"Erratic, ill-defined, and incoherent." And that's just the policies.

"Trump’s current tariff policy is also erratic, ill-defined, and incoherent. Its justification swings between the mutually exclusive goals of protecting industries through import-exclusion from abroad on one hand, and raising tax revenue from the very same imports as part of a scheme to replace income tax on the other....
    "When Trump bluffs then retracts a tariff threat to attain diplomatic concessions, tariffs are merely a negotiating device.
    "When he pulls the tariff trigger on the same nation a few days later, we’re told that it’s to address a national-security 'emergency' on the border or part of a plan to somehow offset Chinese steel production by taxing Canadian steel.
    "When the markets crash, it’s all part of an elaborate four-dimensional chess game to restructure the global economy.
    "Administration talking points about the dangers of a tariff-induced recession change by the hour, ranging from denying any threat of economic turmoil to insinuating that some purposeful economic “reset” of the global trading system is afoot. ...
    "The implementation this time around has been pure chaos. ...
    "This confusion is the result of an ideological battle being fought inside the White House...."

~ Phil Magness from his article 'The Nonsense of the “Tariff Men”'

"The RMA’s starting position is that you need permission. It is going to be dumped." But ...

"Did you know it costs 50% more to build a house here than it does in Australia? ...
    "We [sic] have successfully regulated our housing market so tightly that only the children of existing homeowners can obtain the financing to purchase property. We [sic] have created a landed gentry. ...
    "There are two reasons for this; land use restrictions and building regulations.
    "Let’s start with land use. The Resource Management Act, or RMA, began life in 1991 as a blueprint for preventing Kiwis doing anything with their land unless it complied with a national environmental plan and had the consent of the local council. ...
     Again. ...
    "Simon Court, the Act MP and Undersecretary with the responsibility for drafting the replacement, has a different outlook. You can do whatever you want with your land, so long as it does not interfere with someone else’s property or rights. [Not true. See below.* - Ed.]
    "[But] this reform is 18 months away and will be in place for less than a year before the next election. ... National and Act have had six years to draft their RMA replacement. [And they haven't. - Ed.]
    "There are plenty of interested parties who would have contributed to this effort and a bill should have been ready to present to a select committee in the first hundred days. [Yes, it damn well should have been. - Ed.]
    "The longer any RMA replacement has to gain acceptance the more durability it will enjoy upon a return to a Labour-led government, and Labour have their RMA bill already drafted and ready to go; that being the one Court and his mates deleted on Christmas Eve. [Not to mention the not-insignificant regime uncertainty in the market until the replacement Act filters down to council's 'planners.' - Ed.]

~ Damien Grant, from his over-optimistic column 'Housing market so tightly regulated we’ve created landed gentry'

* Court's most-developed explanation of his proposed 'Urban Development Act' begins this way:

"Under ACT’s Urban Development Act, limits for urban development would continue to be based on locally-decided [council] plans."

So rather than a plethora of sackings of the unproductive, Court — a 'planner' himself by profession — proposes instead to keep his colleagues planners hard at work.

"These plans [his 'reform' plan continues] have democratic mandates [sic] and protect the legitimate expectations of property owners, while allowing councils to plan for infrastructure delivery."

Translation: Our party's two leading MPs represent home-owners in the country's leafiest suburbs, pledged to protect the unreasonable expectations of those suburbs' home-owners about what can be built next door.

"Councils [says Court] will not be permitted to restrict housing density more than the Auckland Mixed Housing Suburban zone."

Auckland's MHS "zone," by the way, essentially mandates for more of the same tightly restricted suburbia. And this confirms that zoning will still be with us, as well as planners. (How this reflects, as Grant says, 'doing what you want on your land as long as it doesn't affect someone else's property right,' Court alone knows. I suggest they both read Bernard Siegan.) 

"These zoning rules [Court says] have already been validated [sic] through extensive litigation in the Environmental Court ..."

One would have expected to see the back of that meddling court damned soon. Sadly, it seems however, we have a Court who refuses to meddle enough in his 'reforms,' and is doing it so damn slowly we will have years of uncertainty in what folk can plan to build on their own land.

 

When they refrain in Spain, prosperity remains

 

In the wake of New Zealand’s first MMP election we were without a central government for several weeks. When it became clear the sky was not falling in without a government to hold it up, the then-leading business daily published a headline: “The Libertarianz were right all along.”

With an even longer experiment, Spaniards are discovering something similar: that Spain’s economy is expanding robustly without a government:

Spain has been without a full-fledged government since December. Doubts about who will form the next one have persisted since the divided parliament elected that month failed to install a prime minister and was dissolved. A newparliament, elected in June, is also deadlocked among four major parties, none close to a majority.
    Mariano Rajoy, the conservative leader who was elected during the recession in 2011 and has overseen three years of recovery, remains in office as acting prime minister but with no power to propose legislation or spend on new projects. Parliament next week is expected to reject his bid for a second term, as head of a minority government, creating the possibility of yet another general election.

Meanwhile, out in the real world away from the Spanish ‘beltway’ and unencumbered by the otherwise regular torrent of new legislation or spending on political projects,

The eurozone’s fourth-largest economy is on track to expand around 3% this year, outpacing the International Monetary Fund’s projections for France, Germany and the U.S.

So now matter how bad a country’s rules and regulations are, seems that simply removing the uncertainty of changes in all those rules and regulations is enough on its own to give an economic system a boost.

Nice lesson.

It’s the flip side of regime uncertainty.

.

When did homes start becoming unaffordable?

 

When did homes start becoming unaffordable? Good question.

From 1957 to the late-1980s the median New Zealand house price was between two-to-three times the median annual household income. Back then they were affordable.(A city’s housing affordability is generally defined as having the median house price less than or around three times the median income.)

By the late 1990s, the average house price had already risen to four times the average household income, and houses began becoming inexorably unaffordable.

It wasn’t until 2008 however that headlines began happening and home-buyers became seriously worried, as prices peaked at a seriously unaffordable six and a half times the median household income in 2008. … 

They peaked in other places. But in Auckland they just kept on going up. In Auckland now, they’re rapidly approaching a severely unaffordable ten times the median household income.

If you're paying for your house out of your average income, I think you'd agree that's a very rapid rise into the territory marked as "severely unaffordable."

Great if you’re a home-owner.

Murder if you're not.

So what happened in the 90s to begin that tick up into unafforability?

Well, the 1992 Building Act is one. Far from being deregulation, as some still risibly claim, it implemented a new multi-volume building code, a new building bureaucracy, and an ageing and failing superbureaucrat to oversee it all. He failed very soon, as it happens, but we are left with the rotting bureaucratic system he left us that adds months to a consent preparation and application, and many thousands to the building cost of every house. (And as costs became higher and profits lower, fewer spec builders bothered to even try building-to-sell the new houses they had previously.)

Another thing that happened in the 1990s was National’s Resource Management Act, introduced by Simon Upton and then administered without change by Nick Smith (yes, children, that Nick Smith now insisting he must change it), an Act that brought about the greatest attack on property rights since the war and, with it, the most severe restrictions on the supply and use of building land ever seen before in this once nearly-Freeland.

So those are two reasons for home-buyers to weep right there. (Three, if you include the thought of Nick Smith.)

And what happened in Auckland around 2011? If you answered “Rodney Hide’s super-fucking-bureaucracy began really kicking in,” I reckon you might just get the prize. The new super-bureaucrats have made the city more expensive, building more difficult, and planning a development infinitely more uncertain – especially with the six-year process of implementing their Unitary Plan, which has created tremendous regime uncertainty¹ among property owners and investors.

Even with an earthquake that destroyed most of its inner city and eastern suburbs, Christhurch has done better – which makes Rodney Hide’s amalgamation a bigger bloody housing disaster than their earthquake.

And while the city has always been ring-fenced by the central planners, it is only perhaps in the last few years that the ring-fence has become a serious constraint – one that the new Unitary Plan is reported to retain!

The story remains that unaffordable cities are generally cities that are constrained from building, and constrained from expanding.

More tomorrow.

NOTES:

1. Regime uncertainty is a concept developed by Robert Higgs describing a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights.
    Higgs uses this concept to explain the seriousness and prolonged duration of some economic crises, like the Great Depression or the current 'Great Recession.‘
    According to Higgs, regime uncertainty explains at least in part the sluggish pace of the current economic recovery.
    Regime uncertainty pertains to more than the government's laws, regulations, and administrative decisions. For one thing, as the saying goes, "personnel is policy." Two administrations may administer or enforce identical statutes and regulations quite differently. A business-hostile administration [such as Len Brown’s] will provoke more apprehension among investors than a business-friendlier administration [sorry, can’t think of one], even if the underlying "rules of the game" are identical on paper.

.

Unitary Plan: The planners strike back*

 

The many-mirrored maze through which Auckland’s proposed Unitary Plan is finally decided upon – the plan through which planners gain detailed control of your property – lurches closer towards resolution.

When it came out of the Independent Hearings Panel, it was much less then this common-law loving blogger would have liked, but far better than anyone with my sympathies could have expected. And then it went on to the planners for them to tinker with it again. And the planners have struck back!

Not for them to sit back while some Independent Panel of geeks knocks some of their new power-base form under them.  Their recommendations to council, reviewing those of the Panel, put back in many of the more intrusive things the Panel recommended leaving out.

Of the Panel’s headline recommendations, I found one bad, one very bad, three good, one mostly good, and one very good. That’s not bad. But what is bad is what the planners have done now.

What I was calling very good news is now gone – the Taniwha Tax is back. So that’s now very bad.

They’ve essentially put the kibosh on any ambitions Aucklanders may have for Tiny Houses, those often cunningly crafted wee places folk are falling into overseas as a means to get into a city economically. Nah, say our planners. Not welcome here. We are going to insist on “minimum dwelling sizes” in our city. Fuck you, planners. Fuck you very much. Very bad news.

The planners want to strengthen the city’s ring-fence – what they call the rural-urban boundary – the thing that delivers land-bankers risk-free profits and guarantees future carpet sprawl. That thing. They insist we keep it. More very bad news.

There is more, and it’s massive, and none of the news is good.

The Council themselves are expected to vote on this final 618-page set of recommendations next week. Goog luck with that.

And good luck with knowing what the final outcome is going to be. It’s going to be a bunfest, that’s about all we do know.

And this bunfest has been going on now for years.

So if you’ve found yourself wondering why many empty sites around town are still empty, one answer is probably this: Regime Uncertainty. If you’re uncertain what decrees the regime in power is going to issue, then any wise investor ready to unleash his supply chain is going to sit on his hands until he knows what’s up. And he’s going to do that, even if folk are crying out even when supplies are running short …

[* Thanks to Toby  Manhire for the quip]

.*

Unitary Plan: Good news, bad news

 

Since 1:30pm yesterday, when it was released on the council website, every single person in this great little city of ours who is anything to do with land or building or housing has been huddled over their phones, tablets and computers finding out what our most learned lords and masters might be about to allow us all to do on our land. [Notwithstanding that “the very idea of a single long term plan for a 16,100sq km, largely rural region containing a rapidly growing and diversifying urban mass is flawed.”]

I speak of course of the Auckland Unitary Plan.  Written by planners, debated by bureaucrats, shredded by NIMBYs, and argued about by councillors, the “Independent Hearings Panel” yesterday issued its decree on all those deliberations that everyone fully expects to be voted into law on August 19. [Read it all here, if you have days to wade through it. It will take you 5 days. *]

Most of the commentary since release is simply talking its book, so I’ve most mostly just ignored it. [Although I had to laugh at Radio New Zealand calling up two people in Grey Lynn as their “couple of Aucklanders” to talk to.]

Lets start from the beginning. Every rule in a Plan is telling you something you can't do. If you didn't want to do it, they wouldn't need a rule to stop you; so every single rule is an imposition on your property rights. That makes it a plan to hinder your plan. [Maybe time to re-read ‘Capitalists Have a Better Plan.’]

At the same time, every one of your neighbours has the same property rights as you. And they probably have the same or similar expectations of peaceful enjoyment on their property as you do on yours. So that provides the only moral justificatinon for their rules.

Cities grow organically, or try to, reflecting the individual choies folk make in their own context. Planners prefer the shoehorn, making museum-pieces of the parts of cities they favour, and insisting other parts be cooked only to their own recipe.

So in the absence of genuine common law protections of your legitimate rights in your land -- protecting you and your neighbours rights to light and air and support etc., all or any of which can be negotiated between each of you to your own mutual satisfaction (setting up a network of delightful concatenations that help to build an organic city) -- the council's plan is the only thing you have in law protecting you from a new fifteen-storey glue factory next door.

And that's written by planners, well-paid busybodies well-schooled in the idea that they know best. 

So how does their proposed Auckland Unitary Plan shape up in protecting legitimate property rights while limiting the usual impositions on what you can do?

These are just my first impressions

• The plan generally allows you to do more on your land. Good news. On some land a lot more, on most land a little more—and mostly without taking your neighbour’s sun. So mostly good news.
• But almost everything you want to do now on your land will require the expense, delay and massive uncertainty of a resource consent. Bad news. Very bad news. So more folk will sit pat, either waiting for a knock on the door from a developer  with more staff and resources than they have to bust through all the hoops, or just putting up with what they already have, wary of putting their head in the planners’ noose. And meanwhile, more planners everywhere will find employment, and delude themselves they’re productively employed -- and your rates on these newly-intensified sites will go up. (Anf if you vote the vile Vic Crone, go up savagely!)
• The so-called Taniwha Tax has been axed [listen here to the wailing], removing the need on some sites to apply to up to a dozen iwi for a “Cultural Impact Assessment.” Good news. Very good news. This may be thrown out the front door only to make its way in via the back (note for example “that sites of value to mana whenua should be disregarded until the ‘evidential basis of their value has been assembled’”), but sanity at this stage seems to have prevailed. You can probably thank all those so noisily opposed for that. (But eternal vigilance , people. Eternal vigilance.)
• The blanket prohibition on looking sideways on pre-1944 “heritage” property has gone. Good news on the face of it, allowing these to be used and re-used much more imaginatively. But Heritage Overlays and the like still remain in many parts of the city (as of course do the provisions of the Hysterical Places Act) so there are still serious barriers in place to redeveloping or upgrading so-called heritage property.
• The rural-urban boundary – the planners’ ring-fence surrounding Auckland and protecting land-bankers’ risk-free profits, has not been smashed. Only moved. So imaginative hamlet development or the like out south or west is still subject to a blanket ban. And as even Labour’s Phil Twyford recognises, “just moving the boundary encourages speculation and land banking to shift to the new boundary.  Only scrapping the boundary will lead to land prices stabilising.” So in the short-term it will

THERE ARE TWO WAYS for mine to gauge what the plan represents:

• have the planners allowed folk to live as and where they want? in other words, are they Pro-Choice?
• has the plan made it safe again to be a spec builder? in other words, are they Pro-Affordable Housing?

1.On the first: on the battle over Up or Out, or sprawl versus intensification (as the dichotomy is falsely labelled) the planners and Independent Panel have still cast most weight in the scales for up. Sort of. So in the issue of being Pro-Choice – by which I mean, letting folk live how and where they demand to – we’ve only moved a baby step at best.

2. And on the second: since its birth this city was largely built by small spec builders who bought a spection on spec, building a fine house, and the selling it t a happy family at a small profit. For the longest time now and for all but the top end of the market, that model has mostly been broken. We need to fix spec building to make Auckland affordable again. This plan still does not do that. It has made it safe to be a bigger builder or developer, with the staff and resources to weather the process and all the delays of any development. But all the small spec builders are still largely shut out. You can guess what that means for affordable housing.

Now, with all the regime uncertainty of waiting for the arrival of this long-gestating and much misunderstood Plan, there will be literally thousands of folk who have been sitting on their hands unwilling to risk a cent until they have some certainty. The plan’s release will at least guarantee an explosion of projects in the immediate pipeline.  But with every new project still an uncertain one, with all the delays of a resource consent involved in every one, we may not have the full explosion that the bid for affordable housing really needs.

.

---

* Hugh Pavletich makes the pithy point:

… "If I was to read this at normal speed, at about 200 words per minute, that would take me in excess of 55 days to read this Unitary Plan."
    The report comes in several parts. It comprises two main overview chapters, published as separate PDFs, which tally 207 pages combined.
    The 80 individual reports are each between 12 and 37 pages long.
    Housing campaigner Hugh Pavletich​ is scornful of the sheer size of the Unitary Plan.
    "If a plan is any more than a thumbnail thick, it is irrelevant because it is beyond people's ability to get their heads around it," he said.
    But that's just what Auckland's councillors will have to do - they have until August 19 to decide if they accept the recommendations.
    The above comment actually came from the late Owen McShane … God bless him.

Why “releasing” land doesn’t necessarily make land cheaper

 

There are many things to be said about the fatuous idea that simply having a National Policy Statement ordering the council to “release” land for housing is going to fix Auckland’s housing bubble, or take us any closer to making housing affordable.

Land has already been “released” for thousands of houses, but as that doesn’t mean that thousands of houses have been built. The reasons for that are complex, but can be relatively easily explained.

It’s true that the highly-restricted supply of land is one of the three major reasons whay young people can’t afford a house. But you can’t build an affordable home on a $500,000 section – so unless land costs drop savagely, simply “releasing” some planners’ chosen land by rezoning it doesn’t on its own transform it into land that can be built on affordably.

The problem really is that as long as planners constrain land supply at all, which they will continue to do, then the price of land zoned urban will remain well above the same or equivalent rural-zoned land – and the many dislocations and unintended absurdities of their “planning” will continue.

Recent comments by Phil Hayward posted at (then removed from) the Transport Blog capture the problem. Much new-home building is presently delayed in Auckland by the “regime uncertainty” of waiting to see what smoke signals emerge from behind the closed doors of the Unitary Plan’s Commissioners. But even when the Unitary Plans is finally finalised and enshrined, and even with the government’s new National Policy Statement in place enforcing the release of land when political trigger points are hit, people’s private property will still only be “released” to them in locations and under conditions of the planners’ choosing, and of political necessity.

“Upzoning” will tend to occur therefore not where there are better amenities and infrastructure, points out one commenter, nor where there is highest demand, but where there are fewer NIMBYs.

In my opinion [continues the commenter] they would be better off with sprawl than having density only in the outer areas areas (which is the perfect recipe for slums).

As Phil Hayward responds,

The result of this kind of perverse mix of planning actions is to distort the spatial distribution of population density in an urban area in the direction that average commute distances are increased. Alain Bertaud pointed this out about Portland more than 10 years ago. I believe it can be literally seen on Google Earth – every city with growth containment planning, has unnaturally dense developments near the urban fringe and even way out beyond it. In contrast, if you look at more naturally evolving urban areas, the density drops pretty uniformly from the centre to the fringe and beyond. A density curve on a graph looks like Mt Fuji. This is an efficient spatial distribution of population density. But the growth-containment cities tend to have spikes in density way out at the edge of the curve, and a concave look further in. Basically, the focus should be on intensifying in the right places, and NEVER arbitrarily prohibiting splatter suburban greenfields development, which always gooses the land values (and causes more intense developments where the opposition is less, which is usually “the wrong places”)…
    It is simply wrong to claim “30 years supply of land has been zoned [for housing], therefore [planners] cannot be responsible for the price inflation.” Is ANY of that 30 years supply of land still changing hands at prices reflecting true rural land prices? In the absence of the boundary policy, yes, land with development potential would still be obtainable at prices reflecting true rural land price, plus a “differential” reflecting its proximity. This is textbook stuff – the classical urban land rent curve with a slope like Mt Fuji.
    Every urban area with a boundary policy ends up with an urban land rent curve that looks more like a Mesa. The values are not “differentially” derived according to classical land economics assumptions, but derived “extractively”, or by “monopolistic competition.”
    A comparable hypothesis would be if a global governing body had the authority to decree which nations should and shouldn’t be able to drill and sell oil, based purely on the proximity of the oil to major consumers. Firstly, a lot of the “best sited” oil might be nowhere near the cheapest to actually extract. And the locals, land owners, and local governments, may not want oil drilled there either. The planners might well argue that they know “there is 30 years supply of oil in the zone we have drawn” but who would accept that oil price inflation would be no fault of the planning? Of course the “willing sellers” within the zone have far more power than OPEC, to price-gouge – without even having to collude. The large size of our average rural land holding does not help. It is different in European countries where rural land ownership is in myriads of absurdly tiny farmlets.

· As Phil explains, urban land economics are not easily explained in tabloid headlines.

If only more people understood the complex way urban land markets work.
    High, “extractive” urban land rents actually slow down intensification all by themselves, regardless of NIMBYs. Britain’s planners have been thwarted for decades by this effect, and never “get it”. Every “plan” upzones more and more existing built areas, but the assumptions that “x percent of this will translate into actual development” NEVER WORKS. Planner John Stewart is the author of a paper that estimates that new houses in the UK will need to last 2000 years because the rate of turnover of housing stock is so stagnant. John made a point of meeting me a couple of years ago when he was out here on holiday, because he wanted to understand why the plans never translated into actual housing supply (and he has decades of experience). Auckland’s planners need to be confronted with this evidence and asked why they think a different outcome is possible.
    The data for housing supply by city in the USA, shows the following regarding Houston [which has no zoning] versus Portland and New York [which have extensive zoning]:

        1) Houston’s total housing supply is, in proportion, several times higher than Portland / New York.
        2) Houston’s housing supply is made up of a mix of 1/3 intensification, 2/3 greenfields.
        3) Houston’s 1/3 that is intensification, is alone, higher than TOTAL housing supply in Portland / New York

The thing is that land markets are dynamic in ways never dreamt of by planners calcified zones.

Plans that assume an unrealistic proportion of supply by way of intensification merely end up collapsing not only total housing supply, but even the likely amount of intensification that COULD have happened in the absence of the distorted urban land market.
    The reality in the UK, Portland, New York and now Auckland, is that the Planning, including the upzoning, causes site-value inflation, and this is an incentive to site owners to “hold” in anticipation of more inflation, not an incentive to develop.

Simple economics explains that when a product can be reproduced at will, then its supply price tends toward its cost of production—as we seem in markets for widgets. By contrast, when a product’s supply is restricted, its supply price tends to be set by the competition among buyers for the limited supply on offer – just as we see in markets for art and gold and bullion. And sure enough, we have it here too with land:

As the LSE’s Prof. Paul Cheshire says, Britain’s urban land markets function like markets for gold and bullion, not land markets classically “allocating land to best uses” at all. [And we see the same thing with land under every restrictionist regime.] In contrast, if you own a site in [unzoned] Houston Central, the best way to make more money out of it, is to develop the site with more floor area, assuming that the demand is there for it. The rate of price inflation is not enough to make “holding it” the best option. And the site values are NOT “elastic to allowed density” as they are in the UK and Auckland. Putting more units on a site really DOES mean that the site value is divided up over more units. But obviously there are many cities where this is not true, otherwise Hong Kong would be the shining example of affordability rather than Houston.

[NB: Most of Phil’s comments posted above originally appeared as comments posted at the Transport Blog, which were removed by that blog’s moderator.]

RELATED POSTS:

• “WHAT DOES THIS MEAN for our own housing market? It means that no matter how many people with Chinese-sounding names are standing around hoovering up local houses, that matters not a jot to prices just as long as local houses are reproducible at will. Put it another way, it’s better if our housing market looks more like the market for posters than it does the market for fine art.
      “Guess which one it most resembles now?”
  Labour and the Law of Costs: But doesn’t “Yoda” sound Chinese?
• “The most sophisticated economic argument about how prices are formed might include a distinction between two kinds of markets: those in which a good’s supply is severely restricted (in which case, like Remuera property and rare Grand Masters, the bidding war from buyers prevails), and those in which a good’s supply is unrestricted and the good is virtually reproducible at will (in which case, like hamburgers and the Houston housing supply, the cost of their production looms large). In both the distinction and the manner in which prices are formed then, supply has everything to do with it.”
  The continuing delusions of Gareth Morgan: Part XVIII, The RMA edition
• “So the story is: people are generally staying put more because new opportunities elsewhere can’t be outweighed by the new places’ higher price of housing. And when they do move it’s generally to poorer places. Like NZ.”
  No, neither house prices nor immigration are high because we’re prosperous
  
  

Don't Wait until It's Too Late to Let People Flee Dangerous Countries

The sudden flood of refugees is a result of years of blocking migration
Guest post by Ilya Somin

Today, many people across the political spectrum agree that the US and other Western democracies were wrong to severely restrict German Jewish immigration in the 1930s. This is so even though these governments were not responsible for the oppression of Jews in Nazi Germany.

Moreover, we condemn 1930s US immigration policy despite the fact that, at that time, it was far from clear that Nazi anti-Semitism would culminate in mass murder on the scale of the Holocaust.

Before World War II, only a very small number of German Jews were actually killed. The remainder were subject to extensive discrimination and repression. But in that respect they were probably no more than modestly worse off than many other discriminated-against minorities elsewhere in the world.

Despite this uncertainty, 1930s immigration policy was still deeply unjust. And one of the reasons why is that policymakers knew, or should have known, that German Jews faced a substantial risk of enduring still greater repression in the future, even if that outcome was not yet certain.

By blocking most German Jewish immigration, the US and other western nations became partially complicit in the injustices inflicted against them. The US government was not just standing by and doing nothing in the face of Nazi oppression; it was using force to actively impede victims’ efforts to save themselves.

Economist Bryan Caplan extends this logic to other refugees fleeing oppression that hasn’t yet fully materialised. As he points out, German Jews in the 1930s are far from the only people trying to flee potential disaster who were prevented from doing so by immigration restrictions:

When disaster looms, governments routinely evacuate their citizens. At minimum, they urge them to leave the danger zone. …
    Evacuation policy blends humanitarian and pragmatic motives. If you care about people, getting them out of harm’s way is common sense. But even when governments feel little sympathy for disaster victims, they try to evacuate them anyway.
    As long as you’re under pressure to “do something” in the face of disaster, it’s vastly cheaper to prevent people from becoming disaster victims than it is to rescue them after they’ve already become disaster victims. Better still, evacuees foot most of their own rescue bill. … People who stay and lose everything, in contrast, are in no position to practice self-help. …
    The moral and practical logic of evacuation doesn’t stop at national borders. (Logic rarely does). From a humanitarian point of view, letting people leave dangerous countries is only common sense. The fewer people who experience a disaster, the better.
    From a pragmatic point of view, moreover, allowing an anxious foreigner to emigrate at his own expense is far cheaper than bailing him out after tragic events leave him a desperate refugee. …
    In practice, of course, the world’s governments brutally discourage cross-national evacuation. Suppose you foresee natural or social disaster for your country. If you wisely try to get out of Dodge, the world’s immigration restrictions dog you at every turn. Once disaster hits, you might be able to apply for refugee status. But as we’ve seen, that’s a long shot. …
    The root problem, of course, is that governments spurn the logic of international evacuation. Instead of encouraging non-citizens to leave dangerous countries post-haste, they impose deadly bureaucratic delays.
    And when a refugee crisis emerges, safe countries are shocked – shocked! – by the horror. Their complicity – the fact that their own immigration restrictions prevented the refugees from saving themselves back when there was still time – never enters their minds.

Bryan’s point has obvious applicability to the current refugee crisis facing Europe, which arose in part because Western nations were unwilling to accept more than a tiny number of Syrian migrants until the humanitarian disaster finally reached truly epic proportions. It also applies to other similar cases.

Even if you don’t support a general presumption in favour of open borders migration, there is still a strong moral case for extending immigration rights to people fleeing repressive regimes and conflict zones where there is strong potential for much greater oppression in the near future.

If we reject that position, we also have to conclude that 1930s restrictions on immigration by German Jews don’t deserve their bad reputation. After all, what the US and other western governments did at that time wasn’t much different from what many of the same nations routinely do today.

I do not claim that even the most desperate refugees should have absolute migration rights that always trump competing considerations. I do not claim that refugees should be made citizens in their new homes, rather than simply residents; or that checks should not be made to exclude any faux refugees harbouring violent intentions (checks made easier when peaceful people are actually motivated to stop at borders and have their bona fides checked); or even that westerners have any duty to include them in their already-collapsing welfare states.

But, in this case, even more so than with immigration restrictions generally, we have a strong moral obligation not to impede people fleeing oppression unless doing so really is the only way to avoid still greater evils. These people overwhelmingly want freedom, not food stamps (and if folk still insist on shovelling food stamps at them, then the problem is with the shovellers not the shovellees).

And, as a practical matter, most of the alleged harms attributed to immigration are either greatly overstated, amenable to less draconian solutions than banning migration, or both.

Allowing potential victims to flee oppressive regimes before disaster strikes won’t save all of them, or probably even most. Even if Western nations had more liberal immigration policies in the 1930s, many German Jews might have chosen not to leave, or been unable to emigrate for other reasons. The same is true of similarly endangered populations today.

But the best should not be the enemy of the good. Liberalizing immigration policy in such cases is a great way to save many potential victims of oppression and mass murder, even if it cannot save them all.

---

 

Ilya Somin is Professor of Law at George Mason University School of Law.
He blogs at the Volokh Conspiracy.
A version of this post appeared at Anything Peaceful.

RELATED POSTS:

• “Let them help”
• Immigration Plus Welfare State Equal Police State – GEORGE REISMAN’S BLOG
• Fighting Terrorism Requires Legalizing Immigration – James Valliant, SOLO
• Governments Give Migrants a Disastrous Mix of Social Welfare and Bureaucracy
• Just making shit up
• Do Refugees Need Food Stamps or Freedom?
• But isn’t a Syrian refugee just another mouth to feed?
• “Poor immigrants are less likely to use welfare than poor natives”
• Talking refugee “quotas”
• Do Refugees Need Food Stamps or Freedom?

Dumping the Euro Isn’t a Cure-All: Easy Money Lets Governments Avoid Free-Market Reforms

Guest post by Frank Hollenbeck

The Greek drama continues to unfold with the risk of “Grexit” becoming increasingly likely. Yet, a large majority of the Greek people want to keep the euro. This, however, would require the Greek government to live within its means — something it has not been able to do for decades. With anti-austerity parties gaining strength continent wide, Greece may be the first, but not the last, to leave.

For many years, it has been fashionable among some economists to blame the euro for all of Europe’s problems. Yet, the problem in Europe is not that it has a common currency, but that it has excessive government regulations, spending, and taxation. Economists who suggest that breaking up the euro will solve the region’s economic problems are like people selling gimmicks promising massive weight loss without either exercise or dieting. They want the gains without the pain.

What they really want is just more flexibility to inflate fiat monies. For them, it’s much better to reduce government debt by simply inflating it away — thus sticking it to creditors — than having to take on the painful adjustment of limiting government size to what can be justified only with direct taxation.

Money Manipulation Allows for More Government Intervention

Suppose you have two regions under a single monetary system — Auckland and Invercargill — with an inflationary economic boom in Auckland and increasing unemployment in Invercargill. Salaries would slump in Invercargill and surge in Auckland. Under such conditions, labour would normally move from Invercargill to Auckland to find jobs, and capital would move from Auckland to Invercargill to find cheaper labour.

If capital will not or cannot move from Auckland to Invercargill, and if labour cannot or will not move from Invercargill to Auckland, then Invercargill will just be stuck with falling wages, while Auckland capitalists will be stuck with expensive labour.

A free market solution to this problem is to allow free movement of labour and capital to where labour and capital are demanded, and to allow for greater freedom in the use of labour and capital.

However, governments can avoid having to allow such freedom in markets if they each have a central bank. If Invercargill and Auckland are under two different monetary systems, monetary policy could be tailored to deal with each region’s economic problems. Invercargill could turn to its own inflationary policy to match Auckland’s existing inflationary boom. This would improve Invercargill’s export situation — by depreciating the currency — and prop up employment in the short term. Thus we find that governments will tend to turn to easy money instead of deregulation.

On the other hand, if Invercargill and Auckland are under a single monetary policy (and Invercargill can’t simply inflate its currency at will), then Invercargill can only address the ills in its economy by making its economy more attractive through rate cuts and deregulation.

We find this sort of thinking prevalent in Europe today. The Europeans know that control over monetary policy can be used to cover up the shortcomings of irresponsible fiscal and regulatory policy. So, it’s no surprise that many of the most fiscally disastrous governments in Europe are now talking about getting rid of the euro. Each government wants its own money supply so it can kick the austerity can down the road, and inflate instead.

In our example, we find that the governments of Invercargill and Auckland are actually restricted in what they can do by a common currency, and naturally, Austrian economists would view such constraints as a very good thing — under a regime of sound money.

A Sound Common Currency Is a Good Thing

The benefits of a common currency can be massive. Transparency is improved and uncertainty and risks are reduced.

Anyone who has travelled overseas knows the hassles of dealing with a foreign currency. You first have to pay a fee to convert your cash, and then you have to make sure you spend it all before you leave the country, otherwise you will be left with useless coins and bills at the bottom of your sock drawer.

But not all currencies are equal, of course. The problem with the euro is not that it is a common currency but that it is a fiat currency which ultimately returns to its intrinsic value of zero.

Indeed, the European Central Bank is now purchasing sixty billion euros per month of government bonds inducing governments to borrow even more.

Why the Southern Bloc of Europe Wants Out of the EU

Advocates of breaking up the euro never talk about the southern bloc’s labour costs relative to those in China or India. They focus instead on German labour, which is more cost-effective. The Italians don’t like that they have to compete with Germany — in the making of automobiles, for example — under a single monetary system. If the Italians had their own monetary system, they could manipulate the money supply to favour their own automobile industry.

With their own central bank, the Italians can put off having to ask themselves why their auto industry is so uncompetitive in the first place (hint: it has to do with Italian regulations and subsidies). Advocates of a breakup expect to gain competitiveness through devaluation, but a devaluation will only create a temporary gain, if at all, by benefiting exporters at the expense of the rest of society.

A Solution for Germany

A stable unit of account and exchange is a great idea, but it needs governments willing to accept the discipline it imposes (or a population that demands it).

Indeed, if anyone should dump the euro it should be Germany. Its current strategy to protect the euro is to use debt to solve a debt problem: to send good money chasing after bad. Germany would be wise to join like-minded countries on monetary policy and create a northern euro backed by gold. Meanwhile, southern eurozone countries are looking increasingly like a lost cause. People are not in the streets rioting for less government, but for more government. Let them have what they want: a worthless currency!

---

Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank.
This post first appeared at the Mises Daily. Place names have been changed for effect, as much as anything.

Report: Building regulation helps make homes unaffordable

Speaking of problems with innovative building – barriers to using the sort of building techniques that makes homes affordable for first-time buyers, and profitable for speculative builders to build for them – a recent NZIER report into the barriers to innovation in housing found that the problem is not builders or buyers, both of whom would be happy to innovate, but … well, I’ll let the report speak for itself:

The regulatory environment and building consent authorities are the top barriers to innovation and productivity.

I swear I did not write that sentence myself. But I did make it larger and bolder so that even regulators and building consent authorities can read it.

Be aware that the report is not looking at the cost of regulating land, only at

the drivers of demand for bespoke housing, the impact of building firm size and the barriers to innovation, and thus productivity, in New Zealand residential construction.

“Bespoke” housing is just a fancy word for housing that isn’t mass-produced. Here’s a short summary of the report’s findings:

Capitalism vs. crony capitalism

Guest post by Richard Ebeling

In the minds of many people, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets and economic liberty, and laissez-faire capitalism, rightly understood.

During the dark days of Nazi collectivism in Europe, the German economist, Wilhelm Röpke(1899-1966), used the haven of neutral Switzerland to write and lecture on the moral and economic principles of the free society.

“Collectivism,” he warned, “was the fundamental and moral danger of the West.” The triumph of collectivism meant, “nothing less than political and economic tyranny, regimentation, centralization of every department of life, the destruction of personality, totalitarianism and the rigid mechanization of human society.”

If the Western world were to be saved, Röpke said (and after the war, he did more than most to save it), it would require a “renaissance of [classical] liberalism” springing “from an elementary longing for freedom and for the resuscitation of human individuality.”

What is the Meaning of Capitalism?

At the same time, such a renaissance was inseparable from the establishing of a capitalist economy. But what is capitalism? “Now here at once we are faced with a difficulty,” Röpke lamented, because, “capitalism contains so many ambiguities that it becoming every less adapted for an honest spiritual currency.”

As a solution, Röpke suggested that we “make a sharp distinction between the principle of a market economy as such . . . and the actual development which during the nineteenth and twentieth centuries has led to the historical foundation of market economy.”

Röpke went on, “If the word ‘Capitalism’ is to be used at all this should be with due reserve and then at most only to designate the historical form of market economy . . . Only in this way are we safe from the danger . . . of making the principle of the market economy responsible for things which are to be attributed to the whole historical combination  . . . of economic, social, legal, moral and cultural elements  . . . in which it [capitalism] appeared in the nineteenth century.”

In more recent times it has become common to use the term “crony capitalism,” implying a “capitalism” that is used, abused, and manipulated by those in political power to benefit and serve well connected special interest groups desiring to obtain wealth, revenues and “market share” that they could successfully acquire on an open, free and competitive market by offering better and less expense goods and services to consumers than their rivals.

Corrupted Capitalism vs. Free Market Capitalism

This facet of a corrupted capitalism is, unfortunately, not new. Even as the classical liberal philosophy of political freedom and economic liberty was growing in influence in Europe and America in the nineteenth century, many of the reforms moving society in that freer direction happened within a set of ideas, institutions, and policies that undermined the establishment of a truly free society.

Thus, the historical development of modern capitalism was “deformed” in certain essential aspects virtually from the start. Before all the implications and requirements of a free-market economy could be fully appreciated and implemented in the nineteenth century, it was being opposed and subverted by the residues of feudal privilege and mercantilist ideology.

Even as many of the proponents of free market capitalism and individualist liberalism were proclaiming their victory over oppressive and intrusive government in the middle decades of the nineteenth century, new forces of collectivist reaction were arising in the form of nationalism and socialism.

Three ideas in particular undermined the establishment of the true principles of the free market economy, and as a result, historical capitalism contained elements totally inconsistent with ideal of laissez-faire capitalism – a free competitive capitalism completely severed from the collectivist and power-lusting state.

The Ideas of “National Interest” and “Public Policy.”

In the seventeenth and eighteenth centuries, the emergence of the modern nation-state in Western Europe produced the idea of a “national interest” superior to the interests of the individual and to which he should be subservient. The purpose of “public policy” was to define what served the interests of the state, and to confine and direct the actions of individuals into those channels and forms that would serve and advance this presumed “national interest.”

In spite of the demise of the notion of the divine right of kings and the rise of the idea of the rights of (individual) man, and in spite of the refutation of mercantilism by the free-market economists of the eighteenth and nineteenth centuries, democratic governments continued to retain the conception of a “national interest.”

Instead of being defined as serving the interests of the king, it was now postulated as serving the interests of “the people” of the nation as a whole. In the twentieth century, public policy came to be assigned the tasks of government guaranteed “full employment,” targeted levels of economic growth, “fair” wages and “reasonable” profits for “labor” and “management,” and the politically influenced direction of investment and resource uses into those activities considered to foster the economic development viewed as advantageous to “the nation” in the eyes of those designing and implementing “public policy.”

Capitalism, therefore, was considered to be compatible with and indeed even requiring activist government. In nineteenth century America it often took the form of what were then called “internal improvements” – the government funded and subsidized “public works” projects to build, roads, canals, and railways, all which transferred taxpayers’ money into the hands of business interests interested in getting the government’s business rather than that of consumers in the marketplace.

It also manifested itself through trade protectionism meant to artificially foster “infant industries” behind high tariff walls. Selected businesses ran to the government insisting that they could never grow and prosper unless they were protected from foreign competition, at the expense, of course, of the consumers who would then have fewer choices at higher prices.

Today, it still includes public works projects, but also manipulation of investment patterns through fiscal policies designed to target “start-up” companies considered environmentally desirable or essential to “national security.” It also takes the form of pervasive economic regulation that controls and dictates methods of manufacturing, types and degrees of competition, and the associations and relationships that are permitted in the arena of commerce and exchange both domestically and in international trade.

In the misplaced use of the phrase “American free market capitalism” there is little that occurs in any corner of society that does not include the long arm of the highly interventionist state, and all with the intended purpose and resulting unintended consequences of political power being applied to benefit some at the expense of many others.

Perversely, the interventionist state in the evolution of historical capitalism has come to mean in too many people’s eyes the inescapable prerequisite for the maintenance of the market economy in the service of an ever-changing meaning of the “national interest.”

Central Banking as Monetary Central Planning

Whether in Europe or the United States, the application and practice of the principles of a free market economy were compromised from the start with the existence of monetary central planning in the form of central banking.

First seen as a device for assuring a steady flow of cheap money to finance the operations of government in excess of what those governments could extract from their subjects and citizens directly through taxation, monopolistic central banks were soon rationalized as the essential monetary institution for economic stability.

But the German economist, Gustav Stopler, clearly explained many decades ago in his book,This Age of Fable (1942), the government’s control of money undermines the very notion of a real free market economy:

“Hardly ever do the advocates of free capitalism realize how utterly their ideal was frustrated at the moment the state assumed control of the monetary system . . . A ‘free’ capitalism with governmental responsibility for money and credit has lost its innocence. From that point on it is no longer a matter of principle but one of expediency how far one wishes or permits governmental interference to go. Money control is the supreme and most comprehensive of all governmental controls short of expropriation.”

Once government controls the supply of money, it has the capacity to redistribute wealth, create inflations and cause economic depressions and recessions; distort the structure of relative prices and wages so they no longer reflect the values and choices of the buyers and sellers in the market; and generate misallocations of labor and capital throughout the economy that brings about imbalances of resource uses inconsistent with a market-based pattern of consumer demands for alternative goods and services.

Then, in the face of the market instabilities and distortions caused by the government’s mismanagement of the money supply and the banking system, the political authorities rationalize even more government intervention to “fix” the consequences of the boom-bust cycles their own earlier monetary central panning policies created.

The “Cruelty” of Capitalism and the Welfare State

The privileged classes of the pre-capitalist society hated the market. The individual was freed from subservience and obedience to the nobility, the aristocracy, and the landed interests.

For these privileged groups, a free market meant the loss of cheap labor, the disappearance of “proper respect” from their “inferiors,” and the economic uncertainty of changing market-generated circumstances.

For the socialists of the nineteenth and twentieth centuries, capitalism was viewed as the source of exploitation and economic insecurity for “the working class” who were considered dependent for their livelihood upon the apparent whims of the “capitalist class.”

The welfare state became the “solution” to capitalism’s supposed cruelty, a solution that created a vast and bloated welfare bureaucracy, made tens of millions of people perpetual wards of a paternalistic state, and drained society of the idea that freedom meant self-responsibility and mutual help through voluntary association and human benevolence.

A “capitalist” system with a welfare state is no longer a free society. It penalizes the industrious and the productive for their very success by punishing them through taxes and other redistributive burdens under the rationale of the “victimhood” of others in society who are claimed to have not received their “fair” due.

It weakens and then threatens to destroy the spirit and the reality of individual accomplishment, and spreads a mentality of “entitlement” to what others have honestly produced. And it restores the fearful idea that the state should not be the protector of each citizens individual rights but the compulsory arbiter who determines through force what each one is considered to “rightfully” deserve.

Peaceful and harmonious free market competition in the pursuit of excellence and creative improvement is replaced by the coerced game of mutual political plunder as individuals and groups in society attempt to grab what others have through a redistributive system of government force.

Free Market Capitalism was Hampered and Distorted

The ideal and the principle of the free market economy, of capitalism rightly understood were never fulfilled. What is called “capitalism” today is a distorted, twisted and deformed system of increasingly limited market relationships, as well as market processes hampered and repressed by state controls and regulations.

And overlaying the entire system of interventionist “crony” capitalism are the ideologies of eighteenth century mercantilism, nineteenth century socialism and nationalism, and twentieth century paternalistic welfare statism.

In this warped development and evolution of “historical capitalism,” as Wilhelm Röpke called it, the institutions for a truly free-market economy have either been undermined or prevented from emerging.

As the same time, the principles and actual meaning of a free-market economy have become increasingly misunderstood and lost. But it is the principles and the meaning of a free-market economy that must be rediscovered if liberty is to be saved and the burden of “historical capitalism” is to be overcome.

The socialists and “progressives” twisted and stole the good and worthy concept of liberalism as a political philosophy of individual rights and freedom, respect and protection of honestly acquired private property, and peaceful and voluntary industry, production and trade. It was usurped and made into the “modern” notion of liberalism as paternalistic Big Bother government controlling every aspect of life in the name of the “social good.”

Restoring the Ideal of Free Market Capitalism

The word “capitalism” was used as a term of abuse by the socialists almost from the beginning. But it also meant a system of creative and productive enterprise and industry by free and self-guiding individuals, each pursuing their peaceful self-interests through honest work, saving, and investment. The “self-made” man of capitalism was an ideal and model for the youth of America. The man who was motivated by his own independent self-responsible vision, who built something, new, better, and greater as a reflection of the potential of the reasoning and acting human being who sets his mind to work.

His wealth, if successfully accumulated, was honorably earned in the marketplace of ideas and industry, not plundered and stolen by force and political power. No individual is robbed or exploited on the truly free market, since all trade is voluntary and no man could be forced into an exchange or association not to his liking and consent.

Free competition sees to it that everyone tends to receive and earn a wage that reflects the estimation of his productive worth to others in society. Each individual is free to improve his talents and abilities to make his services more valuable to others over time, and earn the commensurate higher wages from possessing more marketable skills.

Wealth accumulated enables investment and capital formation for the production of new, better and more goods and services wanted by the consuming public, the majority of whom are the very wage-earning workers employed in the production and manufacture of those goods under the market-determined guiding hands of successful businessmen and entrepreneurs.

Free Market capitalism makes the consumer “king” of the marketplace who determines whether businessmen earn profits or suffer losses, base on what they decide to buy and how much they are willing to pay.

It is free market capitalism that helps make each man and woman a “captain” of their own fate, with the freedom about what work and employment to pursue, and the liberty to spend the income they earn in their own personal, desiring way to live the life they value and want, and that gives meaning and purpose to their own life.

No person need put up with humiliation, abuse or disrespect from a bureaucrat or political official who has control over their fate through the power of government planning, regulation and redistribution.

Free market capitalism offers people opportunities and choices as consumers, workers and producers, with the liberty to change course whenever the benefits from doing so seem to outweigh the costs in the eyes of the individual.

Free market, or laissez-faire, capitalism makes this all possible because it rests on a deeper political philosophical foundation based on the idea and ideal of the right of the individual to his own life, to be lived as he desires and chooses, as long as he respects the equal right of others to do the same.

Free market capitalism insists that there is no higher “national interest” above the individual interests of the separate citizens of a free society. In a system of free market capitalism government should no more control money and the banking system than a limited government should control the production and sale of shoes, soap, or salami.

And free market capitalism calls for each individual’s peacefully earned property and income to be respected and protected from plunder and theft, and that includes any created rationale and attempted justification to rob Peter to redistribute to Paul through the coercive power of government.

The good name of “capitalism” has to be recaptured and restored, just as the good name and concept of “liberalism,” rightly understood, should be returned to the advocates of individual liberty and free enterprise.

But this task requires friends of freedom to explain and make clear to others that what we live under today is not “capitalism” as it could be, should be and properly really means.

The reality of that “historical capitalism,” about which Wilhelm Röpke spoke, is the “crony capitalism” that must be rejected and opposed so that free men may some day live under and benefit from the truly free market capitalism that is the only economic system consist with a society of human liberty.

---

Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

18+1 Questions for Mayors and Minister’s Blocking Christchurch’s Redevelopment

The oafish Gerry Brownlee is in denial about the disaster being made of Christchurch by his government’s top-down authoritarian management of the city’s (non) re-development.

The latest entrepreneurs to confirm there is nothing in the central city worth moving to is The Enterprise Precinct Innovation Centre (Epic), who are moving out, “saying delays and overpriced land make the project infeasible.”

EPIC (Enterprise Precinct Innovation Centre) co-founder Colin Anderson says the group has scuttled plans for an inner-city innovation "village" to house more than 50 small businesses.
     EPIC is now looking at land outside the blueprint…
    After months of delays, founders say land prices are too high and the Government's planning process is taking too long.
    "At a high level we have given up on the innovation precinct. We have lost confidence that government process would lead to land being made available at an acceptable price," Anderson said…
    Part of the innovation precinct's purpose was to gather small, innovative, tech businesses together to foster collaboration.
    But with small businesses unable to afford rising land prices, it seems increasingly unlikely it will be able to carry out that purpose.

Brownlee’s response reveals his main aim with “his” redevelopment. He has “no concerns” about progress, or lack thereof.  And he remains very happy about, guess what, maintaining the city’s land values.

One of the things that was of concern to Christchurch immediately after the earthquake was the potential value of CBD land… What the CCDU has done through the acquisition programme and through the blueprint [says Brownlee]. . . they've managed to preserve those [land] values and in any disaster situation that's quite an achievement.

Quite an achievement: They’ve made the centre of what was New Zealand’s second-biggest city the world’s most expensive carpark. That’s not easy. That certainly is “quite an achievement.”

Christchurch businessman Hugh Pavletich asks:

Who were the people who asked Minister Brownlee to artificially inflate land values ?
    Why hasn't the media actually asked him that question ?

Say’s Law and the Permanent Recession

Guest post by Robert Blumen

Mainstream media discussion of the macro economic picture goes something like this: “When there is a recession, the central bank should stimulate. We know from history the recovery comes about 12-18 months after stimulus. Central banks stimulated, they printed a lot of money, we waited 18 months. So the economy ipso facto has recovered. Or it’s just about to recover, any time now.”

But to quote the comedian Richard Pryor, “Who ya gonna believe? Me or your lying eyes?” A Martian economist arriving on earth would have to admit the following: the US economy has experienced zero real growth since 2000. This is what I call the permanent recession. Permanent, because, unlike past downturns — there will be no recovery.

Bernanke: A Tenure of Failure

If stock market’s took a dive when US Federal Reserve chairman Ben Bernanke hinted his psuedo golden shower of monetary stimulus might come to an end, just what might happen when the Great Stimulator leaves the building altogether, asks this guest post by John Cochran.

Fed Chairman Ben Bernanke’s term as chairman of the Fed expires at the end of the year and President Obama has quite ungraciously indicated his intent to replace him, remarking that he had, “already stayed a lot longer than he wanted or he was supposed to.”

Despite what Mort Zukerman has argued in his column titled “Mistreating Ben Bernanke, the Man Who Saved the Economy,” policy under Bernanke has not been good, to say the least. Policy before the crisis expanded created credit and kept rates too low for too long, generating a second (and this time catastrophic) boom-bust cycle. Since then, the Fed’s “dovish” policy of low interest rates and quantitative easing has retarded recovery in three main ways:

1. by keeping interest rates from tracking market levels, which would have better redirect resources to highest value uses;[1]
2. by making it easier for firms to avoid necessary liquidation and reallocation of resources; and
3. by adding to the policy uncertainty which, coupled with the extreme regime uncertainty caused by both Bush and Obama Administrations, is the main cause of the continuing Bush-Obama Great Stagnation.

Mainstream criticism of Fed policy, both before and after the crisis, can be found at John B. Taylor’s blog “Economics One” or his book Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis. For an Austrian perspective, besides the Salerno paper cited above, see Frank Shostak’s archive, George A. Selgin’s “Guilty as Charged,” or my “Bernanke: The Good Engineer?”, which concludes, “Bernanke's current monetary policy is a train wreck waiting to happen. The ultimate solution as is pointed out by Roger Garrison: ‘The hope of achieving long-run sustainable growth can only rest on the prospects for decentralizing the business of banking.’”

A picture of how much policy has drifted into “Mondustrial Policy” under Chairman Bernanke and toward ever-more dangerous monetary central planning can be found in the Independent Review, “Ben Bernanke versus Milton Friedman: The Federal Reserve’s Emergence as the U.S. Economy’s Central Planner” by Jeffrey Rogers Hummel. Hummel summarizes much of Bernanke’s post-crisis Fed policy as follows:

In sum, phase one and phase two of Bernanke’s policies turned out to be only slight variations on the same theme. Almost nothing that the Fed did during either phase can be accurately described as an effort to stimulate or even stabilise aggregate demand. Whatever the ostensible rationale, everything ended up being a supply-side intervention designed to prop up failing financial institutions. Helicopter Ben talks a good line about being ready to unleash quantitative easing, but this talk only imparts an aura of justification for the Fed’s incredibly expanded role in allocating the country’s scarce supply of savings. If anything, his policies were closer to a quantitative tightening. A better moniker would therefore be “Bailout Ben.”

We are unfortunately back in the situation in which, as bad as Fed policy has been, monetary policy could easily become even more destructive of wealth creation. As I wrote in a letter to the editor in 2010 when Bernanke was last up for reappointment, the only legitimate reason to reappoint Bernanke was that anyone else this administration might appoint would provide leadership which would most likely make policy even worse.

Currently the two leading candidates to replace Bernanke are Janet Yellen and Lawrence Summers. Neither name instils confidence even on the editorial board of the Wall Street Journal which writes on July 29:

The real problem is that neither Ms. Yellen nor Mr. Summers seems likely to do what should be the next chairman’s priority — restoring the Fed’s independence by ending its post-crisis political interventions and focusing above all on maintaining price stability.

Those who believe in sound money should tremble at the prospect of either.

Janet Yellen who is heralded as the “Best Fed Choice” by Fed cheerleader Alan S. Blinder (a leading proponent of Fed activism and more fiscal stimulus) is more aptly described by the Journal:

Ms. Yellen is also seen, in and outside the Fed, as a leading monetary ‘dove.’ That isn’t limited to her backing for Mr. Bernanke’s monetary interventions since the 2008 panic. We’ve followed Ms. Yellen for 20 years and can’t recall a key juncture when her default policy wasn't to keep spiking the punchbowl [emphasis mine]. Many Democrats think the Fed needs to keep interest rates at near zero through the 2016 election, and Ms. Yellen is their woman.

Summers may actually be even more problematic. He is an architect of the failed stimulus of 2009, and a revolving door player between Wall Street and government that would only add to the image of the Fed as a financial central planner—and most likely continue the evolution of monetary policy to mondustrial policy.

Can Fed policy get worse under the leadership of either Dr. Yellen or Dr. Summers? Most definitely YES. Unfortunately leadership of the Fed is not the only problem. An institution that relies on good leadership to avoid harm to the economy and the nation is not a good institution. If banks and other financial institutions should not be too big to fail, neither should the Fed. While in the perception of too many, the Fed is both too big and too important to fail, it is an institution that not only could be, but has been, a complete failure.

The conclusion of my 2010 letter is still relevant:

The FED according to the Washington Post is an “institution that has served us well for decades. ...” However, The FED is not an institution that has served us well. It was set up to protect the value of the dollar and to avoid boom and bust cycles. Since inception of the Fed however the dollar has, in real terms, declined over 87 percent—now having a purchasing power compared to a 1913 dollar of less than 13 cents.
    Just since the mid-1990s, overly easy monetary policy has caused or enabled two significant boom-bust periods with accompanying bubbles in first dot.com stocks and then residential and commercial real estate.
    The Wall Street Journal in a January 25^th editorial, which argues against confirmation partially because of Bernanke’s and the FED’s complicity in causing the most recent boom and resulting bust and financial crisis, unwittingly gives the one legitimate short-run reason to retain Bernanke: that other potential nominees would be even worse. In the long run, instead of celebrating the Fed and central banking, true financial reform would, following Nobel winner F. A. Hayek, look seriously at proposals to “denationalisation of money” including the recent suggestion by economist Richard Ebeling to end the Federal Reserve altogether.

John P. Cochran is emeritus dean of the Business School and emeritus professor of economics at Metropolitan State University of Denver and coauthor with Fred R. Glahe of The Hayek-Keynes Debate: Lessons for Current Business Cycle Research.  He is also a senior scholar for the Mises Institute and serves on the editorial board of the Quarterly Journal of Austrian Economics.
This post first appeared at the Mises Daily.

[1] Joseph T. Salerno, “A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis,” pp. 37-38. Ronald I. McKinnon makes a similar point in “The Near-Zero Interest Rate Trap.” He summarizes nicely, “By trying to stimulate aggregate demand and reduce unemployment, central banks have pushed interest rates down too much and inadvertently distorted the financial system [and real structure of production] in a way that constrains both short- and long –term business investment. The misnamed monetary stimuli are actually holding the economy back.”