What Would A Political Union of the EU, the NAFTA States and Japan-South Korea Look Like?

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

I’ve known about the relative poverty of Western Europe compared to the United States for quite some time now, but it’s always nice to see this little tidbit get some love in the national and international press. Fraser Nelson, a journalist at the Spectator (in the UK) gives us the run-down on the numbers. According to Nelson, the UK is poorer than any US state save for Mississippi. Over at Forbes, Tim Worstall points out that the UK is actually poorer than Mississippi, too. Poor Mississippi!

Both men are calculating wealth with GDP (PPP) per capita, which is what I use as well. GDP (PPP) per capita means Gross Domestic Product (Purchasing Power Parity) per capita. Worstall explains how and why social scientists like using GDP (PPP) per capita to gauge a society’s standard of living:

Just to explain PPP for you. Prices vary across places. In the US food is generally cheaper than it is in Europe, medical care generally more expensive. So what we try to do with PPP is work out what exchange rates would need to be in order to make prices of all of these different things the same in the different places. It’s not an exact science, more of an art. But if what you’re trying to measure is living standards then it’s somewhere between useful and essential as a part of your workings.

It isn’t just the UK that is poorer than the poorest US state, either. Economist Mark Perry did these same calculations using 2010 data back in 2011 and pointed out that only Luxembourg and Norway would be in the Top 30 states were Western Europe and the United States to meld into one federal republic. The rest of Western Europe is on par with the living standards of the American South (which is considered to be the poor, culturally backwards region of the US). Be sure to check out Perry’s 2010 data and compare it to Worstall’s and Nelson’s 2013 data, too.

Careful readers will notice extremely small differences in the calculated purchasing power parity of all three authors (the IMF’s is also a little different), but each data gives us a similar approximation for standards of living in each country and each US state. Suffice it to say here a political union between the United States and the wealthy countries of Western Europe would significantly diminish the GDP (PPP) per capita of the US overall. A political merger with Japan, South Korea, and Mexico would also diminish the overall purchasing power parity of the average US citizen. Canada might (might) make the Top 40 for US states (somewhere between Michigan and Ohio – states of the Rust Belt).

Now, if I had my way, the calculation standards for non-US countries would be the same as they are for US states. That is to say, I think a better way of measuring standards of living would be to break up the countries I’ve mentioned and measure the GDP (PPP) per capita of the administrative units that operate just below the national governments of these states. So, for example, instead of measuring the GDP (PPP) per capita of the Netherlands, I’d measure the GDP (PPP) per capita of the 12 provinces that make up the Netherlands.

Then, in my libertarian utopia, the 50 US states would join together politically with the various administrative units of Western Europe, Canada, Mexico, Japan, and South Korea. Instead of 50 administrative units (the US states) there would be hundreds, maybe even thousands, of them. Talk about decentralization!

Given that a political (and therefore economic and social) merger between Western Europe, the NAFTA states, and Japan-South Korea would diminish my PPP, why should I support such a proposal?

Update 8/30: Some commentators on Facebook have been clamoring for a map, and I found a great website that has devoted lots of time to creating maps based solely on administrative units. The name of the site is Kelso’s Corner and they have a great blog post on the “Natural Earth Vector,” which is the project that maps out administrative units.

It doesn’t have detailed maps of the Anglo-Saxon world or Mexico (presumably because these are so well known), but I found a couple of great maps of Western Europe and Southeast Asia.

This is what the European Union would look like, politically, if it were to be more libertarian in nature.
This is a map of South and East Asia’s administrative units.

Imagine if all of these units were to send representatives and senators to Washington (or a new geographic equivalent): Decentralized political power and integrated markets and cultures would be the new norm for much of the world in a political system based on Madison’s federal republic. I reckon that, in a libertarian utopia, the world would look like this map and be united under Madison’s minarchist federal government:

All thanks goes to kelsocartography.com

I understand that my utopia is not much of a utopia (people will still die and there will be plenty of conflict), but I think this is actually a strength rather than a weakness.

What does the Obama administration hope to accomplish?

Michelangelo Landgrave Current Events, Law, Politics , , , , , ,

It is widely believed that the Obama administration will extend deferred action to include a significant portion of the United States illegal alien population following Labor Day. Some analysts are estimating that as many as five million illegal aliens will be provided some form of amnesty. I am skeptical this is the case, and believe it is more likely we will see smaller actions taken. The executive branch has a high degree of freedom when it comes to applying immigration law, but there are limits. The President’s actions thus far have been made with the goal of getting Congress to pass immigration reform, and any future actions are likely to follow that trend.

Let us consider for example the announcement of Deferred Action for Childhood Arrivals (DACA). DACA has provided temporary relief for half a million migrants in the form of work permits and legal presence. Perhaps more importantly it also strengthened a constituency that has a strong stake in seeing immigration reform passed by Congress. A cynic is tempted to say that the ultimate purpose of DACA was to create several thousand lobbyists.

Earlier this year the Obama administration also mused with the idea of extending the Military Accessions Vital to the National Interest (MAVNI) program to include those who had received DACA relief. The MAVNI program allows those who enter it an opportunity to earn US citizenship by serving in vital military roles. The actual perquisites to join the MAVNI program are high and it is doubtful more than a handful of DACA recipients will ever earn citizenship in this manner. As it is clear that this program is of little practical use, why did the administration bother with it at all? I suspect it was because it was hoping to win over support for immigration reform from military constituencies.

The administration has also proposed allowing spouses of certain legal migrants to acquire work authorization. Here too the idea is better in principle than actual practice, as only spouses of H-1B visa holders already in the process of gaining permanent residency are eligible. It is clear that the purpose of this proposal had more to do with gaining support among skilled migrants and their employers than it was about actually providing relief.

Opponents of increased immigration may consider the above actions to be instances of executive abuse, but they are all minor compared to what the Obama administration could do.

The Obama administration could, for example, lower the threshold necessary for a waiver of inadmissibility to be approved. A significant portion of the illegal alien population would be eligible to readjust their legal status either through their family connections to US citizens or by employer sponsorship, but they are barred from doing so because they have accrued unlawful presence. A waiver of inadmissibility is an existing process that pardons said unlawful presence, and it may suffice for the Obama administration to instruct US Citizenship and Immigration Services (USCIS) to be more generous when it decides whether to grant the waiver. Allowing illegal aliens to attain permanent residency and citizenship via this method would be a significant departure from past executive actions by providing long term relief.

The Obama administration has previously altered how the waiver of inadmissibility is granted by allowing it to be filed inside the United States instead of requiring applicants to do so in a consulate abroad. I am therefore skeptical that the administration is not aware of how relatively easy it would be to use the existing system to grant massive relief to the illegal alien population.

Furthermore I doubt the administration wishes to grant deferred action for a large portion of the illegal alien population as it may then find a decreased willingness to include a pathway to citizenship as a perquisite for immigration reform. Prior to DACA’s announcement there was broad support for passing a version of the Dream Act, but said support was lost as many saw DACA as being a de facto Dream Act. Few people know or care about the marginal differences between the two and many have perceived DACA as being sufficient. A large expansion of deferred action for the illegal alien population may, in the short term, provide them relief at the expense of making others perceive that there is no need for further action to help them. It may also lead to the current pro-immigration reform coalition to break apart and make it more difficult to increase the number of legal immigrants.

Liberalization of immigration law paradoxically makes it more difficult to find support for fully open borders. How much support would there be for open borders if all one had to do to legally enter a given country was sing the national anthem and pay for a ten dollar entrance visa? I suspect under such loose regulations the desire for open borders would be restricted to a handful of individuals interested in it on philosophical grounds.

The Obama administration cannot create any new pathways to citizenship for the United States’ illegal alien population. Nor can it create new pathways for legal immigration. It can however provide relief for the illegal alien population and ease the process for legal immigration. I doubt it will though, as its goal is to get Congress to pass comprehensive immigration reform with as few as possible executive orders.

Idea for a story

Rick Weber Books

I’m reading Radford’s “The Economic Organisation of a P.O.W. Camp” and I came up with an excellent premise for a Catch-22-esque story. Troops on one side of a war hear rumors that their enemy’s POW camps are comfortable and safe. Word spreads and military leaders get wind of this. In addition to propaganda, and other measures they spread rumors to enemy troops of their lavish prison facilities. This prompts an arms race of escalating promises of prisoners’ wellbeing. In order to make rumors credible they begin actually investing in prisoner camps. Soldiers continue to face squalid conditions so rationally get caught. Total hospitality ends the war.

Rational Ignorance, Fairy Dust and Pissing Away the Future: Libertarians are Selfish and Stupid

Brandon Christensen Comments , , , , ,

I’ve been workin’ on a farm out in Utah for the past couple of weeks, so blogging has been slow. I’m trying to save up some cash so I can head back west again. In the mean time, here is an old post I wrote that critiques some of the more juvenile foreign policy arguments of Republicans and Democrats.

Brandon Christensen's avatarFACTS MATTER

Hello all,

I thought I’d take up Dr J’s invitation to write something for his blog. This post is largely inspired by the comments thread from his recent post on bombing Syria (for Syrians’ sake, of course) and his latest post on the supposed differences between conservatives and liberals. Ultimately, my goal is to show you how full of shit everybody that participates on this blog really is.

That won’t be hard to do.

Dr J makes the following, factually correct, observation about Leftists (“liberals”):

Conservatives are well informed about liberal programs because they cannot help but be. Few liberals however avoid being pathetically dependent on gross stereotypes of conservatism as a political doctrine. Few even know that it’s a political doctrine based on a well-defined moral stance.

If there is one thing that Leftists are known for, it is being rationally ignorant: the less you know about your opponent…

View original post 1,255 more words

Expanding the Liberty Canon: Euripides’ Tragedy Ion

Barry Stocker History, Liberty , , ,

Euripides lived from about 480 BCE to 406 BCE. Though he is one of the three great figures of Athenian tragedy, along with Aeschylus and Sophocles, who have already been discussed, he may have been born outside Athens and died outside Athens.  This relatively mobile life is itself an issue at a time when identity with the city of one’s both and ancestors was  taken very seriously, and it was very difficult for anyone not born of parents of that city on both sides to become a citizen and participate in politics. It is an issue considered in the play considered here.

Euripides’ way of writing is distinct from that of Aeschylus and Sophocles, in that it is more discursive, with long prologues and characters speaking in short essays sometimes. There is less of the feeling than in Aeschylus and Sophocles of writing that is purely poetic and arises unreflectively from a world of myth, gods, and heroes. We should not think of Aeschylus and Sophocles as spontaneous poets of a mythical world view, there is a reflective designed element. Anyway, in Euripides we are likely to feel more part of a world of conscious reflection and debate on the limits of the customs and laws of the time. The mythical is not absent, but is more open to question. The writing style is more like an assembly of short essays joined by dramatic action, which is a slightly harsh way of distinguishing Euripides from the more continuous intense poetry of the other two great Attic tragedians.

More plays survive by Euripides than the other two writers of tragedies, and I hope to turn to some of those later in this series. For an entry in the Euripidean world, Ion is ideal form the point of view of questioning of the politics and religion of the time. The background to the play is that the God Apollo, also referred to as Phoebus, made the young woman Creusa pregnant.  She abandoned the resulting baby boy and believes him to have died. Apollo arranges for the boy to be raised as a servant at his temple in Delphi. The temple is connected with the Delphic Oracle, one of the major institutions of the ancient Greek world and one of the few things giving some unity to the great number of Greek states, along with the Olympic games. The oracles was a woman speaking in a riddling manner, whose words were interpreted  by priests. People came from all over the greek world to hear the prophecies and use them as advise. This include state representatives considering issues like war, so the Oracle has a political function, and may have been manipulated to serve political purposes.

Euripides does not engage directly with the political role of the  Oracle, but the story of Ion revolves around the mythical history of Athens and the early Greek states. Ion is the name of the boy abandoned by Creusa. Creausa comes to the temple with her husband Xuthus when Ion is a young man, with no idea of what has happened to him. Xuthus is a powerful man in Athens, who came from outside the city, but became an important citizen after helping the city to victory in war.

When Xuthus sees Ion at the temple, he is misled by a prophecy of Apollo into believing that Ion is his son, by a brief liaison at a festivity. He makes this belief clear to Ion and invites him to come to Athens as his son and heir, since he has had no children with Creusa. Ion has doubts about going to Athens because of the issue f excluding foreigners from public life, but is assured that that he will be able to speak in public debates. So we see an indication of how citizenship was seen in Athens in the time of the great tragedies, which is to say as participating in public affairs on the basis of a right and duty to speak one’s mind as far as it is directed to issues of the public good.

Creusa does not realise that Ion is her son and when he realises that Xuthus will take him up as his son and heir is angered that a stranger is taking over her family.  She plots to kill Ion with poison. This looming crime and its motives refers both to an ancient Greek tendency to see women as driven by uncontrolled dangerous passions, and to an expectation that the woman has some rights in the marriage and the family that should not be violated. When Ion discovers her murderous intentions, she flees to an alter where she cannot be killed without sacrilege, indicating the role that ideas of divine force and protection had in the  Greek understanding of law. Apollo sends Athena, the goddess associated with Athens, to prevent the sacrilegious murder by explaining that Ion is the son of Creusa and not Xuthus. Ion and Creusa are reconciled, but Xuthus is not informed of the truth. He is allowed to continue to believe that Ion is his biological son. The lie is excused with the suggestion that Ion is his son  by a gift of Apollo.

The play suggests that the interventions of the gods are full of deception and force, so casts some doubt on the perfection of the gods, and on divine justice. That is practice means casting doubt on the foundation of customs and laws, suggesting that they can be debated according to the rights of citizens in Athens that concern Ion. The idea of a city unified by common ancestry rather than residence and citizenship is questioned.

It is the mother who links Ion to Athens through descent and though she is portrayed as murderous, her son’s anger is no less demented and dangerous, so at least suggesting some sense that both men and women need to restrain their most destructive impulse.  she is allowed to known the truth and bears the burden of Apollo’s seduction, or even rape, and subsequent abandonment. It is the priestess of the temple who starts to lead Creusa towards the truth, which is fully explained by Athena.

Euripides expresses the need to question the grip of myth, archaic law, and ancestral custom if there is to be public truth and political justice. He shows some awareness that a community rests on the participation of women not just their subordination to men, even if he does not erectly challenge that subordination. He suggests that violent revenge must be constrained not just by the divine order, which also sets up cycles of revenge, but more by recognition of truth, rational discussion, and debate about the public good, with the possibility of integration of outsiders into a community of free debate about laws and the good of the city.

The California Solar Energy Property-Tax Exemption

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

California exempts solar energy equipment from its property tax. The exemption will last until 2025. The California Wind Energy Association has complained that this exemption puts solar energy at an artificial advantage relative to other renewables such as windmills. Biomass, the use of biological materials such as wood and leftover crops, is also at a relative disadvantage.

Rather than eliminate the solar tax exemption, the other energy industries should seek to eliminate the property tax on all energy capital goods. With this exemption, the government of California is recognizing that property taxes on capital goods – buildings, machines, equipment, inventory – impose costs that reduce production and innovation. Since this tax is toxic, the property tax should be removed from all improvements.

The best revenue neutral tax shift would be to increase the property-tax revenue from land value by the same amount as the reduction in the taxation of capital goods.

The other energy industry chiefs call the solar property-tax exemption a subsidy. We need to distinguish between absolute and relative subsidies. An absolute subsidy occurs when government provides grants to firms, or limits competition. A relative subsidy occurs when one firm or industry receives a greater subsidy than its competitors. All absolute subsidies are also relative subsidies, because they exist relative to the rest of the economy. But if the subsidy is not in funds or protection, but from lower rates on industry-destructive taxes, this is a relative but not an absolute subsidy.

Suppose that there are patients in a hospital suffering from continuous poisoning. The doctor stops poisoning one patient, and he recovers. But the other patients are still being poisoned. The other patients complain that it is not fair for one patient to be singled out for favored treatment. But the just remedy is not to resume poisoning the recovered patient, but to stop poisoning the others. The taxation of capital goods is economic poison, which the state recognizes would poison the solar energy industry they seek to promote. But why poison the other industries? The property tax should exempt all capital goods, all improvements.

A broader issue is the subsidies to energy. All forms of energy, except human muscles, are subsidized by the state and federal governments. Energy from oil and coal are implicitly subsidized by exempting them from the social costs of their environmental destruction. There is no economic need for any subsidies. But to obtain the true costs of energy, governments should also eliminate taxes not only on their capital goods but also on their incomes and sales. We cannot know whether renewable energy can stand on its own until we eliminate all the government interventions, including taxes, subsidies, and excessive regulations.

Since a radical restructuring of public finances is politically impossible today, a politically feasible reform would be to exempt all capital goods investments from the property tax. If this needs to be revenue-neutral, California could replace its cap-and-trade policy with levies on emissions. The relative subsidy to solar power is unfair to the other energy industries, but the real unfairness is the property tax on their investments.
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This article first appeared at http://www.progress.org/views/editorials/the-california-solar-energy-property-tax-exemption/

О психологии законодательной системы в России

Evgenii Grigorev Current Events, Law ,

Привет, друзья!

Давно ничего не писал, так как не имел такой возможности по причине частичной блокировки сайта wordpress.com в России и соответственно сообщества Notes On Liberty, которое базируется на этой платформе. Как говорится у нас в стране, “горе от ума”, что означает: “чем больше знаешь – тем больше проблем имеешь”. В данном случае с wordpress сработала российская система цензуры. На одном из сайтов, который базируется на этом популярном хостинге, была обнаружена переписка, затрагивающая интересы кого-то из членов правительства. В итоге была команда на удаление. Так как наша организация, отвечающая за блокировку “неугодных” ресурсов не обладает широкими возможностями в области коммуникаций с держателями данных ресурсов, было принято гениальное решение: зачем блокировать отдельный сайт? Давайте заблокируем весь ресурс полностью. Так мы на некоторое время лишились возможности пользоваться wordpress. Однако через неделю решение было найдено и сайт разблокировали, удалив лишь “запрещенный материал”. К сожалению, такая политика действует и с другими ресурсами. Вместо того чтобы лечить вывих пальца – ампутируют руку. Вместо того, чтобы заблокировать один сайт – блокируют весь ресурс, оставляя миллионы пользователей без возможности вести блоги и работать в сети.

Последние недели были не самыми лучшими в российской политике. Я осознанно не затрагиваю вопрос с Украиной и Крымом, потому что меня уже бесит эта тема. Она мне надоела. Помимо этого в мире много всего еще происходит. Если кто-нибудь хочет узнать мое мнение по этому вопросу – я с радостью включусь в дискуссию.

Думаю, что наиболее обсуждаемая тема в мире сейчас – это санкции, которые Россия ввела против стран Европейского Союза и Америки. Как часто бывает, русских граждан они задели даже больше, чем страны, против которых они вводились. Это тоже особенная черта нашей политики: “бей своих, чтобы враги боялись”. Давайте вспомним закон Магнитского. После того как Америка внесла русских политиков, причастных к этому делу в черные списки, – каков был наш ответ? Правильно. Мы запретили американцам усыновлять русских детей из детских домов и фактически перекрыли многим детям дорогу в другую счастливую жизнь. Сейчас примерно такая же ситуация. Стараясь максимально навредить странам, которые ввели против нас санкции, мы бьем по своим же гражданам, лишая их возможности покупать импортные продукты, которые по определенным показателям лучше российских. Фактически нам навязывают, что мы должны есть. Живешь в России – ешь русское. Здесь дело даже не в том, что я или кто-то еще не переживет без норвежской рыбы или французского сыра. Переживем отлично. Проблема в том, что некоторые специфические продукты питания в принципе не производят в России. Например, безлактозное молоко, которое пьют люди со специфическими болезнями, например с непереносимостью молочного сахара. Фактически, эти люди лишаются возможности употреблять молоко вовсе.

Теперь, собственно, о том, как у нас составляются законы.

Недавно я вернулся из поездки в Париж и в Голландию, где прожил суммарно 10 дней. За это время я имел неплохой опыт общения с коренными голландцами и французами. С голландцами общался больше, поэтому буду говорить применительно к Голландии. Я думаю, что принципиальная разница в законотворчестве России и Голландии кроется в психологии законодателей. Так, например, большинство российских законов направлены на запрещение или ограничение чего-либо. Таким образом, в России работает принцип “запретить то, что не разрешено”. С психологической точки зрения – это негативная практика. Человек открывает сборник законов и видит одни лишь запреты, упуская из виду все разрешенное. В Голландии немного другой принцип – “разрешить то, что не запрещено”. На вид обе формулировки одинаковые, но на самом деле они имеют важное принципиальное различие. Имея перед глазами четкий список того, что “можно”, человек будет подсознательно следовать ему. В то время как у нас человеку приходится догадываться самостоятельно – что можно делать, а что нельзя. Незнание законов не освобождает от ответственности, поэтому человеку приходится идти на хитрости.

Мне кажется, что эта изначально “запретительная” система негативно сказывается на настроении людей.

Tamny on Fractional-Reserve Banking: Right Conclusion, Faulty Analysis

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

John Tamny has posted a long and thought-provoking piece entitled “The Closing of the Austrian School’s Economic Mind.” He begins with a cogent critique of the anti-fractional-reserve stance of certain Austrian economists at the Mises Institute. Unfortunately, he follows that with a discussion of fractional reserves, the money multiplier, and other issues in which he goes badly astray.

As Tamny says, it is only some Austrians who have a problem with fractional-reserve banking. I consider myself an Austrian but I do not share the view of fractional reserves of the Mises Institute contingent, whom I prefer to call hard-money advocates.

The alleged problem, as the hard money people have it, is that under fractional reserves it appears that two people have a claim on the same dollar. This, they say, is fraud. But it is not fraud if the arrangement is disclosed to all parties. There are problems with our present-day fractional-reserve system, which I discuss below, but fraud is not one of them. (Incidentally, Tamny scores a point when he wonders about the hard money people calling in the state to crush the alleged fraud, but I believe most of them are anarchists and would have private protection agencies do the job. Just how this might work is beyond me.)

Tamny recognizes that fractional-reserve banking is the norm in all modern societies but he goes a little too far when he says fractional-reserve banking is a tautology. Modern banks do offer warehousing of money to those few who want it, via safe-deposit boxes. Anybody can rent one and stuff it full of currency or near-money assets like gold coins, and of course pay an annual fee. This is a minor sideline for banks, but it exists, so there is no tautology.

Also, contrary to Tamny, it is possible for a well-run business to fail for lack of money. This can happen if the supply of money in an economy falls short of the demand to hold it. (We must not mistake the demand to hold money with the demand to acquire money for spending. We all want to hold a certain level of cash, enough to cover emergencies or unexpected bargains but not so much as to pass up good opportunities for spending or investing it.) Money supply can get out of balance with money demand when there is a monopoly supplier, as there is in all modern economies, which has no market forces to tell it how much money to issue. There would be such forces in a free banking system, which is a topic for another time.

I promised to mention problems with fractional-reserve banking. The first is that government control of the banking system has short-circuited market forces that would signal to bank managers the amount of reserves they ought to keep on hand. If managers keep too little in reserves, they risk a liquidity crisis, or short of that, fear of a crisis on the part of depositors or would-be depositors. If they keep too much, they pass up profit opportunities and dis-serve their shareholders. The safety of a fractional-reserve bank depends critically on its reputation for prudence in lending. Without government interference in the forms of both controls (among them reserve requirements, capital requirements, and asset restrictions) and support (two that come to mind are Federal deposit insurance and the privilege of borrowing from the Federal Reserve), managers would very likely be more prudent about lending, and even more, about maintaining their reputation for prudent lending. Depositors would come to understand banks as something more like a mutual fund than a piggy bank.

This first point is not a strike against fractional reserves, but the government’s failure to let a free-market fractional-reserve system work honestly and efficiently.

The second problem is the flip side of the first. Federal Deposit Insurance relieves depositors of any incentive to question the soundness of their bank’s lending process. Depositors have no reason to look beyond the FDIC sticker in the window. Such is not the case with mutual funds which bear some resemblance to fractional-reserve banks. Most fund investors look carefully at ratings before investing. FDIC insurance does not eliminate risk, it socializes it, wreaking all sorts of distortions in the process.

I agree with Rothbard that occasional bank failures, leaving depositors and shareholders as well as other bank creditors empty-handed, should be welcomed because they put the fear of God into managers and depositors alike.

An advantage of a fractional reserve system over a 100% gold-backed system is that the latter would suck almost all the world’s supply of gold into underground vaults leaving very little for industrial or ornamental uses. Fractional reserves free up a lot of that gold for these uses, more so over time as the reserve levels needed to maintain confidence in the system fall as the system works well and confidence increases.

Tamny next takes up the money multiplier, and in so doing goes wildly off the rails. He cites the textbook example:

  • Someone deposits $1,000 cash in bank A
  • Bank A lends out $900 and keeps $100 cash as reserves
  • The recipient of the $900 deposits it in bank B which loans out $810 and keeps $90 cash as reserves
  • The $810 is deposited in bank C, and on it goes.

Textbooks use this example to show how money is created by fractional-reserve banks via a multiplier which approaches 1/r where r is the fraction of deposits maintained as reserves by each bank, 1/0.1=10 in the example. The new money is categorized as M1, which includes currency and travelers’ checks in addition to demand deposits (checking account balances).

So is M1 really money? Most definitely, because it fits the definition perfectly: a generally accepted medium of exchange. Is there anyone reading this piece who does not keep much more of his money in a checking account than in cash? How often do we pay cash these days? We use our debit cards, paper checks, or on-line transfers instead of currency. Or we use credit cards which we pay off by on-line transfer or check. All this is M1 money, all created by private banks under the aegis of fractional reserve banking. Notwithstanding the problems cited above, it all works rather well.

Tamny will have none of it. He goes through the same textbook exercise, imagining a group of friends in a room instead of a sequence of banks. He is wrong to say that no money is created in the process. To be sure, the amount of currency in circulation has not increased but he fails to notice that M1 money has increased. That’s because each loan recipient has, in addition to some currency, a bank balance that he correctly believes he can spend without ever converting it into currency: M1 money. Tamny could give each borrower in his thought experiment an old-fashioned bank book as evidence of the new money. We have here the nub of Tamny’s problem: his failure to recognize that M1 money (or rather the demand deposits that dominate that category) is real spendable money.

Tamny says money doesn’t grow on trees, but he’s wrong. The Fed creates base money out of thin air, as I’m sure Tamny agrees, but most money creation is done by private banks via the multiplier. And in truth, a fractional reserve system does create real wealth in the long run relative to a 100% reserve system because it increases the efficiency of the money and banking system, freeing up resources for alternate productive uses.

Is the fractional-reserve system inflationary? Yes, when currency flows into banks and is multiplied, it is. The reverse process is deflationary. But if overall bank reserve levels hold steady no price inflation is triggered, other things being equal.

Tamny’s use of NetJets as an analogy to fractional-reserve banking is flawed. The same jet plane cannot be in two different places at the same time. But two dollars of checking account money, each having its origin in the same dollar of currency deposited, can both be spent. Yes, money does grow on fractional-reserve trees. No, real wealth does not.

Tamny asks, if banks can multiply money, why can’t the same be done by “enterprising entrepreneurs eager to quickly turn $1,000 into $10,000 without doing anything?” They can actually, but they must do a lot of work first, like raising capital, setting up an office and web site, rounding up depositors and borrowers. To see details, go to www.startabank.com. The barriers to entry caused by licensing and such are actually rather modest.

Incidentally, the failure to recognize demand deposits as money goes back at least to the Currency School in 1840’s England. This school of thought held that bank notes should be backed 100% by gold but failed to understand that checks payable on demand were also money and required backing.

“Credit is not money,” says Tamny. What is it, then? “Credit is real resources.” But this is a wide departure from the accepted meaning of the term and one that leads to all sorts of confusion. The common definition of credit is a willingness or commitment of lenders to provide loans to certain parties under certain conditions. Businesses often carry lines of credit with banks. Individuals have credit limits on their credit card accounts. No, credit is not money, but it comes close. We feel reassured by credit commitments which we can tap into when needed. Credit is a way to buy stuff, not the stuff itself. I should add that later in the same paragraph Tamny calls credit access to real resources (my emphasis). This is closer to the mark but is not the defining characteristic of credit. Stuff can be bought on credit or with currency or barter. Again, credit is the willingness or commitments of lenders to loan money. But later in the piece Tamny flips back to credit as “resources in the real economy.”

At one point he says true inflation is “devaluation of the dollar.” No, devaluation refers to a drop in exchange rates for a particular currency relative to other currencies. Devaluation is often but not always accompanied by inflation. I’ll give him a pass on this and assume he means true inflation is a drop in the dollar’s purchasing power.

Elsewhere he denies any role for Fed-induced “easy credit” in the housing bubble. It may not have been the dominant factor, and it may have been overpowered by countervailing factors in the examples he cites, but can there be any doubt that lower interest rates stimulate the quantity of housing demanded, other things being equal? Don’t mortgage payments consist almost entirely of interest in the early years? Exercise for the reader: how much more house can you afford given $3,000 per month to spend on a 30-year mortgage if the rate drops from 5% to 4%? Answer: a lot more.

Another Tamny claim is that a growing economy always needs more money. This seems right, since growth generally means more of everything. But as clearing and payment system efficiencies increase, as we turn more to debit cards, credit cards, PayPal, and whatever comes next, our desire to hold money declines. This countervailing tendency could cancel out most or all of the effects of growth on money demand.

Tamny calls government oversight of money “horrid” and wishes for abolition of the Fed. Amen to both, but how can he be sure that, as he claims, credit would soar as a result? It probably would in the long run as sound money prompted increased confidence, but in the short run there could be liquidation of mal-investments and a general hesitation to save and invest pending clarification about where things were headed under the new setup.

John Tamny is correct: the anti-fractional-reserve crusade of the hard-money people is misguided. That case has been made repeatedly, deftly, and at length by Larry White and George Selgin, two of the best contemporary monetary economists. Sad to say, Tamny’s analysis, riddled as it is with errors and confusions, falls far short of their work.

Israel-Palestine: Is a reasonable debate possible?

Barry Stocker Current Events, History , , , , , , , , , , , , ,

The question in the title is to be taken very seriously and not just as a prelude to a comforting ‘of course there is’ answer and a few helpful hints to how to engage in respectful debate. This is a debate which stretches at the  limits of debate, at all attempts at civility and respect for other points of view in debate. I am trying to find a way to discuss the issues in a way that is equally considerate of the rights and interests of all parties to the debate, while also finding that debates about Arab Palestinian and Jewish Israeli positions may at some point just not be open to rational debate, and can only be settled by pragmatic compromise at best, and violent imposition  in the less happy scenarios.

This started with a social media post on my part condemning George Galloway, a very left-socialist British politician for making remarks in response to Israeli Defence Force operations in Gaza that to my mind cross a line between criticism of the government of Israel or acts of the Israeli state into anti-Semitism, in demanding that Israeli tourists be excluded from the English city, Bradford, he represents in Parliament. I paired it with a social media message condemning the University of Illinois for withdrawing a tenure track job offer to Steven Salaita (just before the start of semester and after he had resigned from another job), evidently as a result of social media messages criticising Israel and Jewish settlers in land outside Israel’s 1967 boundaries in a quite extreme way. Both Salaita and Galloway have the right of free speech, as recognised in the United States in the 1st Amendment to the Constitution. Less protection exists for free speech in the UK, I am sorry to say, if the speech is deemed racist or to be ‘hate speech’, and I have to say I am very unhappy that the police in Britain are investigating Galloway’s comments, and I will certainly condemn any attempt to prosecute him. Unfortunately if a public university in the US withdraws a job offer over a free speech issue, then the situation there is also open to improvement. I am against Salaita’s speech in the same way as I am against what Galloway said, both stepped over a line.

I won’t dwell any further on Galloway and Salaita, but will now move into some discussion of what distinguishes criticism of Israel as a state from anti-Semitism, posing as just standing up for Palestinians suffering from the actions of Israel’s armed forces, and will then move onto more general comments about the Israeli-Palestinian conflict.

First of all though I accept that not not all those who define themselves as anti-Zionist are anti-Semites, condemning all Zionism is anti-Semitic. Yes there are Jews who are proud of their identity who define themselves as anti-Zionists, but they are complicit with views discriminatory against Jews if they condemn all Zionism.

There is a stream of bi-national Zionism, that is a state shared between Jews and Arabs, which has always had some appeal to liberal and left leaning Jewish intellectuals, and which was certainly prominent amongst some of the early European migrants to Ottoman and then British Palestine, before the state of Israel was established. They were arguing for non-discrimination against the Arab population and peaceful forms of settlement. Dismissing this as just an expression of the European colonialism and racism of the time is completely wrong. The wish to create peacefully a national homeland without discrimination against the existing Arab population and to create a state for both peoples cannot reasonably be defined in this way, and the more aggressive forms of Zionism should not lead anyone to deny the existence of a form of Zionism that was not based on aggressive nationalism.

Even before the Zionist movement got going in the late nineteenth century, there was a Jewish population in Ottoman Palestine that could trace its history back to ancient Biblical times. Inevitably estimates of what per cent age of the population was Jewish before the modern Zionist movement are contentious, but I have not seen any figure less than 5 per cent. Was it inherently racist and aggressive for those people to have some corner of Palestine for a Jewish state? That is war implied in saying that all Zionism is to be condemned and adopting an anti-Zionist political posture. Was it inherently racist and aggressive to hope that Jews persecuted in Europe and elsewhere might seek a homeland with that historic population in some part of Ottoman Palestine, presuming there was no intention of pressure on the Arab population to give up land or deprive that population of full rights?

I will return to the historical issues soon and what I say will not all lean towards the Israeli side at all. Picking up on current ways of discussing Israel and Palestine, all attempts to burden all Jews everywhere with some responsibility for the most unpleasant acts of the Israeli state, and target them with demands for condemnation, or worse, are anti-Semitic. Moving to a more contentious discussion, while I accept that many who target Israeli citizens or non-state institutions for sanctions are not deliberately anti-Semitic and may again be Jews who are proud of their identity, that is a discourse which is at the very least unintentionally complicit with anti-Semitism.

Demands for boycotts of Israeli universities, unless they condemn the actions of the government are highly discriminatory unless part of a more general and global scheme for boycotts of academic institutions in countries where the government is doing very bad things. I would not welcome such a global scheme, which is applied strictly and consistently could have disastrous affects on international academic life, for no proven benefit, but it would have the merit of consistency. Demands to boycott Israeli universities are not part of such a plan. Since they are linked to demands for academics and university boards to take positions contrary to Israeli government polices, they look very much like attempts to control to speech of Israeli academics and tell them what opinions they are allowed to have. While public universities are by definition supported by the state, they should be treated as educational institutions not arms of state propaganda, or as on a level with armed parts of the state inflicting violence on civilians, and indeed Israeli universities are quite successful in promoting free thinking education, which it should not be forgotten benefits Israeli Arabs as well as Jews.

Demands to restrict, or end, contacts with the Israeli government or military are a different matter, but punishing the educational sector or indeed discriminating against ordinary Israeli Jews travelling outside Israel is not something to be welcomed by advocates of liberty, or by anyone concerned with equal rights for everyone. Where is the evidence that boycotts will bring any benefit to Palestinian Arabs?

The short term material effects of reducing Israeli economic activity and employment opportunities would be very negative for Palestinian Arabs, and the long term political return no more than speculative. Supporters of the Boycott, Divestment and Sanctions movement are presumably going to respond that their movement is popular with Palestinians suffering from Israeli military, administrative, and economic pressure, but it is a movement committed to ‘return of refugees’, which for reasons I explain below is simply not going to happen except at some very small level in a period of much happier relations than exist now between Israelis and Palestinians. A movement committed to full return, even if it does include some Jewish supporter, is committed to unrealistic maximalism. Since it exists, I can only hope it has some effect in moderating the actions of Israeli governments, but I fear it is more likely to foster polarised reactions and with no real change to the benefit of Palestinians. Israel looks more not less nationalistic at a time when its international reputation has declined, and moments like BDS have grown. The sort of economic pressure from the major western economies, particularly America that could force change is not on offer now, or in any foreseeable future. The biggest impact would come from Israel’s neighbours becoming economically dynamic democracies with much improved individual right, eager to trade with Israel and benefit from its technological achievements. The activism of a far left minority in the west, supporting some of the most implausible and damaging maximalist Palestinian demands has rather less potential to influence Israel in the right way.  A campaign that condemned the anti-Semitism and terrorism of Hamas, as well as the not entirely pure record of Fatah on these issues, as much as the brutality of the Israeli state, might just have more influence on Israel than BDS in its present form.

Getting onto the broader issues, I have to say that whatever impression the above gives, I do not find that there was any strong original justification for an Israeli state dominating all of, or most of, the land between the eastern Mediterranean and the Jordan River. However, it is also the case that I do not find there was any strong original justification for a Palestinian state dominating the same land area.

The problem with the Zionist claims, leaving aside bi-national Zionism or a Zionist project in one corner of what was Ottoman Palestine, and concentrating on what Zionism has largely been in practice, is that the Jewish population of Ottoman Palestine, was a small per cent age of the population. The historical and religious affinities of Jews elsewhere to the land of the Biblical Jews, and the persecution they endured, might justify some concessions of land to create a state in what was Ottoman Palestine beyond the population per cent age of the time, but some large part of the Zionist movement (roughly speaking Revisionist or right-wing Zionism) was always ready to take all of Ottoman Palestine regardless of the wishes and rights of the Arab population, and some other large part (roughly speaking Theodor Herzl Zionism, which defined the mainstream of the original large scale Zionist movement) simply evaded the issue of how the majority of Ottoman Palestine could be settled without conflict emerging between Jews and Arabs, and without violating any hopes Arabs in the area might have or, might come to develop, for sovereign national existence. Given that Zionism emerged as an imitation of 19th century European nationalist movements, and the growing tendency of European peoples with some kind of collective historic identity to express that identity in state sovereignty, it is not too much to ask that the original Zionists should have been aware of the likely development of Arab nationalism, on a general scale, and in distinct pre-national parts of the Arab world (i.e. nearly all of it) under Ottoman or European colonial control.

Arab nationalism grew rather later than Zionism, and the Palestinian aspect of it was definitely later. If there had been no Zionist movement, it seems likely that Palestine would have been part of a post-Ottoman Syrian or possibly Jordanian state, with no more than regional consciousness within than entity. Can we justify the emergence of an Israeli state of its current extent on the grounds that European Jews develop a Zionist movement more speedily than Arab national and in independence movements developed? That is not just a question inviting the reply ‘no’ though it might appear so. The reality is that throughout history states emerged where one people was more strongly organised than another and could imposed its will on another people, or at least a state elite could impose a statehood more suited to one group than others. The same applies to modern nationalist movements which drew on various democratic, republican, and populist ideas of self-government, or at least monarchy with popular legitimacy, for self-contained peoples, with anything that contaminated a pure self-contained identity pushed out of public recognition (or violently eliminated). If Israel’s existence in its current form in its current borders is simply based on winning out in struggles about who get to define the people who ‘own’ that land, then it is not obviously weaker in its foundations than many other states. Enthusiasts for the Israeli state often like to find some justification of pure right in the Balfour Declaration, that is the letter Arthur Balfour, British Foreign Secretary directed at the Zionist Federation of Great Britain and Ireland, via Lord Rothschild:

I have much pleasure in conveying to you, on behalf of His Majesty’s Government, the following declaration of sympathy with Jewish Zionist aspirations which has been submitted to, and approved by, the Cabinet.

“His Majesty’s Government view with favour the establishment in Palestine of a national home for the Jewish people, and will use their best endeavours to facilitate the achievement of the object, it being clearly understood that nothing shall be done which may prejudice the civil and religious’ rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country”.

I should be grateful if you would bring this declaration to the knowledge of the Zionist Federation.

The declaration was written into the League of Nations Mandate that legitimated British occupation and administration on Palestine until 1948. However, the same people eager to take the letter and the League of Nations recognition of it, as the basis for Israel’s domination of most of what was British Palestine (and the more radical kind of Zionist thinks that what is now Jordan was promised to them, because it was included within the first borders of mandate Palestine, before a division was effected) are not so eager to mention United Nations resolutions after the 1947 resolution that envisaged an Israel state. What was envisaged, in any case, was a partition of almost 50-50 proportions between an Israeli state and a Palestinian state, with Jerusalem as a bi-national enclave under UN administration, so well short of the boundaries Israel established. Of course the selective approach to League of Nations or United Nations resolutions is also practised on the Arab side. In any case, the Balfour Declaration was not the result of consultation with the Arab population of Palestine, who were placed under British administration with no regard for their opinion in the matter, and seems a poor example of a purely just foundation for a state

Of course if Israel’s existence is justified by struggle rather than pure right, then Palestinian domination would be no more or no less just if the Palestinian people had been better organised or just more lucky early on in the Zionist movement, or even before the Zionist movement. However, there was no Palestinian national movement before the Zionist movement, it was a reaction against that movement. The word Palestine was used, sometimes, during Ottoman times to refer to the parts of what was then the Province of Syria round Jerusalem, Haifa and so on, with no idea of a separate identity or people there. There was no idea of a Palestinian people until the British Mandate, which inadvertently became the hot house for two mutually hostile national movements.

The 1948 attack of several Arab states on Israel, as it existed within the boundaries defined by the 1947 UN Resolution, was not an attempt to institute a Palestinian state. The Arab Legion (that army of the Jordanian monarchy) grabbed the West Bank and the East Jerusalem, and Egypt seized Gaza. Syria certainly hoped to turn Palestine into a southern part of its own territory. Palestinians fled their homes in all Israeli controlled territory, because of a mixture of Zionist violence and incitement by Arab states who promised to arrange a rapid return. The balance between these two causes is of course hopelessly contentious, but I will at least say that no one who denies that both were a reality is engaged in reasonable discussion. The emergent Israeli army succeeded in establishing the 1967 boundaries, which are still the recognised boundaries of Israel, though in practice Israel now exists as the completely sovereign power in East Jerusalem  and a number of settlements in the West Bank.

The 1947 UN Resolution was preceded by a British plan to award 17% of Mandate Palestine to a Jewish state. Palestinian nationalists succeeded in negotiating quasi-statehood in Gaza and some parts of the West Bank in the 1990s, but the idea of a Palestinian state in all of the West Bank as well as Gaza is now essentially dead, though various people find it necessary to claim in public that a two state solution on that basis is coming. One obvious point here is that if the Palestinians had negotiated pragmatically on the basis of existing realities instead of trying to go back to some earlier situation, at various times, they would have much  more territory in a viable state. Maybe 83% per cent of the land between the Mediterranean and the Jordan. Of course it is also the case that many Zionists would not have settled happily for 17% during the Mandate or even 50% in 1948, except as a short term expedient before establishing a state in all of, or at least the great majority of, Mandate Palestine, but at least the Palestinians would have gained some credit with the international community, and how would they now be worse off, it they had accepted those deals and tried to make them work?

The Arab states did not bring the Palestinian refugees of 1948 back to their homes and did not give them equal citizenship in the independent Arab nations either. Leaving them as symbols of Arab unity in refugee camps was a ‘solution’ which simply adds to the intractability of the Israeli-Palestinian conflict. Most people in refugee camps were born after 1948 and increasingly so. Their numbers have grown and cannot be absorbed into their ‘home’ towns or villages, without a complete transformation of Israel’s demography. This is simply not going to happen, except though a massive military defeat of Israel, which is most unlikely anyway because Israel would use its nuclear arsenal in such a situation, and the US would probably intervene massively before that point. It is not a reasonable demand for anyone who genuinely wants a settlement. Arab states should integrate refugees and their decedents with full citizenship rights in the places where they have been based for decades. In such circumstances, some very limited ‘return’ of refugees and descendants might be negotiated, though by that time whenever it might be, I doubt any original refugees will still be alive.

The current situation is that the Palestinians have not succeeded in creating well functioning institutions in the West Bank or Gaza. No doubt some blame belongs to Israel. If any Israeli government ever genuinely hoped for a viable Palestinian state as a neighbour, the idea is certainly dead now. Palestine for the foreseeable future will only exist as a fragmented entity, increasingly hemmed in by West bank settlements and security measures, which are turning that area into an aggregate of not very well connected Palestinian zones side by side with element of Israeli sovereignty. This is not a viable long term basis for peace and stability.

The only long term solutions now are: the forcible expulsion of Arabs from the West Bank and Gaza, which is not likely, but might just happen if war breaks out between Israel and neighbouring Arab states; the removal of West Bank settlements, because Israel decides that full Palestinian sovereignty is a welcome prospect, but I presume there are too many settlements too deeply embedded for that to happen now; a complete defeat of Israel by a military alliance of Arab states, but that would lead to the use of Israel’s nuclear arsenal, if not massive US intervention before that stage; gradual movement towards a binational state of Israel-Palestine. I believe that last option is the most likely long term result, but I mean long term, and I expect much polarisation, violence and suffering in the meantime. Gradual pragmatic adjustment will I believe lead both sides to see that total victory or total separation between two national entities is just not viable.

Personally I’m deeply disturbed by the Israeli treatment of Palestinian civilians now and in the past. However, dramatic gestures, boycott calls, and anti-Zionist discourse will not resolve the issue. Realistically errors and crimes on the Arab side have brought us here as much as the bad things done by Zionists, and the Zionist movement did not destroy an existing national entity. The early pacific binational Zionists were often in practice irrelevant and naive, as well as paternalistic and patronising towards Arabs, but their ideas are the only basis now for an enduring settlement. That will require some Arab equivalent, some new ways of thinking about Palestinian nationality and sovereignty, which can find precedents such as the sympathy of the Saudi monarchy at the end of World War One, for a Jewish presence in Palestine (not that the House of Saud is without great faults). Such a movement will progress at a micro-level only for decades and maybe generations, involving Israeli Arabs as well as Israeli Jews and the Palestinian of the West Bank and Gaza. At some point a critical mass on both sides will realise that exclusivist nationalism cannot win a complete victory, certainly not if the wish is to live in a democracy with individual rights and flourishing civil society.

Ken White explains the legal logic of the Ferguson shooting

Brandon Christensen Current Events, Law , , , , ,

Read the whole damned good post at Popehat.

In other news, I read a post from somewhere calling out libertarians for not voicing an opinion about the Ferguson shooting. I think the post also managed to blame libertarians for the militarization of police forces across the country.

Seriously.

Dave Weigel points out the obvious over at Slate; Ilya Somin takes the writer who tried to claim libertarians didn’t care about black people getting shot by police departments to task over at Volokh Conspiracy (a very good blog, by the way); Dan Balz (hehe) points out in the WaPo that Ferguson is only strengthening the libertarian wing of the GOP; Senator Rand Paul’s op-ed in Time is required reading if you take your US citizenship seriously.

Update 8/18: Here is Congressman Ron Paul in 2002 asking rhetorically, on floor of the House of Representatives (the lower parliamentary house in the US federal government), if America has become a police state.

From the Comments: On the Impossibility of Secession Within the European Union

Brandon Christensen Comments, Current Events, Law, Politics , , , , , , , , ,

Dr Stocker brings my musings on secession and the European Union back to reality:

Some good historical analysis here, but I’m not so sure about the conclusion. I certainly support a right for regions to secede, but not all EU member states recognise such a right. Spain is the obvious example, since while it gives a high degree of autonomy to regions, including enhanced autonomy for Catalonia and the Basque country, it does not recognise any right to secede except through a law passed by the Cortes (parliament of Spain), which is extremely adverse to allowing any procedure for secession.

Greece has been extremely adverse to secession by Kosovo from Serbia, and does not recognise Kosovo, on the basis that a majority vote within a region-aspirant nation is not enough to justify secession under international law, if opposed by the nation from which the secession is taking place. I suspect there are some other countries with similar barriers to secession.

They’d do well to recognise that right, but the EU can’t force this kind of change on existing member states since unanimous consent would be required for the necessary treaty changes, and even without that barrier, the idea of the EU forcing countries to accept a right to secede and then define when and how that right to secede, which could create conflict with counties like the UK which do recognise the possibility of secession by referendum within the relevant region-aspirant nation, as in the current Scottish vote.

The time might come in the future when all EU countries might recognise a right to secede and then recognising that right could be a requirement for membership. However, it is not Putin’s Russia that would be concerned. Recent events in Ukraine show Putin’s agents fomenting violent secessionism in Crimea etc and a rigged referendum in Crimea. Of course Putin’s meddling is not the same a secessionism exercised peacefully and through fair voting, but such differences are likely to be overlooked by many in light of the still unfinished Ukraine crisis.

My response can be found here. Longtime reader A. Herkenhoff chimes in as well.

An Excellent Analysis of Karl Marx and His System by Leszek Kolakowski

Brandon Christensen History, Philosophy , , , , , , , ,

Many Western Marxists used to repeat that socialism such as it existed in the Soviet Union had nothing to do with Marxist theory and that, deplorable as it might be, it was best explained by some specific conditions in Russia. If this is the case, how could it have happened that so many people in the nineteenth century, especially the anarchists, predicted fairly exactly what socialism based on Marxist principles would turn out to be namely, state slavery? Proudhon argued that Marx’s ideal is to make human beings state property. According to Bakunin, Marxian socialism would consist in the rule of the renegades of the ruling class, and it would be based on exploitation and oppression worse than anything previously known. According to the Polish anarcho-syndicalist Edward Abramowski, if communism were by some miracle to win in the moral conditions of contemporary society, it would result in class division and exploitation worse than what existed at the time (because institutional changes do not alter human motivations and moral behavior). Benjamin Tucker said that Marxism knows only one cure for monopolies, and that is a single monopoly.

These predictions were made in the nineteenth century, decades before the Russian Revolution. Were these people clairvoyant? No. Rather, one could make such predictions rationally, and infer from Marxian anticipations the system of socialized serfdom.

Read the whole thing. It’s relatively short and has a lot of good insights. The part about Marx cheating on the wages of European workers, and his views on the non-European world, are alone worth the price of admission. Kolakowski was a Polish philosopher and Cold War dissident.

Expanding the Liberty Canon: Sophocles, the Tragedies of Oedipus and Antigone

Barry Stocker History, Liberty, Philosophy , , , , , , ,

Sophocles (496-406BCE) was the second of the three great tragedian of ancient Athens, the first, Aeschylus, was discussed in my last post.  Sophocles is best known for a group of three plays known as the Theban plays, referring to the city of Thebes, which was one of major states of Ancient Greece when it was divided between many city states.

The three Theban plays should not be thought of as a trilogy strictly speaking. Ancient Greek tragedies were written in trilogies, but these plays were written separately at different times. They are what is left over from a number of trilogies by Sophocles, as is normal with ancient authors many of his texts are lost. The three plays fit together as story, but do not have the level of integration of plays written together for performance as a trilogy at the competitions where tragedies were initially staged.

The Theban plays refer to the royal family of Thebes, round King Oedipus, who provides the title of the first play. The title strictly speaking is Oedipus Tyrannos. That ‘tyrannous’ is normally translated as ‘king’ rather than ‘tyrant’ is an interesting comment in itself on ancient Greek politics and ideas about politics.

The philosopers writing in Athens, at the same time as the great tragedies were staged, developed the idea of a ‘tyrant’ as a negative form of political authority, even a monstrous form of authority in which one man rules according to personal desires, unrestrained by custom, law, morality, and institutions.

However, one of those philosophers Plato accepted tyrants into his school, and made a notoriously failed attempt to bring the tyrant of the Greek colony of Syracuse in Greece round to the idea of ruing with Platonic wisdom and justice. It is not just the view of anti-democrats like Plato that tyrants might have some element of legitimacy in some contexts.

The sixth century Athenian tyrant Pisistratus had some respect as a strong ruler with just intentions who reformed Athenian institution.  ın the ancient Greek world a tyrant might still accept a citizens’ assembly and other well established institutions, so that the tyranny was focused on one person control of government rather than the complete subordination of every aspect of that city-state to arbitrary individual will.

The Theban plays are: Oedipus the King, Oedipus at Colonus. The story of Oedipus has become very famous, even for those who have never read or watched an ancient Greek tragedy. It also exists in varying forms going back to a brief mention in Homer’s Odyssey. The version in Sophocles is that a a king and queen of Thebes faced with a prophecy that their son will kill the father arrange for him to be exposed and die in the mountains.

The royal servant assigned to the task passes the infant Oedipus onto to a shepherd instead and Oedipus in the end becomes the adoptive son of the king and queen of Corinth. Discovering a prophecy that he will kill his father and marry his mother, Oedipus unaware that the royal couple who raised him are not his biological parents flees and ends up in Thebes where he kills man outside the city, who he later realises is his father King Laius. He then frees the city of a monster, the Sphinx.

Unaware that Oedipus killed their king, or that he is the son of that king, the people of Thebes offer him the vacant throne and marriage to the king’s widow Jocasta. So Oedipus unwittingly marries his mother after killing his father. The play Oedipus the King opens with a plague in Thebes and Oedipus’ search for the reason. The prophet Tireseas is forced to reveal his knowledge, which is that the gods are punishing Thebes for the stain of association with Oedipus, the stain of his unwitting crimes.

Oedipus suspects Jocasta’s brother, Creon, of a arranging the story as part of a conspiracy to take power. In this respect the play deals with the danger of a ruler who is given great power for good reasons, but becomes abusive and paranoiac in his use of that power. Oedipus’ further investigations lead to the confirmation of the story from Tireseas that he had rejected. Jocasta commits suicide and Oedipus goes into exile after blinding himself. In this way, the play suggests that tyranny is self-destructive as well as destructive of the state over which it is exercised. It also suggests the need to expel a ruler who threatens both the welfare of the city and restraints on his power. 

Oedipus at Colonus deals with the exile of Oedipus, in which he is protected by the king of Athens from persecution by Creon who has now taken power. As with Aeschylus, we see that Attic tragedy defends the role of Athens as ‘educator of Greece’ (a saying attributed to Pericles as explained in the post before the last one), even while having a critique of power.

Oedipus dies in a way that suggests he is close to the gods, and we can see another layer in the story of the tyrant. As a monster of some kind, Oedipus belongs outside the city state and when he is outside the city, he is in touch with a justice superior to that of the city, which belongs to human communities before state imposed laws. The divine power associated with such laws is, however, dangerous when associated with individual power using the organised violence of the state.

It is Antigone that is usually most associated with ideas of liberty, but I hope that remarks on the two other plays show how they have many ideas about the nature of law and liberty, and the dangers posed by political power. Antigone is the story of Oedipus’ daughter of that name and her resistance to the tyrannical tendencies of Creon.

Her brothers Polyneices and Eteocles had struggled for control of Thebes, ending in the death of both as Poyneices attacks the city, when it is held by Eteocles. Creon decrees that Polyneices cannot be buried with proper ritual and his body should be left outside the city for the wild animals to eat. This was an appalling prospect for ancient Greeks, and the desire for soldiers to avoid such a fate is a major theme of Homer’s Iliad.

Antigone insists on mourning her brother and attending to his corpse in the normal manner. Her defiance of Creon leads to Creon imprisoning  her in a tomb, where she commits suicide. The violence with which he imposes his will leads to the suicide of Antigone’s fiancé who is the son of Creon and then the suicide of Creon’s wife.

In the end Creon learns to accept the advice of Tireseas, the prophet persecuted by Oedipus, and to moderate his insistence on pushing his powers to the extreme. Antigone is the heroine of the customary, and even divine, law of Greece which precedes the edicts of tyrants like Creon, so can be seen as the defender of justice against laws based on political power rather than on the basic principles of human justice, what is often referred to since Aristotle as natural law.

There are questions about how far the original audience would have seen Antigone as a character to be admired though. The society was intensely patriarchal and women defying the authority of men was a horrifying prospect. Perhaps the dramatic context provided an opportunity to push at the limits of the ideas normal to audience, maybe it just allowed them to think that one of the dangers of bad government is that it produces mad dangerous woman, and the play does portray Antigone as unhealthily obsessed with death.

She can be seen as a heroine of justice, and is often taken as a symbol of justice above the state, by those of classical liberal and libertarian persuasion, but others as well. She might also be taken as a symbol of conflicts over justice taken to a dangerous and self-destructive extreme, so that she is guilty as well as Creon, before he learns measure and moderation in the use of power. In any case, there is much to think about with regard to law and liberty in these plays, and it is important to recognise the ‘thinking about’ and not just impose simple interpretations inattentive to the details of the plays. Judgements of liberty and justice require respect for context and particularity. 

The Concept of Profit

Fred Foldvary Economics , , ,

The basic concept of “profit” is simple: profit equals revenue minus costs. But “cost” is a complex concept, and “revenue” too is not all that simple, so the economic analysis of “profit” ends up being complicated.

A business typically calculates the appearance of profit rather than the economic reality. Most enterprises use money for purchases and sales, so for accounting, the appearance of profit is easy to understand. The revenue equals the proceeds from sales, and the costs are what is paid for the inputs: wages, rentals, interest, and materials. In economics, this is called “accounting profit,” which equals revenue minus the explicit costs, costs paid to others.

But the payments for inputs can include capital goods – inventory, buildings, machines and other tools – that last a long time. If an enterprise buys a machine that lasts for ten years, the cost is really spread out over the duration of the capital good. So in the accounting, rather than treat the purchase as a cost in the year purchased, the cost is the depreciation, the loss of value, in each year. For simplicity, the accounting can depreciate the tool in equal amounts each year, or, following tax laws, it could accelerate the depreciation, deducting more in the first years than the last years. The annual depreciation is an explicit cost, since the original purchase consists of funds paid to others.

This accounting convention ignores the effect of price inflation. Suppose a tool costs $100 and lasts for 20 years. Without inflation, the depreciation would be $5 per year. But if during that time, prices have doubled, it will cost $200 to replace the same tool. In the 20th year, the actual depreciation should be $10, but for the income tax in the USA, inflation is ignored, so the company has to record a $5 expense.

To get the real cost, we have to move from accounting profit, which only subtracts explicit nominal costs (not adjusted for inflation), to economic profit, which also subtracts the implicit costs, those which are not paid in money to others, but are nevertheless real.

The implicit costs include all the “opportunity costs,” the costs of giving up next-best opportunities. Suppose you are the sole owner of a business, and your accounting profit is $200,000 per year. Your next best opportunity would be to be employed at another firm for $80,000 per year. Since you give up a $80,000 wage by being self-employed, that is a cost of your business, and in effect you are paying yourself the $80,000 out of your accounting profit.

Suppose also that you own the real estate used by your firm. If you rented, the rental would be $60,000 per year. The opportunity cost of owing your business is the $60,000 you give up if you instead rented the place to a tenant. In effect, your business is paying you as property owner the $60,000 rent from your accounting profit.

Subtract $80,000 and $60,000 from your accounting profit, and your real gain is $60,000. That is the economic profit from your self-owned business.

The same concept applies to corporate profits. Suppose a corporation has an accounting profit of $10 million per year. It owns assets worth $100 million. If the assets were sold and converted into safe bonds, suppose the bonds would pay four percent interest, or $4 million annually. That foregone income is subtracted from the accounting profit, for an economic profit of $6 million. The firm obtains $4 million as an asset owner, and $6 million as an enterprise.

Another aspect of profit is honesty. If a thief steals $1000, this is not economic profit. True profit means that the gain came from voluntary enterprise and legitimately owned assets. Gains from force and fraud are not economic profit. From the viewpoint of the whole economy, profit also has to take into account costs imposed on others, such as from pollution. The absence of compensation for damages is really an implicit theft.

Accounting profit can include government subsidies. But since such subsidies are not from voluntary production, they are not included in economic profit, the real gain from production.

Profit can also consist of capital gains. If you buy shares of stock at $1000 and sell them later for $1500 (after paying the broker’s fee), the $500 capital gain is profit. If you instead had the $1000 in safe bonds and obtained $100 in interest, that would be the opportunity cost of the capital gain, so the economic profit from the asset is $400.

We can also look at opportunity cost from the point of view of society and the whole economy. The opportunity cost of government spending is what the taxpayers would have spent on. Land has an individual opportunity cost for the owner, but for the economy, land has no opportunity cost. The land is here by nature, and no more can be built or imported. Therefore, for the whole economy, all land rent is economic profit.

Economic profit has three origins. First there is entrepreneurial profit, the economic profit of an entrepreneur, due to his skills, insights, and talents. Second is monopoly profit, the economic profit that comes from a price greater than a competitive price, such as the profit from holding a patent. Third is the gains from asset appreciation.

Profit can be negative and zero. When an enterprise has costs greater than revenues, the loss constitutes negative profit. In a highly competitive industry, economic profits tend towards zero, as firms enter to gain profits and exit to avoid losses. But zero economic profit implies just enough accounting profit to pay for all costs, including normal returns on assets values.

If you want to be clear when talking about profits, you should not just say “profit” but indicate whether you mean accounting profit or economic profit. It gets a bit confusing, because when economists say “profit,” they mean economic profit, but when anyone else says “profit,” they mean accounting profit. It may be difficult to calculate economic profit, but we need to do it, because economic profit keeps it real.
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This article is also in http://www.progress.org/views/editorials/the-concept-of-profit/

A Brief Glimpse into Autarky: Russian Edition

Brandon Christensen Current Events, Politics , , , , ,

Libertarians loathe autarky (economic, and therefore political and cultural, isolationism), and for good reason. As Dr Delacroix puts it, economic autarky (protectionism) is the “royal road to collective poverty.”

The recent invasion and occupation of Crimea by the Russian state has led many observers to bring up the still unofficial ideology of the Kremlin these days. One part neo-imperialism and one part pan-Slavism, and mixed together with shards of religious conservatism, ecology (Russia has a long tradition of ecology that is distinct from the West, but still similar since it’s an idea and ideas tend to outweigh cultural and material differences in societies; our own Dr Znamenski is an expert on just this subject), and socialism, the Kremlin’s ideological glue is slowly being melded into something that resembles a Russian-led bloc that is completely self-sufficient from the West and culturally distinct from its trading partners on Russia’s China-led eastern border and its Muslim-led southern border.

If Moscow is trying to forge a society that is completely self-sufficient from the West, we have little to fear from such actions (I say ‘little’ because there is the possibility that such an order would end up like North Korea, and the irrational actions associated with Pyongyang would have a much bigger influence if transposed to a Moscow-led autarky; I don’t think such a scenario likely because of the sheer geographic size of the Russian state and its clients).

Here is a glimpse of what a self-sufficient Russia would like (thanks to the sanctions currently in place):

[…m]ore than 6,000 animals in Russia’s largest zoo have been caught up in the worst fight between Russia and the West since the Cold War. A wide-ranging ban on Western food announced this week by the Kremlin has forced a sudden diet change for creatures that eat newly forbidden fruit.

The sanctions against meat, fish, fruits and vegetables from the United States, the European Union and other Western countries were intended to strike a counterblow to nations that have hit Russia over its role in Ukraine’s roiling insurgency. But the measures will also have an impact on stomachs at the zoo.

The sea lions crack open Norwegian shellfish. The cranes peck at Latvian herring. The orangutans snack on Dutch bell peppers. Now the venerable Moscow Zoo needs to find politically acceptable substitutes to satisfy finicky animal palates.

“They don’t like Russian food,” zoo spokeswoman Anna Kachurovskaya said. “They’re extremely attached to what they like, so it’s a hard question for us.

[…]

None of the animals eat such a specialized diet that they will starve, she said […]

The Russian people are not worried, of course. The response to Moscow’s sanctions on Western food is one that hearkens back to history: The Russian people have been through worse times. This is nothing to them, and Putin is fighting a righteous war against an immoral West so the sacrifices are worth it.

WordPress was recently unblocked in Russia, so hopefully Evgeniy can offer readers some insights into the logic of the Russian street.