Tuesday, November 21, 2017

Gödel's Incompleteness Theorems

Gödel's incompleteness theorems are two theorems of mathematical logic that demonstrate the inherent limitations of every formal axiomatic system containing basic arithmetic.[1] These results, published by Kurt Gödel in 1931, are important both in mathematical logic and in the philosophy of mathematics. The theorems are widely, but not universally, interpreted as showing that Hilbert's program to find a complete and consistent set of axioms for all mathematics is impossible.

The first incompleteness theorem states that no consistent system of axioms whose theorems can be listed by an effective procedure (i.e., an algorithm) is capable of proving all truths about the arithmetic of the natural numbers. For any such formal system, there will always be statements about the natural numbers that are true, but that are unprovable within the system. The second incompleteness theorem, an extension of the first, shows that the system cannot demonstrate its own consistency.

Employing a diagonal argument, Gödel's incompleteness theorems were the first of several closely related theorems on the limitations of formal systems. They were followed by Tarski's undefinability theorem on the formal undefinability of truth, Church's proof that Hilbert's Entscheidungsproblem is unsolvable, and Turing's theorem that there is no algorithm to solve the halting problem.

(via Wikipedia)

Sunday, November 19, 2017

Jordan Peterson on Preferred Gender Pronouns

Jordan Peterson is a Canadian clinical psychologist, cultural critic, and professor of psychology at the University of Toronto. His main areas of study are in abnormal, social, and personality psychology, with a particular interest in the psychology of religious and ideological belief, and the assessment and improvement of personality and performance.

He previously worked as an assistant and an associate professor in the psychology department at Harvard University.

On September 27, 2016, Peterson released the first installment of a three-part lecture video series, entitled "Professor against political correctness: Part I: Fear and the Law". In the video, he stated he would not use the preferred gender pronouns of students and faculty, and announced his objection to the Canadian government's Bill C-16, which proposed to add "gender identity or expression" as a prohibited ground of discrimination under the Canadian Human Rights Act, and to similarly expand the definitions of promoting genocide and publicly inciting hatred in the Criminal Code.

Two months later, the National Post published an op-ed by Peterson in which he elaborated on his opposition to the bill and explained why he publicly made a stand against it:
I will never use words I hate, like the trendy and artificially constructed words "zhe" and "zher." These words are at the vanguard of a post-modern, radical leftist ideology that I detest, and which is, in my professional opinion, frighteningly similar to the Marxist doctrines that killed at least 100 million people in the 20th century.
I have been studying authoritarianism on the right and the left for 35 years. I wrote a book, Maps of Meaning: The Architecture of Belief, on the topic, which explores how ideologies hijack language and belief. As a result of my studies, I have come to believe that Marxism is a murderous ideology. I believe its practitioners in modern universities should be ashamed of themselves for continuing to promote such vicious, untenable and anti-human ideas, and for indoctrinating their students with these beliefs. I am therefore not going to mouth Marxist words. That would make me a puppet of the radical left, and that is not going to happen. Period.
He politically identifies as a classic British liberal He is a philosophical pragmatist. By religious beliefs, he is a Christian, but with agnostic elements and viewpoints similar to the Christian existentialism and philosophy of Søren Kierkegaard and Paul Tillich, as well as influence by Carl Jung. He has stated his respect for the teachings of Taoism, as it "sees nature as a constant battle between order and chaos, and posits that without that struggle, life would be rendered meaningless"

(From Wikipedia)

Wednesday, November 15, 2017

Thursday, November 9, 2017

Thursday, November 2, 2017

"Audit the Fed" and Other Proposals

February 09, 2015

"Audit the Fed" and Other Proposals

By Governor Jerome H. Powell

At the Catholic University of America, Columbus School of Law, Washington, D.C.

It is a pleasure and a particularly personal honor for me to speak to you today as a guest of this institution.1

I am proud to say that my grandfather, James J. Hayden, earned his doctorate of law from Catholic University and later served as dean of the law school. He was an early scholar of the regulation prompted by a technological innovation that would change the world--aviation. He was, in that sense, someone who looked to the future and wanted to be a part of it. In his years leading the law school, I hope my grandfather could also glimpse the great institution that it would become.

It has been a little more than six years since the fall of 2008, when the peak of a severe financial crisis presented the very real threat of a second Great Depression. The damage was extensive, and for some time, the recovery was frustratingly slow. But the economy has improved considerably over the past two years, and I am optimistic that that this improvement will continue. The financial system is also stronger and more resilient after improvements in regulation and oversight by the Federal Reserve and other agencies and better management by banks and other financial firms.

The Fed acted boldly during and after the financial crisis in the face of great uncertainty. The full effects of these policies will become clearer with the passage of time. Indeed, the Federal Reserve's role in the Great Depression of the 1930s is still actively debated. That said, as I will show, the evidence as of today is very strong that the Fed's actions generally succeeded and are a major reason why the U.S. economy is now outperforming those of other advanced nations. Other central banks are now embracing some of the same bold steps undertaken much earlier by the Fed.

Against that background, I am concerned about several troubling proposals that would subject monetary policy to undue political pressure and place new limits on the Fed's ability to respond to future crises. My remarks will address three such proposals. The first goes by the somewhat misleading name of "Audit the Fed," and would subject the Federal Reserve's conduct of monetary policy to unlimited congressional policy audits (not to be confused with financial audits, which are already conducted regularly.)2 The second is a proposal to require the Fed to adopt and follow a specific equation in setting monetary policy and to face immediate congressional hearings and investigation by the Government Accountability Office (GAO) whenever it deviates from the policy dictated by that equation.3 And, third, there are discussions about imposing new limitations on the Fed's long-held powers to provide liquidity during a financial crisis.

I think these proposals are misguided for three reasons.

First, they are motivated by the belief that the Fed's response during the crisis was both ineffective and outside the bounds of its traditional role and responsibilities. In fact, the Fed's actions were effective, necessary, appropriate, and very much in keeping with the traditional role of the Fed and other central banks.

Second, these proposals are based on the assertion that the Federal Reserve operates in secrecy and was not accountable for its actions during the crisis, a perspective that is in violent conflict with the facts. The Fed has been transparent, accountable, and subject to extensive oversight, especially during and since the crisis. We have also taken appropriate steps since the crisis to further enhance that transparency.

Third, and most importantly, I believe these proposals fail to anticipate the significant costs and risks of subjecting monetary policy to political pressure and constraining the Fed's ability to carry out its traditional role of providing liquidity in a crisis.

Appropriate and Effective
There is no dispute that the Fed's actions after the onset of the financial crisis were unprecedented in scale and scope.

To help stabilize the financial system and keep credit flowing to households and businesses, the Federal Reserve lent to banks through the discount window and to financial institutions and markets through numerous new broad-based lending facilities it created using emergency lending authority granted by the Congress during the Great Depression.4 In a limited number of cases, the Fed also extended liquidity support to individual institutions whose imminent failure threatened to bring down the global financial system.

At the same time, the Federal Reserve used monetary policy to help stabilize the economy. After cutting our target for the overnight interest rate on loans between banks--our usual monetary policy tool--as low as it could go, the Fed took further action using unconventional policy tools. These policies involved communication, providing "forward guidance" that the Federal Open Market Committee (FOMC) expected to keep rates low for longer than had been expected, and also purchasing large amounts of longer-term Treasury debt and other securities to put downward pressure on long-term interest rates.

While these actions were extraordinary and in some respects unprecedented, they were taken because the threats posed by the crisis were also without precedent, even in the events that led to the Great Depression.5 For the first time, cutting the Fed's policy rate to near zero proved insufficient to halt a plummeting economy; so the Fed took further action. For the first time since the Great Depression, our nation faced a financial panic so severe that the Fed's normal overnight lending to banks was not enough; so the Fed did more, using congressionally granted powers it had held but not used since the 1930s that were intended to deal with just such rare emergencies.

As the Congress considers proposals that will affect the conduct of monetary policy and the Fed's ability to respond in a crisis, I believe it is also important to recognize how effective the Fed's response has been.

With respect to monetary policy, the unconventional policies were designed to stimulate the economy in the same way as traditional monetary policy, by lowering interest rates. These actions helped deliver highly accommodative policy, which was essential given the depth of the recession. Without these steps, the slump in the labor market and the broader economy surely would have been even deeper and more prolonged, and the low wage and price inflation we are still experiencing might have turned into outright deflation.

Critics warned that these policies would unleash uncontrollable inflation, fail to stimulate demand, and court other known and unknown risks. After I joined the Federal Reserve Board in May 2012, I too expressed doubts about the efficacy and risks of further asset purchases. But let's let the data speak: The evidence so far is clear that the benefits of these policies have been substantial, and that the risks have not materialized. Inflation has continued to run well below the Committee's 2 percent objective. Indeed, some argue today that low inflation should cause the Committee to hold off from raising interest rates. As I noted at the outset, due in part to the Fed's effective response to the crisis, the recovery in the United States has been stronger than that of other advanced economies, with more rapid job creation, lower unemployment, and faster growth. That is one reason why a number of central banks around the world have adopted forward guidance and asset purchase programs similar to the policies adopted by the Fed.6

The Federal Reserve's lending in the crisis was also successful. There is little dispute today that the crisis threatened a global financial collapse and depression, and that these liquidity policies were instrumental in arresting the crisis.

Warnings about the Fed's lending also have not been borne out. Critics claimed the Fed had been reckless, throwing money ineffectively at problems and making loans to uncreditworthy borrowers. On the contrary, the Fed's lending was targeted to institutions, markets, and sectors that proved central to arresting the crisis. Loans were extended based on the same terms that the Federal Reserve has always applied—the borrowers must be solvent, the loans must be secured, and an appropriate interest rate must be charged. As a result, every single loan we made was repaid in full, on time, with interest.7

Traditional Oversight of the Federal Reserve Was Extensive and Effective
The Federal Reserve, like other parts of our democratic system of government, must be accountable to the public and its elected representatives. Given the scale of the Fed's actions during the Crisis, it has been not only appropriate but essential that these actions be transparent to the public and subject to close and careful scrutiny by the Congress. And that is exactly what happened. So it is jarring to hear it asserted that the Fed carries out its duties in secret and is unaccountable to the public and its elected representatives. The Federal Reserve is highly transparent and accountable to the public and to the Congress.

First, the Fed does not set its own goals for monetary policy. Congress assigned us the goals of price stability and maximum employment--that is, the highest level of employment achievable without threatening price stability. Federal Reserve Board members are nominated by the President and must be confirmed by the Senate. The Chair of the Fed appears before both the House and Senate oversight committees twice every year to report on monetary policy, and, in practice, to respond to questions about anything and everything related to the Fed's activities. The Chair and other Board members routinely make additional appearances before the Congress and meet frequently with members.

More generally, the Fed is open and transparent in its operations, including those related to monetary policy, accounting for itself in timely postmeeting FOMC statements, minutes, broadcast press conferences, and speeches.8 Details about the Fed's balance sheet are on the public record; in fact, every security owned by the Fed is identified individually on the website of the Federal Reserve Bank of New York.9 The FOMC's plans to normalize the balance sheet have been the subject of exhaustive discussion--in FOMC meetings, in speeches by policymakers, and among the many journalists and academics who analyze and discuss Fed policies. Last September, the FOMC published its Normalization Principles, which set forth its plans to reduce the balance sheet to a more normal level over time.10

The Fed's financial statements are also a matter of public record, and are audited annually by independent, outside auditors under the watchful eye of the Fed's independent Inspector General.11 I am well aware of this because I chair the committees that have oversight responsibility for the audits of the Board and the Reserve Banks. I worked for many years in the financial markets, and I can tell you that the Federal Reserve's financial statements, though they contain very large numbers, are relatively straightforward--much simpler than those of a typical regional bank.

The Fed's operations, including its role regulating and supervising banks, are subject to extensive review by the GAO. If you visit the GAO's website, you'll find more than 70 reports since the crisis that are wholly or partly dedicated to reviewing the Fed's operations, including the emergency lending facilities I mentioned earlier.12 The GAO works closely with the Fed's Office of Inspector General, which is involved in both financial audits and other oversight of our operations.

The extensive oversight I describe intensified--appropriately so--as the Federal Reserve responded to the financial crisis. Our lending facilities were also the subject of review by the Fed's Inspector General, the Special Inspector General for the Troubled Asset Relief Program, the Congressional Oversight Panel, the Financial Crisis Inquiry Commission established by the Congress, and numerous congressional hearings and reviews.

The Fed's actions were also fully transparent. As always, monetary policy decisions were debated and voted on by the FOMC and announced immediately, with detailed explanations provided in the minutes of these deliberations. The Fed provided public guidance on its plans to purchase assets and made those purchases in open, competitive transactions that were disclosed as soon as they occurred.

The terms and conditions for every lending facility were publicly disclosed. The amounts lent under each program were published on the Fed's weekly balance sheet report. The Fed created a website and issued a monthly report to the Congress disclosing details on all loans, such as the quantity and quality of collateral posted by borrowers.13

The Significant Costs of Restrictions on the Fed's Independence
As I said at the outset, I believe these proposals under consideration by the Congress fail to anticipate the significant costs and risks of subjecting the Fed's conduct of monetary policy to political pressure and of limiting the ability of the Fed to execute its traditional role of keeping credit flowing to American households and businesses in a financial crisis.

Let me first address "Audit the Fed," which would repeal a narrow but critical exemption, adopted by the Congress in 1978, to limit GAO policy reviews of the Fed's conduct of monetary policy. The Congress granted this exemption because the costs of involving the GAO in monetary policy, including the substantial risk of political interference, far outweigh the potential benefits.

It is important to note that GAO investigations are not the financial audits that many assume them to be. They extend beyond mere accounting to examine strategy, judgments and day-to-day decisionmaking. Indeed, by statute, the GAO is charged with making recommendations to Congress about the areas they have reviewed. This could put the GAO in the position of reviewing the FOMC's policy decisions and recommending its own course for monetary policy.

With these features in mind, the potential benefits of GAO policy audits would be small, even before considering the potential costs. Unlike the programs that are typically the subject of GAO policy audits, such as procurement decisions that may be brought to light only by the GAO's attention, monetary policy decisions occur with all of the world watching. They are announced immediately, described in an FOMC statement, often elaborated on in a press conference, and the subject of endless same-day-analysis and debate.

With all of this transparency and analysis, very little would be revealed by GAO policy audits that would help evaluate the effectiveness of monetary policy. The benefits of frequent GAO policy audits would also be low because the effects of monetary policy are felt with a considerable time lag and are often only clear years later.

Audit the Fed also risks inserting the Congress directly into monetary policy decisionmaking, reversing decades of deliberate effort by the Congress to insulate the Fed from political pressure in carrying out its day-to-day duties. Indeed, some advocates of the bill have expressed support for complete elimination of the Federal Reserve. Long experience, in the United States and in other advanced economies, has demonstrated that monetary policy is most successful when decisions are rendered independent of influence by elected officials. As recent U.S. history has shown, elected officials have often pushed for easier policies that serve short-term political interests, at the expense of higher inflation and damage to the long-term health and stability of the economy.14

After World War II and as recently as the early 1970s, political pressures likely influenced Federal Reserve decisionmaking in a way which helped cause excessive inflation and related bouts of economic weakness. In 1977, as what came to be called the Great Inflation neared its peak, the Congress passed legislation that spelled out the goals for monetary policy--maximum employment and stable prices--but left it to the Fed to precisely define those goals and the means by which they would be achieved.15 To preserve the Fed's independence in implementing policy to reach these goals, the Congress exempted monetary policy from the GAO investigations it was then authorizing for other Fed operations.

This independence has served the nation well. Over the 20 years or so prior to the crisis, the Federal Reserve was able to maintain low and stable inflation, and recessions were brief and mild.16 That is not to say that the Fed got everything just right during this period.  But it seems to me that any pre-crisis shortcomings were in regulation and supervision by the Fed and other agencies, rather than in monetary policy.

And there are other costs from subjecting monetary policy to GAO investigations. Frequent GAO investigations would likely inhibit the debate and flow of information and ideas at FOMC meetings among staff and policymakers, which would lead to poorer decisions. Market participants would have to wonder whether the FOMC would react to GAO criticism, and they could lose confidence in the Fed's independence, reducing its credibility.

To those who may doubt that GAO investigations would be used by the Congress to try to influence monetary policy, let me briefly describe another proposal which envisions exactly that. This bill would require the FOMC to carry out monetary policy according to a simple equation and require immediate congressional hearings and a GAO audit whenever monetary policy deviates from this equation.17 Simple policy rules of this nature are used by the FOMC and by central banks around the world as a guide to policy. No central bank applies them in such a mechanical fashion, and there is very little support among economists for doing so.18 Based on my own experience in business, in government service, and in life, I doubt that important decisions can be reduced ultimately to such an equation. The most such a rule might do is get you 80 percent of the way there; that last 20 percent makes all the difference.

Finally, there has been discussion in the Congress of imposing new restrictions on the ability of the Fed to respond as it did with liquidity facilities during the financial crisis. Although I am not aware of a specific bill at this point, the idea is to limit the Fed's authority under section 13(3) of the Federal Reserve Act, under which the Fed is empowered to lend "in unusual and exigent circumstances" to firms beyond banks for the purpose of containing a financial crisis.

The Fed used this emergency lending authority to provide liquidity in the face of a systemwide panic that threatened the financial system. As the crisis receded, the Congress took two related actions. First, it gave the regulators what they had badly needed during the crisis, which was a means of resolving the largest financial institutions without threatening the financial system. Second, the Congress prohibited emergency loans to individual firms but retained the Fed's ability to establish broadly available lending programs during a crisis, with the prior approval of the Secretary of the Treasury and timely notification of the Congress.

This tradeoff came after extensive consultation between the Congress and the Federal Reserve. And I believe that it struck a reasonable balance. I also believe it would be a mistake to go further and impose additional restrictions. One of the lessons of the crisis is that the financial system evolves so quickly that it is difficult to predict where threats will emerge and what actions may be needed in the future to respond. Because we cannot anticipate what may be needed in the future, the Congress should preserve the ability of the Fed to respond flexibly and nimbly to future emergencies. Further restricting or eliminating the Fed's emergency lending authority will not prevent future crises, but it will hinder the Fed's ability to limit the harm from those crises for families and businesses.

Conclusion
In our democratic system, the Federal Reserve owes the public and the Congress a high degree of transparency and accountability. The Congress has wisely given the Fed the tools it needs to implement monetary policy and respond to future crises as well as crucial independence to do its work free from short-term political influence. I would urge caution regarding current proposals that threaten just such political influence and place restrictions on the very tools that so recently proved essential in preventing a new depression. Congressional oversight of the Federal Reserve, including its conduct of monetary policy, is extensive, but no doubt could be improved in ways that do not threaten the Fed's effectiveness. I would welcome discussions with the Congress about ways to aid its important oversight of monetary policy. There may be differing views of how Congress can best carry out this responsibility, but there can be no disagreement about the purpose of such oversight, which is to help the Federal Reserve succeed in promoting a healthy economy and a strong and stable financial system. Those are the goals Congress assigned the Federal Reserve a century ago, and I am optimistic that Congress and the Fed will continue to work together to pursue them on behalf of the American people.

1. The views expressed here are my own and not necessarily those of other members of the Federal Open Market Committee.

2. See Federal Reserve Transparency Act of 2015, H.R. 24, 114 Cong. (2015); and Federal Reserve Transparency Act of 2015, S. 264, 114 Cong. (2015).

3. See Federal Reserve Transparency Act of 2015 in note 2.

4. See Banking Act of 1935, ch. 614, 49 Stat. 684 (1935).

5. See Ben S. Bernanke (2010), statement before the Financial Crisis Inquiry Commission, Washington, D.C., September 2; and Ben Bernanke (2009), closed session (PDF) of the Financial Crisis Inquiry Commission, Washington, D.C., November 17.

6. On the effectiveness of the Fed’s unconventional monetary policy, see Eric M. Engen, Thomas T. Laubach, and David Reifschneider (2015), "The Macroeconomic Effects of the Federal Reserve’s Unconventional Monetary Policy Actions (PDF)," Finance and Economic Discussion Series 2015-005 (Washington: Board of Governors of the Federal Reserve System, January); Joseph Gagnon, Matthew Raskin, Julie Remache, and Brian Sack (2011), "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, vol. 7 (March), pp. 3-43; Stefania D'Amico and Thomas B. King (2013), "Flow and Stock Effects of Large-Scale Treasury Purchases: Evidence on the Importance of Local Supply," Journal of Money, Credit and Banking, vol. 44 (February, issue supplement s1), pp. 3-46.

7. On the effectiveness of the Fed's emergency lending, see Sean D. Campbell, Daniel M. Covitz, William R. Nelson, and Karen M. Pence (2011), "Securitization Markets and Central Banking: An Evaluation of the Term Asset-Backed Securities Loan Facility," Journal of Finance, vol. 68 (April), pp. 715-37; and Tao Wu (2011), "The U.S. Money Market and the Term Auction Facility in the Financial Crisis of 2007-2009," Review of Economics and Statistics, vol. 93 (May), pp. 617-31.

8. For example, see Statistical Release H.6, "Money Stock Measures," on the Board's website.

9. See the Federal Reserve Bank of New York's webpage "System Open Market Account Holdings" .

10. See Board of Governors of the Federal Reserve System (2014), "Federal Reserve Issues FOMC Statement on Policy Normalization Principles and Plans," press release, September 17.

11. See "Federal Reserve System Audited Annual Financial Statements" on the Board's website. Return to text

12. The reports are available on the GAO's website.

13. See "Credit and Liquidity Programs and the Balance Sheet" on the Board's website.

14. The seminal research establishing a link between central bank independence and macroeconomic performance is Alberto Alesina and Lawrence H. Summers (1993), "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, vol. 25 (May), pp. 151-62. More recent research finds the relationship to be less solid, however, in part because independent central banks have in several cases been instituted precisely because economic performance has been subpar; for example, see Christopher Crowe and Ellen E. Meade (2007), "The Evolution of Central Bank Governance around the World," Journal of Economic Perspectives, vol. 21 (4), pp. 69-90; Christopher Crowe and Ellen E. Meade (2008), "Central Bank Independence and Transparency: Evolution and Effectiveness," European Journal of Political Economy, vol. 24 (4), pp. 763-77; and N. Nergiz Dincer and Barry Eichengreen (2014), "Central Bank Transparency and Independence: Updates and New Measures," International Journal of Central Banking, vol. 10 (1), pp. 189-259.

15. See Robert J. Samuelson (2008), The Great Inflation and Its Aftermath: The Transformation of America's Economy, Politics, and Society (New York: Random House).

16. See the figure "Annualized 12-Month PCE and Core PCE Inflation" that shows inflation and core inflation over time.

17. See Federal Reserve Transparency Act of 2015 in note 2.

18. As part of its ongoing Initiative on Global Markets (IGM) poll, the University of Chicago, Booth School of Business, asked 44 prominent economists to respond to the following statement: "Legislation introduced in Congress would require the Federal Reserve to "submit to the appropriate congressional committees…a Directive Policy Rule," which shall describe "the strategy or rule of the Federal Open Market Committee for the systematic quantitative adjustment of the Policy Instrument Target to respond to a change in the Intermediate Policy Inputs." Should the Fed deviate from the rule, the Fed Chair would have to "testify before the appropriate congressional committees as to why the [rule]…is not in compliance." Enacting this provision would improve monetary policy outcomes in the U.S." None of the participants agreed with the statement, and almost all disagreed or strongly disagreed. The results of the poll are available on the Booth School's IGM Forum website at www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_doNZ9FbNq7tDi97.

Wednesday, November 1, 2017

Maya Soetoro-Ng



Maya Soetoro-Ng is President Obama’s sister and a specialist for the Matsunaga Institute for Peace. She is the co-founder of Our Public School, a non-profit that connects schools to their communities, and the co-creator of Ceeds of Peace, a peace education program that has been implemented in schools and communities around Hawaii.

Previously, Soetoro-Ng worked as an assistant professor at the University of Hawaii and taught in both private and public settings in New York City and in Hawaii. She also worked at the East West Center, promoting educational exchange between Asia and the United States. Soetoro-Ng received a Masters degree in Secondary Education from New York University and a PhD in Multicultural Education from the University of Hawaii.

Monday, October 30, 2017

Rothbard and Friedman

By Peter G. Klein
In a recent social media discussion someone raised the issue of Murray Rothbard's relationship with Milton Friedman. I reported that Rothbard had a good relationship with Friedman and other academic libertarians in the 1950s and early 1960s, with Friedman even recommending Rothbard for a post at Chicago. Thanks to the Mises Insittute's archivist Barbara Pickard I have the details handy. In early 1956 Friedman discussed with Richard Cornuelle, then running the Volker Fund, the possibility of getting Rothbard to Chicago for a postdoctoral fellowship. Friedman wrote that he and his colleagues "would be delighted to have Rothbard apply for one of these" and that "I am sure he will be considered very favorably" though he could not guarantee acceptance. Ultimately, Rothbard decided not to apply, presumably because of his strong preference to remain in New York. It's interesting to wonder how the academic libertarian movement might have developed if Rothbard had gone to Chicago.
More generally, Rothbard and Friedman reportedly had a cordial relationship until the early 1960s. According to Rothbard: "There was another group coming up in the sixties, students of Robert LeFevre’s Freedom School and later Rampart College. At one meeting, Friedman and Tullock were brought in for a week. I had planned to have them lecture on occupational licensing and on ocean privatization, respectively. Unfortunately, they spoke on these subjects for thirty minutes and then rode their hobby horses, monetary theory and public choice, the rest of the time. Friedman immediately clashed with the Rothbardians. He had read my America’s Great Depression and was furious that he was suddenly meeting all these Rothbardians. He didn’t know such things existed." 
By 1971 Rothbard's view of Friedman became highly critical, as described in his essay "Milton Friedman Unraveled," in which he described Friedman as "the Establishment's Court Libertarian."

The above originally appeared at Mises.org.

Saturday, October 28, 2017

Sunday, October 22, 2017

Wednesday, October 11, 2017

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)