Economics

New Issue of Econ Journal Watch: Economists on the Welfare State and the Regulatory State: Why Don’t Any Argue in Favor of One and Against the Other?

Brandon Christensen Economics, Politics , , , , , , , , ,

For those of you who don’t know Fred is an Editor for the Journal and Warren is its math reader, so this occasion is very much a family affair. Here is the low-down:

Economists on the Welfare State and the Regulatory State: Why Don’t Any Argue in Favor of One and Against the Other?

The symposium Prologue suggests that among economists in the United States, on matters of the welfare state and the regulatory state, virtually none favors one while opposing the other. Such pattern is a common and intuitive impression, and is supported by scatterplots of survey data. But what explains the pattern? Why don’t some economists favor one and oppose the other?

Contributors address those questions:

Dean Baker: Do Welfare State Liberals Also Love Regulation?

Andreas Bergh: Yes, There Are Hayekian Welfare States (At Least in Theory)

Marjorie Griffin Cohen: The Strange Career of Regulation in the Welfare State

Robert Higgs: Two Ideological Ships Passing in the Night

Arnold Kling: Differences in Opinion Among Economists About Government and Market Efficiency

Anthony Randazzo and Jonathan Haidt: The Moral Narratives of Economists

Scott Sumner: Moral Differences in Economics: Why Is the Left-Right Divide Widening?

Cass Sunstein: Unhelpful Abstractions and the Standard View

There is a lot more here. You can find Econ Journal Watch‘s home page here, on our ‘Recommendations’ page.

The Dalai Lama on Inequality

Fred Foldvary Economics, Liberty, Philosophy , , , , , , , , ,

There are many people who blame “capitalism” for the world’s economic problems, such as poverty, unemployment, inequality, and environmental destruction. This common belief is based on a confusion of meaning, and a lack of analysis. It is neither surprising nor noteworthy that many people fail to apply consecutive thought to economic issues, but it is sad that the Dalai Lama, as an influential religious leader, has not fully applied his compassionate thought to examine the causes and effective remedies of social problems.

The Dalai Lama, leader of Tibetan Buddhists, has identified himself as a Marxist socialist. He blames “capitalism” for economic inequality, and sees the Marxist alternative as the alternative that would increase equality. He advocates a more “human approach,” which implies less “capitalism” and more socialism. The Dalai Lama adds that he is not a Leninist, meaning that his Marxist views do not imply a desire for a totalitarian state.

The Dalai Lama believes that Marxism is founded on moral principles, such as economic equality, while “capitalism” is founded only on the pursuit of profit. His social and economic views were published in the 1996 book Beyond Dogma: Dialogues and Discourses. He said there that Marxism is concerned with the poor and with exploited minorities. Therefore, he said, “I think of myself as half-Marxist, half-Buddhist.” The Dalai Lama had studied Marxist ideology in China during the 1950s, and became attracted to it.

The essential problem with the word “capitalism” is that it is used both as a label for current economies, which are a mixture of markets and governmental interventions, and for the concept of private enterprise and free markets. Its use as a label for mixed economies makes it meaningless to blame “capitalism” for economic problems.

This confusion is similar to blaming diets for ill health. The diet of most people is a mixture of healthy foods such as vegetables and unhealthy stuff such as excessive sugar. The proposition that “diets” cause illness may be true, but it tells us nothing about which elements of our diets are causing the problem.

Likewise, to blame “capitalism,” meaning the mixed economy, for economic inequality, is meaningless, as this does not tell us which elements of the economy are causing the problem, whether it is markets or interventions. Blaming “capitalism” is worse than useless; it fogs the mind, because the label for mixed economies gets confused with the other meaning, private enterprise, so that, in a sly tacit shift of meanings, markets get blamed for economic woes.

It is meaningless to accuse “capitalism,” as a label, as only caring about profit and ignoring the poor, because the actual “mixed economy” cannot have any thoughts or feelings. Moreover, the concept of a pure market economy does have an ethical basis. The pure market is an economy in which all activity is voluntary. The concept of voluntary human action implies the existence of a universal ethic, or natural moral law, that designates acts as good, evil, or neutral, with voluntary action being good or neutral, and involuntary action consisting in coercive harm, which is evil.

One of the premises from which natural moral law is derived is the concept of human equality, that human beings have an equal moral worth, and should therefore be equal in the application of law. Human equality does not imply that all persons should have an equal income or wealth, because moral equality implies an equal self-ownership (or ownership of one’s body) of all persons. Therefore, each person properly owns his wage and the goods and investments bought from his wage. Income, however unequal, that comes from labor, including entrepreneurship, is not an evil outcome.

The mixed economy does create poverty, but not from private entrepreneurship. The poverty comes from government’s taxing the poor and subsidizing the rich. A study by the Institute on Taxation and Economic Policy and the Pew Research Center recently concluded that the poorest fifth of households pay more than twice the state and local tax rate (11 percent) as the richest one percent. Also, although the rich pay a much higher tax rate on their income, many of the rich get their money back implicitly in the form of the higher rent and land value generated by government spending, paid for by taxes on wages, goods, and enterprise profits. The taxes on the poor are even higher than that found in the study, as there are federal excise taxes included in goods, and also, federal taxes and restrictions on labor and self-employment add to the interventionist burden of the poor.

The economist Henry George wrote that “There is in nature no reason for poverty.” Poverty and excessive inequality are caused by human institutions. If Marxism implies income redistribution or government ownership of industry, this treats, and mistreats, the symptoms, not the causes. The main causes are the stifling of labor and enterprise from taxation and imposed barriers. The ultimate remedy is a completely free market, with voluntary, contractual, decentralized governance. Given today’s states and taxes, government interventions can be minimized with a constitutional prohibition of restrictions and imposed costs on peaceful and honest enterprise, thus with taxes only on bad effects – pollution – and on the ground rent generated by government’s public goods.

If he understood the ethics and economics of liberty, then the Dalai Lama would become a much greater global leader in promoting effective reforms that would not only promote liberty but also greater prosperity and social peace.

The Gold Standard is Not Without its Costs

Warren Gibson Current Events, Economics , , , ,

News from the department of “life is bigger than art:” A few days ago I posted a fictitious account of a future Wells Fargo Bank operating on a revived gold standard. Turns out the real Wells Fargo, now a regular large commercial bank with its roots in the California gold rush, has a branch in downtown San Francisco at the site where the bank was first opened in 1852. The branch had an exhibit of historic artifacts, including gold nuggets from the gold rush era. I say had, because last night thieves rammed an SUV into the lobby and made off with the nuggets!

All of which underscores the fact that security is among the real costs associated with a gold standard. There is no law of nature that says free banking has to be based on gold, as I pointed out in my post. The market would, if free to do so, sort out costs and benefits and find the sort of system or systems that best satisfies consumers.

I love Wells Fargo; They Hate Me.

While I have this blog window open I’ll add some unrelated comments about Wells Fargo. I am a happy customer and I credit this to the stiff competition among banks at the retail level. I regularly get solicitations from banks offering $100 bonus to open an account, with strings attached, of course but I stick with Wells Fargo. At the macro level our current banking system is gravely flawed but it works well for us retail customers.

I get free checking, a handy web site, and ATMs all over the place. When my credit card was hacked recently, they replaced it promptly and took my claims about false charges at face value. My average credit card balance last year was nearly $4,000 and I paid zero interest. That’s because I pay it off at the last possible date, which is 25 days after billing. I pay an $18 annual fee but got $300 in cash rebates last year. I never pay late fees or penalties of any kind.

I do not have a savings account with Wells Fargo because those accounts are a joke. Their most popular savings account yields (drum roll) 0.01%. Not one percent, but one hundredth of one percent. For every thousand dollars I might keep in a savings account, I would get ten cents in annual interest, taxable. I do, however, hold shares of Wells Fargo preferred stock which pay 6.8% current yield (for you experts, a somewhat lower yield to call). The shares appreciated about 70% since I bought them at the bottom of the Great Recession.

So I am a money loser for Wells Fargo. They earn merchant fees from my credit card use and that’s about it. They count on their average customer’s ignorance and lack of financial discipline to generate fee income and to carry high-interest balances on their credit cards. Dear reader, if that describes you, don’t despair. You can get out in front of the wave and let the banks work for you, not the other way around. It just takes a little knowledge and some discipline. Most important: if you can’t pay cash for a purchase (or use a credit card paid off before interest kicks in), you can’t afford it! That includes cars. Save up your money and buy a junker. Mortgages are OK for home purchases because of tax breaks, but even there, start with a healthy down payment.

Here endeth today’s sermon. Go in peace and freedom!

A Tale of Free Banking

Warren Gibson Economics , , , , , , ,

Herewith we visit an imaginary future where free banking prevails. Government regulation of banks is a thing of the past. Banks have the freedom and the responsibility that they lacked under government regulation. In particular, private banks are free to print money, either literally, in the form of paper banknotes for the shrinking number of customers who want them, but in electronic form for most.

Print money? Horrors, you say! Fraud! Runaway inflation!

Not so fast. Come with me on a fantasy visit to the local branch of my bank, a future incarnation of Wells Fargo to be specific.

The first thing we notice is a display case showing a number of gold coins and a placard that says, “available here for 1,000 Wells Fargo Dollars each, now and forever.” I have in my wallet a number of Wells Fargo banknotes in various denominations. I could walk up to a teller and plunk down 1,000 of them and the smiling young lady would hand over one of these coins. More likely I would whip out my smartphone and hold it up to the near-field reader, validate my thumbprint, and complete the transaction without paper.

I have a few of these beautiful gold coins socked away at home but I don’t want any more today nor do I want to carry them around. Electronic money is ever so much safer and more convenient. Still, I am reassured by the knowledge that I could get the gold any time I wanted it. That is the basis for my confidence in this bank, not the FDIC sticker we used to see in the bank’s window.

Confidence? What about inflation? Wells Fargo can create as many of these dollars as they want, out of thin air. Without government regulation, who will stop them from creating and spending as many dollars as they want?

The market will stop them, that’s who.

In my scenario, Consumer Reports and a number of lesser known organizations track Wells Fargo and other banks. These organizations post daily figures online showing the number of Wells Fargo dollars (WF$) outstanding and the amount of gold holdings that the bank keeps in reserve to back these dollars. Premium subscribers, I imagine, can get an email alert any time a bank’s reserves fall below some specified levels. Large depositors will notify Wells Fargo of their intention to begin withdrawing deposits and/or demanding physical gold. Small depositors piggyback on the vigilance efforts of big depositors. They know it is not necessary for them to pester the bank when the big guys are doing it for everybody.

Wells Fargo practices fractional reserve banking. They cannot redeem all their banknote liabilities and demand deposit liabilities at the stated rate of one ounce of gold per thousand WF$. This situation is clearly outlined in the contract that depositors sign and is printed on their banknotes.

Let’s assume Wells Fargo backs just 40% of its banknotes and deposits with physical gold. How is this figure arrived at? By trial and error. Managers believe that if they let the reserve ratio slip much below 40% they will start getting flak from the monitoring websites and their big depositors. If they let it rise much above that figure their stockholders will begin complaining about missed profit opportunities.

Under fractional reserve banking, bank runs are possible. A bank run is a situation where a few depositors lose confidence in a bank and demand redemption of their deposits in gold or in notes of another bank. Seeing this, other depositors line up to get their money out, and if left unchecked, the bank is wiped out along with the depositors who were last in line. Bank runs are not a pretty sight.

Wells Fargo has a number of strategies for heading off a bank run. They have an agreement with the private clearing house of which they are a member that allows the bank to draw on a line of credit under certain circumstances. There is a clause, clearly indicated in the agreement with their depositors, allowing them to delay gold redemption for up to 60 days under special circumstances. They can reduce the supply of WF$ by calling in loans as permitted by loan agreements. Most important, though, is Wells Fargo’s reputation. Not once in their long history has Wells Fargo been subject to a bank run. Management is keenly aware of the value of their reputation and will move heaven and earth to preserve it.

To sum up, Wells Fargo’s ability to create unbacked money is limited by the public’s willingness to hold that money. The bank can respond to changes in the demand to hold WF$ whether those changes are seasonal in nature or secular.  They have strategies in place to head off runs should one appear imminent or actually begin.

What about competing banks, you may ask. Does Bank of America issue its own money? If so, there must be chaos with several different brands of money in the market. Are there floating exchange rates? Is a BofA$ worth WF$1.05 one day and WF$0.95 the next? What else but government regulation could put an end to such chaos?

The market, that’s what else.

Competing suppliers of all sorts of products have an incentive to adhere to standards even as they compete vigorously. If we were in a classroom right now I would point to the fluorescent lights overhead. The tubes are all four feet long and 1.5 inches in diameter, with standard connectors. They run on 110 volt 60 Hz AC current. Suppliers all adhere to this standard while competing vigorously with one another. If they don’t adhere to the standards people won’t buy their light bulbs.

So it is that competing banks in my fantasy world have all converged on a gold standard. They all adhere to the standard one ounce of gold per thousand dollars. (I trust it’s obvious that I just made up this number. Any number would do.)

Why gold? Gold has physical properties that have endeared it to people over the ages—durability, divisibility, scarcity to name a few. But other standards might have evolved such as a basket of commodities—gold, silver, copper, whatever.

You may raise another objection. All this gold sitting in vaults detracts from the supply available for jewelry, electronics, etc. That’s a real cost to these industries and their customers.

Yes, it is. It’s called the “resource cost” of commodity-backed money. To get a handle on this cost we must recognize that gold sitting in vaults is not really idle, but is actively providing a service. It is ensuring a stable monetary system immune from political meddling. How valuable is that? The market will balance the benefits of stability against the resource costs of a gold standard.

Furthermore we can expect resource costs to decline slowly as confidence in the banking system increases and people are comfortable with declining reserve ratios. Wells Fargo may find that a 30% reserve ratio rather 40% will be enough to maintain confidence. Other things equal, this development would boost profits temporarily, but those profits would soon be competed away, to the benefit of depositors and the economy as a whole.

Let’s go back to bank runs. Aren’t they something horrible, to be avoided at all costs?

Actually an occasional bank run is something to be celebrated. Not for those involved, of course, but to remind depositors and bank managers alike that they need to be careful. The same is true of the recent Radio Shack bankruptcy. Bad news for stockholders, suppliers and employees but an opportunity for competitors to learn from this bankruptcy.

Under my free banking scenario, depositors must take some responsibility for their actions. That doesn’t mean they have to become professional examiners. They just have to take some care to check with Consumer Reports or other rating organizations before signing on with a bank.

Have I sketched out a perfect situation? There’s no such thing as perfection in human affairs but I submit that this situation would be vastly superior to what we have now, where the Federal Reserve’s policy of printing money to finance government deficits will end badly. Furthermore, relatively free banking has existed in the past and worked well. To learn more, start with Larry White’s “Free Banking in Britain.”

Federalizing the Social Sciences

Michelangelo Landgrave Comments, Economics, History , , , , , , , ,

A few days ago I asked whether the social sciences could benefit from being unified. The post was not meant to make an argument in favor or against unification, although I myself favor a form of unification. The post was merely me thinking out loud and asking for feedback from others. In this follow up post I argue that the social sciences are already in the process of unification and a better question is what type of unification type this will be.

What is a social science?

First though allow me to define my terms as commentator Irfan Khawaja suggested. By social sciences I mean those fields whose subjects are acting individuals. For the time being the social sciences deal with human beings, but I see no particular reason why artificial intelligence (e.g. robots in the mold of Isaac Asimov’s fiction) or other sentient beings (e.g. extraterrestrials) could not be studied under the social sciences.

The chief social sciences are:

Economics: The study of acting individuals in the marketplace.

Sociology: The study of acting individuals and the wider society they make up.

Anthropology: The study of the human race in particular.

Political Science: The study of acting individuals in political organizations.

There are of course other social sciences (e.g. Demography, Geography, Criminology) but I believe the above four are those with the strongest traditions and distinctive methodologies. Commentators are more than encouraged to propose their own listings.

In review the social sciences study acting individuals.  A social science (in the singular) is an intellectual tradition that has a differentiating methodology. Arguably the different social sciences are not sciences as much as they are different intellectual schools.

Why do I believe the social sciences will be unified? 

On paper the social sciences have boundaries among themselves.

In practice though the boundaries between the social sciences blurs quickly. Economists in particular are infamous for crossing the line that the term ‘economics imperialism‘ has been coined to refer to the application of economic theory to non-market subjects. This imperialism has arguably been successful with Economists winning the Nobel prize for applying their theory to sociology (Gary Becker), history (Douglass North, Robert Fogel), law (Ronald_Coase) and political science (James M. Buchanan). The social sciences are in the process of being unified via economic imperialism.

Imperialism is a surprisingly proper term to describe the phenomenon taking place. Economists are applying their tools to subjects outside the marketplace, but little exchange is occurring on the other end. As the “Superiority of Economists” discusses, the other social sciences are reading and citing economics journals but the economics profession itself is very insular. The other social sciences are being treated as imperial subjects who must be taught by Economists how to conduct research in their own domains.

To an extent this reflects the fact that the economics profession managed to build a rigorous methodology that can be exported abroad and, with minimal changes, be used in new applications. I think the world is richer in so far that public choice theory has been exported to political science or price theory introduced to sociology. The problem lays in that this exchange has been so unequal that the other social sciences are not taken seriously by Economists.

Sociologists, Political Scientists, and Anthropologists might have good ideas that economics could benefit from, but it is only through great difficulty that these ideas are even heard. It is harder still for these ideas to be adopted.

Towards Federalizing the Social Sciences

My answer to economic imperialism is to propose ‘federalizing’ the social sciences, that is to say to give the social sciences a common set of methodologies so that they can better communicate with one another as equals but still specialize in their respective domains.

In practice this would mean reforming undergraduate education so that social science students take at minimum principle courses in each other’s fields before taking upper division courses in their specializations. These classes would serve the dual purpose of providing a common language for communication and encouraging social interaction between the students. Hopefully social interaction with one another will cause students to respect the work of their peers and discourage any one field from creating a barrier around itself. A common language (in the sense of methodology) meanwhile should better allow students to read each other’s work without the barriers that jargon terminology and other technical tools create. It is awful when a debate devolves into a semantics fight.

Supplementary methodologies will no doubt be introduced in upper division and graduate study, reflecting the different needs that occur from specialization, but the common methodology learned early on should still form the basis.

The unification of the social science need not mean the elimination of specialization. I do however fear that unless some attempt is made in ‘federalizing’ the social sciences we will see economics swallow up its sister sciences through imperialism.

As always I more than encourage thoughts from others and am all too happy to defer to better constructed opinions.

What’s up with Oil and the Saudis?

Warren Gibson Current Events, Economics , , , , , , ,

In case you haven’t noticed, the price of oil has dropped dramatically and has not rebounded as yet. As I write, the price of the most common form of crude oil is under $54 per barrel, about half of what it was in mid-2014. What’s going on?

Several factors contributed to the fall. One was increased U.S. production, much of it shale oil. Also, U.S. consumption has not been rising apace with GDP in part because of higher fuel efficiency. Demand in Europe and Japan is muted due to low growth or recession.

Those things did not happen suddenly, however, so the drop would appear to be overdone. Large producers, who have a lot of pricing power, would normally cut production in this circumstance. (Pricing power means a change in their production has a noticeable effect on the world price.) The Saudis have considerable pricing power and their production decisions are controlled by their government. Why have they not cut production? I believe they are engaging in predatory pricing.

Predatory pricing is illegal in the U.S. and elsewhere, under anti-trust law. Predatory pricing occurs when a supplier cuts his prices for the purpose of bankrupting a competitor, or at least driving the competitor out of the market. The predator is willing to suffer losses or reduced profits temporarily, while holding the prices low. Once the competitor is gone, the predator’s pricing power will have increased enough that he can raise prices a lot and make up for losses suffered during the period of predation. Predatory pricing is definitely possible in free markets but is very risky for several reasons: (1) the predator can’t be sure how long it will take to ruin his competitor, (2) he can’t be sure how long he can maintain low prices without sustaining ruinous losses or perhaps face a shareholder rebellion, (3) it’s possible the competitor, or someone who has bought his assets in bankruptcy, will come back to life and start competing as before. For these reasons (and others, such as the difficulty facing regulators who are supposed to distinguish predatory motives from “innocent” business strategy), I believe there is no reason to outlaw predatory pricing.

The situation is a little different in the international oil market because the Saudis and many other major players are government controlled. They are not constrained (much) by the market forces outlined above. They are not accountable to shareholders and are only vaguely responsible to the population of Saudi Arabia. They have substantial latitude to pursue political motives even if their profits suffer.  And anti-trust law does not operate across national borders.

What might the Saudis want to accomplish politically? They hate Russia and Iran, both of which rely heavily on oil exports. They don’t hate the U.S., at least not openly, but they surely wouldn’t mind sticking it to U.S. and Canadian shale oil producers. Those producers are largely market-driven and thus have limited ability to withstand predatory pricing. The Saudis could indeed drive smaller firms out of the market, and also less profitable operations of larger firms.

That might not be such a bad thing. There has been a huge land rush into shale oil and fracking. In any such boom, whether in energy, mining, or computers, many small firms fall by the wayside. If the Saudis ruin some marginal firms or projects, that’s not such a bad thing.

We little guys are sitting pretty. We’re paying a lot less for gasoline. If we hold shares of the major oil firms we’re probably OK, as their share prices have held up and their dividends look solid. The same is true of the pipeline operators. Only if we hold shares of marginal energy firms or oilfield service companies are we in any trouble.

So – go for it, Saudis! Stick it to the evil governments of Russia and Iran and help us clean out some of our marginal energy operations.

A Quiz on Public Finance

Fred Foldvary Economics , ,

How well do you understand public finance? Below is a quiz. Answer whether the statements are true or false, and briefly explain why. If you think that the statement is only sometimes true, or true under particular conditions, say “maybe” and explain. My answers follow the quiz, but first write down your own answers.

1. After a high tax on land value is in place, it will impose a burden on landowners and reduce the productivity and efficiency of the economy.
2. The most efficient way to pay for a city bus service is to make the bus riders pay for the full cost.
3. The best way to decide whether a club should have a party is by a yes-no vote, with the majority of those voting deciding the outcome.
4. No decentralized pricing system can optimally provide collective consumption.
5. Subsidies that reduce the price of goods below the cost of production typically have net benefits to society.
6. The best policy for government budgets is always to avoid deficits, hence to finance all spending from current revenues such as taxes and fees.
7. The best way to handle pollution is with restrictive regulations, as these are less costly than pollution taxes or permits.
8. The least worst tax for the USA would be a flat-rate income tax with no deductions or credits.
9. The least worst tax for the USA would be a national sales tax that replaces the income tax.
10. A pure free market generally fails to provide adequate public goods and to efficiently and equitably handle externalities such as congestion and pollution.

Answers

1. False. A tax on land value reduces the price of land and replaces what would have been paid in mortgage interest. A land-value tax pushes land to its most productive use, increasing productivity and efficiency.

2. False. The best way to pay for mass transit is to charge riders only when the service would otherwise be too crowded, and just enough to prevent congestion. The rest of the cost is best paid for from the increase in the land rent generated by the transit.

3. False. The best way to decide on a club party is the method called “demand revelation.” Each member records the most he would pay for the party. The amounts are added up. If the total is greater than the cost, have the party. To keep the members honest, if any member changed the outcome, relative to stating one’s cost, that person has to compensate the group an amount equal to the net loss of everyone else (their stated values minus their costs). This method is better because it measures how much the members want the party, not just whether they want it.

4. False. Collective consumption paid for by land rent can be decentralized, because the rent reflects the demand to be located there, and the land will not flee, hide, or shrink when its rent is tapped to pay for collective goods.

5. False. The social cost of taxes that pay for subsidies is greater than the gain to consumers.

6. False. Government borrowing can be a good policy if the funds are spent for investments that are more productive than if the funds were spent in private investments. Otherwise, the budget should not have a deficit.

7. False. A charge or tax on pollution, based on its damage, is more effective than regulations and permits, and the funds can replace taxes that harm the economy.

8. False. A land-value tax is better for the economy than a flat-rate income tax.

9. False. A land-value tax is better for the economy than a national sales tax.

10. Some textbooks say this is true, but the better answer is, False. Private communities such as homeowners’ associations and shopping centers can and do provide public goods from the site rentals. In a pure market, pollution is trespass that requires compensation. Private transit can have congestion charges. A pure free market would have contractual governance that could adequately provide public goods and prevent pollution and congestion.

Net neutrality? Mail neutrality?

Warren Gibson Economics , , , , , ,

“Net neutrality,” you surely know, is the notion that all internet traffic ought to be treated equally. All it takes is that one little word, “equal,” to send hoards of left-wing morons to the barricades. For those who care to think through the issue, I offer the following.

If net neutrality is a good idea, so is “mail neutrality.” The Post Office should treat all mail equally. No more Priority Mail, not even First Class Mail. Just mail.  No more commuter express lanes on the freeways.  No priority for anybody, anywhere.

Data sent over the internet, or any local network for that matter, is divided into packets which have header information indicating the destination of the packet followed by a block of bytes that is the digital form of the data, whether text, audio, or video; web traffic, email, or ftp. As far as I know there is no provision in the ethernet protocol for priority information, but that isn’t necessary to prioritize packets.

Why should they be prioritized? Because different kinds of traffic have different natural degrees of urgency. email messages are not terribly urgent, but packets of video are, because if the those packets don’t keep coming at a steady pace, the result is irritating pauses and that little spinning circular thingy. If consumers of video want good service, they should pay for it. If email users who are in no hurry are willing to wait a bit and pay less, that’s good too. Markets generally tend to segment in this fashion. Starbucks doesn’t practice coffee neutrality. They offer fancy drinks to those willing to pay for them and plain coffee for those of us who just want the caffeine.

What rules should be set for internet providers? None, except common law prohibition and prosecution of theft and fraud. Let the service providers set their own policies for use of their private property.  In the interests of their bottom line, they will seek out practices that best serve their customers.  The crucial requirement is that politicians and bureaucrats be kept away.

Economists are special, but what about Palestinians and American blacks?

Brandon Christensen Economics, Philosophy, Politics , , , , , , ,

I’ve got the post-Thanksgiving flu. I know which toddlers are guilty of infecting me, and which aunts and uncles are responsible for this egregious assault on my happiness. Revenge will be sweet.

I’d like to get to Warren’s smackdown of my reparations proposal and also to Matthew’s thoughts on justified violence against the state (which were indirectly related to my own post on Ferguson), but first I’ve got to get to two interesting topics that have piqued my interest.

The first is Irfan Khawaja’s recent critique over at Policy of Truth of Jason Brennan’s new book on voting. As usual, Khawaja brings up a number of great points (too many, actually, for a lowly ethnographic enthusiast like me), and they deserve to be read by all (be sure to check out the ‘comments’ thread, too).

Here is an excerpt (Khawaja has flipped the tired script of many American academics by bringing in a fresh perspective):

I can’t work through all the details here, but take a look at Brennan’s argument in light of the preceding. Either my East Jerusalem case is a counter-example to his thesis, or it’s a defeater for it. In the first case, it refutes the thesis as stated. In the second case, it suggests that the thesis is highly misleading as stated. Given that, my argument requires that Brennan qualify his claims about the ethics of voting in ways that take more explicit stock of cases like the East Jerusalem one–something that would substantially change the “flavor” of his theory.

Brennan’s work has, of course, gotten a lot of excellent treatment in libertarian circles because of both his blogging activities (hint, hint, slackers) and because libertarians have a long, storied distrust of democratic politics (though this is largely an anarchistic distrust rather than the conservative-aristocratic one we North Americans think we are familiar with).

Switching gears, I also need to comment on an interesting paper (pdf) about the “Superiority of Economists” I came across over at MR. It was written by two sociologists and an economist, and it has a number of excellent insights (MR‘s link to the paper was broken, but MR also provided a link to comments by economist Paul Krugman, and his link to the paper was unbroken).

Most of the paper is a rehash of arguments about economics relative to the other social sciences (and the humanities) that libertarians have been having for a long time. (In my anecdotal experience, libertarian economists are quickest to defend the profession of economics from detractors, but they are also the quickest to defend the other social sciences from detractors (and, more importantly, incorporate non-economics research into their own). Leftist and conservative economists, by contrast, condescendingly acquiesce to attacks from other disciplines, but are also very, very disdainful of The Others’ contributions to research.) Libertarian economists generally share the same suspicions as The Other disciplines about the ability of economics to imitate the physical sciences using mathematical models (or that these models are even indicative of how humans “work”). See Warren’s piece (pdf) in Econ Journal Watch for more on these suspicions.

The last section before the conclusion (“A life of their own”) is really good and totally worth the click. It’s about economists and their relationship to everybody else in their society (this paper is made better by the fact that it is written by French academics with an intimate understanding of life in both the US and France, just like some other scholar that we all know and loathe love).

On page 18 the paper cites a few studies and lab experiments which have purportedly shown that people who study economics are, on the whole, less likely to cooperate than everybody else. There are a number of implications that the paper goes over (“does economics attract a certain type of personality?”, for example), but I wanted to focus on what is not discussed in the paper: The fact that economists probably have a different (actually, a more coherent and precise) understanding of the meaning of cooperation. Many criticisms of economics are clearly made of straw. One of the things that initially attracted me to libertarianism was the intelligent, well-informed critiques of economics as I then understood it (“homo economicus“) that were given by libertarians.

I also learned, on page 19 and contra Dr Amburgey’s repeated assertions, that economists are politically (and decisively) to the Left of the average American voter.

Another fascinating page 19 insight is that there is more income inequality ($57k gap between the top 10% and the median) in economics relative to other disciplines, but on this point the authors lose a golden opportunity to do some real sociological analysis (the authors focus instead, and predictably, on the economics profession’s recent prosperity as a whole relative to other academic disciplines; that is to say, on the income inequality between economics and The Others within academia). Earlier in the paper (7-14) an organizational comparison between economics and The Others highlighted the fact that the economics community tends to be more hierarchical, more incestuous, and possesses a “unitary disciplinary core,” which means that virtually all graduate schools teach the same concepts. The Others, in contrast, are “more decentralized, less cohesive, and [possess] less stable prestige rankings.” (9)

The most basic insight that stood out to me when I read the data on incomes was that the disparities and organizational structures of the social sciences and humanities represent a microcosm of society as a whole (pick any ole society you’d like): When rigid hierarchies are enforced, conformity and parochialism (incestuous is too strong a word here) arise, income inequality is more prevalent, and the pecking orders are more entrenched.

In contrast, societies that are “more decentralized and less cohesive” have more variety, much less deference to an established authority (such as a pecking order), and less income inequality ($42k gap between the top 10% of sociologists and the median). There are less women in economics relative to the other disciplines, and the median economist almost has the same income as a top 10% sociologist ($103k to $118k, a difference of only $15k).

Well, this post has already gone on for far too long (I hope to use it as a springboard for future musings) but I will end by noting that on page 23 the paper points out that economics is a very moral discipline, which is something non-libertarian economists vehemently deny. Libertarian economists, on the other hand, have been pointing this out for centuries.

President Condemns Price Gougers, Dealers Raided

Warren Gibson Books, Economics, History, Liberty , , , , , ,

On one sunny August 16, at a time of high price inflation, government operatives announced the seizure of millions of eggs and 200,000 pounds of sugar. Raids on the larders of other suspected profiteers continued for weeks thereafter … The government was prepared to return these items to their owners once the chastened profiteers agreed to sell them at a “reasonable” price and under the watchful eye of a government officer.

The official in charge of the raids explained thusly: “I am one of those who believe that a large part of the high cost of living is due to the fact that a number of unconscionable men in the ranks of the dealers have taken advantage … If we can make a few conspicuous examples of gougers and give the widest sort of publicity to the fact that such gougers have been and will be punished, in the future there will be little inclination to profiteer in this country.”

Earlier, the President of the Republic had laid the blame for a lesser bout of price inflation squarely at the feet of gouging businessmen: “The high cost of living is arranged by private understanding” is how he put it.

By now you may have guessed that I am talking about present-day Venezuela, its Presidente, and his henchmen. You would have guessed wrong. The year was 1919, Woodrow Wilson was president, and his henchman, quoted above, was Attorney General A. Mitchell Palmer. The high cost of living was a result of Mr. Wilson’s war, which was financed partly by money printing, as well as the absorption of vast quantities of real goods and services by the government for use in fighting the war. The obvious effect of more money chasing a reduced supply of goods and services was price inflation, and that same phenomenon happened in all the warring countries, most notably France.

This episode provides one of many reasons, too numerous to elaborate here, why Woodrow Wilson is properly called a proto-fascist and why he is a serious contender for the dubious honor of worst-ever U.S. president. For more, see Jim Powell’s, “Wilson’s War: How Woodrow Wilson’s Great Blunder Led to Hitler, Lenin, Stalin, and World War II.”

The first three paragraphs above are paraphrased from p. 24 of James Grant’s new book, “The Forgotten Depression.” Though I have not finished the book, I couldn’t resist sharing this tidbit. The gist of Grant’s thesis can be seen in its subtitle, “1921: the Crash that Cured Itself.” Highly recommended, so far.

Unemployment is Completely Unnecessary

Fred Foldvary Economics , , , , , ,

In U.S. government statistics, a person is unemployed if he is 16 years of age or more, and that person is able and willing to work at prevailing wages. The labor force includes the employed and the unemployed. If one is not employed for wages because one does not wish to work or to seek work, that person is not in the labor force, and not counted as unemployed.

The unemployment rate in the USA is now about six percent, down from a peak of ten percent in 2009. About one percent of the labor force is in “frictional” unemployment, meaning that the worker is between jobs or recently graduated from school and engaged in job search, or about to be hired. When the economy is depressed, there is “cyclical” unemployment, those not working as firms reduce employment. There is also the “structural” unemployment of workers losing their jobs in declining industries, and the seasonal unemployment of those employed only during a season such as in resorts or during harvests.

An economy is in full employment when the only unemployment is frictional. The economic puzzle is why there is any other unemployment. Cyclical unemployment is no mystery, as firms have fewer sales as demand falls, and falling demands become a downward spiral as falling purchases by some become falling production by others. The recession ends when materials prices and real estate rentals have fallen so low that production becomes profitable again.

Since recessions are caused by monetary and fiscal subsidies, a pure market economy would have neither, so it would have no recessions and no cyclical unemployment. So the puzzle consists of chronic unemployment, those unable to obtain work even during prosperous times. Most of the unemployed have been out of work for months or years. Those long unemployed have even more difficulty finding employment, because employers wonder why that person can’t find any job.

Some economists consider idle labor to have a positive side. You car is not wasted when you don’t use it, because it provides the service of availability. Empty seats in a theater have value because the theater needs that capacity for popular shows. Likewise, in this viewpoint, idle labor provides workers when firms need to hire. Also, the unemployed need time to engage in job search, so they are busy even if unemployed. But one can be employed at least part time while looking for better work, and while idle labor may be good for employers, it is bad for workers who need the income, and for taxpayers who have to support those not working.

In a pure market economy, there would not be any unemployment at all. There would be no seasonal unemployment, because workers could find other jobs in other seasons. There would be no structural unemployment, because workers could shift to other industries, and work in temporary jobs while searching for full-time employment. Even workers in frictional unemployment would be able to work some of the time, since job search is not full-time.

One of the premises of economics is that human desires are unlimited. There is always a demand for something. That demand provides an opportunity for workers to be employed to satisfy that desire. In a pure market economy, one could also be easily self-employed. Any person who is not totally incapacitated would be able to offer some service at some wage. If the wage one can obtain is too low to bother with working, then that person would not wish to work, not be in the labor force, and not be unemployed.

Unemployment exists because there are barriers that prevent labor from having access to land and capital goods. If the cost of hiring a worker is greater than his productivity, he will not be hired. In a pure market, the wage would be set where the quantity of labor supplied by workers equals the quantity demanded by employers.

Government policy raises the cost of labor above the pure market wage. Minimum wage laws prevent employers from hiring the least productive workers. On top of the minimum wage are imposed costs: the employer’s share of payroll taxes, mandated medical insurance, worker accident insurance, and the unemployment compensation tax. The firm also has to withhold taxes from wages and send then to the government. There is also a litigation risk and cost of hiring labor, as labor laws promote excessive litigation to combat malpractice, discrimination and sexual harassment. Also, union labor monopolies, and laws favorable to unions, push up the wages of union workers at the expense of less employment. Finally, laws making it costly to fire workers raise the cost of hiring them, creating more unemployment.

In a full-employment economy, when firms seek to expand, they would pull workers away from other firms, or pulled into the labor force, by offering higher wages and better conditions. There is no need for idle labor.

The best policy for labor is full employment. Labor laws that seek to protect workers end up imposing barriers that prevent employment. Full employment requires hiring flexibility and the removal of government-imposed costs. Full employment requires the elimination of taxes on labor, exchange, production, and consumption. Public revenue from land rent or land value could replace all these labor-hampering taxes, while promoting the productive use of land which would further increase wages.

A shift in taxation from labor to land would both increase employment and increase wages, while letting the worker keep his wage. It is not unemployment that is a puzzle, but rather why workers are not demanding the abolition of their wage-tax burden.

Some Thoughts on Voting

Rick Weber Economics, Politics , , , , , ,

A while ago I bought a Willie Nelson album because Willie is excellent. People who say “I don’t like country music” haven’t listened to Willie Nelson.

Willie would be the first pig-tailed president. We must elect him for social justice!

Even though I can get the album without paying for it, I paid because I want to tell Willie Nelson that I appreciate him. But my purchase was also a dollar vote (a five dollar vote, really) telling would-be musicians to be more like Willie Nelson.* For undertaking the expense of making that vote, I even got access to the album through Amazon. That’s good if I want to load it onto my phone for a road trip, but most of the time it’s actually easier for me to listen to that album on Grooveshark. In any case, I got to express myself, listen to Willie Nelson in a barely easier fashion under some circumstances, and it only cost my $4.99.

Now let’s do some lazy economics. My cost of expressing my preferences was approximately $5. If I’m rational we can infer that my benefit was at least as great. I got access to the album (that’s worth about 2 cents to me), I got to express my appreciation of Willie, and I got to make an infinitesimally small impact on the artistic landscape.

I think it’s fair to say that people who vote are doing so to express their views (as I did). But I think they usually vote for the wrong person. If I decide candidate Bob is less terrible than candidate Andy, that doesn’t mean I should vote Bob. I think candidate Carol actually reflects my views fairly well, and I’m sure she won’t win the election. But I also know that if either Andy or Bob wins, it will be by 300 or more votes**; so if I vote for Carol I won’t change the outcome and thus won’t be “wasting” my vote. In fact, if I vote for Bob I’m wasting my vote because I’m sending the message that we need less of the stuff Carol calls for and more of the stuff Bob does.

But in any case, we all pretty much understand that while your vote matters on average, it doesn’t matter on the margin. Put simply, the costs of voting are significantly higher than the benefits you would get if your vote magically actually did change the outcome multiplied by the probability that such a miracle occurs. So probably people vote to express themselves, and as long as their doing that, voting for the Republicans (Democrats) is like buying a popular album you hate because there’s another popular album you hate more. Don’t do that!

* Being more like Willie Nelson doesn’t mean impersonating Willie, it means being excellent.

** In an election with fewer than 5000 voters you might actually have a reasonable chance of affecting the outcome, but if you aren’t voting in a small town election you can safely assume that your vote won’t determine the winner.

Complex interdependence turned around

Edwin van de Haar Current Events, Economics, Liberty , , , , , ,

An interesting analysis in one of the Dutch quality papers today. The analysis was about Russia’s power politics, and especially how it used all kinds of formal and informal tactics in different areas, for example traditional diplomatic canals, covert military action, media, energy politics, espionage, et cetera. Special attention was drawn to the economic aspect. Not so much the economic sanctions, which are mainly making life more expensive for the Russian population, are a nuisance to the people in power, yet lack any pacifying effect.

More interesting was the point that the entanglement between the Russian en European economies actually allows the Russian leaders to be more belligerent, and to make use of the Ukraine crisis to prolong the life of their rule. This is due to the fear of Western governments to lose Russian investments, gas supplies and capital. President Putin and his followers know this too well, and are therefore prepared to take more risks in the Ukraine crisis. Sure there are other factors important as well, yet this economic factor is significant in their power game.

For liberal theory in international relations this is complex interdependence turned around. In 1978 Robert Keohane and Joseph Nye published their influential book Power and Interdependence, which focused on the importance of the multiple ways societies and countries are interconnected. Although a lot can, and has been, said about their analysis, as well as the broader discussion following the book, many liberals read the book as a confirmation of their belief in the pacifying effects of economic interdependence. However, this was not the actual position of Keohane and Nye, who emphasized that interdependence would not necessarily lead to international cooperation, nor did they assume any other automatic benign effects (see page 249 of the second edition, 1989).

If anything, the current situation in the crisis between Russia, Ukraine and the West shows the truth of these careful theoretical remarks. The political effect of economic ties is not automatically benign or peace enhancing.

The 100th Anniversary of the Defeat of Economic Land

Fred Foldvary Economics, History , , , , , , , , ,

The year 2014 is the 100th anniversary of an economics article that was the final nail in the coffin of classical economics, as it marked the victory of the neoclassical economics war against land. This was a victory so great that economists today do not even realize that there had been such an academic war.

Alvin Saunders Johnson (1874-1971) was an American economist at several universities, including Columbia, the University of Chicago, and Cornell. He was a co-founder of the New School at New York City. In 1902 he wrote “Rent in Modern Economic Theory: An Essay in Distribution.” Johnson, along with other economists who were turning the classical theories of the 1800s into the neoclassical doctrines of the 1900s, generalized “rent,” from the yield of land, into any surplus above opportunity cost, i.e. above the cost needed to put a resource to its most productive use. For example, a movie star paid $1 million to act in a movie, whose next best opportunity is being a salesman earning $100,000, has an economic rent of $900,000.

In 1914, Johnson published “The Case against the Single Tax” in The Atlantic Monthly. As has been well explained by Prof. Mason Gaffney in The Corruption of Economics, Johnson played a major role in suppressing, by falsification, the land-tax ideas of Henry George. Land is now visible everywhere except in academic economics. For example, the generation of land value by public goods is not even mentioned in the general textbooks.

Johnson correctly stated that a tax on the entire rent of land would bring the purchase price down to zero, but he expressed it as: “the value kernel of landed property will have been seized by the state.” In policy analysis, we need to examine inflammatory vocabulary. The moral case for land-value taxation rests in the proposition that the benefits of nature belong to all humanity equally, that the creation of local land values by population and commerce belongs in equal shares to the members of those communities, and that the rentals generated by public works may be used to pay the providers, whether this be private-sector or government providers. None of this is confiscation or seizing by the state.

In Georgist ethics, the people own the rent, not the chiefs of state. A government may justly act as the agent of the people to protect their property, such as the atmosphere, from damage, and a government may, as the agent of the people, collect the rent to distribute it among them, or to use to pay for public goods. The premise that the rent belongs to the people implies that the rent is not being seized from the landowners as though these title holders are the morally legitimate owners, but rather that the state is facilitating the collection of the rent to the proper owners, the people. Hence the terminology used by Johnson taints his analysis and begs the question of the proper ownership of land rent.

Johnson continues his attack by calling the single tax on land value “propaganda for the universal confiscation of land.” Henry George had unfortunately stated in Progress and Poverty that “It is not necessary to confiscate land; it is only necessary to confiscate rent.” The Latin origin of “confiscate” is “confiscare,” from “fiscus” meaning the government’s treasury. Fiscal policy is about governmental revenue and spending. Thus in linguistic origin, to confiscate means simply to tax, to transfer assets to the public treasury. But in modern popular usage, to “confiscate” means to take by force, with the implication that the state is seizing property that was legitimately owned. And despite George’s statement that it is only the rent, not the land itself, that is being “confiscated,” Johnson attacks the single tax as confiscating the land.

Moreover, by dismissing the theory behind the single tax as “propaganda,” Johnson denigrated the logic and evidence for land-value taxation in an anti-scholarly manner, and thus he himself indulged in propaganda.

Johnson’s mixing up the ownership of land and of its rent is also shown by his statement that if all the value of land is taxed, the revenue would cover the costs of government, “provided, of course, that the public can manage the lands as efficiently as they are now managed by their private owners.” This despite the statement of George that “I do not propose either to purchase or to confiscate private property in land.” Land-value taxation would not disturb private titles; it would not alter private control and possession. The government would not “manage the lands.”

Johnson states that much of the financial wealth of the middle class is in land value, and that the full taxation of land value would take more value from them than they would regain in the removal of other taxes. Of course in 1914, the 16th Amendment had just been enacted in 1913, and the middle class did not yet suffer from the income tax.

Nevertheless, Johnson’s statement is illogical. Suppose the total land rent is $1 trillion, and the cost of government is half of that; then the rent does not disappear, but is distributed back to the people in cash. So the effect of land value taxation would be to equalize the ownership of the rent, and a person who owned an average amount of rent would get half back in cash, and half back, ideally, in valued public goods. If government is squandering some of the rent, then the remedy is to give it all back to the people. Then the average land owner is in a neutral position.

Johnson falsely declared that “The Single Tax is, then, essentially a device for the spoilation of the middle class.” One could justly say that Johnson’s malicious attack was a device for the spoilation of the remedy for poverty, depressions, and land conflicts. What has spoiled the middle class is high taxes on their wages and on the goods they buy. Johnson’s falsifications were the spoilation of a policy that could have promoted sustainable prosperity and prevented needless economic inequality. Johnson’s propaganda succeeded in helping squash land-value taxation, but to the ruin of economies worldwide.

With the neoclassical victory against land, most economists today suffer from cognitive dissonance. Even if economists reject an egalitarian view of natural resources, they know that the supply of land is inelastic, so public revenue from land rent avoids the excess burden that other taxes have. But they do not extend this knowledge to the rest of theory and to policy. Mason Gaffney calls this the “corruption of economics.” I call it “academic brain freeze.” At any rate, it is worth marking the 100th anniversary of Johnson’s attack.

Blaming Finance, Ignoring Real Causes

Fred Foldvary Economics , , , , , , , , , ,

The fall 2014 Cato Journal has an article, ‘The Financial Crisis: Why the Conventional Wisdom Has It All Wrong,” [pdf] by Richard Kovacevich, Chairman Emeritus of Wells Fargo. The author is correct in saying that the conventional wisdom is wrong in blaming the slow recovery on the “uniqueness of a financially led economic recession.” The US economy recovered from the severe 1980 recession within two years, while now the economy is creeping like a turtle.

The economic cause of recovery and growth is simple. Economic investment – the production of capital goods – drives the business cycle. Recessions are caused by a sharp fall in investment. Then, as the prices of raw materials fall, and as land rent drops, a depression reduces these costs of production, therefore increasing profits, so investment recovers. Government can boost the recovery by further reducing the costs of production, by decreasing the taxes and regulations it imposed previously. This is the “supply side” policy of increasing investment and production by reducing the costs of regulations and taxes.

But this time around, the federal government did the opposite. Costly regulations have magnified, with an anti-supply-side effect. Every year, there are thousands more regulations that hamper enterprise, and finally, regulations plus taxes have achieved the tipping point of making it too costly for enterprise to invest and hire labor.

After the Crash of 2008, the federal government had two basic policy options: it could help the economy recover with market-enhancing supply-side policies, or else the government could enact the welfare-state agenda of greatly increased governmental medical services. The government chose the latter option, which imposed even greater costs on enterprise and labor.

When the recession hit the economy in 2008, one of the responses was TARP, the Troubled Asset Relief Program. As the article states, one of the problems with TARP was that it did not focus on the troubled banks, but imposed the policy on all banks. The banks that were not troubled had to obtain the funds and then pay interest on them. TARP imposed the impression that all banks were in trouble, which destroyed confidence, and then Congress responded to the turmoil by imposing 25,000 pages of Dodd-Frank regulations.

None of the financial regulations, going back to the Great Depression, confront the causes of the boom and bust. The fundamental cause is massive subsidies to land values. The Cato article focused on the financial industry, but the more fundamental issue is government policy regarding real estate. The problems of the financial industry originate in their financing of real estate.

The history of the Americas has been that of grabbing land and enslaving labor. In the American colonies, the British government promoted European settlement to control land and to profit from trade. After the defeat of the French in 1763, the United Kingdom changed policy to avoid conflict with the people of Quebec and with the Indians, by restricting western speculation and migration. That annoyed the landed interests enough to declare independence, and to establish a constitution that would better extend and protect land speculation. Huge grants of land were given to railroads, veterans, colleges, and speculators.

After the public domain was disposed of, the government continued the subsidy of the large landed interests with implicit policies that are invisible to the public and to most economists. The provision of public works, welfare to the poor and elderly, and artificially cheap credit, all generate greater land rent and land value. This amounts to a vast redistribution of wealth from workers, tenants, and enterprise owners, to landowners, especially the concentrated owners of commercial and farm land.

With a fixed supply of land, much of the gains from an economic expansion is captured by higher land rent and land value, which then attracts speculation that carries real estate prices to unsustainable heights. When land values crash, they bring down with them the financial system that provided the loans. None of the financial regulations touch this basic cause, and land-value seeking is so deeply ingrained in American culture that people favor it even at the price of high taxes, high unemployment, and the destruction of liberty.

Ask a typical American, “Would you favor a tax reform that eliminates taxes on your wages, on interest from your financial assets, and on buildings, replaced by a tax only on land values?” The answer is, “No! I would rather suffer unemployment, insecurity, crime, poverty, and loss of liberty, than have my precious land taxed!”

“OK, then, would you favor the complete replacement of government’s public goods with private, contractual, provision that eliminates the subsidy to land values?” “No! We need government to provide these things!”

Then you ask, “So why do you want the word ‘liberty’ put on our coins?” The answer is, “I want liberty so long as it is not put into practice!”

And that is why government deals with the superficial financial appearances, and not the implicit reality that causes the booms and busts.