you don’t officially own.
Rather than enforce property rights, the state systematically violates them in order to buttress its dominating hold over society and reward its supporters. What the precautionary principle has resulted in is further discretion over economic affairs given over to those public officials who take great delight in micro-managing the lives of others. The stifled progression in technology and industrialization that is a consequence of the precautionary practice is the insidious but sincere goal of its enthusiasts.
Presently, there exists no greater threat to the green movement than that of cheap fossil fuels. Drilling for oil is demonized in Western media. The prospect of extracting massive amounts of natural gas in North America has ignited numerous environmental protests. In Canada, the mining of oil sands has become a target of the federal government. During a recent trip to survey the ongoing mining operation taking place in Alberta, Leader of the Official Opposition (the New Democratic Party) Thomas Mulcair admitted that while he was impressed by the “awe-inspiring” scale though which human-made machines and ingenuity were extracting this unconventional petroleum deposit, he was still wary of the potential environmental damage such an industrial breakthrough could present. From the Globe and Mail:
Precisely one thing surprised Thomas Mulcair on his visit to Alberta: the scale of the oil sands.
During his first visit, including a helicopter flight over several oil sands mines, to a region he has criticized, Mr. Mulcair was overwhelmed by the “awe-inspiring” display.
“These are extraordinary undertakings on a human scale. I mean, they’re massive,” Mr. Mulcair said. “It’s extraordinarily impressive, but it also brings with it real challenges. Real challenges that if we don’t assume in this generation, we’re going to bear in future generations.”
Admittedly, environmental damage can be devastating to those private property owners affected. This is why tort law and criminal charges are brought to assaulters and those who trespass or willingly destroy private property. No amount of general prosperity that could develop through industrialization is an excuse to waive the blatant destruction of privately owned property. When Professor Ludwig von Mises spoke to private property being “inextricably linked with civilization,” he referred to the conservation tendency property owners tend to develop. In order for man to be forward-looking, he has to have some expectation of improving his current lot. This generally means control over that land and material goods he possesses. There is little incentive to invest time and capital without full ownership as any other interested party could come along and consume whatever resources are readily available. The “tragedy of the commons” principle is why shared ownership of land or worker communes never last for significant periods of time.
The respect to private property is what ultimately drives capital accumulation and the employing of factors of production for more intricate or grand-in-scale industrial undertakings. Just as people are limited by their ability to economically calculate and profit off of the unknowable future, it can be difficult to account for engineering mistakes. Humans are imperfect; accidents happen. What the precautionary principle does in practice is put government-enforced barriers in front of what could be great advances in industrialization.
And this is precisely what many environmentalists want.
Man develops machinery to raise his standard of living. He takes risk in search of reward. If success were assured, we would all be industrialists. The broad use of the precautionary principle necessarily prevents innovation. If more politicians like Mulcair were around in the 19th century, it is likely that the first rail road tracks would have never been laid. The same goes for the growth in the widespread use of cars and airplanes. Even fire, which can cause great harm if left uncontrolled, would have never been allowed extensive usage if the precautionary principle were adhered to in caveman times. As investor Doug Casey observers in regard to the principle:
If our ancestors had even been stupid enough to adopt such an absolutely paralyzing idea, we’d still be shivering in caves, ravaged by dread diseases and hunted by animals larger and more powerful than we. No, I misspeak; most likely, we’d have gone extinct.
What the green movement hates is not pollution but humanity itself. Its followers would rather see humans beholden to nature than conquer the deprivation the complete natural world holds for mankind. It is communal authoritarianism disguised as moral sustainability. The greens don’t look forward to a life of ease but only backwards to the days when man eked out a day to day existence while always on the verge of death. They want humans to devolve to the state of irrational apes and eventually die out. As Rothbardian philosopher David Gordon puts it:
Some environmentalists are outright enemies of humanity, who favor a drastic reduction in human population, if not the elimination altogether of our species.
According to a recent study conducted by economists Robert P. Murphy and Brian Lee Crowley, the petroleum industry in Canada “showers benefits across the provinces, and provides outlets for manufactured goods.” The extraction of petroleum deposits from the oil sands promises to both create employment and boost economic output across the nation. As long as the companies which engage in extraction are held liable for whatever damage they cause to private lands not under their contractual ownership, Canadians should welcome this technological innovation.
In the end, the raising of living standards is only made possible by industrial advances that require a preference of future betterment over present bliss. Private property is the only means to aid in such endeavors. This is why the green movement never lobbies for abolition of “public” property or stricter enforcement of property protection. Its efforts are aimed at building up the nanny state along with stalling real progress.
Environmentalists who look to the state to enforce their visions of paradise are really just admirers of slavery. Freedom of human will means risk taking and pioneering better methods to improve life on Earth. It means creating a future of ease and contentment.
There is a stark difference between defending private property and environmentalism which advocates for little to no actual developments in industrial production. Proponents of the former are grateful to sleep on a mattress instead of a dirt floor. Proponents of the latter, especially politicians like Thomas Mulcair, want to see mankind emaciated, bowed down before them, and entirely submissive like a back alley mutt that has been kicked hard in gut all too many times.
Tags: Burden Of Proof, Business Interests, Canada Canada, Canada Oil Sands, Communist Nations, Economic Affairs, Environmental Degradation, Former Soviet Union, Fossil Fuels, Government Policy Makers, Industrialization, James Miller, Ludwig Von Mises, Ludwig Von Mises Institute, Moral Hazard, Noble Goal, Precautionary Principle, Prime Function, Property History, Von Mises Institute
Posted in Markets | Comments Off