Good Statistics, and Bad

Good Statistics, and Bad

04/12/2019Gary Galles

Suppose someone wanted to misrepresent a public policy to you. How could they do so most effectively? And who can help you resist?

It’s certainly a believable hypothetical. With two major parties who seem to disagree on everything, multiple intra-party fault-lines, and a plethora of interests who wish to turn laws and regulations in their favor, whipped together by a press in search of partisan scandal and ratings, it is hard to see how it could be otherwise. In fact, for almost every issue, it seems very likely that some, if not many, groups, will be tempted to promote their interests using techniques ranging along the spectrum from “putting one’s best foot forward” to bald-faced lies.

There are plenty of common political tricks that fall short of outright lying. For instance, one can bury desired changes in the paper avalanche of an omnibus bill, as in the Minnesota legislature’s recent attempt to sneak in enactment of the National Popular Vote project. Or one can pass vague legislation that passes the buck for what it will mean in practice to executive agencies and the courts. But such forms of subterfuge are not my interest here.

I wish to ask how people would misrepresent things in the open, rather than behind such political camouflage? As I warn my public policy students, the general principle is that people will lie to you in whatever areas you are most vulnerable.

If you are American, one of those weak spots is typically mathematics, and particularly statistics, which is why it earns its place of shame along with lies and damned lies. That is why the tricks for how to misrepresent statistics discussed in Darrell Huff’s How to Lie with Statistics still keep the book selling 65 years after its initial publication.

However, widespread ignorance goes deeper than the science of statistics itself. Very few people have a clear idea on what the data involved actually measures, under what assumptions and limitations, which can lead to careless and irresponsible usage. For instance, few people can articulate why both the employment and unemployment rates could go up at the same time, and which would be a more reliable economic indicator in such a case, when their names suggest it shouldn’t be possible.

Thomas Sowell , in his most recent book, Discrimination and Disparities, describes the problem as “overlooking simple but fundamental questions as to whether the numbers on which… analyses are based are in fact measuring what they seem to be measuring, or claim to be measuring,” which, in order to defend ourselves against misrepresentation, requires “much closer scrutiny at a fundamental level.” But far too few apply such careful, fundamental scrutiny.

However, there are a few people who do yeoman work in this area, providing valuable “insurance” against errors others would encourage us to make. They deserve our appreciation for toiling in that underserved area, and I would like to express thanks to several whose efforts I have particularly benefitted from.

Thomas Sowell is one such author who has provided a great deal of clarification over decades of prolific publication. For example, one common theme of his is the need to distinguish between what happens to a particular category of people (e.g., “the rich” or “the poor”), interpreted as a stable group, which lends itself to class-based conclusions, and the very different experiences of real people who move in an out of such categories over time, which upsets such analyses.

Discrimination and Disparities reiterates that theme from his earlier books. But my favorite illustration is his discussion of the famous Card and Krueger minimum wage study, which purported to overturn the conclusion that raising the minimum wage increases unemployment. It surveyed the same employers, asking how many employees they had before and after a minimum wage increase. The problem is that “you can only survey the survivors.” Anyone who went out of business, and the jobs that consequently disappeared, would not be included, so even if surveyed survivors did not reduce employment, many jobs invisible to their approach could still have been lost. To reinforce the image, he notes that a similar before-and-after survey of those who played Russian Roulette would show that no one was hurt, and cites a quip by George Stigler that if it had been used in a survey of American veterans in both 1940 and 1946, it would “prove” that “no solider was mortally wounded” during the war.

Another very prolific watchdog for statistical malfeasance is Mark J. Perry . He points out so many useful “red flags” in multiple outlets that I look forward to what is almost a one-a-day pleasure. A good example is his evisceration of “Equal Pay Day” discussions that attribute differences between median yearly incomes to unjustifiable discrimination against women “doing the same work as men.” He points out that the data fails to adjust for differences in “hours worked, marital status, number of children, education, occupation, number of years of continuous uninterrupted job experience, working conditions, work safety, workplace flexibility, family friendliness of the workplace, job security, and time spent commuting,” each of which would lead men to be paid more, on average.

Andrew Biggs is another stickler for statistical responsibility, particularly in areas connected to retirement security and retirement plans. For instance, in Forbes , he showed that a recent GAO report concluding that 48% of U.S. households aged 55 and over in 2016 “had no retirement savings” was far different from reality, as 72% of people had such savings plan, when those with traditional defined benefit pensions are counted, and 83% of married households had such savings when including those where only one had a retirement plan. Just those two changes massively changed the conclusions. And he pointed out other biases, as well.

These three people have each helped me understand measurement issues far better than before, enabling me to avoid errors that would have undermined my analyses of policy issues. I owe them thanks. But readers might also give them more attention, for similar “tutoring.” Many others have also been of use to me, and as I continue to learn, perhaps I can give a shout-out to others in the future, especially as this labor pool is still far too shallow. But mainly I wanted to put out a serious warning about ignorance not only of statistical applications and presentations, but also of the data that is often misused in reaching policy conclusions.

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Libra as a Competitor to Inflationary Central Banks

As an international private currency, Libra will be in competition with publicly issued currencies. It could have large and fruitful repercussions on the global monetary policy, especially with reference to those countries where central banks are still heavily subject to political influence and tend to pursue inflationary monetary policies.

The introduction of the Libra project to the public has generated a lot of fuss over the consequences this cryptocurrency may have for the stability of the global financial system.

At first, we need to clear the ground from the most common mistaken facts about Libra running over the news. As detailed in this white paper, Libra will be a fully backed cryptocurrency, it will be issued solely upon demand, and its value will be given by a basket of reserves whose composition will be diversified, privileging safe assets and stable international currencies (as thoroughly described in the technical part of the white paper dedicated to the functioning of the reserve mechanism).

Thus, despite the rumors, we know as a fact that Libra will not:

  • run its own monetary policy, since it will not be in control of its money supply;
  • create commercial-banks money, since it will not leverage on its costumers’ deposits to create new units of Libra operating under a fractional-reserve scheme like regular commercial banks do;
  • be pegged to any existing currency, since it will not take a specific commitment to fluctuate in a stringent range vis-a-vis any currency or basket of currencies.

Lastly, the fear that a sudden bank-run may cause the collapse of the Libra is either irrational or it confirms early critics have not yet understood the basic functioning of the project. In fact, the fully backed-ness of Libra would make it much safer than commercial-banks deposits we daily accept as means of payment, because Libra would be always redeemable—at least—into legal-tender currency; this redeemability would not be just theoretical (as it occurs with commercial-banks money and fractional-reserve banking) but also practical, because a unit of Libra could be created if, and only if, a unit of monetary base (i.e., legal-tender currency) or a claim on it (i.e., a unit of commercial-banks deposits) were conferred in exchange for that very unit of Libra.

In other words, while commercial-banks money (that is, deposits) can be created out of thin air—simply granting a loan—Libra would be instead created if, and only if, backed by a formerly existing unit of money—either of the central bank or of commercial ones (recall: money of commercial banks are deposits, which entitle the owner to claim a unit of monetary base, i.e., legal-tender currency).

For all these reasons — sticking to what we really know about Libra so far — Libra will have a value which will be stable in time with respect to the main reserve-currencies of the world. The relatively stable value of Libra, together with its worldwide accessibility, is what we believe may have positive and interesting repercussions. Libra may become a safe, accessible, cheaply storable reserve of value for those people living in countries that experience unbearable high levels of inflation to this day.

Moreover, the analogies between Libra and the first steps of the Hayekian proposal of “Denationalization of Money” (1976) are strikingly patent, insofar as Libra:

  •  is a privately issued medium of exchange;
  •  is subject to a 1:1 reserve system, in which money-creation out of thin air is not allowed;
  •  remains fully redeemable in terms of existing legal-tender currencies.

Therefore, Libra — if not impeded by governmental legislative power — would provide consumers with a medium of exchange whose inflation would be the weighted average of the safest legal-tender currencies of the globe, thus naturally displaying a potential standard deviation of its value — that is, deflation or (more likely) inflation — closer to them than to that of more volatile currencies. After a while, highly inflated legal-tender currencies (especially in those countries with relevant governmental interference and political influence over central bank’s activity) would be gradually less demanded in exchange for goods and services and, were governments not to forbid payments denominated in terms of Libra-units (that is, were they to allow Libra to exist as a full-fledged means of payment), then Libra could (analogously to what is postulated by the Grisham’s Law, but —somehow — in reverse) drive governmental money out of the payment-mechanism and prompt agents to hold to Libra for payment-purposes.

Thus, citizens would be induced to hoard governmental money only in order to pay taxes — since government would not, most likely, forego their privilege of imposing which unit of account taxes are to be paid in, that is, which unit of account is decreed to be legal-tender currency — and would be given the opportunity to access a slightly more competitive money-market.

For example, were Libra allowed to circulate alongside the publicly issued currencies in countries such as Turkey or Argentina, which at present experience high level of inflation, citizens of these countries will soon start to be interested in storing their wealth in Libra-coins, which is what has in part already happened with Bitcoin or major international currencies — like the dollar. The advantage Libra could have over Bitcoin is that it promises to deliver far better in price stability, while the advantage it could have over the dollar is that it has the potential to flow freely over the internet, overcoming the capital control barriers and all sort of government limitations.

Surely, critics point out that the currencies of said countries will not be accepted as a collateral for the issuing of Libra, hence these people will not be the early adopters of the currency. Nevertheless, Libra may eventually get to these countries from the international trade, via inflows of capital or (more likely) goods and services purchasing; and, since money transfers in Libra would be far cheaper and easier to handle, Libra could then start to be adopted as an alternative currency by more and more people inside the country. In such a scenario, people will express their preference for Libra instead of their local currency, and that will represent an incentive to the local central banks not to act inflationary so to restore the confidence in their own currency, displaying the fruits competition could bear also in a traditional public dominated market — as that of currencies currently is.

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Abolish the Dept. of Homeland Security? Yes, Please.

07/12/2019Ryan McMaken

Alexandria Ocasio-Cortez has suggested eliminating the Department of Homeland Security.

Her motivation seems to be reducing federal immigration enforcement powers, although it doesn't necessarily follow that abolishing the DHS would actually accomplish this.

Nevertheless, the DHS is just yet an other cabinet level agency pushed to facilitate even more government spending, and has never been necessary. Its abolition would be a step in the right direction.

The thing about raising government agencies to cabinet-level status is that the move makes it easier for the bureaucrats in charge of the agencies to politically agitate for more government spending in their favor, and to push bigger government in general. It's no coincidence that as the US government has grown ever larger and more intrusive, so has the number of cabinet-level agencies. So now, we have the EPA, the SBA, and the departments of HUD, Energy, and Education all provided with more direct access to the president and the media. Everything they do is deemed "essential." Everything they do, we're told, is a matter of national importance.

DHS is no different. When the 9/11 attacks occurred, they exposed the sheer incompetence, laziness, and inefficiency of government security and defense organizations. Year after year, hundreds of billions of dollars were poured into these organizations — in addition to the countless billions spent on the Pentagon.  But when they were shown to be asleep at the switch, what happened? Rather than have their budgets cut, and senior officials fired in droves — as should have happened — George W. Bush and his cronies decided that what the federal government really needed was a new department into which billions more in taxpayer money could be poured.

The was politically important in the sense that making DHS a department made it easier to call for every more funding for its constituent agencies. But much of what the department does was already done before 9/11 — including immigration regulation.

What was new was the federalization of airport security, and new slush funds for domestic police departments.

In a 2017 article titled "Four Agencies to Abolish along with the Dept. of Education," I put DHS first on the list (followed by the EPA, Interior, and Agriculture):

One: The Department of Homeland Security, $51 Billion

Somehow, the United States managed to get along for more than 225 years before this Department was created by Congress and the Bush Administration in 2002.

The Department quickly became a way for the federal government to spread federal taxpayer dollars to state and local law enforcement agencies , thus gaining greater control at the local level. The DHS administers a number of grant programs that have helped to purchase a variety of new toys for law enforcement groups including new weapons, and new technologies. Also included in this is the infamous military surplus program which is supplies tanks and other military equipment to police forces everywhere from big cities to small rural towns. The crime-free town of Keene, New Hampshire made sure its police received a tank through this program as have many larger cities.

When the Orlando gunman opened fire in the Pulse nightclub in 2016, the police eventually rolled up in a tank — which did nothing to stem the bloodshed inside the club.

Police claim they need these half-million-dollar vehicles from the DHS to deal with civil unrest. Never mind, of course, that every state already has a National Guard force specifically for that purpose.

While the Department was created in response to the 9/11 attacks, the Department does nothing to address anything like a 9/11-style attack, and all the agencies that were supposed to provide intelligence on such attacks — the FBI for instance — already exist in other departments and continue to enjoy huge budgets.

DHS also includes agencies that already existed in other departments before, such as the Federal Emergency Management Agency, and the agencies that handle immigration and customs. Those agencies should either be returned to the departments they came from or be abolished.

And, few would miss the Transportation Security Administration — an agency that has never caught a single terrorist, but has smuggled at least $100 million worth of cocaine.

Alexandria Ocasio-Cortez is usually wrong about pretty much everything. But on this she's accidentally correct: abolishing the DHS would be a net good for America. It was never necessary, and is mostly a channel for violating the rights of Americans through a de facto standing army of federal agencies and local cops pumped up on federal dollars and military equipment. Politicians in Washington DC would hate to see it go. But the taxpayers would likely benefit were it to disappear forever.

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Rothbard on Slavery Reparations

07/12/2019Jeff Deist

In 1969 the hottest new libertarian publication was The Libertarian Forum, edited by Murray Rothbard in New York and Karl Hess in Washington. Hess, famously as associate of Barry Goldwater before becoming a deeply disillusioned anarchist, was a man of many talents—welding, motorcycle racing, and no-holds-barred philosophy among them. His street fighter style, combined with Rothbard's acerbic writing and penetrating political eye, made the Forum an outlet for strategy and tactics more than anything. And it had a surprisingly long run, until 1984, in physical print no less.

There is nothing like it today, either in style or content.

As just one example, consider the short essay Rothbard penned for the June 15, 1969, issue. "Confiscation and the Homestead Principle" elaborates on Rothbard's earlier writing in Power and Market concerning homesteading of land. In the latter, he criticized the Georgist notion of "societal" ownership or control of real property in favor of a "first-user, first-owner" principle. In the former, he considered how we might determine proper title to stolen property, i.e. land where current possession is not based on legitimate homesteading or title transfer.

The homesteading principle means that the way that unowned property gets into private ownership is by the principle that this property justly belongs to the person who finds, occupies, and transforms it by his labor. This is clear in the case of the pioneer and virgin land. But what of the case of stolen property? 

This is especially tricky when the thief is the state and the victim is not readily identifiable:

Let us now apply our libertarian theory of property to the case of property in the hands of, or derived from, the State apparatus. The libertarian sees the State as a giant gang of organized criminals, who live off the theft called “taxation” and use the proceeds to kill, enslave, and generally push people around. Therefore, any property in the hands of the State is in the hands of thieves, and should be liberated as quickly as possible. Any person or group who liberates such property, who confiscates or appropriates it from the State, is performing a virtuous act and a signal service to the cause of liberty. In the case of the State, furthermore, the victim is not readily identifiable...All taxpayers, all draftees, all victims of the State have been mulcted. How to go about returning all this property to the taxpayers? What proportions should be used in this terrific tangle of robbery and injustice that we have all suffered at the hands of the State? 

The answers are thorny. State-owned entities, like universities, are readily identified and seized. But seized by whom, and given to whom? When decades or centuries have passed, how do we determine rightful owners of land? And what about corporations that derive 50% or 75% of their income from taxes, such as defense contractors? Should they be nationalized, liquidated, and the proceeds distributed to taxpayers?1 

But the most interesting feature of the essay, deals with the idea of land reparations for descendants of American slaves.

This brings us to Karl’s point about slaves. One of the tragic aspects of the emancipation of the serfs in Russia in 1861 was that while the serfs gained their personal freedom, the land – their means of production and of life, their land was retained under the ownership of their feudal masters. The land should have gone to the serfs themselves, for under the homestead principle they had tilled the land and deserved its title. Furthermore, the serfs were entitled to a host of reparations from their masters for the centuries of oppression and exploitation. The fact that the land remained in the hands of the lords paved the way inexorably for the Bolshevik Revolution, since the revolution that had freed the serfs remained unfinished.

The same is true of the abolition of slavery in the United States. The slaves gained their freedom, it is true, but the land, the plantations that they had tilled and therefore deserved to own under the homestead principle, remained in the hands of their former masters. Furthermore, no reparations were granted the slaves for their oppression out of the hides of their masters. Hence the abolition of slavery remained unfinished, and the seeds of a new revolt have remained to intensify to the present day. Hence, the great importance of the shift in Negro demands from greater welfare handouts to “reparations,” reparations for the years of slavery and exploitation and for the failure to grant the Negroes their land, the failure to heed the Radical abolitionist’s call for “40 acres and a mule” to the former slaves. In many cases, moreover, the old plantations and the heirs and descendants of the former slaves can be identified, and the reparations can become highly specific indeed. 

Rothbard wrote this a century after the Civil War, and another 50 years have gone by since. Can old plantation land be seized today, given all the subsequent owners and land development? (e.g. parceling into housing owned by innocent good faith buyers). Can we identify slave descendants accurately? And if so, wouldn't such a descendant living in another part of the US likely prefer cash to a land title in a southern state? Some slaves may have hundreds of living descendants, will cash amounts be reduced pro rata? 

One thing is certain: if paid, reparations will be financed via deficits and general taxes, not specific payments from person X to person Y. "The government," an amorphous blob, will pay—which means all of us, including black Americans, will foot the bill via taxes and inflation.

  • 1. For more on the distinction between stolen and unowned land, see Stephan Kinsella's blog on Rothbard's evolution regarding the subject. As Kinsella explains, Rothbard appears to have changed his thinking between 1969 (when "Confiscation and the Homestead Principle" was published); 1974, in an article titled "Justice and Property Rights," and in Chapter 9 of 1982's The Ethics of Liberty. Kinsella suggests Rothbard does not assert that any cloud over a land title's provenance means the land is open to seizure or homesteading. Subsequent or current owners may be completely innocent in any case, and their rights cannot simply be dismissed.

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Free Trade, Not Foreign Aid, Will Reduce the Incentive to Flee Central America

07/11/2019Ryan McMaken

Former Secretary of State George Schultz has an idea for dealing with increased immigration from the Northern Triangle region of Central America, which includes of El Salvador, Guatemala and Honduras: he wants to spend more money on foreign aid.

In yesterday's Wall Street Journal, Schultz writes that the countries of the Northern Triangle could "increase the 'supply' of good governance by us[ing] foreign aid to fund better policing, transparency and higher-quality services—and apply international pressure to root out corruption and encourage political reform."

And who could supply this foreign aid? According top Schultz, "the U.S. is the only nation with the economic, technological and political authority to lead," and "[t]he Inter-American Development Bank could do so by redirecting existing funds without new U.S. expenditures, and could get started with a phone call in Washington."

Schultz wisely doesn't mention any dollar amounts. How could he? His proposal is clearly meant to be a sort of trial balloon: demand more government spending now, and work out all the details in the back rooms later.

But we know how this sort of thing works. There is no real expectation that foreign aid would actually remake the economies of the Northern Triangle.

In reality, it will be yet another foreign aid boondoggle: friends of the US regime will receive funds. There will be little follow-up as to how the money is spent. The money may even go to fund despots who will use the funds to murder their enemies. George Schultz's personal friends and colleagues will no doubt get their cut. This is how the US foreign aid game is played.

It is interesting that Schultz doesn't mention something that does have the potential for revolutionizing the region's access to capital and its standard of living. It will do this while greatly lessening the incentive to emigrate from the region to the US: unrestricted trade with the United States.

To accomplish this, the US need not collect any new taxes. It need not impose any new regulations. It need not form any international "coalitions."

Instead, it only has to make the Northern Triangle a true Free Trade Zone with full access to US markets.

At this point, some observers may claims "the US already has a free trade agreement with Central America! In fact, the region is largely duty free!" But this objection helps to illustrate just how much the term "free trade" has been corrupted in the phrase "free trade agreement." In practice, only qualifying goods can be imported to the US from Central America duty free. In order to qualify, goods must meet a variety of bureaucratic requirements stemming from "rule of origin" requirements. These rules exist to prevent "trade diversion" and other types of trade in which a Central American country might import parts from outside the free trade zone, add only small amounts of value, and then export the finished product to the US. Thus, trade between Central America and the US is not really free, and the trade agreements specifically prevent Central American countries from becoming trade and shipping centers where goods and services can be freely imported and exported globally.1

If Central America had a true free trade agreement with the US, however, both US and foreign manufacturers would have an enormous incentive to set up shop in the region and produce goods there for the US market.

Over time, capital would flood into the region, greatly increasing the standard of living for Central Americans while providing new sources of goods and services for American entrepreneurs and consumers.

The success of such a plan, of course, is not guaranteed. The regimes of El Salvador, Guatemala, and Honduras could squander the opportunity. They could insist on high domestic taxes or an insecure legal environment in which private business owners would have reason to fear expropriation by the regime.

But when facing the possibility of true free trade with the US, the stakes would become very high indeed, and the regime could choose between guaranteed moderate levels of tax revenue, or the disastrous policies of expropriation.

But no matter how it turns out, the US taxpayer is not on the hook for anything. There is no risk of foreign aid flushed down the toilet. Instead, the upside is substantial: access to low-cost goods and services from American, Asian, and European firms all hungry to take advantage of this new "free trade zone" in the western hemisphere. American entrepreneurs would be able to provides goods and services at lower prices. They could hire more workers. They could invest more of their profits.

Moreover, the geo-political benefits would be substantial. The regimes of the Northern Triangle would become committed to maintaining friendly relations with the US, and the pressures of high levels of migration from the region would be lessened.

In his essay " The Case for Free Trade and Restricted Immigration ," Hans-Hermann Hoppe recognized the benefits of free trade in immigration policy:

The relationship between trade and migration is one of elastic substitutibility (rather than rigid exclusivity): the more (or less) you have of one, the less (or more) you need of the other . [Emphasis added.] Other things being equal, businesses move to low wage areas, and labor moves to high wage areas, thus effecting a tendency toward the equalization of wage rates (for the same kind of labor) as well as the optimal localization of capital. With political borders separating high- from low-wage areas, and with national (nation-wide) trade and immigration policies in effect, these normal tendencies—of immigration and capital export—are weakened with free trade and strengthened with protectionism. As long as Mexican products—the products of a low-wage area—can freely enter a high-wage area such as the U.S., the incentive for Mexican people to move to the U.S. is reduced. In contrast, if Mexican products are prevented from entering the American market, the attraction for Mexican workers to move to the U.S. is increased. Similarly, when U.S. producers are free to buy from and sell to Mexican producers and consumers, capital exports from the U.S. to Mexico will be reduced; however, when U.S. producers are prevented from doing so, the attraction of moving production from the U.S. to Mexico is increased.

Bizarrely, protectionists take the opposite self-defeating approach: they want to cut off trade with other nations, thus reducing the standard of living. This then increases the incentive for foreigners to emigrate to the United States. The protectionists then complain there's too much immigration and the government must intervene even more to control both trade and migration.

Not surprisingly, Ludwig von Mises saw the ridiculouslness of this position. As I noted in my article " If You Don't Like Immigration, You Should Love Free Trade ":

Opponents and proponents of immigration may argue endlessly about the potential downsides and upsides of immigration. (For an especially nuanced and insightful view of the downsides, see Ludwig von Mises's work on nationalism and immigration .)

With free trade, though, there is no downside, which is why Mises, who allowed for a number of caveats on immigration, made no exceptions for free trade.

For many modern protectionists, though, the desire to close off trade stems not just from economic ignorance, but from an emotional desire to actually harm other countries on nationalistic grounds. The economic implications of these policies then become secondary to other ideological agendas. Mises understood this well, and in Human Action concluded :

We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. ... The philosophy of protectionism is a philosophy of war.

George Schultz is correct in the sense that a prosperous Central America is a Central America with less incentive to send its workers and families to North America. But the real solution does not lie in throwing a few extra bucks at the central American regimes in hope they might build a couple of new highways. The real solution lies in expansion of trade, capital investment, and . Only then can a sustainable solution to the region's poverty be found.

  • 1. It should also be noted that the burden of gaining "certification" for qualification under the free trade agreements place small companies at a relative disadvantage compared to larger companies. For more on how these rules affect trade flows, see: "Preferential Rules of Origin in Regional Trade Agreements." https://www.wto.org/english/res_e/reser_e/ersd201305_e.pdf
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Murray Rothbard: "Pioneer of Praxeological Analysis"

In the last decade or so there has been a concerted attempt by some economists associated more or less closely with the Austrian school to deny Rothbard’s central role in the modern revival of Austrian economics and to downplay his status as a leading proponent of the Misesian paradigm.  In response, I have provided what I believe to be compelling textual evidence that Mises himself, as well as some of his closest followers, regarded Rothbard as Mises's foremost intellectual heir (here, here, and here).  Now from the Rothbard archives comes a small treasure that corroborates the evidence I adduced in my earlier posts.  This is in the form of Mises’s charming and pithy inscription in Rothbard’s copy of the third edition of Human Action, which reads:

To Murray N. Rothbard, pioneer of praxeological analysis with all good wishes.  March 2nd, 1967.

“Pioneer of praxeological analysis”—given Mises’s well-known restraint in meting out compliments to fellow economists, this is high praise indeed and fits nicely with Mises’s remarks about Rothbard’s work in his letter defending praxeology to the French positivist Louis Rougier, which I cited in an earlier post:

The proof of the cake is in the eating.  I can only refer to the systematic exposition of the whole doctrine of praxeology in my book Human Action and nowadays in the brilliant book of a younger man, Murray N. Rothbard, Man, Economy and State. . . .But, please, first of all read the book of Rothbard.  It is very interesting also from the epistemological point of view. 

Mises inscription to MNR in Human Action.jpg
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St. George Tucker: Distinguishing Laws from Dictates, and Freedom from Servitude

07/10/2019Gary Galles

While many of America’s founders are justifiably famous, others have received too little attention. St. George Tucker is one.

Born in Bermuda on July 10, 1752, Tucker was a militia colonel in the American Revolution, who even wrote Liberty: a Poem, on the Independence of America (my favorite line being “Freedom! thy joys alone are riches to the brave!”), that George Washington said “was equal to a reinforcement of 10,000 disciplined troops.” Afterward, his service included his appointment, with James Madison and Edmund Randolph, to the 1786 Annapolis Convention that led to the Constitutional Convention, and his opposition, with Patrick Henry and George Mason, to adopting the Constitution in the absence of a bill of rights.

Tucker’s greatest service to posterity, however, involved the law. Not only was he a law professor and judge on three different Virginia courts, historian Clyde Wilson noted that,

St. George Tucker’s View of the Constitution of the United States was the first extended, systematic commentary on the Constitution after it had been ratified by the people of the several states and amended by the Bill of Rights. Published in 1803 by a distinguished patriot and jurist, it was for much of the first half of the nineteenth century an important handbook for American law students, lawyers, judges, and statesmen.

David Kopel wrote, “St. George Tucker is perhaps the preeminent source of the original public meaning of the Constitution. His 5-volume American edition of Blackstone’s Commentaries was by far the leading legal treatise in the Early Republic.” Tom DiLorenzo summarized it as laying out “the Jeffersonian interpretation of the Constitution, which was replaced by the centralizing, big government … interpretation after 1865.” The fact that the Supreme Court has cited Tucker 40 times illustrates the importance of his work.

Today, with St. George Tucker’s commitment to limited government, states’ rights, and the judiciary’s role of preventing government oppression a too-dim memory, his insights into liberty and the original understanding of government under our Constitution are worth re-visiting.

In this country … the blessings of liberty have been … dearly purchased.

In a government founded on the basis of equal liberty among all its citizens, to be ignorant of the law and the constitution is to be ignorant of the rights of the citizen.

What can be more absurd than that a person wholly ignorant of the constitution should presume to make laws pursuant thereto?

 A distinction … does exist between the indefinite and unlimited power of the people … and the definite powers of the congress and state legislatures, which are severally limited to certain and determinate objects.

All men being by nature equal, in respect to their rights, no man nor set of men, can have any natural, or inherent right, to rule over the rest.

Legitimate government can … be derived only from the voluntary grant of the people, and exercised for their benefit.

Every extension of the administrative authority beyond its just constitutional limits is absolutely an act of usurpation in the government.

Government originally founded upon consent, and compact, may by gradual usurpations on the part of the public functionaries … become a government of force. In this case, the people are as completely enslaved as if the original foundations of the government had been laid by conquest.

No people can ever be free, whose government is founded upon the usurpation of their sovereign rights.

If in a limited government the public functionaries exceed the limits which the constitution prescribes to their powers, every such act is … treason against the sovereignty of the people.

A constitution is a thing antecedent to a government. … Hence every attempt in any government to change the constitution (otherwise than in that mode which the constitution may prescribe) is in fact a subversion of the foundations of its own authority.

A written constitution … [is] a beacon to apprise the people when their rights and liberties are invaded, or in danger.

Abuse of power is despotism … the right of one man is at the mercy of another, and freedom in such a government, has no existence.

It is indispensably necessary … that there be a perfect equality of rights among the citizens. … Equality of rights necessarily produces inequality of possessions; because, by the laws of nature and of equality, every man has a right to use his faculties in an honest way, and the fruits of his labor, thus acquired, are his own.

The rights of property must be sacred.

A thousand … pretexts and arguments … form the ladder by which the agents of the people mount over the heads of their constituents … from whence they behold those who have raised them with contempt.

The American states have reserved to themselves … the administration of justice … in all cases whatsoever, in which they have not specifically consented to the jurisdiction of the United States.

[Federal] jurisdiction extends to certain enumerated objects, only, and leaves to the several states a residuary and inviolable sovereignty over all other objects.

This original compact … is to be construed strictly, in all cases where the antecedent rights of a state may be drawn in question … it ought likewise to receive the same strict construction, wherever the right of personal liberty, of personal security, or of private property may become the subject of dispute.

The authority of the federal government … ought therefore to receive the strictest construction. Otherwise the gradual and sometimes imperceptible usurpations of power, will end in the total disregard of all its intended limitations.

The federal government. … Having no existence but under the constitution, nor any rights, but such as that instrument confers … can possess no legitimate power, but such as is absolutely necessary for the performance of a duty prescribed and enjoined by the constitution.

Until, therefore, the people of the United States … shall think it necessary to alter, or revoke the present constitution of the United States, it must be received, respected, and obeyed among us, as the great and unequivocal declaration of the will of the people, and the supreme law of the land.

The powers delegated to the federal government … have no relation to the domestic economy of the state. The right of property, with all its train of incidents … and the rights of persons appear to be no further subject to the control of the federal government, than may be necessary to support the dignity and faith of the nation in its federal or foreign engagements, and obligations.

Since the citizen is on no other account obliged to pay taxes, or undergo any other public burden, but as they are necessary to defray the expenses of the state, it ought to be the singular care of the government to draw no further supplies than the exigencies of the public require.

The first question is whether the power be expressed in the constitution.

All governments have a natural tendency towards an increase and assumption of power; and the administration of the federal government, has too frequently demonstrated, that the people of America are not exempt from this vice ... parchment chains are not sufficient.

A representative democracy ceases to exist the moment that the public functionaries are by any means absolved from their responsibility to their constituents.

The right of self-defense is the first law of nature.

Every power which concerns the right of the citizen, must be construed strictly, where it may operate to infringe or impair his liberty.

In the United States, the great and essential rights of the people are secured against legislative as well as executive ambition … by constitutions, paramount to all laws: defining and limiting the powers of the legislature itself, and opposing barriers against encroachments.

The congress of the United States possesses no power to regulate, or interfere with the domestic concerns, or police of any state.

Absolute independence of the judiciary … [is] necessary to the liberty and security of the citizen, and his property.

The judiciary … is that department of the government to whom the protection of the rights of the individual is by the constitution especially confided, interposing its shield between him and the sword of usurped authority.

A law limited to such objects as may be authorized by the constitution, would … be the supreme law of the land; but a law not limited to those objects, or not made pursuant to the constitution, would not be the supreme law of the land, but an act of usurpation, and consequently void.

The object of the several states … was not the establishment of a general consolidated government … but a federal government, with powers limited to certain determinate objects.

Acts of congress to be binding, must be made pursuant to the constitution; otherwise they are not laws.

As the subjects upon which congress have the power to legislate are all specially enumerated, so the judicial authority … is limited to the same subjects as congress have power to legislate upon.

People of America have not thought proper to suffer the freedom of speech and of the press to rest upon such an uncertain foundation as the will and pleasure of the government.

Whenever [civil] liberty is, by the laws of the state, further restrained than is necessary … a state of civil slavery commences. ... This species of slavery also exists whenever there is an inequality of rights, or privileges, between the subjects or citizens … for the pre-eminence of one class of men must be founded and erected upon the depression of another; and the measure of exaltation in the former, is that of the slavery of the latter.

St. George Tucker searched for “the criterion that distinguishes laws from dictates, freedom from servitude, rightful government from usurpation.” And Clyde Wilson suggests that his answer is best summarized in his statement that, “It is the due [external] restraint and not the moderation of rulers that constitutes a state of liberty.” Given that today, the federal power to oppress has clearly increased at the expense of Constitutional restraints, we should give Tucker’s understanding as much serious thought now as our forefathers did when our great experiment in liberty began.

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Art Laffer Isn't Crazy For Questioning Fed Independence

07/09/2019Tho Bishop

Arthur Laffer, the recent Presidential Medal of Freedom winner and occasional Peter Schiff gambling partner, made headlines yesterday for questioning the value of an independent Federal Reserve. 

As he told CNBC's Squawk Box:

I don't understand why the Fed is independent, to be honest," said Laffer, a former economic advisor to President Donald Trump and former President Ronald Reagan. "Fiscal policy is not independent. Military policy is not independent. Social policy is not. Why should monetary policy, this very powerful tool to control the economy not be subjected to democracy just like every other instrument of government?"


As expected, this quickly came under attack by Fed romanticists who believe that an independence should never be questioned (a faith they grasp on to in spite of the record of both Fed failures and its history of being politically influenced.)

In fact, as Dr. Joseph Salerno has written about over the years, there may be real value in getting rid of the illusion of an independent central bank. 

As he wrote in The Austrian:

The desideratum of the Austrian political economist with classical-liberal or libertarian leanings involves the complete separation of government and money through the establishment of a commodity money like gold (or silver), the supply of which is determined exclusively by market forces. Nonetheless, there is great merit in replacing the opaque and pseudo-scientific control of “the money supply process” by entrenched Fed employees and officials with overtly political control of money by elected officials and partisan administration appointees. There are a number of benefits of stripping the Fed of its quasi-independent status and transforming it into a handmaiden of the Treasury, as the American Monetary Institute (AMI) and early Friedmanite reform programs call for.

Of course, a better approach would be to open the Fed up to competition by repealing legal tender laws and exempting parallel currencies from taxes. But, considering other Fed reforms that have been discussed in recent years, Laffer's suggestion is hardly that outlandish.

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Keynesian Fake News in the Wall Street Journal

Given the repeated failures of Keynesian economic policy, both in America and around the world, you would think the theory would be discredited.

Or at least be treated with considerable skepticism by anyone with a rudimentary knowledge of economic affairs.

Apparently financial journalists aren’t very familiar with real-world evidence.

Here are some excerpts from a news report in the Wall Street Journal.

The economy was supposed to get a lift this year from higher government spending enacted in 2018, but so far much of that stimulus hasn’t shown up, puzzling economists. Federal dollars contributed significantly less to gross domestic product in early 2019 than what economic forecasters had predicted after Congress reached a two-year budget deal to boost government spending. …Spending by consumers and businesses are the most important drivers of economic growth, but in recent years, government outlays have played a bigger role in supporting the economy.

The lack of “stimulus” wasn’t puzzling to all economists, just the ones who still believe in the perpetual motion machine of Keynesian economics.

Maybe the reporter, Kate Davidson, should have made a few more phone calls. Especially, for instance, to the people who correctly analyzed the failure of Obama’s so-called stimulus.

With any luck, she would have learned not to put the cart before the horse. Spending by consumers and businesses is a consequence of a strong economy, not a “driver.”

Another problem with the article is that she also falls for the fallacy of GDP statistics.

Economists are now wondering whether government spending will catch up to boost the economy later in the year… If government spending were to catch up in the second quarter, it would add 1.6 percentage points to GDP growth that quarter. …The 2018 bipartisan budget deal provided nearly $300 billion more for federal spending in fiscal years 2018 and 2019 above spending limits set in 2011.

The government’s numbers for gross domestic product are a measure of how national income is allocated.

If more of our income is diverted to Washington, that doesn’t mean there’s more of it. It simply means that less of our income is available for private uses.

That’s why gross domestic income is a preferable number. It shows the ways – wages and salaries, small business income, corporate profits, etc – that we earn our national income.

Last but not least, I can’t resist commenting on these two additional sentences, both of which cry out for correction.

Most economists expect separate stimulus provided by the 2017 tax cuts to continue fading this year. …And they must raise the federal borrowing limit this fall to avoid defaulting on the government’s debt.

Sigh.

Ms. Davidson applied misguided Keynesian analysis to the 2017 tax cut.

The accurate way to analyze changes in tax policy is to measure changes in marginal tax rates on productive behavior. Using that correct approach, the pro-growth impact grows over time rather than dissipating.

And she also applied misguided analysis to the upcoming vote over the debt limit.

If the limit isn’t increased, the government is forced to immediately operate on a money-in/money-out basis (i.e. a balanced budget requirement). But since revenues are far greater than interest payments on the debt, there would be plenty of revenue available to fulfill obligations to bondholders. A default would only occur if the Treasury Department deliberately made that choice.

Needless to say, that ain’t gonna happen.

The bottom line is that – at best – Keynesian spending can temporarily boost a nation’s level of consumption, but economic policy should instead focus on increasing production and income.

P.S. If you want to enjoy some Keynesian-themed humor, click here.

P.P.S. If you’re a glutton for punishment, you can watch my 11-year old video on Keynesian economics.

P.P.P.S. Sadly, the article was completely correct about the huge spending increases that Trump and Congress approved when the spending caps were busted (again) in 2018.

Originally published at International Liberty
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An Interview With Ron Paul’s "Faithless Elector"

07/08/2019Atilla Sulker

I woke up this Independence Day morning, surprised to find out that Bill Greene, the great 2016 faithless elector who cast his vote for Ron Paul, passed away. Among other things, Bill was a fierce advocate of making gold and silver legal tender, and was an assistant professor at South Texas College. He was an early supporter of Ron Paul, his support going as far back as Paul’s 1988 campaign.

[Editor's note: see Greene's Mises Institite author profile.]

Last summer, I had the privilege of interviewing Bill while working on a paper on the history of the Mises Institute and the Austrian Revival. Here, we discussed various different subjects, including Ron Paul’s 1988 campaign, and the growth of the Mises Institute. This has not yet been published, and I would like to do so as a tribute to Bill. Below is our interview, conducted on 6/19/18:

Atilla Sulker: Describe the state of the libertarian movement in 1988, and the extent to which the Mises Institute influenced the overall movement in America at this time?

Bill Greene: In 1988, the Mises Institute was only six years old, having split off from the Cato Institute in 1982 (a Mises co-founder, Murray Rothbard, had co-founded Cato). Up until that split, the Cato Institute was the leading influence on the libertarian movement in the United States since its founding in the mid-1970s (not long after the founding of the Libertarian Party itself in 1971 – Cato’s co-founder, Ed Crane, was the LP’s National Chair from 1974-1977). Even at such a young age, the Mises Institute had already begun to have a strong impact on the libertarian movement – specifically, on its economic policy foundations. Cato’s focus was on government policy recommendations from a libertarian-leaning position. Since that time, the Mises Institute’s influence on libertarianism in the U.S. has equaled, if not surpassed, Cato’s influence. [The Mises Institute was in fact never part of Cato.]

AS: Describe the relationship Ron Paul had with the Mises Institute in 1988, and the extent to which the organization influenced his campaign platform?

BG: Ron Paul’s relationship with the Mises Institute in 1988 was initially through one of its co-founders, Llewellyn (Lew) Rockwell, who had been Paul’s chief of staff, (from 1978-1982) when Paul was a Republican U.S. Congressman. When Rockwell left for Mises in 1982, Paul – who had been heavily influenced by the works of Rothbard beginning in the 1970s – continued his relationship with the co-founders of Mises, drawing much (or most) of his policy positions from the writings of Austrian school economists. When Paul ran for President as the LP nominee in 1988, most of his campaign platform was pulled from these same policy positions. He has continued to be a Senior Fellow of the Institute since that time, often working, writing, and speaking with others connected to it.

AS: Is there a point in Dr. Paul’s career in which it appeared that the Mises Institute’s influence on him was climactic?

BG: I don’t think so, because the relationship has always been symbiotic, and Ron Paul was already firmly in the Austrian school’s camp even before the Mises Institute was founded. Since its beginnings, it’s been difficult to separate the two from each other.

AS: Describe the influence the Mises Institute had on Dr. Paul’s VP candidate Andre Marrou.

BG: I don’t have any personal knowledge of the Mises Institute’s influence on Andre Marrou.

AS: Describe the overall size and sentiment of Ron Paul’s 1988 presidential campaign based on your experience.

BG: Ron Paul’s 1988 presidential campaign appeared to me to be more extensive than the LP’s past campaigns, as this was the first time they had two former elected legislators on the ballot (Paul was a former GOP U.S. Representative, and Marrou was a former LP Alaska Representative). As usual, the campaign’s biggest challenge was getting on the ballot in all 50 states plus the District of Columbia. Due to highly restrictive ballot-access laws in a number of states, Paul’s campaign was only on the printed ballot in 46 states & DC (although he did achieve write-in status in Missouri –and in North Carolina, where I headed the N.C. Students for Ron Paul and participated in ballot-access petitioning). Despite Paul’s (and Marrou’s) extensive travels across the country, the campaign was excluded from any debates and only achieved 432,179 votes (0.5%) – still twice as much of Lenora Fulani’s (New Alliance Party) campaign, which actually did achieve 50-state ballot access.

AS: Describe the nature of Andre Marrou’s 1992 Libertarian presidential campaign.

BG: I was not active in his 1992 presidential campaign, although I remember reading news stories on it here and there, such as when he received the highest vote total in the primary results of the first town in the nation to report its votes (Dixville Notch, NH).

AS: Briefly describe, based on your experience, the development of the libertarian movement in America up from Dr. Paul’s 1988 presidential campaign to his 2008 presidential campaign, and outline the role of the Mises Institute in this development.

BG: Based on my own experience, the Mises Institute played a vital role in the development of the libertarian movement in America during the 20 years after Dr. Paul’s first campaign for U.S. president. During the first decade, they published and disseminated massive amounts of literature, newsletters, books, audio, video, and more; once the internet became more and more ubiquitous, they were able to have an ever-growing impact, rivalling the much better-financed Cato Institute in scholarly publications and economic education activities. The Mises Institute’s website soon became the highest-trafficked economics website in the world, and when Dr. Paul decided to run for president again in 2008, he was able to draw upon, and direct his new followers to, that large body of works in support of his policy positions. As a result, his following grew and became ever more educated in libertarian thinking.

AS: Describe the instances in which you attempted to run for office. 

BG: When I ran for various political offices over the years, most of my own policy positions were influenced by publications I got from the Mises Institute. This was especially true of my unsuccessful campaign for the Florida House of Representatives in 1994, when I became the first state house candidate to be officially endorsed by the Political Action Committee of the nascent Republican Liberty Caucus (the “libertarian wing of the GOP” co-founded in 1991 by Paul). I had followed Dr. Paul out of the LP and back into the GOP, and I have been a member of, and active in, the RLC since that time.

AS: Is there anything else we should know about Dr. Paul’s 1988 campaign, or anything pertaining to the subject matter?

BG: My favorite story from Ron Paul’s 1988 campaign for President is from the time our N.C. Students for Ron Paul group brought him to the University of North Carolina at Greensboro for a speech to around 150 students and local residents. Following his speech (which professed many of the same policy prescriptions as his speeches today), he opened the floor for questions. A local group of Socialist Workers’ Party members were in attendance, and began challenging his free-market stances in a number of different areas. I remember Dr. Paul’s eyes lighting up at that, as he almost gleefully shot down every challenge with logical rebuttals, point by point. Twenty years later, when I chanced to run into Dr. Paul at a local restaurant while he was campaigning in Florida, I mentioned that event – and he remembered it, clearly and (quite obviously) fondly, remarking on how much fun he had that day. I was, to say the least, impressed.

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The Bionic Mosquito on Rothbard and Reason

07/08/2019David Gordon

In a series of outstanding posts, the Bionic Mosquito has written on “The Search for Liberty.” In these posts, he presents a penetrating analysis of natural law and metaphysics. I admire these posts and have learned a great deal from them

 In his latest post, he  argues that Murray Rothbard’s defense of natural law fails. Rothbard thinks that human reason can establish natural law. But, Bionic says, “if each of us are free to make up our own minds – especially regarding ends – how will we come to a natural law that is useful toward liberty and peace?  How will justice be determined?  Who will arbitrate our ‘differences of opinion’?  On what basis?”

Bionic thinks that if you say human reason can establish natural law, then you are holding that “the judged [human beings] can also be the judge.”

This criticism of Rothbard seems to me to be mistaken. Suppose, like Mises and Rothbard, that you claim reasoning can show maximum price laws cause shortages. You are not thereby claiming that it is up to human beings whether this is so. Rather, you are claiming that it is not up to human beings: the effect holds, regardless of what people think about it.

In like fashion, in claiming that human reason can establish natural law, Rothbard is not claiming that the content of natural law is up to human beings. I do not think Thomas Aquinas would have disagreed with this. He offered proofs, based on reason, that God exists. These proofs do not make it up to human beings whether God exists, nor does accepting their validity depend on first accepting Christianity. The principal aim of the first three books on the Summa contra gentiles is to demonstrate the existence of God, and some of God’s attributes, to unbelievers.

Even when I disagree with Bionic, though, I continue to learn from him

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