Mises Institute

John Adams famously described the American government as being “of laws and not men.” The managerial state has wiped clean that wisdom in favor of countless and arbitrary dictates enforced by worthless bodies. The narcolepsy-inducing USA Today recently reported the Federal Bureau of Investigation granted informants immunity to break government law in certain circumstances. Newly disclosed documents reveal that thousands of so-dubbed “crimes” were committed in 2011 by the FBI’s pet players. The misdeeds include drug trafficking, plotting robberies, and bribery. Last year, the New York Times published a damning report on how the good-natured agents of Washington’s infamous law investigator work tirelessly at foiling terrorist plots they go to great lengths at concocting. These faux plots of destruction are used to beef up the reputation of the agency so as to solidify its monopoly of police power.  The selective enforcement of law negates the very purpose of social order. How can there be a universally recognized limits to mankind’s behavior if a minority are permitted to disregard governing laws? The result is a contradiction – either the law applies everywhere or it does not.

On August 6th, the small town of Deer Trail, Colorado is set to vote on an ordinance that will permit the hunting of unmanned surveillance drones. The author of the ordinance, Phillip Steel, claims the gesture is “symbolic.” A handful of other American states are pursuing measures to limit the spying operations of Uncle Sam’s unmanned aerial vehicles. One has to be either lying or painfully ignorant to believe government will not abuse surveillance drones. State officials have rarely failed to use their capacity to terrify the populace. The prospect of around-the-clock surveillance is a chilling thought and one that should not be taken lightly. Unfortunately the only means to achieve some semblance of privacy requires a luddite approach to technology and a hermit’s approach to community. Otherwise, you avail yourself to the terror of visibility in what should otherwise be, in Thomas Paine’s words, the blessing of society.

According to most commentators, although not an easy task, experienced and wise policy makers should be able to navigate the US economy away from various bad side effects that come in response to a tighter Fed stance. We suggest that whenever the Fed raises the pace of monetary pumping in order to “revive” the economy it in fact creates a supportive platform for various non-productive bubble activities that divert real wealth from wealth generators. Whenever the US central bank curbs the monetary pumping this weakens the diversion of real wealth and undermines the existence of bubble activities - it generates an economic bust. We suggest that there is no way that the Fed can tighten its stance without setting in motion an economic bust. This would defy the law of cause and effect.

At the end of the day, Friedman jettisoned the gold standard for a remarkable statist reason. Just as Keynes had been, he was afflicted with the economist’s ambition to prescribe the route to higher national income and prosperity and the intervention tools and recipes that would deliver it. The only difference was that Keynes was originally and primarily a fiscalist, whereas Friedman had seized upon open market operations by the central bank as the route to optimum aggregate demand and national income. The greatest untoward consequence of the closet statism implicit in Friedman’s monetary theories, however, is that it put him squarely in opposition to the vision of the Fed’s founders. As has been seen, Carter Glass and Professor Willis assigned to the Federal Reserve System the humble mission of passively liquefying the good collateral of commercial banks when they presented it. Consequently, the difference between a “banker’s bank” running a discount window service and a central bank engaged in continuous open market operations was fundamental and monumental. In short, the committee of twelve wise men and women unshackled by Friedman’s plan for floating paper dollars would always find reasons to buy government debt, thereby laying the foundation for fiscal deficits without tears.

When it comes to deflation, mainstream economics becomes not the science of common sense, but the science of nonsense. Most economists today are quick to say, “a little inflation is a good thing,” and they fear deflation. Of course, in their personal lives, these same economists hunt the newspapers for the latest sales. The person who epitomizes this fear of deflation best is Ben Bernanke, chairman of the Federal Reserve.

Someone once wrote that criticizing economist and New York Times columnist Paul Krugman and his "vulgar Keynesianism" is the internet’s favorite pastime. All along, the Princeton prof has stayed true to the cause of aggressive government action to forestall the downtrodden economy. Large fiscal expenditures, aggressive monetary stimulus, increased legal privileges for organized labor, and boosting the degree of state pillaging – Krugman is the caricature of a tyrannical apologizer who will defend the cause of rampant statism at any cost. But now, it appears Krugman has gone overboard with his progressive moaning. Instead of getting bogged down in the economic imbecility that frequents Krugman’s twice-weekly diatribes; there is a fallacy more fundamental in this latest theorizing. What Krugman is embracing in his latest attack on historical cases has much more to do with the man’s epistemological bent and approach toward economics.

The Vietnamese Central Bank sold another 25,700 taels (37.5 grams, 1.2 troy ounces) at a gold bar auction on Friday in order to try and satiate the massive public demand for gold in Vietnam.

The Central Bank hopes that the sale of gold into the market will reduce the very high premiums paid by gold buyers in Vietnam, the largest buyer of gold in Southeast Asia after Thailand and one of the largest physical buyers of gold per capita in the world.

Vietnamese people hold gold as a store of wealth for protection against war, inflation and currency depreciation. In recent months, the bursting of bubbles in the stock market (see chart) and property market and the continuing devaluation of the dong has led to record demand in Vietnam and a surging premium over the spot price of gold.

Today, the premium was close to 5.5 million dong which is the equivalent of a very high premium of $217 per ounce over spot. 

Almost three years ago we first highlighted the real math behind the surging entitlement class that America has become. So why does a large portion of the population choose not to work when there are many jobs available? The answer is simple. If you can receive 2-3 times as much money from unemployment, disability, and/or welfare benefits (subsidized housing, food stamps, free cellphones, etc.) as you can from a temporary or part-time job, and live a life of leisure, why work? This is the ugly reality we illustrated just six months ago and the situation - amid what is apparently called a 'recovery' remains a depressingly real sign of the times. The political allure of free is so strong that an alarming number of people choose to become wards of the entitlement/welfare state rather than captain their own destiny. Indeed, while many are 'proud', 49% of American households now receive one or more government transfer benefits amounting to 18% of all personal income and a burden of $7,400 for every American - seemingly threatening the supposed self-reliance that has long characterized the American national psyche.

The New Deal social insurance philosophers thus struck a Faustian bargain... To get government funded pensions and unemployment benefits for the most needy, they eschewed a means test and, instead, agreed to generous wage replacement on a universal basis. To fund the massive cost of these universal benefits they agreed to a regressive payroll tax by disguising it as an insurance premium. Yet the long run results could not have been more perverse. The payroll tax has become an anti-jobs monster, but under the banner of a universal entitlement organized labor tenaciously defends what should be its nemesis. The puzzling thing is that 75 years later - with all the terrible facts fully known - the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.

The United States is estimated to have anything from 700 military bases around the world to more than 1000. Hans-Hermann Hoppe asks "how can democracy be a stable equilibrium if it is possible that it be transformed democratically into a dictatorship, i.e., a system which is considered not stable?" Empirically, democracies are anything but stable. Concluding it may be better to heed the advice of Erik von Kuehnelt-Leddihn and, instead of aiming to make the world safe for democracy, we try making it safe from democracy - everywhere, but most importantly in the United States.

The fact of the matter is, QE policies are really not so different from how central banks functioned back in the “old-normal” days of the earlier 2000s. They still just bought an asset and paid for it by increasing the money supply. One critical difference is that in order to increase the money supply by as much as they did, the central banks of the world had to change the scope of assets they were willing to buy. Herein lays the rub. By expanding its range of acceptable assets, the Fed created a market for these assets that did not exist. As a result it maintained their prices above which the market deemed necessary to clear – an essential occurrence in market economies. Instead, by expanding its asset purchases through quantitative easing policies, the effects we see are unreasonable prices among some financial assets, and a housing sector unable to sell its unsold inventory.

The Bank of Japan has embarked on one of the most inflationary policies ever undertaken. Pledging to inject $1.4 trillion dollars into the economy over the next two years, the policy is aimed at generating price inflation of 2% and further depreciating the Yen. The idea is to fight “deflation” and increase exports. Mises’ key insight was in looking at the long-term effects of such a policy, and in the process he examined the logic behind the short-term results as well. The ineffectiveness of the policy in the long run is apparent when one understands how prices – both domestic and foreign – interact to determine exchange rates. Exports will be promoted in the short run, though the effect will be cancelled in the long run once prices adjust. If the policy is ineffective in the long run, Mises demonstrated that the short-run gains are illusory. The same monetary policy aimed at depreciating the currency to promote international trade will reap domestic chaos.

Neil Macdonald of the CBC recently did an investigative piece on central bankers and what they’re doing to the world’s economies. Mark Carney was featured heavily. He told Macdonald, “there is no secret cabal orchestrating things,” despite CBC’s own findings earlier in the program. Central bankers around the world meet in Basel, Switzerland for secretive meetings. Of course, central banks have – and have always had – enormous power that remained more-or-less hidden until 2008. A paradigm shift is occurring where a large number of people (particularly young people) are questioning their assumptions. Some of them are even beginning to read economists like Ludwig von Mises and Murray Rothbard. The “economics” of central bankers can now be revealed for what it truly is: statistical propaganda. Not only is the “Keynesian school” of economics unsound – the entire social science is bunk. Only the Austrian tradition can explain economic phenomena in such a way that makes common sense, scientific. Carney is asking us to trust him. This cannot be done. He is not speaking truth; he is speaking nonsense.

As we are in the final stage of the global bubble, we realize that we often fail to ask the most obvious questions. In this case, as every central banker tells us that his policies are directed to obtain growth, the obvious question is... how do we define economic growth? What is economic growth? Yes, yes, we know that what they do is simply monetize deficits and enable the transfer of wealth between sectors and generations, but there is also an intellectual battlefield, which we should be aware of. What is the view of the central banking cartel on how to grow output? Surprisingly, not via an increase in the marginal productivity of capital, but via the so called wealth effect: As interest rates fall, asset prices increase (it doesn’t matter which assets see their prices rise) and the assets can be used as collateral to leverage a higher than previously possible consumption level. This consumption level will drive output growth, and this increase in output –they believe- will bring about full employment. The wealth effect is mistakenly attributed to Keynes, who actually argued against it. Thus, the central banking cartel has its own interpretation of economic growth and it does not fit any of the 'reality' perspectives presented below.

In the wake of the financial collapse of 2007, central banks around the world run by Keynesian zealots religiously applied the formulas they had been taught would boost aggregate demand and rescue the economy from the brink of total catastrophe. Easy money, going under the euphemistic moniker of “quantitative easing” was supposed to stimulate borrowing, spending and growth through the mechanism of historically low interest rates. Predictably, this approach failed miserably, as these kind of policy decisions largely miss the point of how the economy really works. As long as central banks continue to meddle with the money supply, investments will not be made efficiently and the economy as a whole will suffer.