Power & Market

Is Marvin Goodfriend’s Nomination in Trouble?

06/07/2018Tho Bishop

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. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here

How Protectionism Squanders Capital

In his early career, Mises was a vocal supporter of the free trade movement, and well involved in the policy proposals of the free trade associations in Europe. In his later years, he maintained his pure laissez-faire view of international trade, but focused more on the battle of ideas. Although scattered throughout his other works, and not collected in a volume on 'international economics', his analyses on trade and trade policy are meticulous and detailed, but clear-cut, as well as indispensable to a correct understanding of international production and exchange. 

For those reading the recent news on the escalation of protectionist measures between the U.S. and its trade partners, here's an excerpt from Mises's Epistemological Problems of Economics (pp. 237-9). The discussion is fully applicable today, 85 years after it was first published. In a short subchapter, Mises (to use one of his favorite expressions) explodes the fallacy of the infant industry argument for trade protection, and employs an original and often neglected argument that highlights the role of monetary calculation and inconvertible capital goods in production and trade.

The infant industries argument advanced in favor of protective tariffs represents a hopeless attempt to justify such measures on a purely economic basis, without regard to political considerations. It is a grievous error to fail to recognize the political motivation behind the demand for tariffs on behalf of infant industries. The same arguments as are advanced in favor of protecting a domestic product against foreign competition could also be adduced in favor of protecting one part of a general customs area against the competition of other parts. The fact that, nevertheless, protection is asked only against foreign, but not also against domestic, competition clearly points to the real nature of the motives behind the demand. 

Of course, it may happen in some cases that the industry already in existence is not operating in the most favorable of the locations that are presently accessible. However, the question is whether moving to the more favorable location offers advantages great enough to compensate for the cost of abandoning the already existing plants. If the advantages are great enough, then moving is profitable and is carried out without the intervention of a tariff policy. If it is not profitable in itself and becomes so only by virtue of the tariff, then the latter has led to the expenditure of capital goods for the construction of plants that would otherwise not have been constructed. These capital goods are now no longer available where they would have been had the state not intervened.

Every tariff under whose protection new plants come into existence that otherwise would not have been built so long as the older plants established elsewhere were still utilizable leads to the squandering of capital. Of course, the fanatics on both sides of the ocean who want to “make the economy rational” do not care to see this.

trump2.JPG
When commenting, please post a concise, civil, and informative comment. Full comment policy here

Tom Woods Show: The Problem With Government Police

Tate Fegley, a 2018 Research Fellow, joined the Tom Woods show to discuss the perverse incentives that exist with government law enforcement, and how the private market would be a better approach to police services. 

To read more from Tate on the topic, check out his Mises Institute author page. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Weighted Voting Not a Cure for Democracy

06/06/2018Gary Galles

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 
When commenting, please post a concise, civil, and informative comment. Full comment policy here

Trump is Right, Trudeau is a Big Fat Phony on Trade

06/04/2018Tho Bishop

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.

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Mises Research Fellow Demelza Hays Named to Forbes 30 Under 30

06/04/2018Mises Institute

Congratulations to Demelza Hays, a 2015 Mises Research Fellow, for being named to Forbes 30 Under 30 from Deutschland/Austria/Switzerland. Ms. Hays is currently a PhD student at the University of Liechtenstein, specializing in cryptocurrency. Her analysis can be found at incrementum.li, an investment and management company guided by an understanding of Austrian economics. Her articles on cryptocurrency published on the Mises Wire can be found here. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Ron Paul on the War on Cash, Cryptocurrencies, and the Deep State

06/01/2018Ron Paul

Dr. Ron Paul recently joined Dan Dicks at Press For Truth for a great conversation. 

Ron Paul On The Coming Dollar Crash, Cashless Society, Cryptocurrencies, Trump & The Deep State!

(h/t Adam Dick with the Ron Paul Institute)

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Peter Klein Named Outstanding Professor by Baylor University

06/01/2018Mises Institute

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. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here

"It was the best of times, it was the worst of times"

06/01/2018Mark Thornton

Unemployment rate

Unemployment rate

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)
When commenting, please post a concise, civil, and informative comment. Full comment policy here

Video of America's Great Depression

05/31/2018Per Bylund

Here's a very nice video/animation of Rothbard's America's Great Depression, by a group calling themselves EconClips.

When commenting, please post a concise, civil, and informative comment. Full comment policy here
Shield icon power-market-v2