Sunday, February 25, 2018

Financial Times Reporter Triggers the President of the Bundesbank


I have never seen reporting like this before in the "Lunch with the FT" feature of the Financial Times.

Claire Jones, the FT’s Frankfurt bureau chief, invited Bundesbank president Jens Weidmann for the feature section profile lunch. Halfway down her profile, she writes that she triggered Weidmann during the lunch:
For a nation [Germeny] that views debt as a sin (the word for it, schuld, also means “guilt”), the ECB’s aggressive attempts to keep the European show on the road — which have included promises to spend trillions buying government bonds and savage cuts to interest rates that savers here hate — have come to symbolise everything the euro’s enemies detest about the single currency..

Does Weidmann think it has made matters more difficult for the ECB that he as president of the revered Bundesbank has been so openly critical? He demurs. Germans would not have trusted their central bank, had it not been consistent with its traditional view, he argues...

Later he adds: “Trust comes through understanding. But it also comes with personality.” Some think the German wariness of the ECB would change if a German were to succeed Draghi after he leaves at the end of next year. But it would be an extraordinary change — for Weidmann and the bank. He has been the most vocal of the handful of the council’s 25 members to have opposed the bank’s bond-buying...

He argues that, if monetary union is going to work, then the question of nationality must be put to one side. Talking about which country people are from all the time “illustrates a certain nervousness” that Weidmann thinks in time would weaken people’s trust in the euro.

“If you say, ‘We would never have somebody from Malta at the ECB’, I mean, how would the Maltese feel? Do you think that they would be willing to accept ECB policy?”

I reply that I think the Maltese know it is very unlikely that one of them will succeed Draghi.

“Well you know what I mean,” he bristles. “If you exclude a country and say nobody from Luxembourg, Malta, whatever . . . this is not how it should work.”

We are by now an hour into lunch. As I tackle my schnitzel, Weidmann is losing his cool. This discussion about a candidate’s nationality is “completely absurd”, he says. “I mean, would you have asked if this institution is right for an Italian?”
Weidmann is absolutely correct here. Shouldn't the soundness of monetary stewardship by an ECB presidential candidate be first and foremost, not the candidate's nationality? I can understand why he gets triggered with the line of questioning by this reporter. Especially, since he is the most conservative of money printers that is in a position to succeed current ECB president Mario Draghi next year.

What difference does it make that he comes from Germany?

 -RW 

Trump Loses His Temper During Phone Call With Mexican President


Tentative plans for Mexican President Enrique Peña Nieto to make his first visit to the White House to meet with President Trump were scuttled this week after a testy call between the two leaders ended in an impasse over Trump’s promised border wall, reports the Washington Post.

Peña Nieto was eyeing an official trip to Washington this month or in March, but both countries agreed to call off the plan after Trump would not agree to publicly affirm Mexico’s position that it would not fund construction of a border wall that the Mexican people widely consider offensive, according to WaPo.

According to the report, Speaking by phone on Tuesday, Peña Nieto and Trump devoted a considerable portion of their roughly 50 minute conversation to the wall, and neither man would compromise his position.

One Mexican official said Trump “lost his temper.”

Trump got himself into this mess. What a clown.

 -RW 

Saturday, February 24, 2018

Trump Slaps Horrific Sanctions on North Korea; Crime Against Humanity


Among the conventional weapons in the arsenal of the modern Warfare State, none is crueler or more indiscriminate than economic sanctions. While a bomb, missile, or other military ordnance can devastate an entire neighborhood in a moment, the slow death of economic strangulation can so degrade an entire people that they are reduced to a pre-civilizational state, modern savages living at a subsistence level.
This psychological and spiritual degeneration is nothing less than a war crime, a "crime against humanity."

-Justin Raimondo, 1998
The Trump administration has issued a far-reaching sanctions package targeting North Korea’s maritime industry, reports The Financial Times.

The US Treasury issued sanctions against 28 vessels, 27 companies and one individual across nine jurisdictions, including China, Singapore and Tanzania, on Friday.

“We have imposed the heaviest sanctions ever imposed,” President Trump said. “Frankly hopefully something positive can happen; we will see.”

This series of sanctions appears to be aimed at shutting down North Korea’s  maritime activities to obtain oil and sell coal.

China has lodged “stern representations” with the US over the sanctions.

 -RW 

Koch Brothers Group Launches Ads Against Tax Breaks for Amazon HQ2


Tax cuts for me but not for thee?

An advertising campaign opposing tax breaks for Amazon's proposed second headquarters has been launched by an advocacy organization linked to the conservative billionaire Koch brothers.

The ad geo-targets the American markets that Amazon is currently considering as a location for HQ2.

“While small businesses and young entrepreneurs struggle,” Generation Opportunity's ad states, “government cuts special deals with Amazon, a corporation that raked in $175 billion last year! Does this look like a company that needs taxpayer cash?” the ad asks.

Tax cuts certainly should be more broad-based but the advocacy should be for more tax cuts not objecting to tax cuts others are getting.

 -RW 

(via Channel9 Denver)

Mark Your Calendar: New Fed Chief to Testify Before House Panel


For the first time, new Federal reserve chairman Jerome Powell will deliver the semiannual monetary policy testimony on Tuesday, Feb. 27 before the U.S. House of Representatives’ Financial Services Committee.

The hearing will be held at 10 a.m. ET.

(Note: The date of the testimony was changed, it was initially scheduled for Wednesday, Feb. 28.)

Powell is not an economist. He was trained as a lawyer. This testimony will give us a sense as to the economic views of the economists inside the Fed that he is relying on.

My expectation is that he will come out as a mild monetary inflationist ---just enough to get the economy into serious trouble.

I have marked my calendar.

Powell will also deliver the semiannual monetary policy testimony before the Senate Banking Committee on March 1.


-RW 

Friday, February 23, 2018

THIS IS GOOD: A Protectionist is….

Tim Worstall writes:
A protectionist is someone who argues that you should be poorer so they can be richer.

Thank You, Janet Yellen and Ben Bernanke

Jamie Dimon, Chairman, CEO, and President, of JPMorgan Chase
J.P. Morgan Chase unveiled plans Wednesday to replace its existing New York headquarters with a new 2.5-million-square-foot complex.

The building will be the largest bank building in the world and will be built at 270 Park Ave in New York City on the same property where JPM has its current headquarters.

The current building at Park Avenue between 47th and 48th Streets was constructed in 1950 and meant for 3,500 employees. Employees will be relocated to nearby facilities during the construction.

The new headquarters will house 15,000 of the bank’s employees and is expected to be between 70 and 75 stories tall. The current structure is 52 stories.

Jamie Dimon, the bank's Chairman, CEO, and President,, could have never pulled this off without massive money printing by former Fed chairs Ben Bernanke and Janet Yellen over the last 10 years.

The question now becomes will the Fed still be able to keep the economy in boom phase until the new building is expected to be complete in 2024. Given the expected price inflation acceleration on the horizon, it says here that the Fed won't be able to pull it off.

 -RW 

(via CNBC, The New York Times and Bloomberg)

Venezuelans Lost On Average 24 Pounds Last Year



This is what happens when price controls, socialism and hyperinflation are mixed.

According to Reuters, Venezuelans reported losing on average 11 kilograms (24 lbs) in body weight last year and almost 90 percent now live in poverty.

The data comes from a study on the impact of  the devastating economic crisis and food shortages.

The annual survey, published on Wednesday by three universities, is one of the most closely-followed assessments of Venezuelans’ well being.

Last year, the three universities found that Venezuelans said they had lost an average of 8 kilograms during 2016. This time, the study’s dozen investigators surveyed 6,168 Venezuelans between the ages of 20 and 65 across the country of 30 million people.

“Income is being pulverized,” Maria Ponce, one of the study’s investigators, told a news conference at the Andres Bello Catholic University on Caracas’s outskirts.

“This disparity between the rise in prices and the population’s salaries is so generalized that there is practically not a single Venezuelan who is not poor,” she said.

Prices in Venezuela rose over 4,000 percent in the 12 months to the end of January, according to various studies.

    -RW 

Thursday, February 22, 2018

Protectionists and the 50 States



By Don Boudreaux

A Protectionist is Someone Who…

… believes that we Americans would be even wealthier than we now are if each of the 50 states were a sovereign nation that restricted its citizens’ abilities to import goods and services not only from Europe, Asia, and other far away places, but also from each of the other 49 states.  After all, if creating artificial scarcities in the United States is key to increasing each American’s access to goods and services, imagine how much richer we Americans would be if we in Virginia enjoyed the artificial scarcities created by the government in Richmond obstructing our access not only to goods and services sold by the likes of Canadians and the Chinese, but also to goods and services sold by the likes of North Carolinians, Marylanders, Californians, Hawaiians, and Americans in other states.  Ditto for Louisianans whose wise leaders in Baton Rouge obstructed their ability to import goods and services not only from places such as Mexico and Japan, but also from places such as Mississippi, Texas, New Jersey, and other U.S. states.  Ditto also for Oklahomans, Nebraskans, Minnesotans, Floridians, Vermonters, Arizonans, Alaskans, and citizens of each of the other states.

Or put somewhat differently, a protectionist is someone who regards American courts as having visited upon Americans a curse rather than a blessing through these courts’ consistent interpretation of the U.S. Constitution as meant to create among these united states a free-trade zone.

The above originally appeared at Cafe Hayek.

The Time Schumpeter Attacked Bastiat

By Henry Hazlitt



Frédéric Bastiat was born at Bayonne, France, on June 29, 1801. His father was a wholesale merchant, but Frédéric was orphaned at the age of nine and was brought up by his grandfather and his aunt.
He seems to have had a good, though not an extraordinary education, which included languages, music, and literature. He began the study of political economy at nineteen and read principally Adam Smith and Jean-Baptiste Say.
Bastiat's early life, however, was not primarily that of a scholar. At the age of seventeen he went to work in his uncle's counting-house and spent about six years there. Then he inherited his grandfather's farm at Mugron and became a farmer. He was locally active politically, becoming a juge de paix in 1831 and a member of the conseil genéral of the Landes in 1832.
Bastiat lived in a revolutionary period. He was fourteen when Napoleon was defeated at Waterloo and exiled to St. Helena. He lived through the Revolution of 1830. But what first inspired his pamphleteering activity was his interest in the work of Cobden and the English Anti-Corn-Law League against protection. In 1844 he rose to immediate prominence with the publication of his article on "The Influence of French and English Tariffs on the Future of the Two Peoples" in the Journal des économistes.
Then began the outpouring of a brilliant series of articles, pamphlets, and books that did not cease till his premature death in 1850. There came first of all the first series of Sophismes économiques, then the various essays and the second series of Sophismes, and finally, in the last year of his life, the Harmonies économiques.
But the list of Bastiat's writings in this short span of six years does not begin to measure his activities. He was one of the chief organizers of the first French Free Trade Association at Bordeaux; he became secretary of a similar organization formed in Paris; he collected funds, edited a weekly journal, addressed meetings, gave lecture courses — in brief, he poured out his limited energies unsparingly in all directions. He contracted a lung infection. He could breathe and nourish himself only with difficulty. Finally, too late, his ill-health forced him to Italy, and he died at Rome, at the age of forty-nine, on Christmas Eve, 1850.
It is ironic that the work which Bastiat considered his masterpiece, the Harmonies économiques that cost him so much to write, did far more to hurt his posthumous reputation than to help it. It has even become a fashion for some economists to write about Bastiat patronizingly or derisively. This fashion reaches a high point in an almost contemptuous one-page notice of Bastiat in the late Joseph A. Schumpeter's History of Economic Analysis. "It is simply the case," writes the latter, "of the bather who enjoys himself in the shallows and then goes beyond his depth and drowns…. I do not hold that Bastiat was a bad theorist. I hold that he was no theorist."
It is not my purpose here to discuss the

Pay Attention Donald Trump: A Protectionist is Someone Who…



By Don Boudreaux

.... believes that rickshaws are a much better means of urban public transportation than are busses or subways because the number of workers required to transport any given number of passengers is much higher with rickshaws than with busses and subways.  The protectionist – assuming (contrary to fact) that he or she has any capacity for consistency in thought – would lobby to prohibit busses, subways, and even taxies, bicycles, and skateboards on the grounds that these transportation options employ fewer urban-transportation workers than would be employed by a policy of using only rickshaws.

The above originally appeared at Cafe Hayek.

Wednesday, February 21, 2018

Do Sales Taxes Get Passed On To the Consumer?



At the post, Seattle Residents Will Outsmart the Socialist 'Behavior Control' Soda Tax, Peter Kapeel asks:
How is this story reconciled with Rothbard's discussion in MES on sales tax. Rothbard (Austrians) said that sales taxes do not get passed on to consumers because prices are determined by the consumers, not the cost of production. Is this simply an immediate run effect that will lead to a decline in prices at these stores?
 RW response:

The issue of sales taxes is a very complex one. The best short answer is that you can't just pass a tax on to consumers.

That said, after a tax is implemented sometimes prices will climb sometimes they won't.  It depends on the demand schedule for a good and also the products involved in producing a good.

Let us say, by way of example, that ice cream is made up of just two ingredients, milk and sugar.

Let us further assume that the milk and sugar are non-specific goods, that is they have plenty of uses well beyond making ice cream and the market for the ingredients is robust and not dependent on ice cream demand.

So if, say, a 10% tax is placed on ice cream, ice cream producers won't be able to "push" the tax back down on milk and sugar producers because the milk and sugar producers have plenty of other outlets where they can sell their product and they won't budge on price.

If margins are tight at the ice cream maker, the only thing he will be able to do is raise his price by 10%. Depending on the demand schedule, this could very well result in some marginal buyers no longer buying ice cream. So it is not really increasing the price to all consumers, it is pushing some consumers out of the market.

Let us consider another situation. There are three ingredients that make up ice cream, milk, sugar and, just for illustrative purposes, a special glue that holds ice cream together, Unlike milk and sugar, this special glue does not have other demand, it is a specific good for ice cream and that is all. There is no other market.

So let's say that the 10% tax is put on. The ice cream maker doesn't really want to raise prices because he will lose the marginal buyers,  but this time, unlike in the first example, he has options.

The milk and sugar producers still won't negotiate with him to lower their supply prices because they have other markets where they can sell their products, but the special glue maker has no other markets. Therefore the ice cream maker can go to the glue maker and say, "Hey, I have to cut what I pay you buy X amount because of this tax." Since the special glue maker has no other market to sell to, he takes the hit and absorbs the tax.

These two examples are just generalizations to give a sense of what can occur, you can really spin out many, many permutations. The point is, it is not as simple as slapping a sales tax on and the consumer gets hit with the tax.

Many things can happen. Indeed, in Rothbard's discussion, he recognized such when he wrote about another possible permutation:
It is true that a tax can be shifted forward, in a sense, if the tax causes the supply of the good to decrease, and therefore the price to rise on the market. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be "shifted," it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.
    -RW 

Risky Crypto Bet Blows Up Dennis Gartman's Retirement Account


Sixty-seven-year-old Dennis Gartman, longtime publisher of a namesake daily investing newsletter and television commentator, just blew up his retirement account.

Bloomberg reports Gartman pt a stock called Riot Blockchain Inc. in his very own retirement account.

Here's the play-by-play from Bloomberg:
The stock lost a third of its value on Feb. 16 after CNBC broadcast an investigative story on the biotech-company-turned-blockchain-startup. The Suffolk, Virginia-based commodities trader and economist might have been hoping to strike it rich and retire early, but he may end up working a few extra years now.

“Friday was one of the worst days we have suffered through in a very long while,” he wrote in the Gartman Letter on Tuesday. “We were long of a sizeable position in a blockchain focused company that was the victim of a CNBC expose, which sent the shares down more than 20 percent and which sent us ‘down’ for the year to date, having been up about 6 percent previously.”
The firm announced in October that it was rebranding itself from Bioptix Inc. to Riot Blockchain after years of lackluster stock performance and minimal revenue growth, a move that led the shares to more than quadruple. The euphoria didn’t last.
  -RW

Will Rand Paul and Elizabeth Warren Stop a Trump Fed Nominee Who Wants to Insert Magnetic Strips Into US Currency?

Marvin Goodfriend 
I have already pointed out that Marvin Goodfriend would be a dangerous addition to the Federal Reserve Board of Governors because of his desire to tax money in checking accounts during recessions via a "negative interest rate."

It turns out that Goodfriend's plan is even more horrific than I originally was aware.

Reuters reports:
Goodfriend's idea was to insert magnetic strips into the bills. Each time the cash was returned to a bank, the money would be taxed at a pre-determined rate. That would discourage individuals from hoarding cash and remove one obstacle for central bankers in setting negative rates.
Reuters calls this insanity "creative thinking." It is Keynesian aggregate demand policy on steroids.

There are two senators, from opposite sides of the aisles and political spectrum, who might be able to stop Goodfriend's confirmation.

Here's Reuters again:
 Even so, the idea of a tax on cash is politically toxic. Senators Rand Paul and Elizabeth Warren - two lawmakers often on opposite ends of the ideological spectrum - have denounced Goodfriend's idea, and may now put his nomination in jeopardy.
Rand does a lot of good but if Warren can somehow play a role in stopping Goodfriend from getting on the Board, it will probably be the best thing she has ever done in the Senate.

     -RW


STOCKMAN: "The Education of Mick Mulvaney—-He’s No David Stockman!"

Mick Mulvaney
This is excellent.

David Stockman, with plenty of justification, links to a National Review essay by Veronique de Rugy, The Education Of Mick Mulvaney, where she writes:

I am incredibly disappointed to see my hopes about budget director Mick Mulvaney go up in flames. See, I thought that as a budget director, he would be more like David Stockman than many of the successors we have had since he left his job after serving in the Reagan White House...What I am most disappointed by is what looks like a total abdication of what made him such an unusual Republican representative. As I wrote:
Better yet, like Stockman, he isn’t afraid to go after the Republican sacred cow—defense spending

It is really difficult for me to understand how anyone bought into anyone who joined the Trump administration. Trump has only hired clowns, yes men and generals. This was obvious from the start.

This is what I wrote about Mulvaney when he was confirmed in February of last year:
I do not expect much positive from Mulvaney.
During Senate confirmation testimony, he said he was in open to raising Social Security taxes via raising the cap on Social Security payroll taxes, as well as being open to cutting benefits via raising the retirement age to extend the program’s solvency.
However, he said he was in favor of raising military spending. He said he backed Trump’s plans to boost military spending.
That said, it is good to see de Rugy take on a Trump hire, something a lot of libertarians are still not doing.

 -RW

Tuesday, February 20, 2018

The Projected Federal Deficit Over the Next 10 Years

Via Veronique de Rugy and Justin Leventhal.


Note: These are conservative deficit numbers. I believe that interest rate costs alone are underestimated by hundreds of billions.

  -RW 

Thomas Sowell Agrees With Ron Paul About the Federal Reserve


Sowell is pretty good here and shocks the establishment interviewer Paul Robinson.



   -RW 

Seattle Residents Will Outsmart the Socialist 'Behavior Control' Soda Tax


LOL. The Seattle socialists think they are going to collect oodles of cash with their creepy soda tax.

Charles Hughes explains why they won't:
Seattle recently became the latest major city to enact a sweetened beverage tax. In response to the new levy, some retailers have calculated how much of the price is due to the tax, and customers are reeling from sticker shock. One local reporter found thatthe tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00....  
One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier

The City of Seattle denies that consumers respond to higher prices. On the city government’s website explaining the tax, the Finance & Administrative Services Department takes pains to mention explicitly that the “tax is not collected by the retailer nor is the tax burden intended to fall onto the consumer. The intent of the sweetened beverage tax is to tax the distributions of sweetened beverages into Seattle for retail sale in Seattle.”  
If the burden of the tax is supposed to completely bypass the consumer, as unlikely as that might be, what would drive them to substitute away from the unhealthy products that the government is taxing in the first place?Whatever the City states, not all of the tax will be borne by distributors, some of the burden will fall on stores and consumers, and they will respond to the change in price in some way. The less-visible Frequently Asked Questions document for the tax acknowledges this, as “the ordinance does not prohibit a business from passing on the expense of this tax.... 
>Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. One customer told KIRO, a local news station, that she would go to the location in a nearby town. People will undoubtedly follow her lead, so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate tax] revenue.
   -RW 

Monday, February 19, 2018

WAR: Per Bylund vs. Nassim Nicholas Taleb

Per Bylund, Assistant Professor of Entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University, and an Associated Scholar with the Mises Institute, tweets out:


For the record, I do not believe it is necessary for a professor to have been an entrepreneur to teach the theory of entrepreneurship, any more than it is necessary for a surgeon to jump and touch a basketball rim to perform knee surgery.

That said, I suspect that many academic economists are confused about entrepreneurship because they have never seen it up close, the way a fat knee surgeon who was stuck on an isolated island with other fat people might find it difficult to believe that some humans can jump and touch a basketball rim 10-feet high.

It would not be impossible for a fat knee surgeon on such an island to consider how a person could jump to touch the rim but it would take a superior mind to conceive of such.

As far as teaching entrepreneurship rather than entrepreneurial theory, what can be done in a classroom is extremely limited.


  -RW 

More Evidence of the High Collateral Damage of a War on Cash

By Lawrence H. White


The leading arguments for banning large-denomination currency notes are those made in a much-cited working paper by Peter Sands and at book length by Kenneth Rogoff. They have been rebutted persuasively by Pierre Lemieux and Jeffrey Hummel in their respective reviews of Rogoff’s book. I have previously offered my own rebuttals here and here.
The justification for returning to the topic now is that two recent reports, issued by the Federal Reserve Bank of San Francisco and by the European Central Bank, provide new evidence on the public’s use of large-denomination notes. This evidence is essential to any serious evaluation of proposals to ban large-denomination in notes in the United States and Europe.
The Sands and Rogoff argument assumes that the users of large bills are almost entirely criminals; use by innocent citizens is rare. Rogoff writes in his book:

New Fed Chairman Powell Taps Two Money Printers as Advisers

Jay Powell
Federal Reserve Chairman Jerome Powell has tapped two Keynesian specialists to serve as senior advisers, reports The Wall Street Journal.

In other words,  we get the first indication that Powell, a lawyer, will rely on theories that have led the Fed to a string of failure including 18 recession since the start of the Fed and a price level increase over the same period in excess of 2,500%.

Jon Faust, a professor of economics at Johns Hopkins University, will return to the Fed to advise  Powell on a part-time basis. He served as a senior adviser to Powell’s predecessors, Ben Bernanke (who ushered in the 2008 financial crisis) and Janet Yellen.

Faust will spend one day a week at the Fed until completing his teaching duties for the current academic term. His role after that hasn’t been determined, according to WSJ.

Antulio Bomfim, an economist in the Fed’s monetary affairs division, also will serve Powell as a special adviser. Bomfim served as an economist at the Fed from 1992 to 2003 and returned to the central bank as a senior adviser in 2016.

These guys have no clue what is ahead for them. The years ahead will not be the same as the smooth ride years of Yellen. And they have no clue how to deal with crisis. Incredibly ,they are even musing now about the desirability of greater than 2% price inflation. We are headed far beyond 2% price inflation without any help from these characters.

  -RW 

Greg Mankiw Slams Trump's Asinine Mercantilist Position on Trade

Greg Mankiw
Greg Mankiw, the Robert M. Beren professor of economics at Harvard University and multi-millionaire economic textbook salesman, writes in The New York Times:
When President Trump imposed tariffs on imported solar panels and washing machines, I was reminded of a line from George Orwell: “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.”

While Orwell’s comment was focused on military and political issues of the late 1930s, my subject is economics, and to most people in my field, the benefits of an unfettered system of world trade are obvious. Any good student of Econ 101 can explain the logic.

But in light of the growing evidence of the Trump administration’s apparent disdain for free trade, from the recent tariffs, to a report recommending fresh quotas or tariffs on steel and aluminum, to its earlier rejection of the Trans-Pacific Partnership, it may be worth reviewing the theory, as well as the evidence that convinces economists that the theory is right.

The place to start is 18th-century Scotland. Adam Smith’s book “An Inquiry Into the Nature and Causes of the Wealth of Nations” is often credited as the beginning of economics. The case for free trade is one of its major themes.

Smith argued that trade among nations is like trade among people. No one feels compelled to sew his own clothes and grow his own food simply to keep busy. Instead, we find employment doing what we do best and rely on other people for most goods and services. Similarly, nations should specialize in producing what they do best and freely trade with other nations to satisfy their consumption needs.

.This argument was expanded by David Ricardo in the 19th century. Ricardo addressed the question: What if one nation does everything better than another? His answer was that trade depends on comparative advantage — how good a nation is at producing one thing relative to how good it is at producing another.

Ricardo used England and Portugal as an example. Even if Portugal was better than England at producing both wine and cloth, if Portugal had a larger advantage in wine production, Portugal should export wine and import cloth. Both nations would end up better off.

The same principle applies to people. Given his athletic prowess, Roger Federer may be able to mow his lawn faster than anyone else. But that does not mean he should mow his own lawn. The advantage he has playing tennis is far greater than he has mowing lawns. So, according to Ricardo (and common sense), Mr. Federer should hire a lawn service and spend more time on the court.

By the way, Ricardo was not merely a theorist. He was also a successful stock trader and a member of Parliament. During his political career, he fought for free trade, notably, by opposing the Corn Laws, which imposed tariffs on grain imports.
   -RW 

Sunday, February 18, 2018

Adam Smith on How to Create a Country of Great Oppulence

Adam Smith


"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things," from some notes of lectures Adam Smith gave in 1755, some 21 years before the appearance of the Wealth of Nations (1776)

Smith continued, "All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."

  -RW 

(via Liberty Fund, ht David Warsh)

Michael Malice on North Korea's Economy





  -RW 

Get Ready for the War on Meat



By José Niño


Plant-based diets, especially vegan diets, seem to be all the rage these days.
Based on the practice of eschewing animal products, veganism has attracted a broad coalition of interest groups — ranging from animal rights to environmental activists — who believe that veganism is the most ethical and sustainable way of promoting human health and animal welfare.
At first, these appear to be reasonable premises for an alternative lifestyle that challenges the dietary status quo.
But when placed under the microscope, the modern vegan movement has shown signs of increased politicization and a tendency to mesh with socialist causes. 

Veganism as a Vessel for Interventionism

Recent developments have demonstrated that veganism is making headway not only in the cultural realm, but also

Friday, February 16, 2018

TRADE WAR: U.S. Commerce Secretary Recommends Steep Restrictions on Steel and Aluminum



Here's the latest from Neanderthal Trumpland.

U.S. Commerce Secretary Wilbur Ross unveiled options on today for President Donald Trump to impose hefty steel and aluminum import restrictions ranging from global tariffs on all products from all countries to quotas based on previous exports to the United States.

Commerce proposed a global steel tariff of at least 24 percent on all imports from all countries and a global aluminum tariff of 7.7 percent on all imports from all countries. The agency also offered alternatives of tariffs on specific countries for both aluminum and steel and third options of quotas based on 63 percent of each country’s 2017 steel exports and based on 87 percent of their aluminum exports to the United States.

This is simply idiotic. It ignores the concept of comparative advantage and if implemented will raise prices for U.S. consumers.

Also see: Why Donald Trump Never Washed the Windows at Trump Tower.

  -RW 

(via Reuters)

The Sad and Dangerous Federal Debt Situation



David Stockman writes:
The simple fact is you can’t grow your way out of debt when the debt’s increasing faster than gross domestic product (GDP).  For example, in 2000 the federal debt was about $5.6 trillion and real U.S. GDP was about $12.5 trillion.  Today the federal debt is over $20.6 trillion and real U.S. GDP is about $17 trillion.

In just 18 years the federal debt has increased by over 265 percent while real U.S. GDP has increased just 36 percent.  This, by all practical means, is the opposite of an economy that’s growing its way out of debt.
  -RW

Government "Stimulus": The Real Trickledown Economics

By Roy Cordato

In the media and among pundits use of the term trickledown economics is common. Reportedly first used in the 1930s by Will Rogers, the expression was prominently adopted as a pejorative description of what is more appropriately called supply side economics, by those who opposed Ronald Reagan’s 1981 tax cuts.
The implication of the term, when used to describe Reagan’s plan, was that these cuts were designed to initially benefit wealthy businesses and high-income taxpayers who, in turn, would take the revenues from those cuts and go out and spend it (probably on yachts and private airplanes) which in turn would end up benefiting middle and lower income people (those who build airplanes and yachts). Hence, the money would “trickle-down” from the wealthy who receive the tax cuts to the rest of society. The expression is currently being used by opponents of the recent tax reform/cut plan passed by Congressional Republicans and signed into law by President Trump.
The fact is that, as a description of supply side tax policy, “trickledown economics” is completely inaccurate. Changes in a

Jordan Peterson: How to Easily Overcome Social Anxiety



 -RW

Thursday, February 15, 2018

Peter Thiel Is Ditching San Francisco for Los Angeles


Billionaire Peter Thiel is leaving San Francisco and will relocate his personal funds Thiel Capital and the Thiel Foundation to Los Angeles in the next few months, reports Bloomberg. Thiel’s 50-person staff will also relocate, one of the people said. They asked not to be identified talking about private plans.

One of Thiel’s newest and most-ambitious projects is creating a conservative media empire -- an effort that will be easier to accomplish in L.A., according to Bloomberg.

-RW

Sabrin Blasts Trump's Gas Tax Hike


At a White House meeting yesterday with party leaders and senior administration officials, President Trump called for hiking the federal gas tax by 25 cents to to pay for his infrastructure projects.   Declared New Jersey U.S. Senate Libertarian Party candidate Murray Sabrin is adamantly opposed to President Trump’s proposal to hike the federal gas tax by $.25. Instead, the Ramapo College finance professor is calling for the abolition of the $.184 federal gasoline and 24.4 cents diesel fuel tax. 

Sabrin points out the Interstate Highway System was built with funds authorized by the Federal Highway Act of 1956, and is better known as the National Interstate and Defense Highways Act of 1956.

Sabrin is calling upon President Trump and members of Congress to authorize the transfer of funds from the bloated Defense Department budget to the Highway Trust Fund so upgrading America’s Interstate Highway System and complementary projects could be funded without burdening the American people with more taxes. 

According to Sabrin, “The average American family needs tax relief from the payroll tax, state and local taxes and the high cost of living, which is now accelerating because of the Federal Reserve’s Quantitative Easing policies to ‘stimulate’ the economy after the Great Recession of a decade ago.”  In addition, Sabrin supports eliminating the diesel fuel tax, which would save independent truckers, shipping companies, and other users of diesel fuel collectively billions of dollars per year.

-RW

Bitcoin, Blockchain, and Beating the System

Matthew Anderson emails:
It’s no secret you believe Bitcoin was created by the devil for the sole purpose of destroying all mankind, however, allow me to pose a serious question to you regarding cryptocurrencies in general: Do you believe blockchain technology could possibly, in the future, be used as a means of circumventing the central bank stranglehold on society? As an asset to free oneself from the “system”? Or, on the other hand, do you believe cryptocurrency technology, in general, is simply gimmicky and should not be trusted?
RW response:

Cryptocurrencies are extremely trackable. Once government understands the blockchain, they will welcome cryptocurrencies with open arms. They won't circumvent central banks. They will become the desired tool of central banks.

Charlie Munger Calls Bitcoin ‘Totally Asinine’



Charlie Munger, the 94-year-old billionaire investor and Warren Buffett sidekick, said at a packed hotel ballroom in downtown Los Angeles, "I regard the bitcoin craze as totally asinine,” 

According to the Financial Times, over the course of two hours at the annual meeting of his company the Daily Journal,  Munger sat back in his chair to field questions about oil and climate change, airlines and electric cars, how to make money and how to live a successful life.

“I expect the world to do silly things from time to time, because everybody wants easy money. It’s just disgusting that people are taken in by something like this . .," he said about bitcoin.

"It's noxious poison," he said.

-RW

A Valentine, from Murray Rothbard to His Wife

Via the Mises Institute.

According to Tho Bishop, found by Barbara Pickard in the Mises archives:

-RW

Wednesday, February 14, 2018

Trump Endorses 25-Cent Gas Tax Hike



President Trump endorsed a 25-cent gas tax hike to pay for infrastructure at a White House meeting this morning with senior administration officials and members of Congress from both parties, reports Axios. He wants the tax to pay for his recently proposed $1.5 trilliuon infrastructure plan.

Will somebody please read to Donald Trump, The Privatization of Roads and Highways: Human and Economic Factors by Walter Block.

-RW

One Good Reason to Privatize Highways

A Don Boudreaux letter to the Wall Street Journal:
Perhaps Ed Slattery is right that the costs of allowing longer trucks on highways – including costs in the form of increased dangers to motorists – will be greater than the benefits (Letters, Feb. 12).  But perhaps he’s wrong.  Who knows?  After all, it’s plausible that allowing trucks to be longer will so reduce the number of trucks on the highways that the total damage that trucks cause to highways, roads, tunnels, and bridges, as well as the risks of highway accidents caused by trucks, will fall.
Were highways privately owned and operated, highway owners would have much stronger incentives than do government administrators to discover the ‘optimal’ maximum size of trucks to allow on highways.  Because government officials, who today make those decisions, have almost nothing personally at stake in imposing whatever rules they impose – and because their one-size-fits-all rules prevent simultaneous experimentation with different rules – there is no good reason to believe these bureaucrats strike anything close to the optimal balance between costs and benefits.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
UPDATE: Frank Stephenson e-mails the following excellent point: “Might also be safer if the marginal drivers who lose truck-driving jobs are more dangerous than the average driver.”
The above originally appeared at Cafe Hayek.
Also see:

CPI Climbs; Apparel Costs Jump Most in 30 Years


The price inflation advance continues.

The consumer price index rose 0.5 percent from the previous month reports the Labor Department  Excluding volatile food and energy costs, the so-called core gauge increased 0.3 percent.

The 1.7 percent monthly gain in apparel prices, which account for about 3 percent of the CPI, was the biggest since 1990. Women’s apparel costs jumped a record 3.4 percent, the report showed.

Other items contributing to the gain in CPI included rents and owners’ equivalent rent, which both rose 0.3 percent from December; medical care, up 0.4 percent; and motor vehicle insurance, which advanced 1.3 percent, the most since 2001.

The increase in the core CPI brought the three-month annualized gain to 2.9 percent, the fastest since 2011, according to data compiled by Bloomberg.

-RW