Tag Archives: forex trading

Why stimulus can’t fix our energy problems

Economists tell us that within the economy there is a lot of substitutability, and they are correct. However, there are a couple of not-so-minor details that they overlook:

  • There is no substitute for energy. It is possible to harness energy from another source, or to make a particular object run more efficiently, but the laws of physics prevent us from substituting something else for energy. Energy is required whenever physical changes are made, such as when an object is moved, or a material is heated, or electricity is produced.
  • Supplemental energy leverages human energy. The reason why the human population is as high as it is today is because pre-humans long ago started learning how to leverage their human energy (available from digesting food) with energy from other sources. Energy from burning biomass was first used over one million years ago. Other types of energy, such as harnessing the energy of animals and capturing wind energy with sails of boats, began to be used later. If we cut back on our total energy consumption in any material way, humans will lose their advantage over other species. Population will likely plummet because of epidemics and fighting over scarce resources.

Many people appear to believe that stimulus programs by governments and central banks can substitute for growth in energy consumption. Others are convinced that efficiency gains can substitute for growing energy consumption. My analysis indicates that workarounds, in the aggregate, don’t keep energy prices high enough for energy producers. Oil prices are at risk, but so are coal and natural gas prices. We end up with a different energy problem than most have expected: energy prices that remain too low for producers. Such a problem can have severe consequences.

Let’s look at a few of the issues involved:

[1] Despite all of the progress being made in reducing birth rates around the globe, the world’s population continues to grow, year after year.

Figure 1. 2019 World Population Estimates of the United Nations. Source: https://population.un.org/wpp/Download/Standard/Population/

Advanced economies in particular have been reducing birth rates for many years. But despite these lower birthrates, world population continues to rise because of the offsetting impact of increasing life expectancy. The UN estimates that in 2018, world population grew by 1.1%.

[2] This growing world population leads to a growing use of natural resources of every kind.

There are three reasons we might expect growing use of material resources:

(a) The growing world population in Figure 1 needs food, clothing, homes, schools, roads and other goods and services. All of these needs lead to the use of more resources of many different types.

(b) The world economy needs to work around the problems of an increasingly resource-constrained world. Deeper wells and more desalination are required to handle the water needs of a rising population. More intensive agriculture (with more irrigation, fertilization, and pest control) is needed to harvest more food from essentially the same number of arable acres. Metal ores are increasingly depleted, requiring more soil to be moved to extract the ore needed to maintain the use of metals and other minerals. All of these workarounds to accommodate a higher population relative to base resources are likely to add to the economy’s material resource requirements.

(c) Energy products themselves are also subject to limits. Greater energy use is required to extract, process, and transport energy products, leading to higher costs and lower net available quantities.

Somewhat offsetting these rising resource requirements is the inventiveness of humans and the resulting gradual improvements in technology over time.

What does actual resource use look like? UN data summarized by MaterialFlows.net shows that extraction of world material resources does indeed increase most years.

Figure 2. World total extraction of physical materials used by the world economy, calculated using  weight in metric tons. Chart is by MaterialFlows.net. Amounts shown are based on the Global Material Flows Database of the UN International Resource Panel. Non-metallic minerals include many types of materials including sand, gravel and stone, as well as minerals such as salt, gypsum and lithium.

[3] The years during which the quantities of material resources cease to grow correspond almost precisely to recessionary years.  

If we examine Figure 2, we see flat periods or periods of actual decline at the following points: 1974-75, 1980-1982, 1991, and 2008-2009. These points match up almost exactly with US recessionary periods since 1970:

Figure 3. Dates of US recessions since 1970, as graphed by the Federal Reserve of St. Louis.

The one recessionary period that is missed by the Figure 2 flat periods is the brief recession that occurred about 2001.

[4] World energy consumption (Figure 4) follows a very similar pattern to world resource extraction (Figure 2).

Figure 4. World Energy Consumption by fuel through 2018, based on 2019 BP Statistical Review of World Energy. Quantities are measured in energy equivalence. “Other Renew” includes a number of kinds of renewables, including wind, solar, geothermal, and sawdust burned to provide electricity. Biofuels such as ethanol are included in “Oil.”

Note that the flat periods are almost identical to the flat periods in the extraction of material resources in Figure 2. This is what we would expect, if it takes material resources to make goods and services, and the laws of physics require that energy consumption be used to enable the physical transformations required for these goods and services.

[5] The world economy seems to need an annual growth in world energy consumption of at least 2% per year, to stay away from recession.

There are really two parts to projecting how much energy consumption is needed:

  1. How much growth in energy consumption is required to keep up with growing population?
  2. How much growth in energy consumption is required to keep up with the other needs of a growing economy?

Regarding the first item, if the population growth rate continues at a rate similar to the recent past (or slightly lower), about 1% growth in energy consumption is needed to match population growth.

To estimate how much growth in energy supply is needed to keep up with the other needs of a growing economy, we can look at per capita historical relationships:

Figure 5. Three-year average growth rates of energy consumption and GDP. Energy consumption growth per capita uses amounts provided in BP 2019 Statistical Review of World Energy. World per capita GDP amounts are from the World Bank, using GDP on a 2010 US$ basis.

The average world per capita energy consumption growth rate in non-recessionary periods varies as follows:

  • All years: 1.5% per year
  • 1970 to present: 1.3% per year
  • 1983 to present: 1.0% per year

Let’s take 1.0% per year as the minimum growth in energy consumption per capita required to keep the economy functioning normally.

If we add this 1% to the 1% per year expected to support continued population growth, the total growth in energy consumption required to keep the economy growing normally is about 2% per year.

Actual reported GDP growth would be expected to be higher than 2%. This occurs because the red line (GDP) is higher than the blue line (energy consumption) on Figure 5. We might estimate the difference to be about 1%. Adding this 1% to the 2% above, total reported world GDP would be expected to be about 3% in a non-recessionary environment.

There are several reasons why reported GDP might be higher than energy consumption growth in Figure 5:

  • A shift to more of a service economy, using less energy in proportion to GDP growth
  • Efficiency gains, based on technological changes
  • Possible intentional overstatement of reported GDP amounts by some countries to help their countries qualify for loans or to otherwise enhance their status
  • Intentional or unintentional understatement of inflation rates by reporting countries

[6] In the years subsequent to 2011, growth in world energy consumption has fallen behind the 2% per year growth rate required to avoid recession.

Figure 7 shows the extent to which energy consumption growth has fallen behind a target growth rate of 2% since 2011.

Figure 6. Indicated amounts to provide 2% annual growth in energy consumption, as well as actual increases in world energy consumption since 2011. Deficit is calculated as Actual minus Required at 2%. Historical amounts from BP 2019 Statistical Review of World Energy.

[7] The growth rates of oil, coal and nuclear have all slowed to below 2% per year since 2011. While the consumption of natural gas, hydroelectric and other renewables is still growing faster than 2% per year, their surplus growth is less than the deficit of oil, coal and nuclear.  

Oil, coal, and nuclear are the types of energy whose growth has lagged below 2% since 2011.

Figure 7. Oil, coal, and nuclear growth rates have lagged behind the target 2% growth rate. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

The situations behind these lagging growth rates vary:

  • Oil. The slowdown in world oil consumption began in 2005, when the price of oil spiked to the equivalent of $70 per barrel (in 2018$). The relatively higher cost of oil compared with other fuels since 2005 has encouraged conservation and the switching to other fuels.
  • Coal. China, especially, has experienced lagging coal production since 2012. Production costs have risen because of depleted mines and more distant sources, but coal prices have not risen to match these higher costs. Worldwide, coal has pollution issues, encouraging a switch to other fuels.
  • Nuclear. Growth has been low or negative since the Fukushima accident in 2011.

Figure 8 shows the types of world energy consumption that have been growing more rapidly than 2% per year since 2011.

Figure 8. Natural gas, hydroelectric, and other renewables (including wind and solar) have been growing more rapidly than 2% since 2011. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

While these types of energy produce some surplus relative to an overall 2% growth rate, their total quantity is not high enough to offset the significant deficit generated by oil, coal, and nuclear.

Also, it is not certain how long the high growth rates for natural gas, hydroelectric, and other renewables can persist. The growth in natural gas may slow because transport costs are high, and consumers are not willing/able to pay for the high delivered cost of natural gas, when distant sources are used. Hydroelectric encounters limits because most of the good sites for dams are already taken. Other renewables also encounter limits, partly because many of the best sites are already taken, and partly because batteries are needed for wind and solar, and there is a limit to how fast battery makers can expand production.

Putting the two groupings together, we obtain the same deficit found in Figure 6.

Figure 9. Comparison of extra energy over targeted 2% growth from natural gas, hydroelectric and other renewables with energy growth deficit from oil, coal and nuclear combined. Amounts based on data from BP’s 2019 Statistical Review of World Energy.

Based on the above discussion, it seems likely that energy consumption growth will tend to lag behind 2% per year for the foreseeable future.

[8] The economy needs to produce its own “demand” for energy products, in order to keep prices high enough for producers. When energy consumption growth is below 2% per year, the danger is that energy prices will fall below the level needed by energy producers.

Workers play a double role in the economy:

  • They earn wages, based on their jobs, and
  • They are the purchasers of goods and services.

In fact, low-wage workers (the workers that I sometimes call “non-elite workers”) are especially important, because of their large numbers and their role in buying many items that use significant amounts of energy. If these workers aren’t earning enough, they tend to cut back on their discretionary buying of homes, cars, air conditioners, and even meat. All of these require considerable energy in their production and in their use.

High-wage workers tend to spend their money differently. Most of them have already purchased as many homes and vehicles as they can use. They tend to spend their extra money differently–on services such as private education for their children, or on investments such as shares of stock.

An economy can be configured with “increased complexity” in order to save energy consumption and costs. Such increased complexity can be expected to include larger companies, more specialization and more globalization. Such increased complexity is especially likely if energy prices rise, increasing the benefit of substitution away from the energy products. Increased complexity is also likely if stimulus programs provide inexpensive funds that can be used to buy out other firms and for the purchase of new equipment to replace workers.

The catch is that increased complexity tends to reduce demand for energy products because the new way the economy is configured tends to increase wage disparity. An increasing share of workers are replaced by machines or find themselves needing to compete with workers in low-wage countries, lowering their wages. These lower wages tend to lower the demand of non-elite workers.

If there is no increase in complexity, then the wages of non-elite workers can stay high. The use of growing energy supplies can lead to the use of more and better machines to help non-elite workers, and the benefit of those machines can flow back to non-elite workers in the form of higher wages, reflecting “higher worker productivity.” With the benefit of higher wages, non-elite workers can buy the energy-consuming items that they prefer. Demand stays high for finished goods and services. Indirectly, it also stays high for commodities used in the process of making these finished goods and services. Thus, prices of energy products can be as high as needed, so as to encourage production.

In fact, if we look at average annual inflation-adjusted oil prices, we find that 2011 (the base year in Sections [6] and [7]) had the single highest average price for oil.1 This is what we would expect, if energy consumption growth had been adequate immediately preceding 2011.

Figure 10. Historical inflation-adjusted Brent-equivalent oil prices based on data from 2019 BP Statistical Review of World Energy.

If we think about the situation, it not surprising that the peak in average annual oil prices took place in 2011, and the decline in oil prices has coincided with the growing net deficit shown in Figures 6 and 9. There was really a double loss of demand, as growth in energy use slowed (reducing direct demand for energy products) and as complexity increased (shifting more of the demand to high-wage earners and away from the non-elite workers).

What is even more surprising is that fact that the prices of fuels in general tend to follow a similar pattern (Figure 11). This strongly suggests that demand is an important part of price setting for energy products of all kinds. People cannot buy more goods and services (made and transported with energy products) than they can afford over the long term.

Figure 11. Comparison of changes in oil prices with changes in other energy prices, based on time series of historical energy prices shown in BP’s 2019 Statistical Review of World Energy. The prices in this chart are not inflation-adjusted.

If a person looks at all of these charts (deficits in Figures 6 and 9 and oil and energy prices in general from Figures 10 and 11) for the period 2011 onward, there is a very distinct pattern. There is at first a slow slide down, then a fast slide down, followed (at the end) by an uptick. This is what we should expect, if low energy growth is leading to low prices for energy products in general.

[9] There are two different ways that oil and other energy prices can damage the economy: (a) by rising too high for consumers or (b) by falling too low for producers to have funds for reinvestment, taxes and other needs. The danger at this point is from (b), energy prices falling too low for producers.  

Many people believe that the only energy problem that an economy can have is prices that are too high for consumers. In fact, energy prices seemed to be very high in the lead-ups to the 1974-1975 recession, the 1980-1982 recession, and the 2008-2009 recession. Figure 5 shows that the worldwide growth in energy consumption was very high in the lead-up to all three of these recessions. In the two earlier time periods, the US, Europe, and the Soviet Union were all growing their economies, leading to high demand. Preceding the 2008-2009 Great Recession, China was growing its economy very rapidly at the same time the US was providing low-interest rate rates for home purchases, some of them to subprime borrowers. Thus, demand was very high at that time.

The 1974-75 recession and the 1980-1982 recession were fixed by raising interest rates. The world economy was overheating with all of the increased leveraging of human energy with energy products. Higher short-term interest rates helped bring growth in energy prices (as well as food prices, which are very dependent on energy consumption) down to a more manageable level.

Figure 12. Three-month and ten-year interest rates through May 2019, in chart by Federal Reserve of St. Louis.

There was really a two-way interest rate fix related to the Great Recession of 2008-2009. First, when oil and other energy prices started to spike, the US Federal Reserve raised short term interest rates in the mid 2000s. This, by itself, was almost enough to cause recession. When recession started to set in, short-term interest rates were brought back down. Also, in late 2008, when oil prices were very low, the US began using Quantitative Easing to bring longer-term interest rates down, and the price of oil back up.

Figure 13. Monthly Brent oil prices with dates of US beginning and ending Quantitative Easing.

There is one recession that seems to have been the result of low oil prices, perhaps combined with other factors. That is the recession that was associated with the collapse of the central government of the Soviet Union in 1991.

[10] The recession that comes closest to the situation we seem to be heading into is the one that affected the world economy in 1991 and shortly thereafter.

If we look at Figures 2 and 5, we can see that the recession that occurred in 1991 had a moderately severe effect on the world economy. Looking back at what happened, this situation occurred when the central government of the Soviet Union collapsed after 10 years of low oil prices (1982-1991). With these low prices, the Soviet Union had not been earning enough to reinvest in new oil fields. Also, communism had proven to be a fairly inefficient method of operating the economy. The world’s self-organizing economy produced a situation in which the central government of the Soviet Union collapsed. The effect on resource consumption was very severe for the countries most involved with this collapse.

Figure 14. Total extraction of physical materials Eastern Europe, Caucasus and Central Asia, in chart by MaterialFlows.net. Amounts shown are based on the Global Material Flows Database of the UN International Resource Panel.

World oil prices have been falling too low, at least since 2012. The biggest decreases in prices have come since 2014. With energy prices already very low compared to what producers need, there is a need right now for some type of stimulus. With interest rates as low as they are today, it will be very difficult to lower interest rates much further.

Also, as we have seen, debt-related stimulus of is not very effective at raising energy prices unless it actually raises energy consumption. What works much better is energy supply that is cheap and abundant enough that supply can be ramped up at a rate well in excess of 2% per year, to help support the growth of the economy. Suitable energy supply should be inexpensive enough to produce that it can be taxed heavily, in order to help support the rest of the economy.

Unfortunately, we cannot just walk away from economic growth because we have an economy that needs to continue to expand. One part of this need is related to the world’s population, which continues to grow. Another part of this need relates to the large amount of debt that needs to be repaid with interest. We know from recent history (as well as common sense) that when economic growth slows too much, repayment of debt with interest becomes a problem, especially for the most vulnerable borrowers. Economic growth is also needed if businesses are to receive the benefit of economies of scale. Ultimately, an expanding economy can be expected to benefit the price of a company’s stock.

Observations and Conclusions

Perhaps the best way of summing up how my model of the world economy differs from other ones is to compare it to popular other models.

The Peak Oil model says that our energy problem will be an oil supply problem. Some people believe that oil demand will rise endlessly, allowing prices to rise in a pattern following the ever-rising cost of extraction. In the view of Peak Oilers, a particular point of interest is the date when the supply of oil “peaks” and starts to decline. In the view of many, the price of oil will start to skyrocket at that point because of inadequate supply.

To their credit, Peak Oilers did understand that there was an energy bottleneck ahead, but they didn’t understand how it would work. While oil supply is an important issue, and in fact, the first issue that starts affecting the economy, total energy supply is an even more important issue. The turning point that is important is when energy consumption stops growing rapidly enough–that is, greater than the 2% per year needed to support adequate economic growth.

The growth in oil consumption first fell below the 2% level in 2005, which is the year some that some observers have claimed that “conventional” (that is, free flowing, low-cost) oil production peaked. If we look at all types of energy consumption combined, growth fell below the critical 2% level in 2012. Both of these issues have made the world economy more vulnerable to recession. We experienced a recession based on prices that were too high for consumers in 2008-2009. It appears that the next bottleneck may be caused by energy prices that are too low for producers.

Recessions that are based on prices that are too low for the producer are the more severe type. For one thing, such recessions cannot be fixed by a simple interest rate fix. For another, the timing is unpredictable because a problem with low prices for the producer can linger for quite a few years before it actually leads to a major collapse. In fact, individual countries affected by low energy prices, such as Venezuela, can collapse before the overall system collapses.

While the Peak Oil model got some things right and some things wrong, the models used by most conventional economists, including those included in the various IPCC reports, are far more deficient. They assume that energy resources that seem to be in the ground can actually be extracted. They see no limitations caused by prices that are too high for consumers or too low for producers. They do not realize that affordable energy prices can actually fall over time, as the economy weakens.

Conventional economists assume that it is possible for politicians to direct the economy along lines that they prefer, even if doing so contradicts the laws of physics. In particular, they assume that the economy can be made to operate with much less energy consumption than is used today. They assume that we collectively can decide to move away from coal consumption, without having another fuel available that can adequately replace coal in quantity and uses.

History shows that the collapse of economies is very common. Collectively, we have closed our eyes to this possibility ever happening to the world economy in the modern era. If the issue with collapsing demand causing ever-lower energy prices is as severe as my analysis indicates, perhaps we should be examining this scenario more closely.

Note:

[1] There was a higher spike in oil prices in 2008, but averaged over the whole year, the 2008 price was lower than the continued high prices of 2011.

Forex stock trading

The Economics of Healthcare: Market Failure or Faulty Models? (Part 1)

It is commonly believed that healthcare is a sector plagued by “market failure.” A heavy dose of government intervention is therefore necessary to optimize the needs of society. A paper most commonly cited in support of that view is one published in 1963 by Nobel Prize winner Kenneth Arrow, one of the giants of economic theory in the twentieth century, and titled “Uncertainty and the Welfare Economics of Medical Care.”

But how does economic theory arrive at the concept of market failure and how do economists conceive of health care when they apply their theoretical models to medical practice?

To help sort this out, we have as our guest Robert P. Murphy, economist, teacher, and author of many books. Dr. Murphy obtained his PhD from NYU and is Senior Fellow at the Mises Institute. He is co-host with Tom Woods of the popular podcast Contra Krugman, and he is also host of The Bob Murphy Show, “a podcast promoting free markets, free minds, and grateful souls.”

The episode is in two parts. In this first part, we review the theoretical framework that forms the background to Arrow’s paper. In the upcoming second part, we will delve into the paper itself, discuss how economists conceive (or misconceive) of medical care and what the implications have been for the US healthcare system as a whole.

Forex stock trading

Money-Supply Growth Remained Sluggish in May

Money supply growth inched up in May, rising slightly above March’s and April’s growth levels. But overall growth levels remain quite low compared to growth rates experienced from 2009 to 2016. March’s growth rate, for examples, was at a 12-year (145-month) low.

In May, year-over-year growth in the money supply was at 2.21 percent. That was up from April’s growth rate of 2.00 percent. May 2019’s growth rate was well down from May 2018’s rate of 4.19 percent. 

tms1_5.png
 

The money-supply metric used here — the “true” or Rothbard-Salerno money supply measure (TMS) — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth.

This measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short-time deposits, traveler’s checks, and retail money funds).

M2 growth rose in May, growing 4.14 percent, compared to April’s growth rate of 3.86 percent. M2 grew 3.83 percent during May of last year. The M2 growth rate has fallen considerably since late 2016, but has varied little in recent months.

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of slow-downs in rates of money-supply growth.

Moreover, periods preceding recessions often show a growing gap between M2 growth and TMS growth. We saw this in 2006-7 and in 2000-1. The gap between M2 and TMS narrowed considerably from 2011 through 2015, but has grown in recent years.

tms2_3_0.png
Forex stock trading

How Oberlin College Faculty Tried to Destroy a Small Business for Imaginary Crimes

What started as a relatively obscure trial covered only by alternative conservative media has exploded into a Big Story, a modern David-defeats-Goliath tale in which a small business has won a victory in court against a well-heeled college whose leftist activist administrators and students tried to destroy it for no good reason. Not surprisingly, the progressive establishment already has tried to walk back the verdict and portray it as a loss for free speech.

(One should not forget that the same progressive establishment that regularly declares that anything other than “woke” speech actually is violence that the authorities must suppress, now has discovered the virtues of the First Amendment.)

Loraine County, Ohio, jurors levied a $33 million verdict against Oberlin College for its role in protests that pretty much ruined a long-time business in the town of Oberlin after students went on a rampage following the shoplifting arrest of a black Oberlin student in November, 2016.

Anyone familiar with the left-wing madness that infects many colleges and universities knows about Oberlin College, a selective institution in Oberlin, Ohio, that is famous for its uber-politically correct students that seem to fall for one “hate crime” hoax after another. It was Oberlin that canceled classes after a student claimed to have seen someone from the Ku Klux Klan menacing the campus one evening in 2013. The alleged Klansman turned out to be most likely a woman wearing a blanket to ward off cold temperature.

That same Oberlin College was roiled by a series of alleged “hate crimes” in 2013 that supposedly were so upsetting to the students that even the New York Times weighed in. In the end, there were no Klansmen on campus, no secret racists trying to destroy campus unity, just a couple of activist progressive students supposedly trying to “increase awareness” of racism, homophobia, and other such things allegedly on campus. Michelle Malkin, a conservative columnist and an Oberlin graduate writes :

According to police reports published by Chuck Ross of The Daily Caller News Foundation this week, two students had ’fessed up to most of the incidents (and fellow students suspect they are responsible for all of them). The Oberlin Police Department identified the hoaxers as Dylan Bleier (a student worker bee for President Obama’s Organizing for Action and a member of the Oberlin College Democrats) and Matthew Alden. Bleier told police the pair posted inflammatory signs and a Nazi flag around campus to “joke” and “troll” their peers.

Investigators “caught them red-handed” trying to circulate anti-Muslim fliers, and a search of Bleier’s email confirmed he had used a fake account to harass a female student. Cops told Oberlin President Marvin Krislov, but he failed to pursue any criminal action. The two students were removed from campus before the bogus “KKK” brouhaha and news-making shutdown.

Then there was the 2015 incident in which Oberlin students insisted that the food served to them in the college cafeteria be purged of its “cultural appropriation,” as they objected to being served tacos and sushi, along with other ethnic foods that apparently reminded students of the horrors of colonialism. (Yes, the New York Times covered this story, too.)

If the 2016 election of Donald Trump as president set off waves of angst among progressives, the political tremors turned into a major earthquake at Oberlin, where many students apparently were beside themselves in their grief. The day after the election, November 9, 2016, an African-American student tried to steal two bottles of wine from a local baker and grocery company, Gibson’s Food Market Bakery, a small business that had served the community since 1885, and which had a long business relationship with the college. One of the store’s owners confronted the student, and the encounter ended with the owner on the ground with the student and two female accomplices (also black) kicking and punching him, according to the police report. (The students later pleaded guilty of misdemeanors and publicly stated that Gibson’s had not racially profiled them.)

It didn’t take long for the Oberlin students, already looking for something to protest, to act. David French of National Review writes what happened next:

…students immediately organized a protest of the bakery, publishing and distributing flyers that claimed it was “a RACIST establishment with a LONG ACCOUNT of RACIAL PROFILING and DISCRIMINATION,” and that a member of the Oberlin community “was assaulted” by its owner. Evidence indicated that university officials helped publish and distribute the flyer, including by disseminating it to media.

This was but the beginning of the bakery’s ordeal. The student senate issued a resolution stating that Gibson’s had a history of “racial profiling” and “discriminatory treatment,” and the resolution was posted on campus for “a period of at least one year.” The head of Oberlin’s Department of Africana Studies published a Facebook post declaring that Gibson’s had “been bad for decades” and that “their dislike for black people is palpable.” He said, “Their food is rotten and they profile black students.” Then, from November 14, 2016, through January 30, 2017, the college suspended all business with Gibson’s.

Hundreds of Oberlin students mobbed the entrance of the business, screaming obscenities at anyone who dared enter the store, and loudly accusing the company and its employees of the worst kind of racial misconduct. Even when local black citizens — including a black Oberlin College employee — told students that Gibson’s was not a “racist enterprise,” the students refused to back off.

flyer.PNG

At that point, had it simply been a student-led protest with no official college involvement, this would have been a free-speech case and it is doubtful that Gibson’s could have taken any legal action against Oberlin College. However, both Oberlin administrators and faculty joined in the fray, as the dean of students Meredith Raimondo not only helped lead the demonstrations, but also handed out flyers claiming that Gibson’s was historically racist to black Oberlin students and regularly engaged in racial profiling. Other Oberlin administrators also publicly supported the students and the college permitted the protesters to use Oberlin facilities and publishing equipment to further their actions.

The ugly confrontations occurred for several days, and some Gibson’s employees claimed that someone had slashed their tires, although police did not arrest any suspects and could not tie students to those incidents. Another incident could have turned even worse, as one of the bakery’s owners, 90-year-old Allyn Gibson was badly injured. According to the blog Legal Insurrection:

He (Allyn Gibson) told the jury how his physical problems happened that have pushed him out of working at the bakery.

About 6 months after the protest, Allyn W. Gibson heard a banging on his first-floor apartment window at about midnight. He woke up, and then went out into the parking lot and saw a car with two people inside and its headlights on. Mr. Gibson said it was unusual for a car to be parked there at that time of night with the car running and the lights on. He testified that he didn’t recognize the people in the car or the car itself.

He decided to go inside and call the police, but fell in his doorway as he tried to do so and broke three vertebrae in his neck. He said people in the car didn’t get out to help him, and the car left as he lay on the concrete, with limited movement: “The pain was so much I couldn’t reach the cell phone for about 20 minutes.”

The reasons this testimony is being permitted is that several witnesses — those who worked at Gibson’s around the time of the protest and in the months directly afterwards — have testified they had had their tires slashed while they worked after the protest, people making nasty comments to them after they left work, and a general feeling of unease that some students seemed to feel toward them and the bakery.

But there was no evidence that anyone associated with the protest or people that supported the protesters was in any way responsible for Mr. Gibson’s accident. Nothing was stolen from his apartment, and the police have never identified who was in the car parked outside his apartment that night.

No one officially alleged Oberlin students were involved in these incidents, but it also was clear that by giving aid that was more than just moral support, the college administrators gave the impression that Oberlin College was officially trying to destroy the business and that members of the Gibson family were open targets. Legal Insurrection presented this email exchange among some administration officials:

…did bad personal feelings — an ill will toward the bakery/convenience store that had been doing business in the city since 1885 — come into play at all when the college decided to cut off ties with the small business as a bagel, donut and pizza dough food provider for the school cafeterias for the 2,800 students?

The plaintiffs’ lawyers had plenty of examples of what they told the jury was “personal beliefs overshadowing professional responsibility.” In one email, Ben Jones, the vice president of communications for the school wrote to his co-executives in the school administration that, “I love how these Gibson supporters accuse us of making rash assumption decisions, but are totally blind to their own assumptions … all these idiots complain about the college.”

He closed with, “F[–]k-em … they’ve made their own bed now.”

When Roger Copeland, an Oberlin College professor of theater and dance (he is “emeritus” status now) wrote a letter to the campus newspaper soon after the protests ended, and criticized how the school was treating Gibson’s in the letter, Jones sent a text message in caps saying, “F[–]K ROGER COPELAND.”

“F[–]k him,” Raimondo responded in a message. “I’d say unleash the students if I wasn’t convinced this needs to be put behind us. (Emphasis mine)

For the accusations to be actionable against Oberlin College, the Gibson family had to demonstrate that the college did more than just protect the First Amendment rights of the protesting students, as the college claimed in its defense. The Gibsons also had to show in court that the college itself was trying to destroy the business and that the protests, as opposed to being spontaneous action by outraged students, were directed at least in part by college officials, and jurors apparently agreed with the plaintiffs.

Oberlin’s defense not only failed to convince jurors that the college was just protecting the First Amendment, but the college’s leadership came off as being arrogant and presumptive. One of the “expert” witnesses for the defense, accountant Sean Saari, agreed that the protests and their aftermath had severely damaged the value of Gibson’s, but added that the business wasn’t worth much money, anyway.

According to Saari, Gibson’s value amounted only to about $35,000, or less than the cost of attending Oberlin for one semester. Even though the business had been in Oberlin for nearly 135 years and had financially supported not only a family but also a number of employees, Saari told the court that long life really didn’t mean very much. Legal Insurrection reports:

“I wouldn’t equate longevity with success,” Saari told the jury. “The actual recent numbers show that it is not a successful business.” But then he also added, “It is just more of an indication of permanent damage [to the business].”

Thus, Oberlin’s “expert” witness made things worse, as the plaintiff’s economic “expert” showed jurors that the business was doing well just before the protests began, and that this event really did damage the long-term prospects for Gibson’s. The plaintiffs demonstrated in testimony that they had to lay off employees and that family members worked without salary to keep the enterprise afloat.

In the end, it became clear that the leadership and the students at Oberlin College live in a very different world than that of their not-as-wealthy neighbors, and when the inevitable culture clash exploded, Oberlin’s administrators came off as arrogant, calculated, and totally clueless as how others had to make a living. One of the original Oberlin College responses to the filing of the lawsuit in 2017 further demonstrates the real cultural divide that exists between the “woke” activists living in the bubble of higher education and others who occupy very different worlds.

Recall that the original incident involved a student attempting to steal two bottles of wine from Gibson’s which led to the confrontation between a store owner and the student, with that student and his two friends ultimately pleading guilty not only to stealing but physically attacking the owner. There was little disagreement, at least in court, as to what happened. However, Oberlin College’s response claimed that the real perpetrators worked for Gibson’s and that the students were innocent victims:

By filing this lawsuit, Plaintiffs regrettably are attempting to profit from a divisive and polarizing event that impacted Oberlin College (“the College”), its students, and the Oberlin community. Indeed, the Complaint is fraught with allegations all designed to portray Plaintiffs as victims who were wrongfully targeted by Defendants when in fact community members protested the violent physical assault by Allyn D. Gibson on unarmed Oberlin students. Defendants never acted wrongfully or unlawfully, and never targeted or caused any harm to Plaintiffs. Defendants’ sole concern has at all times been for the safety and well-being of students and the community. All of the claims in Plaintiffs’ Complaint lack legal and factual merit. As a result, Defendants will vigorously defend this ill-advised and unfortunate lawsuit.

The response continued:

By commencing this legal action, however, Plaintiffs seek to personally profit from a polarizing event that negatively impacted Oberlin College, its students, and the Oberlin community. Thus, not surprisingly, the Complaint contains a smorgasbord of allegations all designed to falsely portray Plaintiffs as innocent victims. The actual facts do not bear this out. In reality, it was an employee of Gibson’s Bakery and a relative of the individual plaintiffs, Allyn D. Gibson, who left the safety of his business to violently physically assault an unarmed student .

Given that the students charged not only pled guilty but also stated in court documents that Gibson’s actions were not race-related, the college’s response to the lawsuit seem to be unjustified and its allegations untrue. That has not stopped some people from defending the college of wrongdoing, however. Floyd Abrams, a well-known First Amendment lawyer and strong free speech advocate, wrote in the New York Times that the jury’s decision imperiled free speech on campus, arguing that

…the notion that uninhibited student speech can lead to vast financial liability for the universities at which it occurs threatens both the viability of educational institutions and ultimately the free speech of their students.

Loyola Marymount University professor Evan Gerstmann, writing in Forbes, declares that the verdict is a direct threat to higher education and called for the courts to overturn the verdict. Although Gerstmann admits that Oberlin students and employees rushed to judgment and that the protests might have been ill-advised, he adds:

So, Oberlin is far from perfect. But to punish a college for not reining in its students, administrators, and faculty even when they are not speaking on the college’s behalf represents an extraordinary threat to academic freedom and to freedom of speech.

Whether Gerstmann’s statement is a stretch is up for opinion. With the Oberlin Student Senate passing a resolution calling Gibson’s business “racist” and urging its boycott, and the college going along with it, and also with Oberlin’s cutting off business ties with Gibson’s, it seems that the matter moved past just free speech and into another realm. It is one thing for students and employees of the college to state personal beliefs regarding a business enterprise, but quite another for the college to take an official or quasi-official stand against a company, make questionable claims of racism, call for the business to be closed, and then turn loose an angry student mob on the business and the family that owned it. Furthermore, as pointed out earlier, in one of her emails, dean of students Raimondo indicated that she could “unleash the students” in a context of having them engage in protests.

With at least one plaintiff’s witness (a black employee at Gibson’s) testifying that Raimondo seemed to be leading one of the protests (and she admitted under oath to handing out flyers that demanded a boycott of Gibson’s because it was a “racist establishment with a long account of racial profiling and discrimination”), it was clear she wasn’t just an observer, as she claimed. Moreover, Raimondo was not just any employee at Oberlin College, but a key administrator who helped make policies for the institution.

In short, the situation involved more than Oberlin College students engaging in spontaneous protests. Even if what they said about Gibson’s was false, students are free to allege whatever they wish, and Ohio libel law protects that right to protest. Even the plaintiffs admitted to such. However, the evidence presented to jurors seems to have well-established that college officials did more than just publicly agree with the students; the college used its facilities and communications equipment to aid the protesters and even to join them. Furthermore, it also is clear that the college administration did not respect the speech of college faculty and staff that disagreed with the protesters, creating a “free speech for me, but not for thee” situation that undermined its alleged support for freedom of speech.

How the appellate courts will handle Oberlin College’s sure appeal is anyone’s guess. One would think, at least from the evidence presented in court, that the claim of suppression of free speech is overblown, given Oberlin officials had more than just protest in mind. They wanted Gibson’s to be destroyed and were willing to do what was necessary to accomplish their goal. That this was a town landmark and that the livelihoods of real people were involved mattered not a whit to the progressives at Oberlin. Students and administrators acted maliciously, and it seems they crossed the line from free speech to something much worse.

Forex stock trading

How to Destroy a Civilization

There are lots of ways to kill off a civilization. Wars, politics, economic collapse. But what are the actual mechanics? It might be a useful thing to know whether or not we are killing ourselves off.

Ancient Rome is a good place to start. They had an advanced civilization. They had running water, sewers, flush toilets, concrete, roads, bridges, dams, an international highway system, mechanical reapers, water-powered mills, public baths, soap, banking, commerce, free trade, a legal code, a court system, science, literature, and a republican system of government. And a strong army to enforce stability and peace (Pax Romana). It wasn’t perfect, but they were on their way to modernity.

One of my favorite quotes is from Marcus Tullius Cicero, statesman, orator and writer (106-43 BCE):

Times are bad. Children no longer obey their parents, and everyone is writing a book.

If that isn’t a mark of a civilized society I don’t know what is.

But Rome collapsed. I often wonder what would have happened if it hadn’t. Could we have avoided a thousand years of the Dark Ages. Could we have been flying airplanes and driving cars in the year 1000?

What the hell happened to Rome?

Dictators. After 500 years, the famous Roman Republic ended with the dictator Julius Caesar taking power. Four hundred years later his progeny and usurpers ran the Empire into the ground and Rome fell to invading barbarians.

The standard explanation for Rome’s decline and fall is that they devolved into dictatorships (true, but not the cause of their fall). Or they became decadent and corrupt (true, but not the cause of their fall). They fell to barbarian invasions (true, but not the cause of their fall).

Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions.

How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.

They did two disastrous things to solve their deficit.

First, they kept raising taxes which became punitive. Not caring much about the consequences to the merchants, small farmers, and peasants, they came up with new ways to squeeze money out of their citizens. Onerous taxes led to tax evasion. The government’s response was to double down and implement laws that restricted economic freedoms in order to raise even more taxes. Heavy taxes forced property owners, small and large, off the land. Large feudal estates run by political cronies arose in their place. Laws were enacted that forced peasants into virtual serfdom. Business owners and their children were prevented from changing jobs or towns. And, taxes had to be paid either in gold or in kind or they would lose everything. Gold became scarce. Gold money was only lawfully available to the government, army, and bureaucrats.

Second, they debased the currency which led to inflation. It was the equivalent of printing money to pay for things. The resulting bouts of high inflation destroyed much of commerce and agriculture. Like most dictators they thought they could stop rising prices by implementing price controls, but that just led to gold and goods disappearing from the economy. Black markets grew despite threats of capital punishment. Unemployment and homelessness rose. Their large welfare system kept running short of money. Commercial, legal, and moral institutions were falling apart. Corruption was endemic. The resulting booms and busts and depressions were destroying the economy.

By the time the Goth and Visigoth invaders came along, Rome was so weakened that they could not hold back the waves of invasions. At the end, Roman citizens saw the government as the enemy and the invading barbarians as their saviors. Rome fell in 410 CE. What emerged was what we now know as the Middle Ages — it lasted for a thousand years. You know what that was like. They didn’t call it the Dark Ages for nothing.

Much of Rome’s economic history is quite familiar in modern times. Even after thousands of years of evidence of repeated failure, bad ideas simply don’t die. Proponents of bad ideas are either ignorant of history or just ignorant. Or they are politicians (as Mark Twin said, “But I repeat myself.”).

One bad idea with ancient precedents is Modern Monetary Theory (MMT). MMT is the New Thing among Progressives in America. Politicians like Alexandria Ocasio-Cortez (AOC) and Bernie are quite excited about MMT. They think they have discovered the Holy Grail of economics.

Progressives believe that government can and should cause economic growth and prosperity. They believe government can do this by various controls, regulations, spending programs, and monetary manipulation. They believe proper government spending will stimulate demand, generate consumer spending, kick-start production, and, voila! we have full employment and prosperity. Along the way we can solve various social problems.

The idea of MMT takes this one step further. They believe that the government can spend/buy whatever it wants and print pieces of greenish paper to pay for it. Government doesn’t need to tax us or borrow money to do this — it can print whatever money it needs to pay for it. Deficits don’t matter because by printing money to pay for stuff they instantly solve the deficit problem. MMTers claim, with no shortage of arrogance, that they, Oz-like, can fine-tune the mechanics of how the economy is to be run and generate prosperity, prevent inflation, end inequality, and save the planet.

In other words, everything will be perfect; “just trust us” to run things. It sounds too good to be true.

AOC and Bernie Sanders and their supporters heartily embrace MMT. They want to break free of old-fashioned concepts such as fiscal integrity, balanced budgets, and monetary stability because they want no limits on their utopian schemes.

MMT is a crackpot idea. It is the monetary equivalent of the Perpetual Motion Machine — it ignores the laws of economics. It’s like asking third graders to invent money. (“I’m gonna print me a bunch of money and buy me a Ferrari an’ a jet an’ all the coolest video games an’ …”). Proponents confuse pieces of greenish paper with wealth and, as history has repeatedly proven, you can’t print your way to wealth and prosperity.

There is nothing “modern” about Modern Monetary Theory. It has been tried many times over the centuries and it has never worked. In every case where governments have printed money to pay for things, the result has been cycles of boom and bust, inflation (and hyperinflation), economic stagnation, and social disorder. MMTers simply don’t understand what money is or the mechanics of the business cycle or the concept of malinvestment and the destruction of capital.

Why is it not possible that we could go the way of Rome? Franklin D. Roosevelt’s New Deal resulted in 25 years of economic stagnation. Only post-FDR deregulation, more economic freedoms, capital investment, and fiscal and monetary sanity led to economic growth.

AOC’s Green New Deal plus MMT would be worse than the old New Deal in that it places no limit on government’s ability to spend which means government can command economic resources and control the direction of the economy. History has shown that governments aren’t very good at that. Absolute power in the hands of the few is a bad idea.

How much destruction could MMT and utopian Progressive schemes like AOC’s utopian Green New Deal inflict on our civilization? It is hard to tell, but I hope we don’t have to look back some day and say the end started now.

Forex stock trading

Karl Smith Defends Keynesian Stimulus and Carbon Taxation

Bob Murphy has a friendly discussion and debate with Karl Smith. First, Bob pushes Karl to clarify the conditions under which government deficit spending could, even in theory, help a depressed economy. Then, they switch to the economics of climate change, and Bob’s view that the case for a carbon tax is much weaker than most economists admit.

For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.

Forex stock trading

Black Markets Show How Socialists Can’t Overturn Economic Laws

If we consider economics to be an objective science, its rules should also have universal significance and use, despite differences in societal order. However, socialists of the materialist camp are committed to the idea that common ownership of the means of production would change the way economic laws unfold under socialism. Basically, they reject the notion of the universality and objectivity of economic rules by suggesting that the laws would change along with a change to the social formation.

Thus, communists adhered to the Marxian idea that socialism would rectify a “surplus value” law, end the “exploitation” of workers, and efficiently regulate the production, distribution, and consumption aspects of the economy. They sought to eliminate the market regulatory mechanism and replace it with directives of the central planning authority. Bolsheviks enthusiastically got down to business: they eradicated private property, collectivized everything and everyone, and implemented an official planned economy.

Did it effectively turn off market relations as they thought it would?

No. In contrast to the common perception, socialism has been unable to kill the market economy. The market went underground and turned into a black market. Black markets existed in capitalist countries as well, but they worked underground because they dealt in illegal commodities and services. The black market under socialism served the same purpose, but the list of commodities and services included mostly items of everyday and innocent consumption that people under capitalism could easily purchase in stores. Virtually all groups of personal consumption products found their way to the black market at some time and in some places. Everything from jar lids to toilet paper was subject to black-market relations.

Despite the proclaimed planned economy, people were engaged in market relations on all levels and trusted more the price of the goods and services that were established by the market and not dictated by the government. The official exchange rate of the ruble to the dollar was 0.66 to 1 in 1980. But nobody except party nomenclature was able to enjoy such a favorable exchange rate. At the same time, the black market offered 4 rubles for 1 American dollar.

There was no production of jeans in the Soviet Union, but like all their peers abroad, Soviet youth wore jeans. The price was 180–250 rubles for a pair depending on the brand, which was almost twice as much as the monthly wage of an entry-level engineer. A visiting nurse charged 1 ruble for one injection if a patient lived below the fifth floor. The price reached 1.5 rubles for patients who lived on the fifth floor and up. A plumber happily repaired a faucet for just a bottle of vodka.

Two Prices for Everything

Therefore, in the Soviet Union, any significant goods had two price tags: one real and another virtual. The state set the first price through some obscure methods; the usual mechanism of supply and demand established the second price on the market. If you were lucky, after several hours of standing in a queue, you could purchase goods at the state price. However, due to the chronic lack of everything for everyone, the same product could be bought on the black market at a much higher price. The virtual price became real on the black market and reflected the actual value of the goods for the buyer. The presence of two price tags is a confirmation of the thesis of Ludwig von Mises regarding the impossibility of economic calculations under socialism. At the same time, this is proof of the immortality and immutability of the economic laws of the free market, even under a totalitarian regime. Therefore, two economic systems and two sets of prices co-exist under socialism.

People were forced to use the services of the black market, even under the penalty of severe punishment, including up to the death penalty. Almost the entire society was engaged in various corruption schemes to support a certain standard of living. There was a paradoxical situation when the shelves of the supermarkets were empty, but refrigerators at home were more or less full. The black market was filled with smuggled goods from abroad, as well as commodities produced in underground workshops. But more often, everyday products were specifically kept from retail to create a shortage and sell them on the black market at a speculative price. Socialism had undermined the normal flows of production, distribution, and consumption by ignoring the objective laws of economics. Nevertheless, an underground market and the intrinsic entrepreneurial spirit of the people helped them survive the socialist madness.

Regardless of the proclaimed successes of the Soviet economy reported by Communist party leaders, the socialist economy was unable to compete with its capitalist counterparts. Communists decided to create a system that somehow mimicked the work that a free market had successfully and automatically performed for centuries. Thus, they introduced socialist competition that was supposed to replace free market competition. Surely enough, it was an inadequate and unfortunate replacement. The rewards for winners in the capitalist competition were far higher than for the winners under socialism. For example, the capitalist winner enjoyed a significant increase in well-being.

Moreover, the principal winner of the free market competition was society as a whole. This is a natural feature of a free market economy and the main reason why the evolution of human societies selected this mode of production. A competition during socialism gave to the winners some publicity, a certificate of honor, maybe a trip to a “sanatorium” (that is, a health spa), and other bagatelles that people usually did not appreciate. But most importantly, society as a whole did not enjoy a significant improvement in well-being.

People were not sufficiently stimulated and were underpaid, which explained the lower labor productivity compared to capitalist countries. Moreover, this is despite the notion that the means of production, at last, belong to the workers themselves. People had a famous saying that can be considered the quintessence of Soviet-style socialism: “They [the government] pretend to pay, and we pretend to work.”

Socialism is a set of systems that try to artificially inhibit the free flow of objective economic laws by creating subjective barriers in the form of specific legislation and punitive policies. Socialists mistakenly think that if they assault private property and market relations, the economic laws will also change. They have taken up the task which, in principle, has no rational solution. Nothing good comes from the idea of ignoring or violating the fundamental laws of economics. These laws still exist, regardless of opinions and neglect to recognize their real character and the impossibility of changing them.

Socialism disrupts the evolutionary process and leads society to a dead end. The desperate economic situation of ordinary folks in Venezuela, Cuba, and North Korea — the remnants of socialist undertakings — is a direct result of building a society in defiance of the natural action of the fundamental law of economics. As a rule, socialist regimes were buying time by employing slave labor, plunder, coercion, and everything else that an aggressive totalitarian regime could offer. However, in the end, the means of socialistic life support was exhausted, and than returning to the natural and healthy market relations, where the laws of economics work for the benefit of the human race.

The same laws of market economics have worked in different human societies: from pre-historic to post-industrial, but still socialists continue to entertain the idea of tampering with these forces of nature.

Forex stock trading

Richard Cantillon As a Proto-Austrian

Dr. Mark Thornton, our in-house Cantillon expert, joins the Human Action Podcast to discuss the contributions of this important proto-Austrian thinker. Cantillon may well have written the first true economic treatise, one which lays out a comprehensive theory of production, money, interest, value, method, and trade—almost 150 years before Menger’s Principles. And along with the other French physiocrats, Cantillon gave us the concept of lassez-faire that later influenced Adam’s Smith’s invisible hand. If you want to understand economics today, and the precursors to the Austrian school, you need to know Cantillon and his work.

Cantillon’s An Essay on Economic Theory, edited by Mark Thornton. Free PDF available.

A biography of Cantillon by Mark Thornton.

“More on Cantillon as A Proto-Austrian” by Guido Hülsmann.

Subscribe and listen to the Human Action Podcast on iTunes, YouTube, Stitcher, Soundcloud, Google Play, Spotify, or via RSS.

Forex stock trading

Why Are Progressives so Bad at Governing?

In the aftermath of Hurricane Katrina, Paul Krugman declared that the Bush administration failed in its response to the flooding of New Orleans because the administration consisted of people, according to Krugman, who didn’t “believe in government.” One cannot say that about progressives who truly believe in government, and believe in unlimited government at that. Yet, it also is clear that when in power — and especially when they face no real opposition — progressives generally govern very badly. Why this is so — in direct contradiction to Krugman’s stated belief — requires an examination of the progressive mindset, something Krugman probably is intellectually and emotionally incapable of doing.

Mayor Bill de Blasio: New York’s Progressive Disaster

The first thing to understand about progressives in government is that they have a much different view of “progress” than most other people. For example, even though whatever positive changes New York made in the 1990s and 2000s has been waning during the terms of Mayor Bill de Blasio, de Blasio believes that future “progress” now must come in the form of something other than the decline of crime rates and business growth. Instead, de Blasio, who wears his socialist cap proudly declares that the real threat to New York’s future is private property. He says :

Our legal system is structured to favor private property, (but) people would like to have the city government be able to determine which building goes where, how high it will be, who gets to live in it, what the rent will be. If I had my druthers, the city government would determine every single plot of land, how development would proceed. And there would be very stringent requirements around income levels and rents. That’s a world I’d love to see.

Any competent (or even incompetent, for that matter) economist can tell us how such a scenario plays out in the long run, and the economic chaos that was the former Soviet Union stands as Exhibit A, while the New York of the 1970s and the 1980s is Exhibit B. Yes, even in the face of hardcore evidence against his position, de Blasio stands firm. In fact, an entire new wave of politicians in this country calling themselves “progressives” are trying to fashion a “new” economy, one based upon a “Green New Deal,” and other massive interventions into private economic activity. That the experience of socialism never matches its utopian rhetoric seems not to have changed a mind among this new generation of progressives.

If de Blasio is an example of modern progressivism (he even took his honeymoon in Cuba, taking a cue from Bernie Sanders who honeymooned in the U.S.S.R. shortly before it collapsed), then his words and actions shed light on what progressives consider to be “proper” governance. Not only does de Blasio call for an end to private property and the total transformation of the economy via the “Green New Deal,” but he also has pushed “egalitarian” initiatives like ending charter schools in New York. (The fact that charter schools perform better than their regular public-school counterparts galls de Blasio and he believes they must be stopped.)

Progressive Failures Multiply

This year’s herd of nominees for the Democrats’ candidate for president are following in de Blasio’s footsteps in calling for a future of progressive governance. Like de Blasio (whom City Journal has nicknamed “Mayor de Bolshevik”), they call for highly-symbolic measures that by themselves will not make their alleged intended targets – poor and middle-class Americans – better off. However, while their legislative initiatives, such as raising taxes to confiscatory levels, establishing socialized medicine, sinking vast sums of money into questionable public works ventures like the ill-fated “Bullet Train” in California.

Moreover, even what would seem to be an accomplishment — such as the building of a new bridge — turns out to be a progressive failure (if bilking taxpayers is seen as a bad thing). Take the eastern span of the San Francisco-Oakland Bay Bridge, in which the State of California built a new bridge to replace the cantilevered portion of the Bay Bridge, which was built in the 1930s. True, the new bridge finally is there, but not before it had cost overruns of more than 2,000 percent, the original price tag going from an estimated $250 million in 1995 to more than $6.5 billion at the time of its completion, and taking a dozen years to finish, which was much longer than the original bridge needed — and it lasted almost 80 years.

(The original bridge from Oakland to San Francisco was completed in 1936, with construction taking four years and costing an equivalent in today’s dollars of about $662 million. Only a Keynesian could love how progressive governance also escalates the cost of building anything.)

Writing about the vast cost overruns, California political writer Steven Greenhut notes:

The (bridge) project was plagued by scandal, including allegations of shoddy welds, questionable inspections, and, as a Senate committee explained (as reported by the Sacramento Bee), allegations that Caltrans “managers ‘gagged and banished’ at least nine top experts for the new $6.5 billion San Francisco-Oakland Bay Bridge after they complained about substandard work….”

In New York, cost overruns and delays characterized the building of the Mario Cuomo Bridge, which replaced the aging Tappan Zee Bridge over the Hudson River north of New York City. At last count, the recently-completed bridge would cost close to $5 billion, well above its original estimates. The original bridge, finished in 1955 after less than four years of construction, cost in today’s dollars about $765 million. The “New New York” website, which touts the so-called accomplishments of Gov. Andrew Cuomo’s administration, says that the Mario Cuomo Bridge (named after the current governor’s father) is “state of the art.”

However, the “New New York” site fails to mention that the state government also is partly in charge of the dilapidated subway system in New York City. Unlike the “New New York” “state of the art” projects, the New York Subway is anything but “state of the art,” with a switching system that has been unchanged for nearly a century. Conditions continue to deteriorate and the progressives that govern the state and city of New York seem helpless — or are unwilling to take necessary steps — to reverse the wreckage.

Progressives love to promote public transportation (while engaging in warfare against automobiles), but when it comes to maintaining public transportation, that is another story altogether. It is not just the New York Subway that is falling apart; the Washington, D.C., Metro also is in peril. While D.C. and the surrounding area falls into the bona fide progressive category, when it comes to the nuts and bolts of governance, a dysfunctional public transportation system along with the massive traffic jams that characterize life in that area take a back seat to what seems to be the real focus of progressive governance: codifying the Sexual Revolution.

Progressive Government in California

If there is an Exhibit A of the combination of progressive and incompetent government, it is California, which outdoes even the progressive New York when it comes to outright fiscal folly.

Steven Greenhut of R Street Corporation and a former editorial writer for the Orange County Register has been covering California politics for many years and never is surprised at the latest outrage from the nation’s most progressive state.

Not only does California give us the ill-fated “Bullet Train,” but it also has become the national “leader” in homelessness, out-of-control housing prices, and regular natural disasters such as the huge wildfires that burned throughout the state in 2018 causing much death and destruction. And, unlike their predecessors — political liberals who at least championed freedom of the press and due process of law — progressives have no problem using police state tactics to muzzle journalists and suppress free speech.

Greenhut writes of three especially egregious episodes in which officials in very progressive San Francisco had police raid the home of a journalist to find how he had come into possession of what, frankly, was a public document that already should have been released. California Attorney General Xavier Becerra is attempting to imprison independent journalists for undercover work in attempting to find wrongdoing at Planned Parenthood, which has become a modern symbol for progressive politicians, who almost to a person declare that they “stand with Planned Parenthood. He also has threatened to criminally prosecute reporters who publicize public documents even though the law supports the journalists. Greenhut writes :

Early in the year, reporters from UC Berkeley’s Investigative Reporting Program made a public-records request to the California Commission on Peace Officer Standards and Training for a list of the 12,000 California police officers, police applicants and former officers who were convicted of crimes, many of them serious. POST did the right thing and provided the records.

When…Becerra found out, he threatened to criminally prosecute the reporters unless they destroy records that were provided by a public agency. Becerra claims the information is confidential even though it involves public records about official verdicts. And to reiterate, state law forbids prosecution of reporters merely for receiving records — and they received the info from an agency within Becerra’s own department . (Emphasis mine)

Greenhut also adds that many of these same progressives have condemned (rightly, in my view) President Donald Trump’s attack on the American news media but are silent on what Becerra and the San Francisco police have done. I would add that there is no contradiction here regarding what progressives believe and how they engage in such heavy-handed and legally-questionable antics: progressives for more than a century have opposed individual rights and have no problem using criminal law to imprison political opponents, including those that have committed no crimes.

Unlike the old-style liberal governance or even the kind of governance we see in Chinese cities, progressives govern with two main things in mind: ideology and personal advancement. For example, in the immediate aftermath of the 2005 flooding of New Orleans from Hurricane Katrina, hundreds of firefighters that had volunteered to do rescue work instead were kept in Atlanta hotels for several days to undergo “training” such as avoiding sexual harassment and the history of FEMA.

While no doubt we would like avoid instances of sexual harassment, the promotion of an ideology took precedence over saving lives in the extremely-critical period right after the levees broke and flooding began. And one hardly could call the Bush administration “progressive,” yet progressive governance created a hierarchy of questionable priorities that the Bush government followed.

Progressivism Violates Human Nature

Murray Rothbard wrote that the egalitarianism that is a staple of progressive thought actually constitutes a “revolt against nature.” In the name of equality, progressives sacrifice everything else including what we might call “good government” and replace it with government that promotes “equality” while destroying the economic and social basis of the country, actions that will lead to more inequality. Writes Rothbard:

Let us proceed, then, to a critique of the egalitarian ideal itself—should equality be granted its current status as an unquestioned ethical ideal? In the first place, we must challenge the very idea of a radical separation between something that is “true in theory” but “not valid in practice.” If a theory is correct, then it does work in practice; if it does not work in practice, then it is a bad theory. The common separation between theory and practice is an artificial and fallacious one. But this is true in ethics as well as anything else. If an ethical ideal is inherently “impractical,” that is, if it cannot work in practice, then it is a poor ideal and should be discarded forthwith. To put it more precisely, if an ethical goal violates the nature of man and/or the universe and, therefore, cannot work in practice, then it is a bad ideal and should be dismissed as a goal. If the goal itself violates the nature of man, then it is also a poor idea to work in the direction of that goal.

Unfortunately, progressives have a different worldview. They claim that they can rejuvenate an economy by imposing confiscatory tax rates, regulating business decisions, and create a “fair and just world” by putting into law the latest pronouncements from the Sexual Revolution and enforcing those laws with an iron fist. That these things, as Rothbard puts it, violate human nature, then progressives must change human nature, and by force, if necessary.

This is the kind of “progressivism” that leads to totalitarianism, the kind of totalitarianism that wracked China during its Cultural Revolution. While I doubt that progressives will be able to create a Cult of Bill de Blasio as was the case with Mao and China, nonetheless they can make it difficult for people of opposing beliefs to find work in certain fields, like medicine.

For example, the Church Amendment says hospitals and medical entities receiving federal funds cannot force a medical professional to assist in abortions if such actions violate their consciences, yet the progressive Barack Obama administration refused to enforce the law . (The late Sen. Frank Church, D-Idaho, was an old-time political liberal, but was not a progressive.) Today, progressives seek to overturn the Church Amendment , and those people seeking to be medical professionals who are not amenable to doing abortions simply will not be permitted to choose medicine as a career. If they don’t agree to go along with every aspect of the Sexual Revolution, people will not be permitted to become licensed counselors and psychologists, and the list goes on and on.

This last point is instructive, for progressives not only believe that ideology trumps everything else, but that qualifications for entering academic and professional programs must take a back seat to one’s ideological viewpoints. People who believe this and are willing to use deadly force to make sure their viewpoints become law are not going to govern well.

California officials restrict housing, and the result is a massive housing shortage — and higher housing prices and rents than would prevail in a free market. When confronted with this reality, they double down on their ideology and blame private property owners. Wherever they govern, progressives repeat the same kinds of patterns: (1) Violate the very laws of economics and, as Rothbard says, nature itself; (2) Observe the consequences of their behavior; and (3) Double down on their original declarations and blame capitalism, religious believers, or anyone else serving as a scapegoat.

Progressivism is not a blueprint for governing. It is a blueprint for disaster. We have seen the wreckage in many places, but there is one thing progressives apparently need not fear: paying a political price for their misdeeds. As long as these electoral and governance patterns exist, progressives will expand their power bases — and continue to govern badly.

Forex stock trading

Capitalism in America: A History

Capitalism in America: A History
Alan Greenspan and Adrian Wooldridge
New York: Penguin, 2018, 486 pp.


Joakim Book ([email protected]) is a graduate student at Oxford University.

Quarterly Journal of Austrian Economics 22, no. 1 (Spring 2019), full issue, click here.


What could possibly go wrong when a former Fed chairman and the Economist’s political editor walk into a publisher’s office with an almost five hundred page manuscript? Quite a lot, it turns out. In Capitalism in America: A History, Greenspan and Wooldridge sketches American economic history through the lens of Schumpeterian Creative Destruction. The result is, to be polite, a mixed bag. It has the hallmarks of overly simplistic, broad-brushing and all-encompassing efforts of those formerly in the spotlight—looking back at their extended careers and trying to make sense of their experiences. It reads halfway between a dull encyclopedic account of major American businessmen and a vaguely-supported yet boldly-argued Economist column. It is neither as comprehensive as a full-scale account of American capitalism ought to have been, nor as shallow as we have become accustomed to from the pages of said magazine. Despite the book’s many shortcomings, it is a magnificent overview of American business, describing the lives and deeds of many known and lesser known industrialists that propelled America forward, woven together into an overarching tale that cherishes creative destruction above all else (pp. 14–19).

The book’s title leads one to believe that its object of inquiry is Capitalism proper, the monetary system of societal interactions characterized by private ownership of the means of production—or what Mises (2008, 1) described in the first sentence of The Anti-Capitalistic Mentality as “mass production of goods destined for consumption by the masses.” Instead, Greenspan and Wooldridge quote Schumpeter (2003, 83) to say that capitalism means creative destruction (“Creative Destruction is the essential fact about capitalism”), and then interpret creative destruction to roughly mean ‘industrial innovation’, after which they take the reader us on a fascinating journey through most major American industrialists, their businesses, their innovations and their achievements.

The book defies easy categorization, as it may serve as a brief introduction to political, social and predominantly business history and only tangentially does economic history. The common thread running through the authors’ account is one of the Great Man Theory, perhaps first comprehensively expressed by Carlyle (1841) and recently compellingly opposed in Matt Ridley’s (2011; 2015) more widespread accounts. Antithetical as it is to regular notions of capitalism as decentralized, coordinating, spontaneous or “anarchical” decision-making (Mises 1951, 120), the Great Man Theory states that history can be understood as the outcome of actions and ideas of a selected number of persons—the Great Men. Greenspan and Wooldridge devote pages and pages to these leading men of American industrialization: Eli Whitney and his cotton gin (pp. 46, 74–75); John Deere’s and Cyprus McCormick’s agricultural inventions (pp. 46–48); Oliver Evans’ steam engine (p. 52); Henry Bessemer’s steel inventions (pp. 99–102) and Carnegie’s steel empire (pp. 126–28); Edison’s light bulb (p. 105); Ford’s and Sloan’s automobiles (pp. 107, 209–13); Rockefeller’s revolution of the oil business (pp. 128–30); J. P. Morgan’s domination of the world of money (pp. 130–31); Bell’s telegraph (pp. 109–10); and Swift’s refrigerated railroad cars (p. 119).

Occasionally, however, impersonal and decentralized trends make appearances, for instance through institutional and infrastructural achievements including the Erie Canal (p. 51), the railroad boom (pp. 96–98) and the importance of the Chicago futures market (p. 120). Even more recent business trends are described, such as Silicon Valley’s overtaking of Massachusetts’ Route 128 corridor (e.g. Saxenian, 1996), explicitly attributed to its “decentralized, freewheeling and porous” (p. 353) nature. Indeed, the praise of Silicon Valley is further described as:

a living embodiment of the principle of creative destruction as old companied died and new ones emerged, allowing capital, ideas, and people to be reallocated. (p. 353)

The dissonance between the “decentralized, freewheeling and porous” aspects of capitalism and the significance of the authors’ top-down approach goes entirely overlooked. Indeed, sometime around the mid-twentieth century in the authors’ story, they change from describing Great Men to describing Great Presidents: a few examples include JFK (pp. 302–03); LBJ’s Great Society and Nixon’s closing of the gold window (pp. 305–06); and of course the authors’ beloved achievements of the Reagan Era (pp. 326–31) that allegedly “created the conditions for a business revival, removing the shackles that had bound business ever tighter” (p. 329). Admittedly, some prominent business leaders make brief appearances (Jack Welch at GE; George Mitchell, whom the New York Times (2013) called “The Father of Fracking”; Bill Gates; Larry Page and Sergey Brin) but their importance is secondary to the main, now political, storyline.

There are at least three areas that warrant serious criticism: the idea of a wartime ‘prosperity,’ the authors’ use (and presentation) of data, and the big elephant in the room: central banking, especially considering the deficient accounts of the Great Recession and Great Depression.

Firstly, perhaps the most morbid celebration of wartime ever, Greenspan and Wooldridge argue that the American human capital stock during World War II was “upgraded” (p. 270) and that the war acted as “a huge on-the-job training program” (p. 270). In a paragraph that cannot be read with a straight face, they argue not only that a contributing benefit to American wartime prosperity was that demographics such as women massively entered the labor force and learned valuable skills, but astonishingly enough that soldiers coming back from the war “with new skills, from organizing groups of people to repairing jeeps” (p. 271). Never mind the human capital literally destroyed among the four hundred thousand-odd American military casualties (not to mention many more wounded), or the millions upon millions of people whose skills were redirected into uniquely specific wartime production lines, the “human capital” value of which were highly doubtful. Neither does the madness end here, as the authors maintain—contrary to common sense and indeed both sound economic theory and empirics—on the basis of four(!) selected indicators that Americans at home were better off during the war. Noticeably, Robert Higgs (1992, 50–53) debunked the main myth that real consumer spending increased dramatically, and I leave the relevance of the other three exhibits to be judged by the reader (gambling on horses increased by one-and-a-half times; half a million new businesses were created; eleven thousand new supermarkets were constructed).

At this point, one sincerely hopes that the nonsense will end, but alas, it does not. Rather than explaining the immediate post-war boom in economic data (double digit GNP growth between 1945 and 1946) as a return to capitalism from a wartime command economy, Greenspan and Wooldridge invoke the infamous pent-up demand argument. The dissonance is quite remarkable. Instead of the real income growth and improved living standards in wartime America—posited no fewer than six pages earlier—the authors argue that Americans “made up for the deprivations of the depression and war” (p. 276). American households could not have both seen their incomes and living standards grow tremendously during the war and suffered deprivations of war, leaving many needs and demands unmet. Of course, they were not, and the conviction stems from misapplied GNP numbers deflated with an inappropriate price index (Higgs 1992, 45–52).

In another oft-repeated argument, pundits denounce the idea that government spending during the New Deal got America out of the Great Depression, only to turn around and claim that government spending during World War II got the job done. Greenspan and Wooldridge do precisely this: “War spending provided the stimulus that the economy needed” (p. 268), they write, but just a few pages earlier, the authors dismissed the New Deal’s emphasis on spending, since it was “offset by job destruction in the private sector” (p. 254). What, one might ask, is so “miraculously” different with government spending on tanks and munitions for use overseas compared to government spending on bridges and public works at home (Murphy 2012)? The dissonance is surreal.

Second, Greenspan and Wooldridge use a very peculiar selection of data in making their many arguments. Often, they report irrelevant or at least unconventional versions of fairly standard statistics: real GDP during World War II (p. 268), rather than per capita real GDP; comparing nominal US national income with the national incomes of Germany, Japan and Italy (p. 262) as if country-size GDP is of any concern; ignoring massive territorial and population changes when contrasting the GDP of Germany in 1946 with Germany in 1890 (p. 276), or the doubling of “America’s real GDP” (p. 361) between 1980 and 2000—conveniently hoping that the reader had overlooked the emphasis on tens of millions of immigrants some 15-odd pages earlier. Sometimes, the authors refer to “the nation’s real income” (p. 304), presumably meaning price-deflated GDP, but most of the time they settle for reporting what look like nominal, unadjusted, numbers, which over a time span of 250 years amounts to little more than rubble. How is the national output to be rendered legible between vastly different eras of American history (population, institutions, territorial expansion), with no recourse to comparability adjustments of any kind? Besides, a well-read economist with rough knowledge of historical price and income series (or readily available access to measuringworth.com) might decipher the present-value equivalent of money prices, but the employment figures of GM of 1 million in 1960 (p. 288), conveys very limited information beyond the obvious statement that GM was a large company even then.

Remarkably, the only time per capita numbers are reported (p. 387), they are used to make the Congressional Budget Office’s dire projection of the long-term potential growth rate for the U.S. economy (1.7 percent/year) even worse; with population increases, the per capita potential growth is therefore well below 1 percent, which emphasizes the gloomy outlooks for America. One does wonder why recourse to per capita numbers was superfluous for close to four hundred pages.

More saliently, all graphs not presenting fractions are given in logarithmic scale, for rather puzzling reasons. In long-term time series they are often warranted (for example: stock market index on p. 222, business productivity and worker output on p. 93, or prices and wages on p. 175), since nuances in earlier periods would be entirely swamped by the curves’ exponential increases. But in a few cases, the frequent use is both unneeded and contributes to concealing rather than supporting the authors’ main message (as for miles of railroad construction on p. 97 and wholesale price of steel on p. 100 and p. 145).

Third, central banking is suspiciously downplayed for a book on American economic history co-authored by the second longest-serving chairman of the Fed. It makes an appearance discussing the accidental invention of the Fed’s 1922 Open Market Operations (p. 235) and a minor comment on monetary policy in the 1980s (p. 331), in addition to a rather brief inclusion during the Great Depression and the Great Recession. The Great Depression, noticeably,

was a consequence of the shattering of a stable world order, underpinned by fixed gold-standard-linked exchange rates, and by the war and the failure of the Great Powers to adjust to a changed distribution of economic and financial power and to put a sustainable new system in its place (p. 226)

In a twist as remarkably as the dissonances of wartime America (see above), Greenspan and Wooldridge conclude that Keynes’s “barbarous relic”—the gold standard—was barbarous only in the wrong way: “the fetters that doomed the international economy were not Keynes’s fetters of gold but the fetters of pride”(p. 229), since its only problem was the price at which foreign countries pegged their currencies against the dollar, not the many problems associated with a centrally-regulated pseudo-commodity standard (Rothbard 2010, 68–98).

At one point, the authors even go as far as blaming “America’s quirky banking system” (p. 234) at least compared to Canada, before invoking Friedman and Schwartz’s banking failure explanation of the Great Depression. Rather, the very brief account of the Great Depression contains nothing but irresponsible stock brokers, Irving Fisher’s debt deflation and the Smoot-Hawley tariffs (pp. 230–33).

The Great Recession fares no better, prefaced by generic quips like “bubbles are endemic to capitalism” (p. 375), and “people’s animal spirits exceed their rational powers” (p. 375) before castigating derivatives and their “notional value” (p. 381). The blame for the crisis is squarely placed on securitization, the exuberance of lenders and the thriftiness of Asian savers (pp. 376–79)—the so-called ‘Savings Glut’—allegedly forcing down interest rates with a powerless but nevertheless noble Fed standing by (p. 385). Indeed, the swift and competent actions of the Fed, the “superior quality of the official response” (p. 385) prevented another Depression. Their grand achievements included rescuing major financial institutions, performing stress tests and lowering short-term interest rates to boost the economy—remarkably so considering that no less than six sentences earlier, the authors had entirely discounted this transmission mechanism in their quest to exonerate the Fed.

There is a superficial attempt at criticizing low-interest rate arguments (explicitly that of John Taylor) by placing the beginning of the housing boom before the interest rate cuts in 2001, and specifying that originations of a subsection of mortgage lending “peaked two years before the peak in home prices” (p. 385), allegedly undermining any low-interest rate arguments. The attempt is unconvincing to say the least.

While the first eleven chapters provide broad sketches of American business from 1750 to the present, the value of which is questionable, chapter twelve (“America’s Fading Dynamism”) offers a more extensive view into what Greenspan and Wooldridge see as America’s biggest challenges. This is also their best and most pertinent chapter, putting the blame of America’s woes in many of the right places: overburdening regulation, stricter labor markets and massively reduced (social, geographical, economic) mobility; the explosive cost of education, its unenlightened pettiness (p. 394) and the stagnation of Americans’ educational attainment; and the core reason of America’s failures: “the growth of productivity-suppressing entitlements” (p. 404). They spend eight pages emphasizing well-appreciated facts such as the legislative permanence of entitlements alongside more surprising ones—for instance that since 1965 entitlements have grown faster (10.7 percent/year) under Republican presidents than Democratic ones (7.3 percent/year, p. 405)—and another five pages on how regulation is crippling entrepreneurial innovation in favor of lawyers, bureaucrats and consultants. By comparison, acquitting the Fed of blame during the financial crisis and criticizing low-interest rate arguments is done in less than a single page.

Huddled among its many shortcomings are many flashes of brilliancy: quotable quips, accessible summaries of business trends and revolutionizing innovations (the so-called robber barons, automobiles, the rise of Silicon Valley and the financial services innovations of recent decades), a devastating critique of FDR’s New Deal and a surprisingly Rothbardian position on monopolies (p. 132). Moreover, the entrepreneur is front and center, albeit more of a hands-on type than the kind we find in the Austrian entrepreneurship literature (e.g. Kirzner 1999, Salerno 2008). At least, one must admit, the authors embrace the entrepreneur as driver of economic change, a trait they describe as synonymous with America itself:

American entrepreneurs were drawn from every level of society but united by their common assumption that every problem was capable of solution so long as you thought hard enough. (p. 45)

In summary, despite the book’s many flaws of technical, economic and statistical nature, there is some value to it, especially the two finishing chapters that identify some of America’s greatest challenges. The message is ultimately one of optimism, of belief in the power of entrepreneurial innovation and (mostly) benign impact of creative destruction. Greenspan and Wooldridge argue that every time America has been pushed to the brink she has come back stronger (pp. 28, 449), and despite her current challenges, we should not despair.

This is a history of American capitalism only if one believes that capitalism is the actions and consequences of America’s many noticeable businessmen. Favorably judged, that amounts to a birds-eye view of American Big Business, 1750 to the present, a much more apt title for what the authors are doing: paying homage to the unmatched wonders of creative destruction.

Forex stock trading