Monday, September 11, 2017

The Historic Ron Paul-Rudy Giuliani Exchange

Smashing Protectionist "Theory" (Again)

By Murray Rothbard

Protectionism, often refuted and seemingly abandoned, has returned, and with a vengeance. The Japanese, who bounced back from grievous losses in World War II to astound the world by producing innovative, high-quality products at low prices, are serving as the convenient butt of protectionist propaganda. Memories of wartime myths prove a heady brew, as protectionists warn about this new "Japanese imperialism," even "worse than Pearl Harbor."
This "imperialism" turns out to consist of selling Americans wonderful TV sets, autos, microchips, etc., at prices more than competitive with American firms.
Is this "flood" of Japanese products really a menace, to be combated by the US government? Or is the new Japan a godsend to American consumers?
In taking our stand on this issue, we should recognize that all government action means coercion, so that calling upon the US government to intervene means urging it to use force and violence to restrain peaceful trade. One trusts that the protectionists are not willing to pursue their logic of force to the ultimate in the form of another Hiroshima and Nagasaki.

Keep Your Eye on the Consumer

As we unravel the tangled web of protectionist argument, we should keep our eye on two essential points:
  1. protectionism means force in restraint of trade; and
  2. the key is what happens to the consumer.
Invariably, we will find that the protectionists are out to cripple, exploit, and impose severe losses not only on foreign consumers but especially on Americans. And since each and every one of us is a consumer, this means that protectionism is out to mulct all of us for the benefit of a specially privileged, subsidized few — and an inefficient few at that: people who cannot make it in a free and unhampered market.
Take, for example, the alleged Japanese menace. All trade is mutually beneficial to both parties — in this case Japanese producers and American consumers — otherwise they would not engage in the exchange. In trying to stop this trade, protectionists are trying to stop American consumers from enjoying high living standards by buying cheap and high-quality Japanese products. Instead, we are to be forced by government to return to the inefficient, higher-priced products we have already rejected. In short, inefficient producers are trying to deprive all of us of products we desire so that we will have to turn to inefficient firms. American consumers are to be plundered.

How to Look at Tariffs and Quotas

The best way to look at tariffs or import quotas or other protectionist restraints is to forget about political boundaries. Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever. Suppose, for example, that each of the United States were a separate nation. Then we would hear a lot of protectionist bellyaching that we are now fortunately spared. Think of the howls by high-priced New York or Rhode Island textile manufacturers who would then be complaining about the "unfair," "cheap labor" competition from various low-type "foreigners" from Tennessee or North Carolina, or vice versa.
"The best way to look at tariffs or import quotas or other protectionist restraints is to forget about political boundaries. Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever."
Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on interstate trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.
If we think about it, it is clear that a call by New York firms for a tariff against North Carolina is a pure rip-off of New York (as well as North Carolina) consumers, a naked grab for coerced special privilege by less-efficient business firms. If the 50 states were separate nations, the protectionists would then be able to use the trappings of patriotism, and distrust of foreigners, to camouflage and get away with their looting the consumers of their own region.
Fortunately, interstate tariffs are unconstitutional. But even with this clear barrier, and even without being able to wrap themselves in the cloak of nationalism, protectionists have been able to impose interstate tariffs in another guise. Part of the drive for continuing increases in the federal minimum-wage law is to impose a protectionist devise against lower-wage, lower-labor-cost competition from North Carolina and other southern states against their New England and New York competitors.
During the 1966 congressional battle over a higher federal minimum wage, for example, the late Senator Jacob Javits (R-NY) freely admitted that one of his main reasons for supporting the bill was to cripple the southern competitors of New York textile firms. Since southern wages are generally lower than in the north, the business firms hardest hit by an increased minimum wage (and the workers struck by unemployment) will be located in the south.
Another way in which interstate trade restrictions have been imposed has been in the fashionable name of "safety." Government-organized state milk cartels in New York, for example, have prevented importation of milk from nearby New Jersey under the patently spurious grounds that the trip across the Hudson would render New Jersey milk "unsafe."
If tariffs and restraints on trade are good for a country, then why not indeed for a state or region? The principle is precisely the same. In America's first great depression, the Panic of 1819, Detroit was a tiny frontier town of only a few hundred people. Yet protectionist cries arose — fortunately not fulfilled — to prohibit all "imports" from outside of Detroit, and citizens were exhorted to buy only Detroit. If this nonsense had been put into effect, general starvation and death would have ended all other economic problems for Detroiters.
So why not restrict and even prohibit trade, i.e., "imports," into a city, or a neighborhood, or even on a block, or, to boil it down to its logical conclusion, to one family? Why shouldn't the Jones family issue a decree that from now on, no member of the family can buy any goods or services produced outside the family house? Starvation would quickly wipe out this ludicrous drive for self-sufficiency.
And yet we must realize that this absurdity is inherent in the logic of protectionism. Standard protectionism is just as preposterous, but the rhetoric of nationalism and national boundaries has been able to obscure this vital fact.
The upshot is that protectionism is not only nonsense, but dangerous nonsense, destructive of all economic prosperity. We are not, if we were ever, a world of self-sufficient farmers. The market economy is one vast latticework throughout the world, in which each individual, each region, each country, produces what he or it is best at, most relatively efficient in, and exchanges that product for the goods and services of others. Without the division of labor and the trade based upon that division, the entire world would starve. Coerced restraints on trade — such as protectionism — cripple, hobble, and destroy trade, the source of life and prosperity. Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of less-efficient producers, at the expense of more competent firms and of consumers. But it is a peculiarly destructive kind of bailout, because it permanently shackles trade under the cloak of patriotism.

The Negative Railroad

Protectionism is also peculiarly destructive because it acts as a coerced and artificial increase in the cost of transportation between regions. One of the great features of the Industrial Revolution, one of the ways in which it brought prosperity to the starving masses, was by reducing drastically the cost of transportation. The development of railroads in the early 19th century, for example, meant that for the first time in the history of the human race, goods could be transported cheaply over land. Before that, water — rivers and oceans — was the only economically viable means of transport. By making land transport accessible and cheap, railroads allowed interregional land transportation to break up expensive inefficient local monopolies. The result was an enormous improvement in living standards for all consumers. And what the protectionists want to do is lay an axe to this wondrous principle of progress.
It is no wonder that Frederic Bastiat, the great French laissez-faire economist of the mid-19th century, called a tariff a "negative railroad." Protectionists are just as economically destructive as if they were physically chopping up railroads, or planes, or ships, and forcing us to revert to the costly transport of the past — mountain trails, rafts, or sailing ships.

"Fair" Trade

Let us now turn to some of the leading protectionist arguments. Take, for example, the standard complaint that while the protectionist "welcomes competition," this competition must be "fair." Whenever someone starts talking about "fair competition" or indeed, about "fairness" in general, it is time to keep a sharp eye on your wallet, for it is about to be picked. For the genuinely "fair" is simply the voluntary terms of exchange, mutually agreed upon by buyer and seller. As most of the medieval Scholastics were able to figure out, there is no "just" (or "fair") price outside of the market price.
So what could be "unfair" about the free-market price? One common protectionist charge is that it is "unfair" for an American firm to compete with, say, a Taiwanese firm which needs to pay only one-half the wages of the American competitor. The US government is called upon to step in and "equalize" the wage rates by imposing an equivalent tariff upon the Taiwanese. But does this mean that consumers can never patronize low-cost firms because it is "unfair" for them to have lower costs than inefficient competitors? This is the same argument that would be used by a New York firm trying to cripple its North Carolina competitor.
What the protectionists don't bother to explain is why US wage rates are so much higher than Taiwan. They are not imposed by Providence. Wage rates are high in the United States because American employers have bid these rates up. Like all other prices on the market, wage rates are determined by supply and demand, and the increased demand by US employers has bid wages up. What determines this demand? The "marginal productivity" of labor.
The demand for any factor of production, including labor, is constituted by the productivity of that factor, the amount of revenue that the worker, or the pound of cement or acre of land, is expected to bring to the brim. The more productive the factory, the greater the demand by employers, and the higher its price or wage rate. American labor is more costly than Taiwanese because it is far more productive. What makes it productive? To some extent, the comparative qualities of labor, skill, and education. But most of the difference is not due to the personal qualities of the laborers themselves, but to the fact that the American laborer, on the whole, is equipped with more and better capital equipment than his Taiwanese counterparts. The more and better the capital investment per worker, the greater the worker's productivity, and therefore the higher the wage rate.
In short, if the American wage rate is twice that of the Taiwanese, it is because the American laborer is more heavily capitalized, is equipped with more and better tools, and is therefore, on the average, twice as productive. In a sense, I suppose, it is not "fair" for the American worker to make more than the Taiwanese, not because of his personal qualities, but because savers and investors have supplied him with more tools. But a wage rate is determined not just by personal quality but also by relative scarcity, and in the United States the worker is far scarcer compared to capital than he is in Taiwan.
Putting it another way, the fact that American wage rates are on the average twice that of the Taiwanese, does not make the cost of labor in the United States twice that of Taiwan. Because US labor is twice as productive, this means that the double wage rate in the United States is offset by the double productivity, so that the cost of labor per unit product in the United States and Taiwan tends, on the average, to be the same. One of the major protectionist fallacies is to confuse the price of labor (wage rates) with its cost, which also depends on its relative productivity.
"Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of less-efficient producers, at the expense of more competent firms and of consumers."
Thus, the problem faced by American employers is not really with the "cheap labor" in Taiwan, because "expensive labor" in the United States is precisely the result of the bidding for scarce labor by US employers. The problem faced by less efficient US textile or auto firms is not so much cheap labor in Taiwan or Japan but the fact that other US industries are efficient enough to afford it, because they bid wages that high in the first place.
So, by imposing protective tariffs and quotas to save, bail out, and keep in place less efficient US textile or auto or microchip firms, the protectionists are not only injuring the American consumer. They are also harming efficient US firms and industries, which are prevented from employing resources now locked into incompetent firms, and who could otherwise be able to expand and sell their efficient products at home and abroad.

"Dumping"

Another contradictory line of protectionist assault on the free market asserts that the problem is not so much the low costs enjoyed by foreign firms, as the "unfairness" of selling their products "below costs" to American consumers, and thereby engaging in the pernicious and sinful practice of "dumping." By such dumping they are able to exert unfair advantage over American firms who presumably never engage in such practices and make sure that their prices are always high enough to cover costs. But if selling below costs is such a powerful weapon, why isn't it ever pursued by business firms within a country?
"As far as consumers are concerned, the more 'dumping' that takes place, the better."
Our first response to this charge is, once again, to keep our eye on consumers in general and on American consumers in particular. Why should it be a matter of complaint when consumers so clearly benefit? Suppose, for example, that Sony is willing to injure American competitors by selling TV sets to Americans for a penny apiece. Shouldn't we rejoice at such an absurd policy of suffering severe losses by subsidizing us, the American consumers? And shouldn't our response be, "Come on, Sony, subsidize us some more!" As far as consumers are concerned, the more "dumping" that takes place, the better.
But what of the poor American TV firms, whose sales will suffer so long as Sony is willing to virtually give their sets away? Well, surely, the sensible policy for RCA, Zenith, etc. would be to hold back production and sales until Sony drives itself into bankruptcy. But suppose that the worst happens, and RCA, Zenith, etc. are themselves driven into bankruptcy by the Sony price war? Well, in that case, we the consumers will still be better off, since the plants of the bankrupt firms, which would still be in existence, would be picked up for a song at auction, and the American buyers at auction would be able to enter the TV business and outcompete Sony because they now enjoy far lower capital costs.
For decades, indeed, opponents of the free market have claimed that many businesses gained their powerful status on the market by what is called "predatory price cutting," that is, by driving their smaller competitors into bankruptcy by selling their goods below cost, and then reaping the reward of their unfair methods by raising their prices and thereby charging "monopoly prices" to the consumers. The claim is that while consumers may gain in the short run by price wars, "dumping," and selling below costs, they lose in the long run from the alleged monopoly. But, as we have seen, economic theory shows that this would be a mug's game, losing money for the "dumping" firms, and never really achieving a monopoly price. And sure enough, historical investigation has not turned up a single case where predatory pricing, when tried, was successful, and there are actually very few cases where it has even been tried.
"Whenever someone starts talking about 'fair competition' or indeed, about 'fairness' in general, it is time to keep a sharp eye on your wallet, for it is about to be picked."
Another charge claims that Japanese or other foreign firms can afford to engage in dumping because their governments are willing to subsidize their losses. But again, we should still welcome such an absurd policy. If the Japanese government is really willing to waste scarce resources subsidizing American purchases of Sonys, so much the better! Their policy would be just as self-defeating as if the losses were private.
There is yet another problem with the charge of "dumping," even when it is made by economists or other alleged "experts" sitting on impartial tariff commissions and government bureaus. There is no way whatever that outside observers, be they economists, businessmen, or other experts, can decide what some other firm's "costs" may be. "Costs" are not objective entities that can be gauged or measured. Costs are subjective to the businessman himself, and they vary continually, depending on the businessman's time horizon or the stage of production or selling process he happens to be dealing with at any given time.
Suppose, for example, a fruit dealer has purchased a case of pears for $20, amounting to $1 a pound. He hopes and expects to sell those pears for $1.50 a pound. But something has happened to the pear market, and he finds it impossible to sell most of the pears at anything near that price. In fact, he finds that he must sell the pears at whatever price he can get before they become overripe. Suppose he finds that he can only sell his stock of pears at 70 cents a pound. The outside observer might say that the fruit dealer has, perhaps "unfairly," sold his pears "below costs," figuring that the dealer's costs were $1 a pound.

"Infant" Industries

Another protectionist fallacy held that the government should provide a temporary protective tariff to aid, or to bring into being, an "infant industry." Then, when the industry was well-established, the government would and should remove the tariff and toss the now "mature" industry into the competitive swim.
The theory is fallacious, and the policy has proved disastrous in practice. For there is no more need for government to protect a new, young, industry from foreign competition than there is to protect it from domestic competition.
In the last few decades, the "infant" plastics, television, and computer industries made out very well without such protection. Any government subsidizing of a new industry will funnel too many resources into that industry as compared to older firms, and will also inaugurate distortions that may persist and render the firm or industry permanently inefficient and vulnerable to competition. As a result, "infant-industry" tariffs have tended to become permanent, regardless of the "maturity" of the industry. The proponents were carried away by a misleading biological analogy to "infants" who need adult care. But a business firm is not a person, young or old.

Older Industries

"The balance of payments, as we said earlier, is a pseudoproblem created by the existence of customs statistics."
Indeed, in recent years, older industries that are notoriously inefficient have been using what might be called a "senile-industry" argument for protectionism. Steel, auto, and other outcompeted industries have been complaining that they "need a breathing space" to retool and become competitive with foreign rivals, and that this breather could be provided by several years of tariffs or import quotas. This argument is just as full of holes as the hoary infant-industry approach, except that it will be even more difficult to figure out when the "senile" industry will have become magically rejuvenated. In fact, the steel industry has been inefficient ever since its inception, and its chronological age seems to make no difference. The first protectionist movement in the United States was launched in 1820, headed by the Pennsylvania iron (later iron-and-steel) industry, artificially force-fed by the War of 1812 and already in grave danger from far more efficient foreign competitors.

The Nonproblem of the Balance of Payments

A final set of arguments, or rather alarms, center on the mysteries of the balance of payments. Protectionists focus on the horrors of imports being greater than exports, implying that if market forces continued unchecked, Americans might wind up buying everything from abroad, while selling foreigners nothing, so that American consumers will have engorged themselves to the permanent ruin of American business firms. But if the exports really fell to somewhere near zero, where in the world would Americans still find the money to purchase foreign products? The balance of payments, as we said earlier, is a pseudoproblem created by the existence of customs statistics.
During the day of the gold standard, a deficit in the national balance of payments was a problem, but only because of the nature of the fractional-reserve banking system. If US banks, spurred on by the Fed or previous forms of central banks, inflated money and credit, the American inflation would lead to higher prices in the United States, and this would discourage exports and encourage imports. The resulting deficit had to be paid for in some way, and during the gold-standard era this meant being paid for in gold, the international money. So as bank credit expanded, gold began to flow out of the country, which put the fractional-reserve banks in even shakier shape. To meet the threat to their solvency posed by the gold outflow, the banks eventually were forced to contract credit, precipitating a recession and reversing the balance-of-payment deficits, thus bringing gold back into the country.
But now, in the fiat-money era, balance-of-payments deficits are truly meaningless. For gold is no longer a "balancing item." In effect, there is no deficit in the balance of payments. It is true that in the last few years, imports have been greater than exports by $150 billion or so per year. But no gold flowed out of the country. Neither did dollars "leak" out. The alleged "deficit" was paid for by foreigners investing the equivalent amount of money in American dollars: in real estate, capital goods, US securities, and bank accounts.
In effect, in the last couple of years, foreigners have been investing enough of their own funds in dollars to keep the dollar high, enabling us to purchase cheap imports. Instead of worrying and complaining about this development, we should rejoice that foreign investors are willing to finance our cheap imports. The only problem is that this bonanza is already coming to an end, with the dollar becoming cheaper and exports more expensive.
We conclude that the sheaf of protectionist arguments, many plausible at first glance, are really a tissue of egregious fallacies. They betray a complete ignorance of the most basic economic analysis. Indeed, some of the arguments are almost embarrassing replicas of the most ridiculous claims of 17th-century mercantilism: for example, that it is somehow a calamitous problem that the United States has a balance-of-trade deficit, not overall, but merely with one specific country, e.g., Japan.
Must we even relearn the rebuttals of the more sophisticated mercantilists of the 18th century — namely, that balances with individual countries will cancel each other out, and therefore that we should only concern ourselves with the overall balance? (Let alone realize that the overall balance is no problem either.) But we need not reread the economic literature to realize that the impetus for protectionism comes not from preposterous theories, but from the quest for coerced special privilege and restraint of trade at the expense of efficient competitors and consumers.
In the host of special interests using the political process to repress and loot the rest of us, the protectionists are among the most venerable. It is high time that we get them, once and for all, off our backs, and treat them with the righteous indignation they so richly deserve.

Wednesday, September 6, 2017

Stanley Fischer Resignation Letter


Fischer Press Release and Resignation Letter

September 06, 2017

Stanley Fischer submits resignation as a member of the Board of Governors, effective on or around October 13, 2017

For release at 10:45 a.m. EDT

    Stanley Fischer submitted his resignation Wednesday as Vice Chairman and as a member of the Board of Governors of the Federal Reserve System, effective on or around October 13, 2017. He has been a member of the Board since May 28, 2014.
"Stan's keen insights, grounded in a lifetime of exemplary scholarship and public service, contributed invaluably to our monetary policy deliberations. He represented the Board internationally with distinction and led our efforts to foster financial stability," said Chair Janet L. Yellen. "I'm personally grateful for his friendship and his service. We will miss his wise counsel, good humor, and dry wit."
Dr. Fischer, 73, was appointed to the Board by President Obama for an unexpired term ending January 31, 2020. His term as Vice Chairman expires on June 12, 2018. During his time on the Board, he served as chairman of the Board's Committee on Financial Stability as well as the Committee on Economic and Financial Monitoring and Research. He represented the Board internationally including at the Financial Stability Board, the Bank for International Settlements, the Group of 20, the Group of Seven, the International Monetary Fund, and the Organisation for Economic Co-operation and Development.
Before joining the Board, Dr. Fischer was governor of the Bank of Israel, from 2005 to 2013. He was vice chairman of Citigroup from February 2002 to April 2005. He served as first deputy managing director of the International Monetary Fund from September 1994 through August 2001. From January 1988 to August 1990, he was the chief economist of the World Bank. He was a professor of economics at the Massachusetts Institute of Technology from 1977 to 1999 and associate professor from 1973 to 1977. Prior to joining the faculty at MIT, he was an assistant professor of economics and postdoctoral fellow at the University of Chicago.
Dr. Fischer was born in Lusaka, Zambia, in October 1943. He received his B.Sc. and M.Sc. in economics from the London School of Economics. He received his Ph.D. in economics from the Massachusetts Institute of Technology in 1969.
Dr. Fischer is married with three adult children.
A copy of his resignation letter is HERE.

Friday, September 1, 2017

Wednesday, August 30, 2017

Michael R. Milken vs. the Power Elite

By Murray Rothbard

Quick: what do the following world-famous men have in common: John Kenneth Galbraith, Donald J. Trump, and David Rockefeller? What values could possibly be shared by the socialist economist who got rich by writing best-selling volumes denouncing affluence; the billionaire wheeler-dealer; and the fabulous head of the financially and politically powerful Rockefeller World Empire?

Would you believe: hatred of making money and of "capitalist greed"? Yes, at least when it comes to making money by one particular man, the Wall Street bond specialist Michael R. Milken. In an article in which the august New York Times was moved to drop its cherished veil of objectivity, and shout in its headline, "Wages Even Wall St. Can't Stomach" (April 3), these three gentlemen each weighed in against the $550 million earned by Mr. Milken in 1987. Galbraith, of course, was Galbraith, denouncing the "process of financial aberration" under modern American capitalism.

More interesting were billionaires Trump and Rockefeller. Speaking from his own lofty financial perch, Donald Trump unctuously declared, of Milken's salary, "you can be happy on a lot less money," going on to express his "amazement" that his former employers, the Wall Street firm of Drexel Burnham Lambert "would allow someone to benefit that greatly." Well, it should be easy enough to clear up Mr. Trump's alleged befuddlement. We could use economic jargon and say that the payment was justified by Mr. Milken's "marginal value product" to the firm, or simply say that Milken was clearly worth it, otherwise Drexel Burnham would not have happily continued the arrangement from 1975 until this year.

In fact, Mr. Milken was worth it because he has been an extraordinarily creative financial innovator. During the 1960s, the existing corporate power elite, often running their corporations inefficiently—an elite virtually headed by David Rockefeller—saw their positions threatened by takeover bids, in which outside financial interests bid for stockholder support against their own inept managerial elites. The exiting corporate elites turned—as usual—for aid and bailout from the federal government, which obligingly passed the Williams Act [named for the New Jersey Senator who was later sent to jail in the Abscam affair] in 1967. Before the Williams Act, takeover bids could occur quickly and silently, with little hassle. The 1967 Act, however, gravely crippled takeover bids by decreeing that if a financial group amassed more than 5% of the stock of a corporation, it would have to stop, publicly announce its intent to arrange a takeover bid, and then wait for a certain time period before it could proceed on its plans. What Milken did was to resurrect and make flourish the takeover bid concept through the issue of high,yield bonds (the "leveraged buyout").

The new takeover process enraged the Rockefeller,type corporate elite, and enriched both Mr. Milken and his employers, who had the sound business sense to hire Milken on commission, and to keep the commission going despite the wrath of the establishment. In the process Drexel Burnham grew from a small, third,tier investment firm to one of the giants of Wall Street.

The establishment was bitter for many reasons. The big banks who were tied in with the existing, inefficient corporate elites, found that the upstart takeover groups could make an end run around the banks by floating high-yield bonds on the open market. The competition also proved inconvenient for firms who issue and trade in blue-chip, but low-yield, bonds; these firms soon persuaded their allies in the establishment media to sneeringly refer to their high-yield competition as "junk" bonds, which is equivalent to the makers of Porsches persuading the press to refer to Volvos as "junk" cars.

People like Michael Milken perform a vitally important economic function for the economy and for consumers, in addition to profiting themselves. One would think that economists and writers allegedly in favor of the free market would readily grasp this fact. In this case, they aid the process of shifting the ownership and control of capital from inefficient to more efficient and productive hands—a process which is great for everyone, except, of course, for the inefficient Old Guard elites whose proclaimed devotion to the free markets does not stop them from using the coercion of the federal government to try to restrict or crush their efficient competitors.

We should also examine the evident hypocrisy of left-liberals like Galbraith, who, ever since the 1932 book by Adolf Berle and Gardiner Means, The Modern Corporation and Private Property, have been weeping crocodile tears over the plight of the poor stockholders, who have been deprived of control of their corporation by a powerful managerial elite, responsible neither to consumers nor stockholders. These liberals have long maintained that if only this stockholder-controlled capitalism could be restored, they would no longer favor socialism or stringent government control of business or the economy.

The Berle-Means thesis was always absurdly overwrought, but to the extent it was correct, one would think that left-liberals would have welcomed takeover bids, leveraged buyouts, and Michael Milken with cheers and huzzahs. For here, at last, was an easy way for stockholders to take the. control of their corporations into their own hands, and kick out inefficient or corrupt management that reduced their profits. Did liberals in fact welcome the new financial system ushered in by Milken and others? As we all know, quite the contrary; they were furiously denounced as exemplars of terrible "capitalist greed."

David Rockefeller's quote about Milken is remarkably revealing: "Such an extraordinary income inevitably raises questions as to whether there isn't something unbalanced in the way our financial system is working." How does Rockefeller have the brass to denounce high incomes? Ludwig von Mises solved the question years ago by pointing out that men of great inherited wealth, men who get their income from capital or capital gains, have favored the progressive income tax, because they don't want new competitors rising up who make their money on personal wage or salary incomes. People like Rockefeller or Trump are not appalled, quite obviously, at high incomes per se; what appalls them is making money the old-fashioned way, i.e., by high personal wages or salaries. In other words, through labor income.

And yes, Mr. Rockefeller, this whole Milken affair, in fact, the entire reign of terror that the Department of Justice and the Securities and Exchange Commission have .been conducting for the last several years in Wall Street, raises a lot questions about the workings of our political as well as our' financial system. It raises grave questions about the imbalance of political power enjoyed by our existing financial and corporate elites, power that can persuade the coercive arm of the federal government to repress, cripple, and even jail people whose only "crime" is to make money by facilitating the transfer of capital from less to more efficient hands. When creative and productive businessmen are harassed and jailed while rapists, muggers, and murderers go free, there is something very wrong indeed.

The above originally appeared at Mises.org

Thursday, August 17, 2017

Sunday, July 30, 2017

Judge Napolitano on Natural Rights, the Development of the Constitution and Footnote 4 of the United States v. Carolene Products Co.

Sykes Picot

Sykes-Picot Agreement, also called Asia Minor Agreement, (May 1916), secret convention made during World War I between Great Britain and France, with the assent of imperial Russia, for the dismemberment of the Ottoman Empire. The agreement led to the division of Turkish-held Syria, Iraq, Lebanon, and Palestine into various French- and British-administered areas. Negotiations were begun in November 1915, and the final agreement took its name from its negotiators, Sir Mark Sykes of Britain and François Georges-Picot of France.

Its provisions were as follows: (1) Russia should acquire the Armenian provinces of Erzurum, Trebizond (Trabzon), Van, and Bitlis, with some Kurdish territory to the southeast; (2) France should acquire Lebanon and the Syrian littoral, Adana, Cilicia, and the hinterland adjacent to Russia’s share, that hinterland including Aintab, Urfa, Mardin, Diyarbakır, and Mosul; (3) Great Britain should acquire southern Mesopotamia, including Baghdad, and also the Mediterranean ports of Haifa and ʿAkko (Acre); (4) between the French and the British acquisitions there should be a confederation of Arab states or a single independent Arab state, divided into French and British spheres of influence; (5) Alexandretta (İskenderun) should be a free port; and (6) Palestine, because of the holy places, should be under an international regime.

This secret arrangement conflicted in the first place with pledges already given by the British to the Hāshimite dynast Ḥusayn ibn ʿAlī, sharif of Mecca, who was about to bring the Arabs of the Hejaz into revolt against the Turks on the understanding that the Arabs would eventually receive a much more important share of the fruits of victory. It also excited the ambitions of Italy, to whom it was communicated in August 1916, after the Italian declaration of war against Germany, with the result that it had to be supplemented, in April 1917, by the Agreement of Saint-Jean-de-Maurienne, whereby Great Britain and France promised southern and southwestern Anatolia to Italy. The defection of Russia from the war canceled the Russian aspect of the Sykes-Picot Agreement, and the Turkish Nationalists’ victories after the military collapse of the Ottoman Empire led to the gradual abandonment of its projects for Anatolia. The Arabs, however, who had learned of the Sykes-Picot Agreement through the publication of it, together with other secret treaties of imperial Russia, by the Soviet Russian government late in 1917, were scandalized by it, and their resentment persisted despite the modification of its arrangements for the Arab countries by the Allies’ Conference of San Remo in April 1920.

(From Britannica)

Monday, July 24, 2017

The Problems With the Minimum Wage





   

-RW

Jared Kushner''s Opening Statement Before the Senate Intelligence Committee-7-24-17

STATEMENT OF JARED C. KUSHNER TO CONGRESSIONAL COMMITTEES 

July 24, 2017
I am voluntarily providing this statement, submitting documents, and sitting for interviews in order to shed light on issues that have been raised about my role in the Trump for President Campaign and during the transition period.
I am not a person who has sought the spotlight. First in my business and now in public service, I have worked on achieving goals, and have left it to others to work on media and public perception. Because there has been a great deal of conjecture, speculation, and inaccurate information about me, I am grateful for the opportunity to set the record straight.
    My Role in the Trump for President Campaign
    Before joining the administration, I worked in the private sector, building and managing companies. My experience was in business, not politics, and it was not my initial intent to play a large role in my father-in-law's campaign when he decided to run for President. However, as the campaign progressed, I was called on to assist with various tasks and aspects of the campaign, and took on more and more responsibility.
    Over the course of the primaries and general election campaign, my role continued to evolve. I ultimately worked with the finance, scheduling, communications, speechwriting, polling, data and digital teams, as well as becoming a point of contact for foreign government officials.
    All of these were tasks that I had never performed on a campaign previously. When I was faced with a new challenge, I would reach out to contacts, ask advice, find the right person to manage the specific challenge, and work with that person to develop and execute a plan of action. I was lucky to work with some incredibly talented people along the way, all of whom made significant contributions toward the campaign's ultimate success. Our nimble culture allowed us to adjust to the ever-changing circumstances and make changes on the fly as the situation warranted. I share this information because these actions should be viewed through the lens of a fast-paced campaign with thousands of meetings and interactions, some of which were impactful and memorable and many of which were not.
    It is also important to note that a campaign's success starts with its message and its messenger. Donald Trump had the right vision for America and delivered his message perfectly. The results speak for themselves. Not only did President Trump defeat sixteen skilled and experienced primary opponents and win the presidency; he did so spending a fraction of what his opponent spent in the general election. He outworked his opponent and ran one of the best campaigns in history using both modern technology and traditional methods to bring his message to the American people.
    Campaign Contacts with Foreign Persons
    When it became apparent that my father-in-law was going to be the Republican nominee for President, as normally happens, a number of officials from foreign countries attempted to reach out to the campaign. My father-in-law asked me to be a point of contact with these foreign countries. These were not contacts that I initiated, but, over the course of the campaign, I had incoming contacts with people from approximately 15 countries. To put these requests in context, I must have received thousands of calls, letters and emails from people looking to talk or meet on a variety of issues and topics, including hundreds from outside the United States. While I could not be responsive to everyone, I tried to be respectful of any foreign government contacts with whom it would be important to maintain an ongoing, productive working relationship were the candidate to prevail. To that end, I called on a variety of people with deep experience, such as Dr. Henry Kissinger, for advice on policy for the candidate, which countries/representatives with which the campaign should engage, and what messaging would resonate. In addition, it was typical for me to receive 200 or more emails a day during the campaign. I did not have the time to read every one, especially long emails from unknown senders or email chains to which I was added at some later point in the exchange.
    With respect to my contacts with Russia or Russian representatives during the campaign, there were hardly any. The first that I can recall was at the Mayflower Hotel in Washington, D.C. in April 2016. This was when then candidate Trump was delivering a major foreign policy speech. Doing the event and speech had been my idea, and I oversaw its execution. I arrived at the hotel early to make sure all logistics were in order. After that, I stopped into the reception to thank the host of the event, Dimitri Simes, the publisher of the bi-monthly foreign policy magazine, The National Interest, who had done a great job putting everything together. Mr. Simes and his group had created the guest list and extended the invitations for the event. He introduced me to several guests, among them four ambassadors, including Russian Ambassador Sergey Kislyak. With all the ambassadors, including Mr. Kislyak, we shook hands, exchanged brief pleasantries and I thanked them for attending the event and said I hoped they would like candidate Trump's speech and his ideas for a fresh approach to America's foreign policy. The ambassadors also expressed interest in creating a positive relationship should we win the election. Each exchange lasted less than a minute; some gave me their business cards and invited me to lunch at their embassies. I never took them up on any of these invitations and that was the extent of the interactions.
    Reuters news service has reported that I had two calls with Ambassador Kislyak at some time between April and November of 2016. While I participated in thousands of calls during this period, I do not recall any such calls with the Russian Ambassador. We have reviewed the phone records available to us and have not been able to identify any calls to any number we know to be associated with Ambassador Kislyak and I am highly skeptical these calls took place. A comprehensive review of my land line and cell phone records from the time does not reveal those calls. I had no ongoing relationship with the Ambassador before the election, and had limited knowledge about him then. In fact, on November 9, the day after the election, I could not even remember the name of the Russian Ambassador. When the campaign received an email purporting to be an official note of congratulations from President Putin, I was asked how we could verify it was real. To do so I thought the best way would be to ask the only contact I recalled meeting from the Russian government, which was the Ambassador I had met months earlier, so I sent an email asking Mr. Simes, "What is the name of the Russian ambassador?" Through my lawyer, I have asked Reuters to provide the dates on which the calls supposedly occurred or the phone number at which I supposedly reached, or was reached by, Ambassador Kislyak. The journalist refused to provide any corroborating evidence that they occurred.
    The only other Russian contact during the campaign is one I did not recall at all until I was reviewing documents and emails in response to congressional requests for information. In June 2016, my brother-in-law, Donald Trump Jr. asked if I was free to stop by a meeting on June 9 at 3:00 p.m. The campaign was headquartered in the same building as his office in Trump Tower, and it was common for each of us to swing by the other's meetings when requested. He eventually sent me his own email changing the time of the meeting to 4:00 p.m. That email was on top of a long back and forth that I did not read at the time. As I did with most emails when I was working remotely, I quickly reviewed on my iPhone the relevant message that the meeting would occur at 4:00 PM at his office. Documents confirm my memory that this was calendared as "Meeting: Don Jr.| Jared Kushner." No one else was mentioned.
    I arrived at the meeting a little late. When I got there, the person who has since been identified as a Russian attorney was talking about the issue of a ban on U.S. adoptions of Russian children. I had no idea why that topic was being raised and quickly determined that my time was not well-spent at this meeting. Reviewing emails recently confirmed my memory that the meeting was a waste of our time and that, in looking for a polite way to leave and get back to my work, I actually emailed an assistant from the meeting after I had been there for ten or so minutes and wrote "Can u pls call me on my cell? Need excuse to get out of meeting." I had not met the attorney before the meeting nor spoken with her since. I thought nothing more of this short meeting until it came to my attention recently. I did not read or recall this email exchange before it was shown to me by my lawyers when reviewing documents for submission to the committees. No part of the meeting I attended included anything about the campaign, there was no follow up to the meeting that I am aware of, I do not recall how many people were there (or their names), and I have no knowledge of any documents being offered or accepted. Finally, after seeing the email, I disclosed this meeting prior to it being reported in the press on a supplement to my security clearance form, even if that was not required as meeting the definitions of the form.
    There was one more possible contact that I will note. On October 30, 2016, I received a random email from the screenname "Guccifer400." This email, which I interpreted as a hoax, was an extortion attempt and threatened to reveal candidate Trump's tax returns and demanded that we send him 52 bitcoins in exchange for not publishing that information. I brought the email to the attention of a U.S. Secret Service agent on the plane we were all travelling on and asked what he thought. He advised me to ignore it and not to reply -- which is what I did. The sender never contacted me again.
    To the best of my recollection, these were the full extent of contacts I had during the campaign with persons who were or appeared to potentially be representatives of the Russian government.
    Transition Contacts with Foreign Persons
    The transition period after the election was even more active than the campaign. Starting on election night, we began to receive an incredible volume of messages and invitations from well-wishers in the United States and abroad. Dozens of messages came from foreign officials seeking to set up foreign leader calls and create lines of communication and relationships with what would be the new administration. During this period, I recall having over fifty contacts with people from over fifteen countries. Two of those meetings were with Russians, neither of which I solicited.
    On November 16, 2016, my assistant received a request for a meeting from the Russian Ambassador. As I mentioned before, previous to receiving this request, I could not even recall the Russian Ambassador's name, and had to ask for the name of the individual I had seen at the Mayflower Hotel almost seven months earlier. In addition, far from being urgent, that meeting was not set up for two weeks -- on December 1. The meeting occurred in Trump Tower, where we had our transition office, and lasted twenty- thirty minutes. Lt. General Michael Flynn (Ret.), who became the President's National Security Advisor, also attended. During the meeting, after pleasantries were exchanged, as I had done in many of the meetings I had and would have with foreign officials, I stated our desire for a fresh start in relations. Also, as I had done in other meetings with foreign officials, I asked Ambassador Kislyak if he would identify the best person (whether the Ambassador or someone else) with whom to have direct discussions and who had contact with his President. The fact that I was asking about ways to start a dialogue after Election Day should of course be viewed as strong evidence that I was not aware of one that existed before Election Day.
    The Ambassador expressed similar sentiments about relations, and then said he especially wanted to address U.S. policy in Syria, and that he wanted to convey information from what he called his "generals." He said he wanted to provide information that would help inform the new administration. He said the generals could not easily come to the U.S. to convey this information and he asked if there was a secure line in the transition office to conduct a conversation. General Flynn or I explained that there were no such lines. I believed developing a thoughtful approach on Syria was a very high priority given the ongoing humanitarian crisis, and I asked if they had an existing communications channel at his embassy we could use where they would be comfortable transmitting the information they wanted to relay to General Flynn. The Ambassador said that would not be possible and so we all agreed that we would receive this information after the Inauguration. Nothing else occurred. I did not suggest a "secret back channel." I did not suggest an on-going secret form of communication for then or for when the administration took office. I did not raise the possibility of using the embassy or any other Russian facility for any purpose other than this one possible conversation in the transition period. We did not discuss sanctions.
    Approximately a week later, on December 6, the Embassy asked if I could meet with the Ambassador on December 7. I declined. They then asked if I could meet on December 6; I declined again. They then asked when the earliest was that I could meet. I declined these requests because I was working on many other responsibilities for the transition. He asked if he could meet my assistant instead and, to avoid offending the Ambassador, I agreed. He did so on December 12. My assistant reported that the Ambassador had requested that I meet with a person named Sergey Gorkov who he said was a banker and someone with a direct line to the Russian President who could give insight into how Putin was viewing the new administration and best ways to work together. I agreed to meet Mr. Gorkov because the Ambassador has been so insistent, said he had a direct relationship with the President, and because Mr. Gorkov was only in New York for a couple days. I made room on my schedule for the meeting that occurred the next day, on December 13.
    The meeting with Mr. Gorkov lasted twenty to twenty-five minutes. He introduced himself and gave me two gifts -- one was a piece of art from Nvgorod, the village where my grandparents were from in Belarus, and the other was a bag of dirt from that same village. (Any notion that I tried to conceal this meeting or that I took it thinking it was in my capacity as a businessman is false. In fact, I gave my assistant these gifts to formally register them with the transition office). After that, he told me a little about his bank and made some statements about the Russian economy. He said that he was friendly with President Putin, expressed disappointment with U.S.-Russia relations under President Obama and hopes for a better relationship in the future. As I did at the meeting with Ambassador Kislyak, I expressed the same sentiments I had with other foreign officials I met. There were no specific policies discussed. We had no discussion about the sanctions imposed by the Obama Administration. At no time was there any discussion about my companies, business transactions, real estate projects, loans, banking arrangements or any private business of any kind. At the end of the short meeting, we thanked each other and I went on to other meetings. I did not know or have any contact with Mr. Gorkov before that meeting, and I have had no reason to connect with him since.
    To the best of my recollection, these were the only two contacts I had during the transition with persons who were or appeared to potentially be representatives of the Russian government.
    Disclosure of Contacts on My Security Clearance Form
    There has been a good deal of misinformation reported about my SF-86 form. As my attorneys and I have previously explained, my SF-86 application was prematurely submitted due to a miscommunication and initially did not list any contacts (not just with Russians) with foreign government officials. Here are some facts about that form and the efforts I have made to supplement it.
    In the week before the Inauguration, amid the scramble of finalizing the unwinding of my involvement from my company, moving my family to Washington, completing the paper work to divest assets and resign from my outside positions and complete my security and financial disclosure forms, people at my New York office were helping me find the information, organize it, review it and put it into the electronic form. They sent an email to my assistant in Washington, communicating that the changes to one particular section were complete; my assistant interpreted that message as meaning that the entire form was completed. At that point, the form was a rough draft and still had many omissions including not listing any foreign government contacts and even omitted the address of my father-in-law (which was obviously well known). Because of this miscommunication, my assistant submitted the draft on January 18, 2017.
    That evening, when we realized the form had been submitted prematurely, we informed the transition team that we needed to make changes and additions to the form. The very next day, January 19, 2017, we submitted supplemental information to the transition, which confirmed receipt and said they would immediately transmit it to the FBI. The supplement disclosed that I had "numerous contacts with foreign officials" and that we were going through my records to provide an accurate and complete list. I provided a list of those contacts in the normal course, before my background investigation interview and prior to any inquiries or media reports about my form.
    It has been reported that my submission omitted only contacts with Russians. That is not the case. In the accidental early submission of the form, all foreign contacts were omitted. The supplemental information later disclosed over one hundred contacts from more than twenty countries that might be responsive to the questions on the form. These included meetings with individuals such as Jordan's King Abdullah II, Israel's Prime Minister Bibi Netanyahu, Mexico's Secretary of Foreign Affairs, Luis Videgaray Caso and many more. All of these had been left off before.
    Over the last six months, I have made every effort to provide the FBI with whatever information is needed to investigate my background. In addition, my attorneys have explained that the security clearance process is one in which supplements are expected and invited. The form itself instructs that, during the interview, the information in the document can be "update[d], clarif[ied], and explain[ed]" as part of the security clearance process. A good example is the June 9 meeting. For reasons that should be clear from the explanation of that meeting I have provided, I did not remember the meeting and certainly did not remember it as one with anyone who had to be included on an SF-86. When documents reviewed for production in connection with committee requests reminded me that meeting had occurred, and because of the language in the email chain that I then read for the first time, I included that meeting on a supplement. I did so even though my attorneys were unable to conclude that the Russian lawyer was a representative of any foreign country and thus fell outside the scope of the form. This supplemental information was also provided voluntarily, well prior to any media inquiries, reporting or request for this information, and it was done soon after I was reminded of the meeting.
    ****
    As I have said from the very first media inquiry, I am happy to share information with the
    investigating bodies. I have shown today that I am willing to do so and will continue to cooperate as I have nothing to hide. As I indicated, I know there has been a great deal of speculation and conjecture about my contacts with any officials or people from Russia. I have disclosed these contacts and described them as fully as I can recall. The record and documents I am providing will show that I had perhaps four contacts with Russian representatives out of thousands during the campaign and transition, none of which were impactful in any way to the election or particularly memorable. I am very grateful for the opportunity to set the record straight. I also have tried to provide context for my role in the campaign, and I am proud of the candidate that we supported, of the campaign that we ran, and the victory that we achieved.
    It has been my practice not to appear in the media or leak information in my own defense. I have tried to focus on the important work at hand and serve this President and this country to the best of my abilities. I hope that through my answers to questions, written statements and documents I have now been able to demonstrate the entirety of my limited contacts with Russian representatives during the campaign and transition. I did not collude, nor know of anyone else in the campaign who colluded, with any foreign government. I had no improper contacts. I have not relied on Russian funds to finance my business activities in the private sector. I have tried to be fully transparent with regard to the filing of my SF-86 form, above and beyond what is required. Hopefully, this puts these matters to rest.

    Sunday, July 23, 2017

    Wertfrei

    Wertfrei or Wertfreiheit (German) means literally, "value free" and "value freedom." Actually, neutral with regard to all judgments of value. All sciences, including economics, are wertfrei.

    -From  Mises Made Easier by Percy Greaves

    Good Will Hunting | 'My Boy's Wicked Smart'

    Friday, July 14, 2017


    Former CEA Chairs Urge President not to Impose Steel Tariffs

    Dear Mr. President:
    The undersigned former Chairs of the President’s Council of Economic Advisers represent a broad swath of political and economic views. Among us are Republicans and Democrats alike, and we have disagreements on a number of policy issues. But on some policies there is near universal agreement. One such issue is the  harm of imposing tariffs on steel imports.
    Media reports indicate that you are contemplating using your authority under Section 232 of the Trade Expansion Act of 1962 to initiate the process of imposing steel tariffs because of a putative threat to national security.
    We urge the Administration not to take this action. The United States already has over 150 countervailing and antidumping duties on steel imports, including some as high as 266 percent. We import steel from over 110 countries and territories, but the top source countries are important allies like Canada, Brazil, South Korea, and Mexico.  Additional tariffs would likely do harm to our relations with these friendly nations; officials from Canada, United Kingdom, the European Union, Germany, and the Netherlands have already voiced concern.
    Previous experience with emergency steel tariffs under President Bush bear out these concerns. Canada, Mexico, Argentina, Thailand, and Turkey were given exemptions in response to the backlash, and the World Trade Organization ultimately ruled against the steel tariffs.
    The diplomatic costs might be worth it if the tariffs generated economic benefits.  But they would not.  Additional steel tariffs would actually damage the U.S. economy. Tariffs would raise costs for manufacturers, reduce employment in manufacturing, and increase prices for consumers.
    We urge you to avoid a policy that would likely incur greater economic and diplomatic costs than any conceivable national security gain.
    Sincerely,
    Martin Baily
    Bernard L. Schwartz Chair in Economic Policy
    Development and Senior Fellow in Economic Studies,
    The Brookings Institution
    Ben Bernanke
     Distinguished Fellow in Residence, Economic Studies,
    The Brookings Institution
    Michael J. Boskin
    T.M. Friedman Professor of Economics at Stanford University,
    Senior Fellow at The Hoover Institution        
    Martin Feldstein
    George F. Baker Professor of Economics at Harvard University,
    President Emeritus of the National Bureau of Economic Research       
    Jason Furman                                         
    Professor of Practice,
    Harvard Kennedy School   
    Austan Goolsbee
    Robert P. Gwinn Professor of Economics,
    The University of Chicago Booth School of Business    
    Alan Greenspan
    President,
    Greenspan Associates, LLC                 
    Glenn Hubbard
    Dean and Russell L. Carson Professor of Finance and Economics,
    Columbia Business School
    Alan B. Krueger
     Bendheim Professor of Economics and Public Affairs,
    Princeton University
    Edward Lazear                                                            
    The Davies Family Professor of Economics at Stanford Graduate School of Business,
    Morris Arnold and Nona Jean Cox Senior Fellow at The Hoover Institution
    Greg Mankiw
    Robert M. Beren Professor of Economics,
    Harvard University
    Christina Romer
    Garff B. Wilson Professor of Economics,
    University of California, Berkeley
    Harvey S. Rosen                                                                  
     John L. Weinberg Professor of Economics and Business Policy,
    Princeton University
    Joseph Stiglitz
    University Professor,
    Columbia University
    Laura Tyson
    Distinguished Professor of the Graduate School
    University of California, Berkeley

    The above originally appeared at the website of  the American Action Forum