Hayek’s Choice In Currency: A Way To Stop Inflation

Chhay Lin Lim Economics , , , ,

I have just finished reading Friedrich Hayek’s short essay entitled ‘Choice in Currency’ (1976). I believe that this essay is highly relevant in our current time as we have become witnesses of the emergence of crypto-currencies. In the essay, Hayek argues for market competition in currencies as a way to stop inflation and its dire consequences. He does not contend that the governments’ right to issue money should be done away with. Instead, he argues that what should be abolished is their “exclusive right to do so and their power to force people to use it and to accept it at a particular price” (p. 16). Hayek concludes that

“the best the state can do with respect to money is to provide a framework of legal rules within which the people can develop the monetary institutions that best suit them… if we could prevent governments from meddling with money, we would do more good than any government has ever done in this regard. And private enterprise would probably have done better than the best they have ever done.” (p. 22)

Hayek starts the essay with a critique on John Maynard Keynes and his idea that governments or central banks should increase the aggregate of money expenditure in order to ensure prosperity and full employment. According to Hayek, an increase in money expenditure would stimulate the economy in the short run, but it would make unemployment worse on the long run. For a more detailed explanation of the Austrian Business Cycle Theory that Hayek has supported, you can read this article of mine – you have to be able to read Dutch though.

What I find most interesting about Hayek in the essay, next to his great arguments why we should allow currency competition on the market place, is that he seems to have become more embittered with politics and the common people at the point of writing in 1976. Just as my opinion of governments and the public have worsened over the years, so too has Hayek’s opinion over the course of his lifetime. He writes:

“I never had much illusion in this respect, but I must confess that in the course of a long life my opinion of governments has steadily worsened: the more intelligently they try to act (as distinguished from simply following an established rule), the more harm they seem to do – because once they are known to aim at particular goals (rather than merely maintaining a self-correcting spontaneous order) the less they can avoid serving sectional interests.” (p. 14)

“No worse traps could have been set for a democratic system in which the government is forced to act on the beliefs that the people think to be true. Our only hope for a stable money is indeed now to find a way to protect money from politics.” (p. 16)

What is Hayek’s proposal for the world in 1976? He writes:

“At this moment it seems that the best thing we could wish governments to do is for, say, all the members of the European Economic Community, or, better still, all the governments of the Atlantic Community, to bind themselves mutually not to place any restrictions on the free use within their territories of one another’s – or any other – currencies, including their purchase and sale at any price the parties decide upon, or on their use as accounting unites in which to keep books. This, and not a utopian European Monetary Unit, seems to me now both the practicable and the desirable arrangement to aim at. To make the scheme effective it would be important, for reasons I state later, also to provide that banks in one country be free to establish branches in any of the others.” (p. 17)

Fortunately, our technologies have rapidly changed since then. We are now able to create crypto-currencies that are in direct competition with governments’ or central banks’ issued currencies. I hope that such alternative currencies like Bitcoins will eventually weed out federal currencies and will stop the erosion of our money’s value. A currency that cannot be printed out of thin air would lead to a much safer world as governments cannot finance their wars through inflation anymore. Nor can they secretly usurp ‘taxes’ on seigniorage.

Reference
Hayek, F.A. (1976). Choice In Currency: A Way To Stop Inflation. Institute Of Economic Affairs

BC’s weekend reads

Brandon Christensen Links , , , , , , , , , , , , , , , , ,
  1. Our own Edwin van de Haar being interviewed about Degrees of Freedom (audio interview)
  2. Does Gun Control Work? Ben Carson Says Yes. ADL Says No but Yes
  3. The Vanishing Europe of Jürgen Habermas
  4. Leviathan (movie review)
  5. Thinking Anew | What, precisely, changed in the 18th century? (book review)
  6. This Is What Russia REALLY Fears in Syria

Russia in Syria: A Gift to the West (but not to Syrians)

Brandon Christensen Current Events , , , , ,

I don’t see why so many Western commentators and analysts are up in arms over Russia’s move into Syria. (Actually, I do: From Ukraine to Iran to Syria, Moscow has been more active in geopolitics than it has been for nearly 25 years.) Moscow’s move into Syria can only be seen as a gift to the West, in terms of strategy and geopolitics. Think of it this way:

Russia has no military experience whatsoever outside of its borders. The Russian military did a ruthlessly good job of stamping out secessionist movements in the Caucasus, and its internal security bureaucracy has done a great job of stifling dissent and shaping the narrative that Moscow wants to be highlighted. Yet Russia’s success outside of its borders has been paltry, at best.

Intervention in Ukraine has brought widespread, global condemnation upon Russia, and economic sanctions to boot.

The Russians in Syria are going to be ruthlessly slaughtered and exploited by the myriad of factions in the region. Not only is Russia backing the wrong horse (Assad), it is backing it up with hardware and personnel that have no experience with the region. Russia has produced an insular intellectual class over the past 15 or 20 years, and this is going to play out badly for its Syrian intervention.

The West, which has an awful lot of experience playing factions off on each other in the Near East, will most likely take advantage of Russian ignorance (to the detriment of Syrian society as whole) and as a result the world will see a Russian military outsmarted, outgunned, and outmanned by an insurgency with no official support from the outside world. The Russians are going to get bloodied in Syria. I don’t see why Western hawks are so keen on making Russia “pay” for its excursion on the global diplomatic stage.

The News: Fair and Unbiased

Jacques Delacroix Current Events , , , , , , , , , , ,

Reminder: Favorite Democratic presidential candidate Clinton (H.) must be considered innocent until she is found guilty by a court of law. Be patient!

The Obama Air Force bombed a Doctors Without Borders clinic in Afghanistan, killing about twenty people including doctors and underage patients. White House spokesperson: “We are still the best!” (Learning how to write headlines liberal style.)

I looked at a picture of the Oregon mass killer. He looked African-American to me. I am not an expert on race but I am pretty sure he would not have been seated at a Sears lunch counter in Mississippi in 1956. I wonder if he too was a white supremacist.

The police found thirteen of his firearms, all perfectly gun controlled (legal, in other words).

It seems to me that the statistics that matters the most with respect to homicides is type of homicide for 100,000 people. For the period 2000-2014 the US stands high in the ranking of deaths per hundred thousand within the context of a mass killings. It ranks number four, behind Norway, Finland, and….Switzerland. N. S.! (From the Wall Street Journal of 10.3 4 2015 reporting on an academic study.) I think a fourteen year period is significant. It does not look like cherry picking to me but I am open minded.

This all makes me muse about how raw figures are presented to the public. We all know the US homicide rate is high. (I don’t have the numbers at hand but there is no disagreement about the general statement.) I wonder what the US ranking would be if we deducted from the US homicide total count all homicides committed by African-Americans in areas administered by Democrats for a long time, say, more than ten years. I am thinking Chicago and Baltimore, for example. Just imagining.

Critics of Markets have Intervention Denial

Fred Foldvary Economics , , , , ,

There is a meme, an infectious idea, that has spread like a mental plague among advocates of greater governmental intervention. This idea is “intervention denial,” the claim that the US and other developed economies have had complete economic freedom. The critics of markets usually use deliberately mind-numbing language such as “capitalism,” although sometimes they do claim more starkly that today’s economies are a “free market” and practice “free banking” and “free trade.”

Many examples of intervention denial can be found by searching for the submeme “unbridled capitalism” as well as “greed” combined with “capitalism” or statements such as “people over profits.” For example, there is a web article titled “Unbridled Capitalism and the Blight of Greed” which defines “capitalism” as “the economic system in which the pursuit of wealth remains in the control of individuals, free from government regulation or interference.” The article states that “Capitalism, after all, suffers from a fatal flaw – Greed.” Intervention denial has infected well-meaning people in high places, such as the Pope, who declared, “Unbridled capitalism has taught the logic of profit at any cost.”

“Denial” in this context means the refusal to believe in evidence. For example, Holocaust denial is the refusal to accept the enormous evidence of mass murders by the Nazis. There are science denials of various sorts. Intervention denial is one of the most destructive memes in the mental universe human beings live in, because intervention denial blocks effective solutions to social problems.

Consider the claim that the US has had destructive “free banking.” This false meme originated in historians who called the US banking system prior to the civil war “free banking,” even though the banks were tightly controlled by state governments, such as prohibiting banks from establishing branches beyond the state. In true free-market money and banking, there is no restriction or imposed cost on any currency, account, or financial institution so long as its operation is honest and peaceful.

The intervention deniers claim that the USA has a free market in money and banking, disregarding the obvious facts that the US financial system is tightly regulated by the Federal Reserve (“the Fed”), the FDIC, the SEC, and the US Treasury Department. These institutions and Congress bailed out the financial system after the interventions caused the Depression of 2008, as they did with previous busts. The US dollar and interest rates are controlled by the central planning of the Fed. This is the system that intervention deniers call a “free market.”

In a truly free market, there would be no restriction, tax, subsidy, or mandate that alters honest and peaceful human action. Those who claim the US economy is “unbridled” talk as though there were no regulations nor any taxation, let alone subsidies. The extent and effects of regulations on the US economy can be read in the study “Ten Thousand Commandments” published by the Competitive Enterprise Institute, as well as the regulations data base of the Mercatus Center at George Mason University. The economic damage done by intervention can also be read in the on-going study “Economic Freedom of the World,” at freetheworld.com.

How can an economy be “unbridled” if enterprise, consumption, and produced wealth are all afflicted with heavy taxation? Intervention deniers talk as though there were no income tax, federal excise taxes, state sales taxes, value-added taxes, and taxes on buildings and equipment. A truly free market would also not have any subsidies, such as the billions of dollars now going into the big farms, along with other corporate welfare.

All these interventions – taxes, subsidies, restrictions, and mandates – distort prices, wages, interest rates, profits, and quantities. The social problems we can observe: unemployment, low wages, unaffordable housing, slow growth, recessions, pollution, can be traced back to government intervention. Consider pollution, for example. Intervention deniers claim that “capitalism” and “greed” result in pollution and environmental destruction. But a truly free market is free of subsidies. When firms and their customers do not pay the full social cost of the products, as the social cost of pollution is imposed on others, that is an implicit subsidy. In a truly free market, with full enforcement of property rights, pollution is treated as a trespass, an invasion of others’ property, requiring full compensation. The problem is not that firms and markets are unbridled, but that ecological destruction is subsidized. The subsidies combine with a legal system that bridles the population with a legal inability to sue the polluters for damages.

There is indeed a bridle to a free market: laws prohibiting force and fraud. A pure market economy consists of voluntary human action. The bridle is on thieves, not on peaceful and honest producers, traders, and consumers.

When interventions are pointed out to the deniers, they respond that these taxes, restrictions, subsidies, and mandates are of little significance. This is similar to Holocaust deniers who respond that perhaps a few Jews and Gypsies were murdered by the Nazis, but not on the large scale that they deny. Intervention deniers do not deny the existence of the Federal Reserve system, but they claim it is a private free-market organization. Deniers of all sorts reject data and other evidence, use undefined terms such as “capitalism” and “greed,” and point to their favored authors, articles, and data as though these present unbridled truth.

“Greed” means wanting and taking more than one morally deserves. A person morally deserves that which is earned by labor and received from voluntary gifts. The honest acquisition of wealth may be avarice, but not greed. Thieves are greedy, and those who indirectly steal by getting government to do or protect their forced taking are also greedy. Intervention denial is ultimately a refusal to think it through, to fully understand the ethics, politics, and economics of human life.

From the Comments: Asylum Seekers and the Canadian Experience

Brandon Christensen Comments , ,

Dr Amburgey takes some precious time out of his schedule to rebut Dr J:

@Brandon

I can understand your reluctance to yet again engage with Professor Pinocchio’s fact-resistant Islamophobia. However you must give him credit for actually using some real data. Granted the choice of country and time period are idiosyncratic [id est cherrypicked] but anything not pulled straight from his anus is a dramatic change. Should you feel like responding in kind, use this: Canada for the period 2004 – 2013. Top 8 countries of origin for refugees landing in Canada

Columbia – 17381
China – 15344
Sri Lanka – 12326
Pakistan – 10641
Haiti – 7872
Mexico – 6512
India – 4988
USA – 4451

Based on this data Catholicism and Hinduism far outstrip Islam as religions producing sick societies.There is currently no other view that is even modestly supported by anything but ideological intransigence.

Indeed. Only the most ideological of ideologues continue to pretend that Islam is responsible for the problem in the Middle East.

When the Austro-Hungarian empire collapsed, the Holocaust happened. One could argue that, because the state is less efficient on the post-Ottoman world, what we’re witnessing is a process similar to the one we witnessed in the Occident, only in a much more haphazard way.

BC’s weekend reads

Brandon Christensen Links , , , , , , , , , , , , , , , , , , ,
  1. Introducing… Jesus and Mo
  2. On private property and the commons
  3. Why Merkel’s Kindness to Asylum Seekers Could Reflect a German Soft Spot for Islam
  4. Why I find the Mthwakazi monarchy restoration unjustified
  5. September (a song about me)
  6. From the Far Right to the Far Left
  7. Beyond Neoliberalism (book review)

E. O. Wilson and Spontaneous order

Rick Weber Economics , , ,

Jump right to the 17:28 mark if you don’t care to spend some quality time with a delightful old man.

http://video.pbs.org/viralplayer/2365572374?chapter=1

“We share with insects the mysterious instinct to build complex societies… [talks about an ant colony filled with concrete then dug out of the earth…] Here was a labyrinthine web of underground highways, mini-colonies, gardens, and garbage dumps. But it was the scale of it that was breathtaking. This was an ant metropolis, a Manhattan of the insect world.

“Now, how could an animal with a brain smaller than a pinhead possibly construct and maintain a city of this size and complexity?”

Because spontaneous order! This view is why Don Lavoie cites E.O. Wilson so much. Both are fascinated (as we all should be) with systems where the interaction of its constituent parts yields outcomes more complex than any subset of those constituent parts could come up with. These complex outcomes result from relatively simple information transmission mechanisms so that behaviors of each part influence and are influenced by the rest of the system.

Asylum Seekers and Western Military Intervention

Jacques Delacroix Current Events , , , , , , , , , , , , , ,

Recently, Brandon Christensen, the capable Editor here tried to take me behind the woodpile, again! (Note for our overseas readers: To take someone behind the woodpile usually a child – is to spank him to try to improve his attitude.) This is what happened: NOL re-published two of my essays “Hypocrisy” and “Muslim Refugees in Perspective” where I asserted (again) that many Muslim societies are failed societies or otherwise sick. Brandon asserted (again) that any apparent linkage between Islam in general and social pathologies is just that, an appearance. Instead he seems to argue, Muslim societies that are in any kind of trouble owe their trouble mostly (or much?) to Western intervention in general and to American intervention in particular, with a special emphasis (I am guessing) on military intervention.

There is a partial test of these competing beliefs in an examination of refugee applications to Germany during a recent period.

Between January and August 2015, Germany received 147,500 applications for asylum from the top ten countries of origin of the applicants. (I am rounding numbers to the next hundred.)* Of these, 79% came from predominantly Muslim countries.

Almost half of the asylum seekers from Muslim countries – 48% – came from Syria, a mostly Muslim country where the US and the West had notably not intervened (or only superficially) by August 2015, the end of our period of observation. If you will recall, the US president has earlier drawn a red line beyond which the Syrian dictator couldn’t go on waging war on his people. The Syrian dictator ignored the warning and nothing happened. That’s as non-interventionist as it gets!

Of the asylum seekers from predominantly Muslim countries, 23% came from Iraq and from Afghanistan together, two countries that have in fact experienced American and Western (even international) military intervention in the past twenty years.

Reminder: It’s worth remembering that the intervention in Afghanistan was launched to dislodge a regime installed by force of arms that sheltered terrorists, according to the Al Qaida terrorists themselves, and according to the regime itself. Several years earlier, the same terrorist group sheltered by Afghanistan – Al Qaida – had declared war on the United States, incidentally.

Of the remainder of asylum seekers from predominantly Muslim countries, 29% came from Kosovo. That’s more than from Iraq and Afghanistan combined.

Reminder: In 1998, the national Communist Serbian dictator Milosevic ordered all ethnic Albanians of Kosovo, more than 90% of the population to leave under threat of death. This episode of ethnic cleaning cost about 10,000 lives. NATO, led by the US quickly intervened militarily and forced Milosevic to leave the (overwhelmingly Muslim) Kosovar in peace.

NATO had previously intervened militarily in Bosnia, another part of the dissolving Yugoslav Republic, to save the non-Serb population from Serb ethnic cleansing . Of the total population, a plurality, about 40%, were Muslims. (There are no Bosnian asylum seekers visible in the sample I am discussing here. Bosnia is mentioned only as a reminder of the diversity of Western military interventions.)

Following these Western military interventions, both Bosnia and Kosovo became independent Republics with strong Western backing. They remained Muslim or mostly Muslim.

Would anyone dare argue that Western action to stop the massacres of first Bosnians and then Kosovar are responsible for the fact that now almost entirely Muslim Kosovo is currently producing many asylum seekers? I suppose, this is defensible: Had NATO not intervened militarily, Kosovars would been massacred by Milosevic in larger numbers, and then, they would have fewer people, – mathematically available – to contribute as asylum seekers.

Continued:

Of the asylum applicants from Muslim countries, 45% came from Albania, Eritrea, Pakistan, and Nigeria together, all countries with no US or other Western intervention of any kind in recent years ( I mean since 1950, the earliest I really remember!)

Albania alone contributed more asylum seekers, 33,900, than Iraq and Afghanistan together, 26,700. There have been no US or Western intervention in Albania.

Of course, distance alone makes it easier for Albanians than for Iraqis and for Afghans to reach Germany. But, by the same reasoning, why are there few asylum seekers from Croatia that is even closer to Germany, or from Romania. that isn’t much farther? (Croatia and Romania all have tiny Muslim populations.) Contrary to this line of reasoning, I must say, there were 21,000 asylum seekers from Serbia, a country with a small Muslim minority. Muslim dominated societies do not have a monopoly on severe social pathologies. I never asserted otherwise.

We know from the cut-off point of the table of the ten countries that were the largest suppliers of asylum applicants that the highest possible number of asylum seekers from non-Muslim Croatia, or from Romania (or from non-Muslim Bulgaria, or from troubled Greece) would be 3,976. That would be about 1/10 of asylum seekers from mostly Muslim Albania.

I see in these figures moderate support for the idea of the sickness of Muslim societies. I find little support, on the other hand, for the competing idea that Western and American intervention are responsible for the difficulties those societies are encountering.

I anticipate several criticisms of this provisional conclusion.

First, quantitative association like these don’t “prove” anything. Of course they don’t. Perhaps, there is a third factor, or series of factors not related to either Islam or Western intervention that explain why Muslim societies are such rich providers of asylum seekers. I am listening.

Second, the short recent period January to August 2015, maybe historically unrepresentative. There is a near- infinity of other possible periods the examination of which might show no disproportionate numbers of refugees from Muslim counties. (Ask me why a “near infinity.”)

Third, Germany is not the whole world. A more inclusive data base showing all asylum applications from all countries to all countries might demonstrate no preponderance of refugees from Muslim countries. In fact, such a data base might indicate that refugees from Muslim countries are actually under-represented among asylum seekers world-wide.

I hope someone performs one or the other study. I would easily change my mind according to the results. I am not wedded to the idea of widespread sickness of Muslim societies. Frankly, I don’t even like it. I surely have no ideological investment in this view. It’s just that there is currently no other view that is even modestly supported by anything but ideological intransigence.

Finally, there are probably those who would argue that large numbers leaving their countries at great personal risk to seek refuge in an alien country the language of which they probably don’t even know, that such an exodus says nothing about the countries of origin. Go ahead, say it; make my day! I can’t wait.

The conclusions of this simple analysis is difficult for many otherwise intelligent people to accept, even provisionally. Three reasons that I see for the rejection.

First it seems politically incorrect. We have become so confused by leftists identity politics that many are unable to distinguish between race, an unchanging attribute of a person, and religion, an individual choice. He used to be black; he still is. I used to be a Catholic. I am not anymore. That simple! (Of course, I did not risk the death penalty as do Muslims in some Muslim countries for committing apostasy.)

Second, professional intellectuals – who may or may not be very intelligent – have a horror of being caught believing the same things as do the great unwashed masses. It’s bad enough that they must assent to the assertion that the sun rises in the east, same as a plumber or a cop! The masses are “Islamophobic;” I must stay away regardless of the evidence!

Third, and much more subtly, my discussion with Brandon is part of an ongoing discreet struggle taking place on the edge of the libertarian movement. Libertarians of all stripes believe that war is a major factor in increasing the power and the scope of the state vis-à-vis civil society. (I share this belief.) Libertarian purists like Brandon end up becoming a kind of qualified pacifist, like this:

Perhaps, if I am completely sure that people who have sworn to disembowel me are actually climbing over the back wall of my property after having set my neighbor’s house on fire with my neighbors inside, perhaps, then, I will think of defending myself.

A handful of libertarians of that ilk keep failing to recruit the millions of moderate conservatives who both want small government and believe the yoke of government will never be alleviated in a society that feels threatened. Let me repeat myself: The task of first halting the growth of government and then, of rolling back its scope and power can only be accomplished in a very well defended society. Much of this rolling back has been achieved in Somalia, by the way yet, Somalia is not a model.

In their desire to reject all kinds of war that are not obviously and dangerously defensive, libertarian purists will find fault with all wars, almost at any cost. If necessary, they will blind themselves to the obvious. The act of blaming on American and or Western intervention the self evident multiple failure of Muslim societies (with major exceptions), is just the latest example of this tendency to gauge out one’s own eyes to avoid the horrors of the truth.

“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm. – W. Churchill”

* The data on seekers of asylum from Germany are from the German Federal Office for Migrations and Refugees published in the Wall Street Journal of 9/25/15, p. A12

“Turkish Savagery” is up at Liberty Unbound

Jacques Delacroix Links ,

For centuries, Europeans viewed the Turk as the most feared, yet least familiar enemy. Twice, the Ottoman hordes threatened Vienna, practically next door to Paris. For hundreds of years French Mediterranean towns and monasteries fortified themselves against Turkish pirates (who mostly never showed up). Algerian pirates, who were thought of generically as “Turks,” occasionally plundered the Irish coast. Once, a bunch of them even raided Iceland! Following his naval debacle at the Bay of Abukir, Napoleon brought Mamelukes, Turkish mercenary troops from Egypt, back to Europe. He used them as a weapon of terror against the insurgent Spaniards, a fact memorialized by Goya in his Tres de Mayo. In this atrocity painting, only the Spanish victims, who seem to be appealing to the viewer, have human faces. The Mameluke execution squad is shown from the rear, like a many-backed beast.

Read the rest.

A Matter of Legitimacy

Federico Sosa Valle Philosophy , , , , , ,

Dictionaries give us two definitions of “legitimacy”: “the quality of being legal” and “the quality of being reasonable and acceptable”. The two meanings are intertwined: we expect reasonability from the laws and we infer the content of a law we do not properly know from what we regard as reasonable. Unreasonable laws are not acceptable to the people and Cesare Beccaria warned us about how unreasonable prohibitions engender more and new crimes.

Political Realism and Legal Positivism cross their paths when it is time to discuss what is the ultimate foundation of obligation, both political and legal: facts and force. An overwhelming force deployed upon individuals and peoples will always be able to impose what is reasonable and acceptable. For Thomas Hobbes, as fear is not a sufficient reason for annulment of covenants, the feeling of terror from the subject to the sovereign does not challenge the legitimacy of his power.

Libertarianism is, in principle, a political stance on the state that denies its legitimacy or, at least, denies unlimited sovereignty. And we stress “in principle” because we want to point out that not all versions of Libertarianism accomplish the said aims. In this regard, we want to single out one crucial trait of every Libertarian political theory: is it possible a stateless order of cooperative coordination between individual plans? Does its existence depend upon our own volition and agreement? We want to make a distinction between two strains of Libertarianism: the one which affirms the possibility of a stateless society and the one which does not.

Paradoxically, the affirmation of the possibility of a stateless order of cooperation legitimates the Hobbesian stance on unlimited sovereignty: having at their disposal the alternative of a stateless political order, individuals opt freely for a Leviathan. What we have to decide now is the extension of the power of the government, but at this point there is no restriction left to the power of the Leviathan to determine its own limits.

On the other hand, for the strain of Libertarianism that regards the absence of a state as impossible or not desirable ­because, for example, the justice is an artificial virtue that demands a government to enforce it­, the state is a fact that has no reasonable alternatives. As the theft that compels us to choose between our bag or our life, there are no reasonable options left to us but accepting the power of the state. As David Hume pointed out, tacit conventions as the stability of the possessions require a political order to enforce it. Therefore, the factual power of the state will be legit only as long as it enforces the tacit order of human cooperation that allows individuals to fulfil their plans. Notwithstanding this last strain of Libertarianism does not deny the legitimacy of the state, it does consistently deny the legitimacy of any type of unlimited sovereignty.

How does emigration impact institutions?

Michelangelo Landgrave Economics , , , , , ,

Hello everyone. As usual I’ve come to ask for feedback on my latest research. I can’t emphasize enough how much it helps to blog it out, if only because it forces me to sit down and try to summarize things in a few hundred words.

My current research is looking at the effect emigration has, if any, on institutions. Institutions come in various forms. The state is an institution, but family, religion, and even organized crime are too. Broadly speaking institutions are those rules that govern society, both formal and informal. Institutions have increasingly been acknowledged as being one of the key (if not the key) determinants of a nation’s wealth.

Despite the importance of institutions, we know relatively little about them. By no means is this due to a lack of trying, and in there have been some earnest attempts to tackle the issue. Acemoglu’s Why Nations Fail is one such attempt.* For the time being the goal in institutional studies is to properly explain how and why institutions form.

My goal is to neither explain the origin of institutions or to measure their impact on economic well being. I take it for granted that good (and bad) institutions populate the world. Instead I am interested in how different institutions interact with one another.

My former boss at Cato has looked at how immigration has influenced a destination country’s (the USA) institutions. He finds little effect. In my project I try to look at the problem from the opposite end – how does emigration influence an origin country’s institutions. To measure the impact of emigration I use remittance data.

Remittances come in two form. There are monetary remittances, which are cash transfers from emigrants to their family members and friends back home. There is a broad economic literature on the former and its affect on development outcomes. There is however little (if any- I haven’t found any at least) economic work on social remittances. Social remittances is the transfer of ideas from emigrants to their family members and friends. In general the economic remittance literature has not yet attempted to connect itself with the institution literature despite both being part of the larger development literature.

Most work on social remittances has been done by sociologists. Thus far though most of the work has been qualitative and/or focused on how social remittances tie migrant communities with their origin countries. There has been little work on how this communication translates to changes in institutions.

Political scientists are currently taking the lead on the question. Earlier this year Abel et al. published a paper looking at how remittances affect democratic transition. They find that increased monetary remittances decreases voter turn out and thus weakens the political base of populist-based autocracies. Another recent paper by Miller et al. find that emigration increase the possibility of civil war by giving opposition parties an external funding source.

I think Abel and Miller’s work the best thus far in seeing how emigration affects institutions. My biggest concern with Abel’s paper is that he looks at democratic transition events, but there is no reason why democracy must lead to better institutions. Hong Kong and Singapore alternate as the most economically free states in the world, but neither is a bastion of democracy. India is the world’s largest democracy and by most metrics has awful institutions.

Miller’s work on the other hand looks at how the probability of civil war increases, but civil war in itself is not always bad. On occasion war is necessary for the improvement of institutions**.

To remedy my concerns I look at how remittances marginally influence institutions. I use the Fraser Institute’s Economic Freedom in the World summary index as my measure of a country’s institutions. My regression tables are found below. All observations are for north American (including central America but excluding the Caribbean) countries from 1994-2012.

Column 1 is a simply regression between a country’s EFW score and remittances as a percent of GDP. Initially we find a negative correlation between the two – a 1 percentage point increase in remittances is associated with a 0.01 point decrease in its EFW score. Is this a sign that brain drain, the emigration of high skilled migrants, is reducing the institutional qualify of origin countries? Not quite – it’s simply caused by the lack of control variables. At this point remittances is a proxy for a country being undeveloped.

Columns 2-4 are me playing around with various control variables. The interaction of phone subscriptions with remittances is my attempt to proxy for social remittances. Presumably emigrants are more likely to call back home, and exchange ideas, if their family members and friends have a phone to be contacted at. The 1 year lagged EFW index symbolizes the ‘stickiness’ of institutions: in the short run institutions do not drastically change.

Column 5 is simply column 4 re-run using clustered errors and country fixed effects. Country fixed effects, for those of you who have been spared endless hours of statistical classes, is a technique that allows us to account for unobserved characteristics of a country that do not change across the observed time span. This is usually done to account for such things as culture or geography.

In this final iteration we find that a one percentage point increase in remittances increases a country’s EFW index score by 0.05 points. This is a marginal effect, but its not irrelevant. See the Cato Institute’s interactive map of economic freedom. The difference between the United States and Russia is about one point despite the former presumably being a bastion of freedom.

Thoughts?

*Why Nations Fail has been discussed on NOL several times before, see here and here.
** But let me emphasize that this is rarely the case and war should be the last option. We really do need to make our own NOL foreign policy quiz.

(1) (2) (3) (4) (5)
VARIABLES EFW Index EFW Index EFW Index EFW Index EFW Index
Remittances as a percent of GDP – Fraser EFW -0.01* 0.04*** 0.00 0.01** 0.05***
(0.01) (0.01) (0.00) (0.01) (0.01)
Fixed telephone subscriptions (per 100 people) 0.03*** 0.01* 0.01
(0.00) (0.00) (0.01)
Remittances * Phone -0.00 -0.00 -0.00**
(0.00) (0.00) (0.00)
EFW Index 1-year lag 0.81*** 0.78*** 0.54***
(0.04) (0.05) (0.05)
Income Per Capita in 000s, Constant 2005 dollars. 0.00* -0.00 -0.01
(0.00) (0.00) (0.05)
Constant 7.39*** 6.60*** 1.33*** 1.50*** 3.04***
(0.06) (0.06) (0.28) (0.32) (0.45)
Country Fixed Effects No No No No Yes
Observations 134 134 110 110 110
R-squared 0.03 0.66 0.91 0.91 0.93

Standard errors in parentheses in columns 1-4. Robust errors in column 5.

*** p<0.01, ** p<0.05, * p<0.1

How Can Crypto-currencies Democratize Society?

Chhay Lin Lim Economics, Philosophy , , , , , , ,

Yesterday, September 26th of 2015, I attended the Reinvent Money event in Rotterdam, the Netherlands, that was organized by Paul Buitink. The goal of the event was to bring people together for a grand discussion on the future of our monetary system. This discussion on monetary reforms is totally necessary if one considers the current problems with the euro and Greece, banking scandals, the rise of bitcoin and the blockchain technology, and peer-to-peer lending.

The speakers list consisted of many prominent thinkers and activists who could share with a crowd that was mostly in favor of crypto-currencies their thoughts about the current monetary system and whether money should be reinvented.

Willem Middelkoop was the first speaker and talked about the Big Reset of the monetary system that is currently orchestrated by high level officials. Jakob de Haan, head of the research department at the Dutch Central Bank, was the second speaker and stated that he does not believe in an upcoming Big Reset. While defending central banks, he argued that central banks are necessary in order to stabilize the currency and he sees five aspects that central banks should fulfill:

  1. central bank independence;
  2. central bank transparency;
  3. using monetary policy instruments to stabilize the economy;
  4. banking supervision of not only independent commercial banks, but of the whole economy. In his opinion, the central bank should supervise the entire economic system instead of primarily addressing individual institutions;
  5. macro-prudential policies to avoid crises.

Other speakers included Max Keiser, Stacy Herbert, Vit Jedlicka (president of Liberland), Stephan Antonopoulos, Simon Dixon, Joris Luyendijk, Prof. Antal Lekety and some others. Some wanted to go back to a gold-based monetary system, others truly wanted to reinvent money through crypto-currencies, and a few wanted the system to stay as it is structurally. As a voluntaryist, I was quite disappointed that the pro-crypto-currency speakers saw it as a means to democratize society. I don’t fully understand what they mean with the word ‘democratize’ and how crypto-currencies could do that, but I’ve noticed that those speakers saw it as a means to make our political system more democratic. Maybe, they mean ‘anti-authoritarian’ as crypto-currencies would indeed limit the monetary powers of the government and the central bank. However, I’ve always understood it as a de-political money system that is disruptive enough to do away with the myth that government is needed at all to stabilize our currency, and hence that it would bring us closer toward a voluntaryist society – not toward a more democratic system. A democratic system, in my opinion, means a system in which the majority rules. Crypto-currencies give every individual the full ownership of their money. Thus taking personal financial affairs entirely outside the scope of government meddling, also if that government is democratically chosen.

BC’s weekend reads

Brandon Christensen Links , , , , , , , , , , , , , ,
  1. Hongcouver
  2. Making a Case for Bishops’ Authority in the Second and Seventeenth Centuries
  3. Global Warming is not a Crisis
  4. Dondante
  5. From masterpieces to selfies (top link)

From the Comments: Trying to Make Sense of Left and Right (Again)

Brandon Christensen Comments, Politics , , ,

This one is from yours truly, in a delightful back-and-forth with Dr Amburgey:

Ok. Clearly we need to be using terms that mean the same things to both of us. It’s your thread so tell me what constitutes ‘The American Right’ and what constitutes ‘The American Left’. Once we have a common understanding of terminology we can resume the discussion.

I have been working on a post about this very topic, and this conversation is helping me immensely. Thanks.

First, I think there is a distinction that has to be made between the ‘ideological’ and the ‘political’. The ideological rests atop a higher tier than does the political, like a pyramid. The ideological tier houses philosophical and moral insights, which are produced through the academy and in think tanks. The political tier houses organizations dedicated to parties (I think that factions and parties are two different components of a society, and that factions represent a tier below the ideological and above the political).

The American Right is ideological. The GOP is political. (Factions would consist of actors like bureaucracies, trade unions, industrialists, banks, medical doctors, etc., but can also be used to describe intra-party, or coalitional, differences) The American Right is currently home to three broad ideologies: neo-conservatism (elite and moderate), libertarianism (elite and radical), and traditionalism (populist and radical). I emphasize ‘currently’ because neoconservatives and libertarians were at one point Leftist factions in US history, and could easily end up there again in the near future. In many post-colonial and post-socialist societies, for example, both of these ideologies are considered to be on the Left.

The American Left is currently home to three broad ideologies: fascism, communism, and racism. Just kidding! The three ideologies are, I would argue: New Deal liberalism (elite and moderate), technocratic liberalism (elite and radical), and progressivism (populist and radical).

New Deal liberals and neo-conservatives are only moderate because they are dominated by Baby Boomers and Baby Boomers dominate the population at the moment. Libertarians and the technocrats are broadly younger and more cerebral (hence the radicalism). Traditionalism and progressivism are ideologies for the vulgar mob, of course.

Ideology, using the pyramid analogy, trickles down from the top tier into the factional and political tiers. This is just how it works in societies governed by laws rather than by men. Libertarians have been dominating the ideological discussion for the last 30 years or so, and the technocrats have been playing defense, largely because they are politically aligned – wrongly, of course – with socialism’s failure, but also because technocrats are just libertarians who don’t have the chutzpah to become non-conformists.

Successful politicians from the Democrat Party have been trying to balance their New Deal liberalism with the insights of their technocratic betters, but have been calling themselves ‘progressives’ because of the populist narrative and the fact that they need the votes of the vulgar mob to be successful.

I already don’t like this because I don’t think the Left deserves to be considered ‘liberal’ at all, and there is also the shortcoming of being strictly American in scope. We have got to think in internationalist terms when we discuss power and liberty. NOL has tried to hash this whole issue out before, by the way, and numerous times.