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The Federal Reserve: A Failure of the Rule of Law
The Federal Reserve: A Failure of the Rule of Law
“Money is power.” We’ve all heard this aphorism many times before. Too often it’s a lazy shorthand dismissal of the finding of mainstream economics, which show that the pursuit and possession of money often entails innocuous or even beneficial consequences for society. Dr. Johnson was right after all: “There are few ways in which a man can be more innocently employed than in getting money.”
But there are some contexts in which the saying is apt. An obvious case is the Federal Reserve. The Fed has a monopoly on the creation of base money, the fundamental asset underlying the banking and financial system. And over decades, with each instance of financial turbulence, the Fed has become less constrained in how, when, and why it creates base money. Since the Great Recession, the Fed has been able to bestow purchasing power, liquidity, and solvency on just about any financial organization it pleases. If that isn’t power, there’s no such thing.
The Federal Reserve System was created in 1913. It was intended to be a formalization of the interbank clearing system that then existed in the National Banking System. It was not intended to be a central bank. Even in the early 20th century, economists and politicians had some idea of what central banks did and how they behaved, and the existence of such an institution was widely regarded as inherently un-American, in the sense that it could not be reconciled with a self-governing society. That’s why so many proponents of the Federal Reserve System bent over backward to insist they were not advocating the creation of a central bank. And at the time, their repudiations were reasonable; there was no reason the Federal Reserve System had to acquire the powers it did.
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Your Recycling Might Be Poisoning Poor Communities
Your Recycling Might Be Poisoning Poor Communities
You know the routine, which has become a required liturgical rubric of the American civic religion. You separate your trash: plastics here, glass here, cans here, papers here. Doing so is our little way of showing we care about the environment. Not doing so – let’s just say it would be better not to be spotted in noncompliance by anyone with an elevated civic consciousness.
What happened to all the recyclable material then? Most people hadn’t had a clue. The mostly unknown fact is that it has been mostly sent to China, which has thus far had an insatiable need for cheap raw materials for manufactured products to feed its astonishing rise over the last twenty years into the leading industrial power in the world.
The system worked beautifully. Americans got to feel good about themselves by recycling as much as possible. China obtained the lowest possible prices for essential materials. The system worked, until suddenly it stopped working.
The End of Recycling
In the last year, everything changed with a new law that China passed at the onset of America’s trade war. The law, which came into effect in February 2018, is called the “National Sword” and its aim is to stop China from being used as the dumping ground for refuse from all over the world. It bans imports of 24 types of waste material. And it sets a regulatory standard for contamination that US recyclables cannot meet – with enforcement of that standard imposed by X-rays of shipping containers and much deeper inspections.
Basically, China no longer wants your leftover pizza box. Nor your empty 2-liter bottle of Mountain Dew.
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What Does It Mean to Have Predicted an Economic Event?
What Does It Mean to Have Predicted an Economic Event?
Consider the never-ending argument about whether certain economists did or did not predict the financial crisis in 2007-8. It raises all kinds of methodological questions in economics reaching back much further than Milton Friedman’s famous 1966 paper conceiving of economics as a predictive science.
Here’s the fundamental conundrum: what does it mean to have predicted something in economics?
Intuitively, it ought to be something like: if you claim something about the future state of the world and that empirically turns out to be correct, you predicted it.
There are a myriad of problems here:
- If I rolled a six a moment before the power went out, did my die predict the power outage?
- If I rolled a six two years before the power went out, did my die predict the power outage?
- If I rolled a six and the power somewhere, at some time, went out, did my die predict that power outage?
- If the power went out repeatedly the last few nights and I guessed it would go out that night again while rolling a six, did I predict that night’s power outage?
It is easy enough to spot many errors in these scenarios: there is no plausible relation between power outages and rolling of dice; including any outcome anywhere in my silly prediction is not evidence of success; making a correct extrapolation of the recent past and tying it to rolling a six does not vindicate the power of my rolling arm.
There are a number of criteria a successful prediction must meet:
- It must be precise, not general. Predicting rain in London or earthquakes in California in general (or over some lengthy time period) is useless. By historical averages and common sense, we are fairly confident they will happen again.
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The First New Deal Ruined Energy Innovation
The First New Deal Ruined Energy Innovation
About the only disappointing aspect of Burton Folsom’s New Deal or Raw Deal is that it doesn’t go far enough in its critique of FDR’s rural electrification program.
The Roosevelt Institute claims, in all seriousness, that “while 90% of urban dwellers had electricity by the 1930s, only 10% of rural dwellers did and roughly 9 out of 10 farms had none,” as if electrons magically stopped flowing in the presence of barnyard animals and corn cribs.
But farmers used electricity before Roosevelt took office; they just produced or procured it themselves instead of taking it off a federally subsidized grid.
Strangely, pundits on the left continue to laud FDR’s Rural Electrification Administration even though it increased demand for electricity created largely by “dirty” sources, especially coal, while squelching demand for electricity generated by local, often green, means.
To this day, South Dakota’s prairie remains dotted with the skeletons of farm windmills abandoned long ago thanks to the Rural Electrification Administration.
This is not to say that all electricity from the grid was dirty, as some of it came from hydroelectric plants, like those along the Missouri and Niagara rivers, nor that all locally generated electricity came from green sources, as some of it came from fossil fuel–powered generators and flatulent mules. But the point here isn’t to count kilowatts; it is to point out what the New Deal cost us in terms of green-energy innovation.
Although, since the New Deal, farms in the United States decreased in relative terms and absolute numbers, they still number in the millions. And although farmers are notoriously “cash poor,” only a small number are “dirt poor.”
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Debts and Deficits are Out of Control
Debts and Deficits are Out of Control
Understandably, the problems and politics of the moment dominate the news and attract the attention of most policy commentators and much of the public. Will there be another government shutdown, will House Democrats attempt to impeach the president, will interest rates remain low, and will there be a trade war with China? But there are longer-term problems as well, and one of them is the rising U.S. national debt due to annual government budget deficits as far into the future as the eye can see.
The Congressional Budget Office (CBO) recently issued its latest “Budget and Economic Outlook”projection, covering the next decade, 2019-29. And it is not a pretty picture. As of the beginning of February 2019, the cumulative federal government debt is approaching $22 trillion. This comes out to a per capita burden of nearly $67,000 for all those residing in the United States, and about $179,500 per U.S. taxpayer.
The CBO predicts that between 2019 and 2029, the government’s gross national debt will increase to almost $33.7 trillion because of annual budget deficits that beginning in the years immediately ahead will be over $1 trillion a year all the way to 2029 and will continue that way for every year after that to 2049 in the CBO’s much longer-term forecast.
Not that the Congressional Budget Office’s projections will be right on target. The report admits that the agency has been wrong in its past forecasts. But virtually always its error has been to underestimate the growth in the federal government’s deficits and debt. So, if its track record follows form, when 2029 rolls around and the coming 10 years are looked back on, the national-debt problem may very well be noticeably worse than the CBO is currently anticipating.
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The Real Significance of the French Tax Revolt
The Real Significance of the French Tax Revolt
The gilets jaunes (Yellow Jacket) anti-tax riots in France escalated over the past weekend, again citing the impact of higher taxes on fossil fuels –and high levels of taxation in general – on everyday life. French citizens, already subject to the highest taxes in the OECD, are being crushed by both new and systematically increasing taxes, and have taken to the streets by the hundreds of thousands in a “citizen’s revolution”. Recommendations to declare a state of emergency have for the time being been tabled.
With no sense of irony whatsoever, in a press conference on Saturday French President Emmanuel Macron stated: “I will never accept violence.”
Yet violence is the core component of his chosen vocation as a statesman.
Taxation poses as an equitable transaction – goods and services provided by a government in return for a fee (more galling and Orwellian, a “contribution”) from the taxpayer – but the nature of the interaction is obvious to all but the indifferent or determinedly thoughtless. It is not voluntary and does not follow from reason; neither will even the most indefatigable defenders of state appropriation, given the choice (and confidentiality), miss an opportunity to skirt the taxman and retain their property.
The force of violent compulsion is the quintessence of taxation and tax policy, thinly ensconced behind a thin veil of platitudes regarding social goods and general welfare. In Paris, an oft-repeated phrase among the protesters is that they’re “fed up.” Ambulance drivers have joined the protests, as have both teachers and students in at least 100 schools across France.
Levying taxes on individuals to combat climate change – or for the accomplishment of any social betterment project – is unfailingly undertaken in the name of the sanctity of life.
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