Friday, 20 May 2022

The cost-of-living crisis: "It’s not such things as 'supply shocks' or war that's responsible

"All of this [i.e., rapidly rising costs and the resulting cost-of-living crisis] is the result of continuous inflation of the money supply by [central banks]. As a result of the [bank]’s actions, tens and hundreds of billions of new and additional dollars have poured into the economic system, correspondingly increasing spending and driving up prices. There are more and more billionaires and millionaires and shockingly high-priced goods simply because of the flood of new and additional money coming from the [banking system].
    "It’s not such things as '[supply] shocks' or [war] that's responsible. Without the flood of new and additional money, increases in the price of oil and [groceries] would be accompanied by decreases in the price of practically everything else. This is because practically all of whatever additional money was spent in buying oil et al. would have to be taken away from spending elsewhere, since the overall total ability to spend in the economic system would be limited by a limited quantity of money. And the rise in the price of oil and [groceries] would also not be nearly as great as it has been....
    "The [central banks] and the rest of government seem to think that their job is always to be sure that the stock market averages and the price of homes is never to be allowed to fall too far below their most recent peaks, and to flood the economy with as much new and additional money as may be required to accomplish this.... One would think that a sharp reduction in home prices is the very thing needed ... and that the process needs to go a good deal further than it has, in order to do so.
    "For the present and the foreseeable future, there is probably nothing that will stop the [central banks] from continuing with its inflation. Leading pressure groups are ardently in favour of it: ... share owners want it; the great majority of businessmen large and small want it; bankers and brokers want it; homeowners want it; labour unions want it; the political establishment wants it.... To the extent that the environmentalist agenda of declining energy production is imposed, inflation will be used to finance subsidies to the growing numbers who will be impoverished by it. Their expenditure of those subsidies will drive up prices for everyone else and cause further impoverishment and the need for more subsidisation and for still more inflation to pay for it."
~ George Reisman, from his post 'A Creditor's Protection Bill' [emphasis added]. For a more detailed explanation of why "supply shocks" do not cause economy-wide price increases, read Chapter 19 [starting page 895] of his economic treatise Capitalism [free pdf here]

Thursday, 19 May 2022

'Say "No!" to Fiscal Child Abuse'


"Deficit spending, funded by borrowing, will have implications for the youngest in society. An unbalanced budget has to be funded, and if this is funded by additional borrowing, then future generations will bear the burden of paying off the debt. This is 'fiscal child abuse'...”
    “A responsible political party and government would, at the very least, balance the budget ... Instead, [they] fund a series of deficits by borrowing, thereby mortgaging the lives of future generations."
          ~ Julian Darby, from his 2009 press release 'Say "No!" to Fiscal Child Abuse'


""As the power of caucus has weakened, the role of communication specialists become more dominant."

"In an earlier era the caucus room was the amphitheatre in which issues of the day were fiercely debated. That happens less frequently and the caucus is served decisions that have already been pre- cooked in the Beehive and discussed and digested with coalition and/or support parties.
    "Covid has tended to strengthen that trend.
    "As the power of caucus has weakened, the role of communication specialists become more dominant. Ministerial offices have more of them and the Department of Prime Minister & Cabinet has a small army, all marching to the same drumbeat."

Wednesday, 18 May 2022

""Two hundred years ago, before the advent of capitalism, a man’s social status was fixed from the beginning to the end of his life..."

"Two hundred years ago, before the advent of capitalism, a man’s social status was fixed from the beginning to the end of his life; he inherited it from his ancestors, and it never changed. If he was born poor, he always remained poor, and if he was born rich—a lord or a duke—he kept his dukedom and the property that went with it for the rest of his life.... This rigid system of feudal society prevailed in the most developed areas of Europe for many hundreds of years....
    "Descriptive terms which people use [today however] are often quite misleading. In talking about modem captains of industry and leaders of big business, for instance, they call a man a 'chocolate king' or a 'cotton king' or an 'automobile king.' Their use of such terminology implies that they see practically no difference between the modern heads of industry and those feudal kings, dukes or lords of earlier days. But the difference is in fact very great, for a chocolate king does not rule at all, he serves. He does not reign over conquered territory, independent of the market, independent of his customers. The chocolate king—or the steel king or the automobile king or any other king of modern industry—depends on the industry he operates and on the customers he serves. This 'king' must stay in the good graces of his subjects, the consumers; he loses his 'kingdom' as soon as he is no longer in a position to give his customers better service and provide it at lower cost than others with whom he must compete."

~ Ludwig Von Mises, from his 1958 'First Lecture on Capitalism,' collected in 'Economic Policy: Thoughts for Today and Tomorrow


Tuesday, 17 May 2022

Napkin Maths to Explain Inflation

Spending and printing money does not, and did not, stimulate the economy, David Sukoff reminds us in this guest post. It is however the root cause of inflation...

Napkin Maths to Explain Inflation

Guest post by David Sukoff

Legend has it that back in 1974 Arthur Laffer explained supply-side economics on a paper napkin and so the Laffer Curve was born. He concluded the explanation with, “and the consequences are obvious!” In that particular case, it was that when you tax something more, you get less of it. And the important converse: lower taxes increase economic growth. (Laffer’s Curve was used to demonstrate that in some cases slashing tax rates can actually increase tax revenue.)

Similarly simple demonstrations could be done to show that increasing the minimum wage reduces employment, or that free trade benefits both parties. With all the recent consternation about inflation, it is therefore long overdue that we take the 'napkin' approach to show a simple truth: that  the root cause of inflation is printing money (by which we mean, in the way things are presently managed, borrowing new money into existence to spend on things your or the government otherwise couldn't pay for).

Sure, we could write books, academic papers, hold town hall meetings and debate endlessly. For some economic issues, though, only a paper napkin is required. In order for napkin maths to be applicable, the explanation must be intuitively obvious, empirically obvious, and, of course, the maths is demonstrable on a napkin (or, the corollary to the Napkin Math Rule—a 900-word blog piece like this).

At the outset, we need to realise that inflation is, above all else, a monetary phenomenon (as Daniel Aguilar ably explains on another napkin over here). When money is printed, or borrowed into existence, prices in an economy will tend to rise.

Period. Full stop.

For the inflation napkin, we could start by drawing a historical graph of a currency's money supply -- in this case, of the American dollar. It is no coincidence that the inflection point for increased printing is March 2020. That is right around when the federal government ramped up the printing press to "stimulate" a Covid economy -- and lo and behold, inflation has begun to run rampant ever since.

The intuitive and elegant equation for the remaining space on the napkin involves a fraction. 
  • The denominator (the bottom number) is the total supply of money. 
  • The numerator (the top number) can represent almost anything. For the napkin, it’s simply X. 
  • If the denominator is increased, then the value of X, relative to the amount of money in the system, is less. It's not rocket science, just basic incontrovertible arithmetic. Napkin maths.
And it doesn't even matter what 'X' is. As an example, imagine a few people are stuck on an island where the only goods in their small economic system are coconuts -- and the total amount of money among them all is $100. On Monday coconuts are selling for $5 each. But if on Tuesday the island government then prints and distributes another $100, and nothing else happens, then the price of a coconut will become $10. As an equation, this would be 5/100=10/200. Since there are twice as many dollars in circulation, each dollar can now buy half as much as it used to. (Or, as we would more normally say it, the price of a coconut has doubled!)

What if, though, we instead increase the supply of coconuts. Let’s suppose there were originally 20 coconuts. Then, by some miracle of nature, there were 40 coconuts. If the money supply increased from $100 to $200, then coconuts would still be worth $5. Thus, the island government could 'match' the growth in the economy by printing money such that the money supply kept up with the supply of goods. If it prints additional money however, above the growth in coconuts, then prices will rise. We are still comfortably on the napkin.

The US economy is more complex than that, of course. But the logic and maths still hold. The empirical evidence on inflation supports the simple logic and math—just as it repeatedly has for Laffer.

The first so-called stimulus bill of the Covid era passed on March 27, 2020—right around the inflection point on the money supply graph. It was $2.2 trillion. The second passed on December 21, 2020 for $900 billion of so-called stimulus spending on top of the omnibus spending bill. The third so-called stimulus bill, this one dubbed the American Rescue Plan Act, passed on March 10, 2021 and was $1.9 trillion, making it a total of $5 trillion of so-called stimulus spending. This is on top of the original spending trajectory. Since we are still on the napkin, we can approximate on the money supply graph: it is currently $22 trillion, while extending the pre-inflection path would have it somewhere around $17 trillion. Thus, the money supply increased above its previous path by roughly the amount of the three so-called stimulus bills - i.e., $22T - $17T = $5T. (That's a five, followed by twelve zeroes!)

The resulting inflation has been so historically vast as to cause us to grab another napkin, or two. Given the obviousness of the relationship between money supply and inflation, one might wonder why it took so long for inflation to arrive after passage of the various bills. The Napkin Maths answer is both intuitively and empirically clear: we started seeing it much earlier, it simply manifested itself in other places. Again, more napkins would be required, but we could draw graphs of housing, stocks and shares, bitcoin, stonks, SPACs, private securities, etc. It was happening the moment the printing presses started whirring: Asset prices inflated, and consumer goods followed. It was easy for non-knowledgable commentators to miss, because, more's the pity, these things aren't measured in the official inflation figures.

Sadly, we all now are suffering for these policy blunders. The double whammy, of course, is that not only did the government print money, causing inflation, they did it in the midst of an economy-crushing pandemic. In a sense, our policymakers eviscerated the value of the dollar and at the worst possible time. The consequences were obvious: a monumental transfer of wealth to existing asset holders (increasing inequality), an insidious misallocation of capital (increasing chances of a bust), and the highest inflation in generations.

Government is now, as it is wont to do, pointing the finger in all directions—except at itself—and discussing policy solutions that not only do not address the root cause of the issue, but are almost certain to exacerbate it.

The simple fact is, they are to blame. And the further and even simpler fact is this: that spending and printing money did not, and does not stimulate the economy—instead, it is the root cause of inflation. As simple as the explanation is, the policy path is clear: stop spending, er, printing money!

* * * * 

David Sukoff

Dave Sukoff is an advisor to the investment management community and previously co-founded and ran a $500mm fixed income relative value fund. He is also the co-founder of a software company and inventor on multiple patents. Dave graduated from MIT, where he majored in finance and economics.
His post first appeared at the Foundation for Economic Education (FEE).

Monday, 16 May 2022

"The Modern World Can't Exist Without These Four Ingredients. They All Require Fossil Fuels"

"Modern societies would be impossible without mass-scale production of many man-made materials....
    "Four materials rank highest on the scale of necessity, forming what I have called the four pillars of modern civilisation: cement, steel, plastics, and ammonia are needed in larger quantities than are other essential inputs. The world now produces annually about 4.5 billion tons of cement, 1.8 billion tons of steel, nearly 400 million tons of plastics, and 180 million tons of ammonia. But it is ammonia that deserves the top position as our most important material: its synthesis is the basis of all nitrogen fertilisers, and without their applications it would be impossible to feed, at current levels, nearly half of today’s nearly 8 billion people.
    "The dependence is even higher in the world’s most populous country: feeding three out of five Chinese depends on the synthesis of this compound. This dependence easily justifies calling ammonia synthesis the most momentous technical advance in history: other inventions provide our comforts, convenience or wealth or prolong our lives—but without the synthesis of ammonia, we could not ensure the very survival of billions of people alive today and yet to be born....
    "[T]hese four materials, so unlike in their properties and qualities, share three common traits: they are not readily replaceable by other materials (certainly not in the near future or on a global scale); we will need much more of them in the future; and their mass-scale production depends heavily on the combustion of fossil fuels...
    "Fossil fuels remain indispensable for producing all of these materials.
    "Ammonia synthesis uses natural gas both as the source of hydrogen and as the source of energy needed to provide high temperature and pressure. Some 85% of all plastics are based on simple molecules derived from natural gas and crude oil, and hydrocarbons also supply energy for syntheses. Production of primary steel starts with smelting iron ore in blast furnace in the presence of coke made from coal and with the addition of natural gas, and the resulting cast iron is made into steel in large basic oxygen furnaces. And cement is produced by heating ground limestone and clay, shale in large kilns, long inclined metal cylinders, heated with such low-quality fossil fuels as coal dust, petroleum coke and heavy fuel oil.
    "As a result, global production of these four indispensable materials claims about 17 percent of the world’s annual total energy supply, and it generates about 25 percent of all CO2 emissions originating in the combustion of fossil fuels. The pervasiveness of this dependence and its magnitude make the decarbonisation of the four material pillars of modern civilisation uncommonly challenging....
    "Modern economies will always be tied to massive material flows, whether those of ammonia-based fertilisers to feed the still-growing global population; plastics, steel, and cement needed for new tools, machines, structures, and infrastructures; or new inputs required to produce solar cells, wind turbines, electric cars, and storage batteries. And until all energies used to extract and process these materials come from renewable conversions, modern civilisation will remain fundamentally dependent on the fossil fuels used in the production of these indispensable materials. No artificial intelligence designs, no apps, no claims of coming 'dematerialisation' will change that."

~ Vaclav Smil, from his Time article 'The Modern World Can't Exist Without These Four Ingredients. They All Require Fossil Fuels' -- adapted from his new book How the World Really Works. Hat tip Jo Nova, who comments "Not the kind of article we’d [normally] expect to see in Time magazine. A 100% endorsement of the inescapable need for fossil fuels."

Friday, 13 May 2022

"People are asking the wrong questions about abortion...."

"People are asking the wrong questions about abortion.
    "To determine whether a foetus has rights, the questions we must answer [first] are not 'When does life begin?' or 'Is a foetus a human being?' Rather, the questions are:
    "What are rights?
    "Where do they come from?
    "How do we know it?
    "To whom do rights apply?
    "If you can answer these questions soundly—with evidence to support your answers—you can know whether a foetus has rights. If you can’t, you can’t. Indeed, if you can’t answer these questions soundly, you can’t know whether anyone has rights."
~ Craig Biddle, from his article 'Abortion and the Questions We Must Answer'

Thursday, 12 May 2022

Exorbitant Money Creation + Unhampered Government Spending = Stagflation

Too much government spending and too-loose monetary policy lead to rising prices, and falling economic growth rates. The Keynesian theories on which continuing monetary expansion is based lead not to continuing prosperity but to stagflation. Keynesian garbage in, garbage polices and economics destruction out. The 
The problem is not just local, it is worldwide. Again and again, the belief has been proven wrong that central bankers could guarantee so-called price stability, and that fiscal policy could prevent economic downturns. The looming inflationary crisis is one more piece of evidence that interventionist monetary and fiscal policies are disruptive. Instead of a permanent boom, explains Antony Mueller in this guest post, the result is stagflation....

Stagflation—a Keynesian Curse

Guest post by Antony Mueller

“Stagflation” characterises economies that are plagued by inflation, combined with economic stagnation. This is where most of the world is right now, because of the failed (and failing) economic policies they have all followed. In this case, the conventional Keynesian macroeconomic toolkit of monetary and fiscal policy, that offers no help in fixing the crisis it has caused.

Rising price inflation rates and tanking economies are the results of the policy mix that has dominated past decades. It has become common to believe that decades of expansive monetary and fiscal policies would not cause price inflation; that the expansion was 'all under control'; that policies of so-called price stability had somehow 'tamed' the inflation caused by the state's usual money printers. 

As recently as 2020, economic policy worldwide followed the false consensus that combatting the fallout from the lockdowns with additional money creation and higher government spending would lead to an economic recovery without higher price inflation. It was blithely assumed that what appeared to work in 2008 -- flooding economies with newly-minted cash -- would also function in 2020. However, policymakers ignored the difference between the two episodes.

In the aftermath of the financial crisis of 2008, the stimulus policies did not immediately turn into price inflation, as it's commonly measured, because the newly-created money remained largely in the financial sector and it only spilled over into the real economy in a big way in rocketing house prices (exacerbated in NZ by sclerotic land and housing policies). Outside of this generational calamity, the main effect of the policy of low interest rates was to support the stock market and to provide a windfall to financial investors. While Wall Street flourished, Main Street was left on the sidelines -- and while profits surged, wages remained stagnant.

But this time it's different. In 2008, the production side of economies were 'mismatched' due to the earlier credit expansion, but still intact; but this time, they are severely damaged by a major pandemic.  The crisis of 2008 left the capital structure of the real economy intact. Due to the lockdowns, however, this is no longer the case. Consequently, severe interruptions of the global supply chains have happened. In such a constellation, new stimulus measures further weaken already fragile economies. 

The present situation is less like 2008, which most of of us still remember, and more like the oil price shock in 1973 -- which too many current economic practitioners and advisers have forgotten. At that time, like now, the external shock hit an economy rampant with liquidity. Stimulating the economy by fiscal and monetary expansion produced not prosperity but long-lasting stagflation. Back then, along with “stagflation,” the term “slumpflation” was coined to characterise an economy that is mired in a deep slump that then gets devastated by price inflation.

When stagnation and recession show up together with price inflation, the conventional macroeconomic policy becomes impotent. Applying the Keynesian recipe to an economy whose capital structure is still intact inflates bubbles; but applying it to one who capital structure has already been ravaged invites disaster.

Intentionally or by ignorance, policymakers neglected the long-term effects of their doing. Going this wrong way led to such aberrations that policymakers and their intellectual bodyguards even tended to believe that some truth could be found in the alchemy of the so-called modern monetary theory and market monetarism.

The consequences of these policy errors have now come to light. They are particularly grave because they were committed by all major central banks and the governments of all leading industrialised countries. They all follow the concept of “inflation targeting.” Other than timing, there has been not much difference among the policies of major Western economies. Japan is a special case only insofar as its policymakers have applied the Keynesian recipe for over three decades by now.

Let us have a look at Japan first and then at the United States -- who both offer lessons for New Zealand.


Japan began applying vulgar Keynesianism as early as in 1990. Faced with a slight downturn after the boom of the 1980s, instead of allowing things to cool down, the Japanese leadership instead insisted on going on with the show.

Yet, the more the government began to accelerate public spending and increases the fiscal stimuli, the less its spending policy produced economic recovery. Even when monetary policy fully supported the government’s expansive fiscal policy, the hoped-for recovery did not materialise.

John Maynard Keynes, on whose theories this "rescue" was based, once advised that policy-makers should ignore advice that such loose spending would lead to destruction in the long run -- "in the long run," he quipped, "we're all dead." But Japan's short run is now the long run: its policy mix of fiscal and monetary expansion has been going on now for three decades. In recent times, the Bank of Japan even doubled down, setting extremely low-interest rates and finally resorting to negative interest rates (NIRP). In the meantime, public debt as a percentage of the gross domestic product (GDP) rose to a whopping 266 percent (see figure 1).

Figure 1: Japan: Policy interest rate and public debt as a percent of GDP

Despite its magnitude, this stimuli did not lift the Japanese economy out of its quagmire. Instead, economic growth remained anemic for a quarter of a century (figure 2).

Figure 2: Japan: Annual economic growth rates of real GDP

As an “early starter” in applying vulgar Keynesianism to its 'macroeconomy,' the Japanese economy was also early to suffer from productivity stagnation. Unlike economies like the United States, France, Germany, and many other industrialised countries, which have continued with productivity gains over the past decades, after it had begun with its extreme Keynesianism in the 1990s Japan's has moved sideways (and New Zealand, for slightly different and equally tragic reasons, has followed a similar path -- figure 3).

Figure 3: Productivity per hour worked: Germany, United States, France, Japan, New Zealand

It is important to note that one of the most devastating effects of the Keynesian policy mix is its effect on productivity. A country’s long-run economic progress (or growth, as it's often called) is mostly the result of productivity gains. Labour productivity is the main determinant of wages. A slowdown in productivity precedes the economic decline. When the output per unit of input tends to fall, even lower interest rates will not stimulate business investment. The marginal productivity of debt, already low, diminishes even faster -- and further. 

And when government then jumps in to compensate for this “lack of aggregate demand,” things get even worse because governmental enterprises are fundamentally less productive than the private sector.

The United States

Confronted with the financial crisis of 2008, the US government abandoned any sense of economic responsibility and decided instead to launch a series of stimulus packages. The American central bank provided full support, drastically reducing its interest rate.

As a result, the ratio of public debt to GDP rose from 62.6 percent (in 2007) to over 91.2 percent just three years later (in 2010), reaching a full 100.0 percent in 2012. The next two boosts came in the wake of the policies to counter the effects of the economic lockdowns, when the ratio of public debt to GDP rose to 128.1 percent in 2020 and to 137.2 in 2021 (see figure 4). It took less than fifteen years to more than double an already barely-sustainable debt -- and, unfortunately, New Zealand governments chose a similar destructive trajectory.

Figure 4: The United States: Policy interest rate and federal debt as a percentage of GDP

Figure 4a: New Zealand: Policy interest rate and government debt as a percentage of GDP

In the face of the crisis in 2008, the American central bank brought down its interest rate quickly from over 5 percent in 2007 to under 1 percent in 2008 (NZ's meanwhile dropped its rate from 8% to 2.4% over the same period). After a short-lived period when the American central bank tried to raise the interest rates, the consequent market reaction of falling prices of bonds and stocks induced the Fed to resume its policy of “quantitative easing” that combined low interest rates with the massive expansion of the monetary base. 

Then, in early 2020, still trying to escape from the bear-trap of quantitative easy, it also began trying to "ease" the economic effects of the lockdowns with its patent brand of monetary salve, deciding to continue with its expansive monetary policy. And not just to continue, but to accelerate! In due course, the central bank’s balance sheet rose to $7.17 trillion in June 2020, reaching $8.96 trillion by April 2022. Once again, New Zealand's Reserve Bankers followed the lead.

Figure 5: Balance sheet of the US Federal Reserve System & NZ Reserve Bank

As figure 5 shows, the Fed had tried to trim its balance sheet somewhat from 2015 to 2019 when it had brought down the sum of its assets to $3.8 trillion in August 2019. Yet beginning already in September 2019, many months before the lockdown was implemented, the balance sheet of the American central bank began to expand again and reached over four trillion before the additional big increase happened due to the fallout from the lockdowns. (And, once again, NZ's central wbankers followed their 'expansive' lead.)

Since the time before the financial crisis of 2008, the assets of the Federal Reserve System rose from $870 billion in August 2007 to a whopping $4.5 trillion in early 2015 and to around nine trillion US dollars in early 2022.

Even when inflation rates began to rise towards the end of 2020, the US central bank had kept its policy of tapering small and refrained from tightening. The monetary authorities had simply abandoned the objective of reining in the money supply, becoming instead almost Wall Street's banker. Each time they tried to tighten monetary policy, the financial markets began to tank and tended to crash. As soon as the central bank began to raise its policy rate of interest, the bond market began to tank and took the stocks down with it. In 2022, it was not different. Yet in early 2022, the policymakers could not shrink back. Different from the episodes before, the price inflation had begun to skyrocket (see figure 6, and NZ following in almost lockstep, figure 6a).

In the first months of 2022, stagflation became fully visible. While price inflation rose, the rate of real economic growth began to fall. In the first quarter of 2022, the US inflation rate moved up to a rate of 8.5 percent, while the real annual growth rate fell by 1.4 percent. Similar things were happening in the South Pacific.

Figure 6: United States: Policy interest rate and official consumer price inflation rate

Figure 6a: New Zealand: Policy interest rate and official consumer price inflation rate

Of course, none of this should come as any surprise. With global supply chains in disarray, and national protectionism on the rise, the assistance that came from the expansion of international commerce after the crisis of 2008 is no longer with us. The lockdown of economies has severely hurt the global system of supply chains -- and now, a huge monetary overhang meets a shrinking production. The war in Ukraine, which started in February 2022, is not to blame for the distortions, albeit it will make them more severe.


The levee broke. Price inflation is on the rise. This is the result of the accumulation of liquidity that has been going over decades. There is the risk that things will get worse because the world economy has been severely wounded by the lockdown. More so than only mild stagflation, a “slumpflation” looms on the horizon as the world economy gets mired in the morass of a deep slump combined with steeply rising price inflation.
But the problem was not inevitable -- it is a result of specific policies followed out on the basis of flawed economic theory. Local politicians are right in one way to blame the problem on global issues -- the problem is that this destructive Keynesianism is everywhere, and as long has it is, so will the problems.

* * * * 

Author: Dr. Antony P. Mueller is a German professor of economics currently teaching in Brazil. See his website and blog. A version of this post previously appeared at the Mises Wire.

Wednesday, 11 May 2022

Q: How do you cure inflation? A: You stop printing money.

INTERVIEWER: How do you cure inflation?

HAYEK: You stop printing money.

~ Friedrich Hayek, from an interview with Meet the Press, Hat tip David Henderson, who points out that Hayek later goes on to explain it more accurately: "In a sense, stopping the printing presses is a figurative expression, because it is being done now by creating credit by the Federal Reserve System." And it still is!

Tuesday, 10 May 2022

“Reason and free enquiry are the only effectual agents against error.…"

“Reason and free enquiry are the only effectual agents against error. … Reason and persuasion are the only practicable instruments. To make way for these, free enquiry must be indulged; and how can we wish others to indulge it while we refuse it ourselves.”
~ Thomas Jefferson, from his Notes on the State of Virginia, written around 1782, Hat tip Gary Judd QC, who reckons that in here we can find laid out the principles of a civilised society. (And he's right, you know!)

Monday, 9 May 2022

Friday, 6 May 2022

"There was a time when a community would understand that with a more or less fixed resource base, the more the government spends the less is available for the rest of us."

"There was a time when a community would understand that with a more or less fixed resource base, the more the government spends the less [is] available for the rest of us. They would also have understood, perhaps only dimly, that governments cannot manage productive forms of enterprise.... The government is desperate for money to cover the massive debts it has wracked up.... they are going to have to cover their debt from the only source available, from the people who live [here]."
~Steven Kates, from his post on Australian Interest Rates and [Their] Deficit [NZ graph from Trading Economics]

Thursday, 5 May 2022

"...censorship is a concept that pertains *only* to governmental action." [updated]

"Freedom of speech means freedom from interference, suppression or punitive action by the government -- and nothing else. It does not mean the right to demand the financial support or the material means to express your views at the expense of other men who may not wish to support you. Freedom of speech includes the freedom not to agree, not to listen and not to support one's own antagonists. A 'right' does not include the material implementation of that right by other men; it includes only the freedom to earn that implementation by one's own effort. Private citizens cannot use physical force or coercion; they cannot censor or suppress anyone's views or publications. Only the government can do so. And censorship is a concept that pertains only to governmental action."
~ Ayn Rand, from her column 'The Fascist New Frontier,' collected in The Ayn Rand Column
"For years, the collectivists have been propagating the notion that a private individual’s refusal to finance an opponent is a violation of the opponent’s right of free speech and an act of “censorship.”
    "It is 'censorship,' they claim, if a newspaper refuses to employ or publish writers whose ideas are diametrically opposed to its policy.
    "It is 'censorship,” they claim, if businessmen refuse to advertise in a magazine that denounces, insults and smears them . . . .
    "And then there is Newton N. Minow [then chairman of the Federal Communications Commission] who declares: 'There is censorship by ratings, by advertisers, by networks, by affiliates which reject programming offered to their areas.' It is the same Mr. Minow who threatens to revoke the license of any station that does not comply with his views on programming—and who claims that that is not censorship....
    "[This collectivist notion] means that the ability to provide the material tools for the expression of ideas deprives a man of the right to hold any ideas. It means that a publisher has to publish books he considers worthless, false or evil—that a TV sponsor has to finance commentators who choose to affront his convictions—that the owner of a newspaper must turn his editorial pages over to any young hooligan who clamors for the enslavement of the press. It means that one group of men acquires the 'right' to unlimited license—while another group is reduced to helpless irresponsibility."

~ Ayn Rand, from her article 'Man's Rights,' collected in The Virtue of Selfishness

Hat tip Gus Van Horn, who observes that the misunderstanding she identifies persists today; that the complaints made by "collectivists" in Rand's day "are basically identical to the ones conservatives like to make about various social media outlets today" -- and that while Elon Musk's heart appears to be "in the right place" on free speech, he still seems to labour under the illusion that "support for free speech merely means support for whatever the government happens to allow." Which is simply not the case.
To be clear [says Van Horn], while I often disagreed with the way Twitter moderated its platform, I appreciated then (and do now) that it is, ultimately, its owner's property to do with as he pleases. 
    But that doesn't make it any less disturbing to see Elon Musk riding in like the white knight he intends to be -- but spouting the same nonsense about (what the left has caused everybody to regard as) "censorship," thereby helping pave the way for the government to come in and impose the real thing.

 That said, argues Truth on the Market, while acknowledging that "Musk’s idea that Twitter should be subject to the First Amendment is simply incoherent" -- and, worse, by further confusing folk about who can censor whom, perhaps pave the way for real censorship to grow legs (disinformation commissars, anyone?)-- "his vision for Twitter to have less politically biased content moderation could work."

There has been much commentary on what Musk intends to do, and whether it is a realistic way to maximise the platform’s value. As a multi-sided platform, Twitter’s revenue is driven by advertisers, who want to reach a mass audience. This means Twitter, much like other social-media platforms, must consider the costs and benefits of speech to its users, and strike a balance that maximises the value of the platform. The history of social-media content moderation suggests that these platforms have found that rules against harassment, abuse, spam, bots, pornography, and certain hate speech and misinformation are necessary.
    For rules pertaining to harassment and abuse, in particular, it is easy to understand how they are necessary to prevent losing users. There seems to be a wide societal consensus that such speech is intolerable. Similarly, spam, bots, and pornographic content, even if legal speech, are largely not what social media users want to see.
    But for hate speech and misinformation, however much one agrees in the abstract about their undesirableness, there is significant debate on the margins about what is acceptable or unacceptable discourse, just as there is over what is true or false when it comes to touchpoint social and political issues. It is one thing to ban Nazis due to hate speech; it is arguably quite another to remove a prominent feminist author due to “misgendering” people. It is also one thing to say crazy conspiracy theories like QAnon should be moderated, but quite another to fact-check good-faith questioning of the efficacy of masks or vaccines. It is likely in these areas that Musk will offer an alternative to what is largely seen as biased content moderation from Big Tech companies.
    Musk appears to be making a bet that the market for speech governance is currently not well-served by the major competitors in the social-media space. If Twitter could thread the needle by offering a more politically neutral moderation policy that still manages to keep off the site enough of the types of content that repel users, then it could conceivably succeed and even influence the moderation policies of other social-media companies.
Let the Market Decide
    The crux of the issue is this: Conservatives who have backed antitrust and regulatory action against Big Tech because of political bias concerns should be willing to back off and allow the market to work. And liberals who have defended the right of private companies to make rules for their platforms should continue to defend that principle. Let the market decide.


Wednesday, 4 May 2022

"...allow people long dead to talk inside our heads."

"For 99 percent of the tenure of humans on earth, nobody could read or write. The great invention had not yet been made. Except for firsthand experience, almost everything we knew was passed on by word of mouth. As in the children’s game 'Telephone, over tens and hundreds of generations, information would slowly be distorted and lost.
    "Books changed all that. Books, purchasable at low cost, permit us to interrogate the past with high accuracy; to tap the wisdom of our species; to understand the point of view of others, and not just those in power; to contemplate — with the best teachers — the insights, painfully extracted from Nature, of the greatest minds that ever were, drawn from the entire planet and from all of our history. They allow people long dead to talk inside our heads. Books can accompany us everywhere. Books are patient where we are slow to understand, allow us to go over the hard parts as many times as we wish, and are never critical of our lapses....
    "Books are key to understanding the world and participating in a democratic society."

~ Carl Sagan, from his 1995 book The Demon-Haunted World: Science as a Candle in the Dark

Tuesday, 3 May 2022

'The Clash of Economic Ideas': The Perfect Book for Understanding Our Economic Climate

Once again, we face an economic crisis (stagflation? crash? debt bonfires?) from which few appear to have long-term answers. As guest reviewer David Weinberger outlines, Lawrence White's book does a masterful job of reconstructing the twentieth-century's contest over economic ideas of our time, helping to explain why the noisiest economists today seem to have so little of sense to say .... and from whom the most sense (and best answers) might be found.

'The Clash of Economic Ideas': The Perfect Book for Understanding Our Economic Climate

guest review by David Weinberger

Few books on economics today are readable, let alone interesting, but Lawrence White’s The Clash of Economic Ideas (2012) is both. It offers a lively overview of the major policy debates of the last century and the economists who shaped them, and in so doing it provides helpful context to make sense of our current economic landscape.

For example, what caused economists to move away from free-market ideas? Contrary to what many assume, it was not the Great Depression. Dr. White explains that two ideologies developed in the late-nineteenth century: first a political movement known as “Progressivism,” and second an intellectual movement known as the “German Historical School.” Together they encouraged the belief that “experts,” or self-anointed leaders of a newly emerging “scientific” mode of inquiry, should use the government to direct other people’s lives. Furthermore, early forms of Marxism and Socialism were also seducing intellectuals into self-flattery at this time. It is thus no wonder that in the US, federal power was significantly expanded around the turn of the 20th century, through legislation such as the Sherman Antitrust Act, the Hepburn Act, the Federal Reserve Act, as well as the establishment of the federal income tax. [And here in New Zealand, the illiberal Liberals with the persuasive influence of Pember Reeves were busily ramping up the engine of state for the First Labour Government to then manufacture NZ's Welfare State.]

Moreover, the growth of government power was hardly unique to these places. In fact, major countries around the globe centralised their economies in even more destructive ways. The disaster of Soviet communism is well known. Lesser known, however, is the economic record of Nazi Germany. An important section of the book delineates the extent to which the National Socialist German Workers (Nazi) Party exacted control of the economy under Hitler, which included exchange controls; a centralized “Four Year Plan”; nationalised agricultural policies; import quotas; price and wage controls; rationing; and decrees dictating the quantities of goods that businesses must produce. Put simply, the Third Reich was no friend of free markets.

As much of the world degenerated into centralised graveyards during the 1930s and 1940s, capitalism remained under fire due to the mistaken belief that it caused the Great Depression plaguing the globe, which cast serious doubt on free-market solutions. Nevertheless the mercurial F.A. Hayek -- fresh from his best-selling success with The Road to Serfdom -- emerged to combat this erroneous view. Together with others including Milton Friedman and Karl Popper, they launched the Mont Pelerin Society in 1947 to reintroduce the virtues of free enterprise and classical economic principles, and to expose the folly of central planning.

Building on the insight of earlier economists like Ludwig von Mises, one of their arguments against centralisation was that government planners face an intractable “calculation problem.” In a free economy, businesses plan based on information provided by prices on the market, which are determined by firms and entrepreneurs freely bidding for resources. If a business plans a project that cannot cover the cost of resources plus earn a profit, it means that the fruit of that project—the final good or service—is not in high enough demand by consumers to render the use of those resources worth the cost, and the business should not proceed. This profit-and-loss calculation is vital for planning and growth, both for individual firms and for the economy, and its absence lies at the heart of what is wrong with central planning. Lacking market prices, central planners have no way to know whether their plans cover their costs, which leads to a squandering of resources and wealth so monumental that even basic necessities like food go unproduced. Hence the widespread famines engendered by communist states.

Moreover, consider the fate of the consumer in each of these cases. While we often hear that under capitalism corporations “exploit” customers, the truth is that in a profit-and-loss economy consumers are ultimately the ones in control. They decide the price of the products and services that corporations produce, not the other way around. Firms survive by pleasing consumers, by producing goods and services that their customers want, which is all the more reason why price signals are imperative for planning, as even minor miscalculations by a business can mean the difference between survival and failure. Under communism, by contrast, the consumer counts for nothing and state planners face no consequences for exploiting them while recklessly devouring resources. They, not the desires of the customer, dictate what resources get created and in what quantities.

White does a masterful job of reconstructing issues like these - including a masterful takedown of the Keynes/Fisher fiscal and monetary meddling that still plagues us today -- and readers will walk away with a good introductory grasp of the economists and ideas that animated the policy debates over the last hundred years. For that, it is well worth a read.

* * * * 

David formerly worked at a public policy institution. Follow him on Twitter @DWeinberger03. Email him at His article previously appeared at the Foundation for Economic Education.

Monday, 2 May 2022

"Why do consumers, who interact with markets every day, have essentially no idea where prices come from?"

"Why do consumers, who interact with markets every day, have essentially no idea where prices come from? I think it’s because they have zero incentive to learn. If I’m a price-taking customer buying in a competitive spot market, then all that matters to me is the price. I could have a crazy theory about where the price comes from that involves the phases of the moon and the appetite of my pet cat. Or I could have a sophisticated theory based on supply and demand analysis. The market won’t punish me for my crazy theory any more than it will reward me for my sophisticated theory. In many areas, knowing something makes you better at it. Knowing about ocean currents and weather patterns makes you a better sailor. Knowing about chemistry and physiology makes you a better pharmacist. But knowing about supply and demand does nothing to make you better at grocery shopping. This is one of the virtues of free markets–they require precious little economic knowledge from their participants. On the other hand, this is one of the great challenges of economic education. People have little tangible incentive to learn and understand economics."
~ Washington Uni economist Ian Fillmore, quoted in 'People Don't Understand Prices'

Saturday, 30 April 2022

"Once upon a time there were Progressives who actually believed in progress..."

'From Wealth is Good to Wealth is Bad,' etc.
- diagram from Stephen Hicks's book Explaining Postmodernism

"Once upon a time there were Progressives who actually believed in progress, who despite their flaws did believe in a brighter and better future. These were supplanted c. 1970 by a new Left with the new motto 'Learn to live with less, you hate-filled greedy bastards!' The Apollo programme was the last hurrah of the old Progressives, and Earth Day environmentalism was a manifestation of the new Left that supplanted them.
          "Now those actually-for-progress Progressives had some major flaws. One was a willingness to bulldoze people’s personal plans in favour of their own Big Plans For Society. Another was to seriously underestimate just how poisonous socialism and government regulation are to an economy. But they still favoured a better, brighter, more prosperous future in a way the 'Learn to live with less!' Earth Day leftists did not."
          ~ commenter 'Deep Lurker' at Samizdata 

Friday, 29 April 2022

"The NZ Reserve Bank is now in panic mode...."


"After keeping the cash rate so low for so long, and embarking on a $53 billion quantitative easing programme, the [NZ Reserve] Bank is now in panic mode. Those having trouble paying back their mortgages in the next few years can blame our RBNZ Governor [Adrian Orr] and Finance Minister [Grant Robertson]. They encouraged a borrowing binge to buy [and borrow against] houses at wildly inflated prices, financed by dirt-cheap credit, turning a blind eye to the breach of the target to which they mutually agreed, and not learning the lessons of the global financial crisis in 2008.
    "The RBNZ was once lauded around the world for making NZ exceptional. It pioneered inflation targeting. We became the gold standard [sic] of monetary credibility.
    "Now, our hard-fought success and huge reputation built up over thirty years lie in ruins.... our RBNZ Governor and Finance Minister have driven a truck through the single most important agreement underpinning our economic security since 1989."
~ Auckland Uni economics professor Robert MacCulloch, from his op-ed 'The case against the Reserve Bank & Finance Minister'


Thursday, 28 April 2022

Out-of-focus on inequality

“People who focus on inequality often seem to forget a historical fact: market economies have allowed a great many people to get rich and to get out of poverty. This effect is unprecedented in history. ... The speed at which the market economy allows sections of humanity to get us out of poverty should make us marvel."
~ French economic journalist Jean-Philippe Delsol, from his essay 'The Great Process of Equalization of Conditions' collected in the Anti-Piketty: Capital for the 21st Century, pp5-6 [readers of The Anti-Piketty, says this review/summary, will be innoculated against Piketty’s ill-considered analysis and policies]


Wednesday, 27 April 2022

Piketty's (and David Parker's) blind spot

Since Revenue Minister David Parker is such a fan of French statistics-diddler Thomas Piketty (the man who claims the world is ripe for “participatory socialism”), and it is Piketty's principles that seem to be guiding Parker's just-announced "far-reaching" fiddling with the tax-and-surveillance system, it's worth reminding ourselves of one of Piketty's major blind spots; that, as Steve Fritzinger points out in this guest post, while they're both happy to attack (and tax) wealth, neither he (nor Parker) apparently have any idea how that wealth was created, and whom it really benefits ...

Piketty's (and Parker's) Blind Spot

Guest Post by Steve Fritzinger

In an old joke, President Bush (it doesn’t matter which one) claims that the problem with the French is that they have no word for "entrepreneur." I don’t know if that joke is supposed to be on the Bushes, the French, or both. I do know that readers of French economist Thomas Piketty’s book Capital in the Twenty-First Century might be convinced that the joke is actually true.

Piketty’s opus is an economic tome 700 pages long. It purports to show that the central problem with capitalism is that return on investments automatically grows faster than the economy as a whole. If true, that phenomenon would allow a small group of investors to grab an ever-increasing share of the world’s wealth. Eventually, those economic overlords would essentially own everything. All the land. All the machines. All the opportunities to live a happy life.

In Piketty’s view, the only thing that has saved us from this fate so far is the wholesale destruction caused by a pair of world wars. If not for that silver lining in an otherwise very dark cloud, average people would already be little more than serfs, living at the pleasure of a filthy-rich leisure class that produces nothing.

Since its publication, Piketty’s book has received its share of praise and criticism. On the left, progressives believe Capital is the ultimate justification for their political program. Free-market economists, on the other hand, have questioned his data sources and methods. Pundits on both sides have debated his policy recommendation of a global wealth tax to leech away the riches’ ill-gotten gains.

Other commentators are better qualified than I am to judge the empirical quality of Piketty’s work. I’d like to concentrate instead on his peculiar blind spot.

For a book about wealth, Piketty is shockingly incurious about where wealth comes from. In the first half of the book, the word "entrepreneur" is only used in the technical accounting sense of income earned by working for oneself. The idea that the entrepreneur takes risks and works hard to build new businesses is almost completely absent.

To Piketty, wealth is something that is inherited or something that one lucks into. People who receive income from investments aren’t frugal. They aren’t engaged in the socially useful activity of capital formation. They are not funding new businesses or shepherding new products to market.

In Piketty’s view, they are “rentiers,” a word that a French-speaking acquaintance tells me has unseemly, possibly even dirty, connotations. It implies that the rentier never lifts a finger. Like a Mafia Don, the rentier receives a cut of all the economic activity that occurs in his “territory” simple because he controls it.

As someone who has had his share of success and failure with investing, I can tell you that generating above-average returns for decades is not as easy as Piketty thinks. As famed tech investor Marc Andreesen noted in a recent interview, “The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I've ever met.... He assumes it's really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that's supposed to happen.”

About halfway through the book, Piketty admits that his depiction of the rentier might be a little harsh. He assures the reader that he uses the word only in a narrow, technical sense and means no insult by it.

But this admission comes after hundreds of pages discussing rentiers and would-be rentiers who are willing to lie, cheat, and even murder to keep or gain their coveted status. Piketty frequently turns to characters from Jane Austen and Honoré de Balzac novels to illustrate just how bad “rentiers” are. After that litany of capitalist villains, methinks the economist doth protest too much. An inattentive reader might miss Piketty’s disclaimer and come away thinking pitchforks and torches are in order.

Though his ideas of how productive capital works might be a bit off, there is one form of capital that does closely match Piketty’s expectation. That is political capital. Having powerful friends is the closest you’re likely to get to a risk-free, high-yield investment.

Take, for example, former U.S. Secretary of State Hillary Clinton. Clinton claims that when she and President Clinton left the White House in 2001, they were worse than “dead broke." They were actually drowning in debt. Today, the Clintons enjoy a fortune estimated to be worth more than $100 million. From dead broke to the 1 percent of the 1 percent in 12 short years. That’s a rate of return that should make professor Piketty quake in his boots.

Far from fearing the returns on political power, Piketty sees it as the solution to our problems. He proposes the creation of a worldwide 80 percent annual wealth tax, with periodic extra assessments, to both tax away huge fortunes and fund government programs Piketty thinks are needed to reduce inequality. Enforcing this tax would require the equivalent of a global, financial NSA capable of tracking every economic transaction everywhere and a global police force to make sure no one dodges his or her obligations.

Piketty seems oblivious to the abuses inherent in such an organisation.

Seeking to protect us from a potential economic elite who would have too much control over our lives, Piketty would give more power to the existing political elite that already has too much control over our lives. Fortunately, Piketty himself admits that there is no chance of nations implementing his schemes. That won’t stop progressives from trying, though. The amount of damage they are likely to inflict on the world might make the rest of us wish we were living in a Balzac novel.

* * * * 

Steve Fritzinger is a business consultant in the Washington, D.C., metro area. He the regular Economics Commentator on the BBC World Service Business Daily programme, where he uses Austrian Economic ideas to explain current events and other puzzles. He wrote the annotated version of “Fear the Boom and Bust,” the first Keynes/Hayek rap video, and blogs at 2nd Hand Ideas. Steve is a founding member of Liberty Toastmasters, a DC-based group dedicated to helping liberty advocates develop public speaking skills, and is a member of Liberty on the Rocks DC.


"But the odd thing about this life is always that you spend half your time trying to get people to listen to you and the rest of the time trying to get them to leave you the fuck alone."
          ~ musician Tom Waits, from a 2011 interview

Tuesday, 26 April 2022

The "anti-imperialism of idiots" + "the Americocentric delusion" = Putin?!

"The anti-anti-Putin Left are most usefully described as 'campists,' whose geopolitical philosophy is summed up by the phrase 'the enemy of my enemy is my friend.' America is the font of all evil, therefore its opponents must have something going for them.
    "The British-Syrian writer Leila Al-Shami calls this 'the anti-imperialism of idiots': 'This pro-fascist Left seems blind to any form of imperialism that is non-western in origin. It combines identity politics with egoism. Everything that happens is viewed through the prism of what it means for westerners....' Russia’s unprovoked war of imperialist aggression is as inconvenient to campists as China’s oppression of the Uyghurs. Either they must find a way to blame America after all or they must downplay the issue. Left-wing support for corrupt authoritarians such as Venezuela’s Nicolas Maduro and Nicaragua’s Daniel Ortega is disappointing enough, but sympathy with Vladimir Putin, Bashir al-Assad and Xi Jinping is symptomatic of a morally broken worldview."

~ Dorian Lynskey, from his column 'Why the Left is split over Ukraine.'  Hat tip Perry de Havilland, who observes sagely that a similar criticism also applies to certain libertarians/conservatives in the grip of the Americocentric delusion...