Power & Market
The Senate Banking Committee is set to vote next Tuesday on the nominations of Richard Clarida and Michelle Bowman. As I noted when both names were initially announced, neither’s history indicates any reason to think they will shake things up at the Fed. To his credit, Mr. Clarida did indicate during his Senate testimony that he strongly supports normalizing the Fed’s balance sheet and getting it away from direct credit allocation by purchasing non-Treasury assets. That’s a notable improvement.
Reports indicate that it’s possible both nominees will receive some bipartisan support, in notable contrast to the last Fed nominee considered – Marvin Goodfriend. In fact, it seems increasingly clear that Goodfriend’s nomination is in danger. As the American Banker noted today:
There is a bigger question another Fed board nominee, Marvin Goodfriend, whose nomination has faced controversy. Goodfriend is a professor at Carnegie Mellon University and former monetary policy adviser to the Federal Reserve Bank of Richmond.
“The Marvin Goodfriend nomination to the Board remains in limbo, but the odds of his confirmation are slim-to-none at this point,” Isaac Boltansky of Compass Point Research & Trading wrote in an analyst note May 14. “The odds slightly favor both Clarida and Bowman ultimately winning confirmation.
While Trump’s Fed nominees have largely been forgotten by the mainstream media, this development is a big deal. The reason I consider Goodfriend to be the “worst Fed nominee of all time” is that his enthusiastic support for negative interest rates and ambitious strategy for eliminating cash in America makes would make him a uniquely dangerous voice within America’s central bank.
It is worth noting as well that Goodfriend’s nomination is in peril in part due to an interesting coalition that transcends the political left and right. One of the loudest advocates against his nomination has been the organization Fed Up, a progressive organization whose primary policy goals have been greater “diversity” at the Fed and opposition to interest rate increases. While have obvious disagreement on monetary policy, it is promising to see some recognition on the left to the very real dangers negative interest rates and the war on cash can have on working class Americans.
Their advocacy seems to be working, with the expectations that Goodfriend will fail to receive a single Democratic vote in the Senate. Combined with Rand Paul’s committed no vote, Goodfriend is one more Republican opponent away from being done. Hopefully he will receive that from some of the better Republicans on monetary policy, like Ted Cruz or Mike Lee.
While it is a weird situation to see Elizabeth Warren doing more to attack a pro-tax advocate than either the Heritage Foundation or Cato, it does point to the unique political potency of the Fed as a political issue. If a Warren-Rand coalition brings down Goodfriend, America will be better off for it.
The meat-grinder politics beginning with the 2016 campaign has triggered proposals to rescue us from a crisis of democracy. At least two authors — Jason Brennan, in Against Democracy and Dambisa Moyo, in Edge of Chaos — have suggested that letting more knowledgeable citizens’ votes count more might be a useful reform.
Both trace democracy’s problems to voter ignorance. However, its cause is largely that an individual casting a better-informed vote will not change the political outcome, providing them essentially no such payoff for such efforts. And weighted voting would do little to improve that problem, while imposing severe implementation issues.
Allocations of extra voting power would not escape political calculation and control. That omni-interventionist government would be able and willing to do that even-handedly is beyond belief. Further, it doesn’t fix voters’ incentives.
Say you got a double vote. There is still an insignificant chance it vote would swing an important election. It still offers no payoff. Little would change even if some got 100 votes. And any expansion of “informed” voting power further dilutes the incentives of other voters.
Weighted vote advocates also misidentify voter knowledge as the crucial question. More political knowledge does not eliminate bad government policies. That can just as easily be used to advance one’s own interests at others’ expense (experts promoting a wrong answer in the “right” direction) as to advance the “general welfare.” Given how frequently “experts” have driven policy failures, giving them more votes could easily worsen results.
Read more at the Orange Country Register
Canadian Prime Minister Justin Trudeau is known for dressing up in ridiculous costumes. His latest? A defender of free trade.
Over the weekend, Trudeau took to Sunday morning news shows to criticize the Trump Administration’s tariffs on Canadian steel and aluminum. He called the decision “insulting,” noting that “there are no two countries that are as interconnected, interdependent…You sell more things to us every year than to UK, Japan, and China combined.”
Of course Trudeau’s criticism of the new tariffs is valid, protectionism is bad for everyone but special interest groups they protect. The problem is that Trudeau’s own policies are hard to reconcile with his new found appreciation for free trade.
Canada’s Supply Management System is a perfect example of agricultural protectionism – and a policy that has received the full endorsement of Justin Trudeau. The program involves an impressive collection of bad government policies, including direct subsidies, price fixing, supply regulation, and high tariffs on international imports. In a 2014 article on Canada’s agricultural policy, Predrag Rajsic illustrated the incredible amount of regulation that exists in milk production:
For example, for the past 40 years, the production of milk in Canada has been legally regulated at the federal and provincial levels. At the federal level, production is limited to about 79 million hectoliters per year. Each province has a strictly defined share in the total national production that cannot be exceeded.
For the whole system to function, milk can be produced only by a farmer that is registered with a provincial marketing board. Every farmer is allowed to supply a precisely defined quantity of milk, which is referred to as a quota. A farmer may increase his quota only if another farmer is willing to sell his quota. The exchange of quotas is also regulated in detail and must be approved by provincial marketing boards. Currently, farmers are willing to pay more than $30,000 in exchange for transfer of rights to increase their dairy herd by one dairy cow. However, the soaring quota prices have created barriers for new entrants into the industry. A person that wants to start a small dairy farm first needs to pay more than $1 million just to be allowed to produce milk. These barriers to entry have triggered quota price controls in Ontario and Quebec, the major dairy producing provinces. The price controls, in effect, have reduced the willingness of farmers to sell their quotas. Now the Ontario milk marketing board is offering quotas at subsidized prices to a limited number of new entrants (i.e., not more than ten per year).
Canada’s Supply Management System has faced its biggest internal challenge recently from Maxime Bernier, a member of parliament who sought the leadership nomination of his Conservative Party. Last year he wrote an article praising Trump’s criticism of the protectionism scheme, noting the cost it has for Canadian citizens:
Canadian families, especially low-income ones with children, suffer because of the hundreds of dollars in extra cost they need to pay each year to support this system. Isn't it unfair?
I'm also sorry for the Canadian producers protected from competition by this cartel. It's actually very unfair for some of them, too.
They have to pay $24,000 to $40,000 a cow to their protection racket for a piece of paper giving them the right to produce a certain quantity of milk – and that's before paying for the cow itself! Even when they run a very efficient farm, they cannot grow and sell to foreign markets. That's the price to pay for not allowing foreigners to sell here.
It is encouraging to hear such passionate defenses of free trade being made by both international leaders and news pundits as a result of Donald Trump’s tariffs. Unfortunately, the actions of those leaders – both in the past and present - undermine their rhetoric. If Justin Trudeau really believes that tariffs between the US and Canada are an insult to both countries, then he should lead by example.
Until then, Trump is right to call out his hypocrisy.
Congratulations to Mises Senior Fellow Peter G. Klein for being recognized by Baylor University as an Outstanding Professor for 2017-2018. In particular, Dr. Klein was credited for his scholarship as the W. W. Caruth Chair and Professor of Entrepreneurship, and Senior Research Fellow with the Baugh Center for Entrepreneurship & Free Enterprise.
His works the past year includes:
Stakeholders and Corporate Social Responsibility: An Ownership Perspective: Emerald Insight, February 2018 (coauthors: Nicolai Foss).
"Business Law and the Austrian Theory of the Firm," , Cheltenham: Edward Elgar, December 2017, pp. 325-346 (coauthors: Peter J. Boettke, Todd J. Zywicki, Thomas A. Lambert).
"Uncertainty Types and Transitions in the Entrepreneurial Process," Organization Science, Vol. 28, No. 5, (October 2017), pp. 840-856 (coauthors: Mark D Packard).
"Entrepreneurial Discovery or Creation? In Search of the Middle Ground," Academy of Management Review, Vol. 42, No. 4, (October 2017), pp. 735-737 (coauthors: Nicolai J Foss).
"The Effects of Academic Incubators on University Innovation," Strategic Entrepreneurship Journal, Vol. 11, No. 2, (June 2017), pp. 145-170 (coauthors: Christos Kolympiris).
"Entrepreneurial Traits, Formal Institutions, and the Motivation to Engage in Entrepreneurial Action," (May 2017) (coauthors: Boris Nikolaev, Christopher Boudreaux).
"Organizational Governance Adaptation: Who Is In, Who Is Out, and Who Gets What," Academy of Management Review, (2017) (coauthors: Joseph T Mahoney, Anita M McGahan, Christos Pitelis).
"Uncovering the Hidden Transaction Costs of Market Power: A Property Rights Approach to Strategic Positioning," Managerial and Decision Economics, (2017) (coauthors: Kirsten Foss, Nicolai Foss).
"My Contributions to Entrepreneurship Theory," , London: Routledge, 2017.
Charles Dickens A Tale of Two Cities came to mind this morning as I drove to work listening to the unemployment report on the radio. The report indicates that the official unemployment rate dropped to the lowest level in almost 50 years. Reporters have been quick to move from this "good news" to the fact that President Trump "leaked" the information via Twitter an hour before the report was released in violation of federal rules. My own thoughts turned to the fact that when the actual unemployment rate is below the "natural rate" that it is a signal of recession or economic crisis right around the corner. This is shown in the graph where unemployment bottoms out just before the onset of the next recession (in gray). Dickens published A Tale in 1859 just before the American Civil War and it was about the coming of the French Revolution....
- It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only. (Wikipedia)