September 25, 2019 *************************
The Federal Reserve , responding to concerns about the economy and the stock market, and perhaps to criticisms by President Trump, recently changed the course of interest rates by cutting it’s “benchmark” rate from 2.25 percent to two percent. President Trump responded to the cut in already historically-low rates by attacking the Fed for not committing to future rate cuts.
The Fed’s action is an example of a popular definition of insanity: doing the same action over and over again and expecting different results. After the 2008 market meltdown, the Fed launched an unprecedented policy of near-zero interest rates and “quantitative easing.” Both failed to produce real economic growth. The latest rate cut is unlikely to increase growth or avert a major economic crisis.
It is not a coincidence that the Fed’s rate cut came along with Congress passing a two-year budget deal that increases our already 22 trillion dollars national debt and suspends the debt ceiling. The increase in government debt increases the pressure on the Fed to keep interest rates artificially low so the federal government’s interest payments do not increase to unsustainable levels.President Trump’s tax and regulatory policies have had some positive effects on economic growth and job creation. However, these gains are going to be short-lived because they cannot offset the damage caused by the explosion in deficit spending and the Federal Reserve’s resulting monetization of the debt. President Trump has also endangered the global economy by imposing tariffs on imports from the US’s largest trading partners including China. This has resulted in a trade war that is hurting export-driven industries such as agriculture.
President Trump recently imposed more tariffs on Chinese imports, and China responded to the tariffs by devaluing its currency. The devaluation lowers the price consumers pay for Chinese goods, partly offsetting the effect of the tariffs. The US government responded by labeling China a currency manipulator, a charge dripping with hypocrisy since, thanks to the dollar’s world reserve currency status, the US is history’s greatest currency manipulator. Another irony is that China’s action mirrors President Trump’s continuous calls for the Federal Reserve to lower interest rates.
While no one can predict when or how the next economic crisis will occur, we do know the crisis is coming unless, as seems unlikely, the Fed stops distorting the economy by manipulating interest rates (which are the price of money), Congress cuts spending and debt, and President Trump declares a ceasefire in the trade war.
The Federal Reserve’s rate cut failed to stop a drastic fall in the stock market. This is actually good news as it shows that even Wall Street is losing faith in the Federal Reserve’s ability to manage the unmanageable — a monetary system based solely on fiat currency. The erosion of trust in and respect for the Fed is also shown by the interest in cryptocurrency and the momentum behind two initiatives spearheaded by my Campaign for Liberty — passing the Audit the Fed bill and passing state laws re-legalizing gold and silver as legal tender. There is no doubt we are witnessing the last days of not just the Federal Reserve but the entire welfare-warfare system. Those who know the truth must do all they can to ensure that the crisis results in a return to a constitutional republic, true free markets, sound money, and a foreign policy of peace and free trade.
Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.
September 25, 2019 *************************
Most of you will be familiar with a supply and demand graph. This shows a demand curve, which graphs the relationship between the price of something and the quantity demanded of that something, as well as a supply curve, which graphs the relationship between the price of something and the quantity supplied of that something. It is probably the most basic—and useful—model in economics.Whether the something in question is a good or a service, shoes or labor, the basic supply and demand model predicts that, ceteris paribus, an increase/fall in the price of something will lead to a fall/increase in the quantity demanded of that something—this is Econ 101.
In the context of minimum wage laws, this model predicts that setting a minimum wage above the equilibrium level or raising it will lead to a lower quantity of labor demanded. Often, people think this means fewer workers employed. So, when minimum wage hikes aren’t followed by increases in unemployment, people cite this as evidence that minimum wage hikes don’t reduce employment.
But a model is an abstraction from reality. In that messy reality, there are a number of things employers can do in response to a minimum wage hike that don’t involve laying off employees.
Cut Hours Rather Than Workers
Remember, the simple supply and demand model says that increasing the price of labor leads to a lower quantity of labor demanded. But an employer doesn’t need to cut workers to achieve that. They can cut their hours instead.
Research from Seattle illustrates this. In 2014, the city council there passed an ordinance that raised the minimum wage in stages from $9.47 to $15.45 for large employers in 2018 and $16 in 2019. In 2017, research from the University of Washington examining the effects of the increases from $9.47 to as much as $11 in 2015 and to as much as $13 in 2016, found:
…the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. [This was later revised to $74]
As the model predicts, the price of labor increased, and the quantity of labor demanded fell.
A follow-up paper looked at the impact on workers who were employed at the time of the wage hike, splitting them into experienced and inexperienced workers. It found that, on average, experienced workers earned $84 a month more, but about a quarter of their increase in pay came from taking additional work outside Seattle to make up for lost hours. Inexperienced workers, on the other hand, got no real earnings boost—they just worked fewer hours. Again, as the model predicts, the price of labor increased and the quantity of labor demanded fell. Instead of more money, they got more free time.
Make Employees Work Harder
An employer could try to raise worker productivity to match the new minimum wage. One way to do this is simply to work their employees harder.
One paper by Hyejin Ku of University College London looks at the response of effort from piece-rate workers who hand-harvest tomatoes in the field to the increase in Florida’s minimum wage from $6.79 to $7.21 on January 1, 2009. It found that worker productivity (i.e., output per hour) in the bottom 40th percentile of the worker fixed effects distribution increases by about 3 percent relative to that in the higher percentiles. The author concludes:
These findings suggest that while an exogenously higher minimum wage implies a higher labor cost for the firm, the rising cost can be partly offset by the increased effort and productivity of below minimum wage workers.
Another recent study by economists Decio Coviello, Erika Deserranno, and Nicola Persico looks at the impact of a minimum wage hike on output per hour among salespeople from a large US retailer. “We find that a $1 increase in the minimum wage (1.5 standard deviations) causes individual productivity (sales per hour) to increase by 4.5%,” they note.
Importantly, tomato harvesting and sales are labor-intensive work. Any increase in output per hour can be assumed to come from increased physical effort.
Cut Other Elements of Remuneration
Supporters of higher minimum wages talk almost exclusively about wages. But this is only one part of a worker’s total remuneration. The cost of an employee to the employer is not just the wage but total remuneration, including benefits such as health insurance. If legislation increases the wage, the employer can keep overall remuneration the same by reducing other elements.
A new paper from economists Jeffrey Clemens, Lisa B. Kahn, and Jonathan Meer finds that this is what happens in practice. The authors “explore the theoretical and empirical relationship between the minimum wage and fringe benefits, with a focus on employer-sponsored health insurance.” They find:
[There is] robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes. We find evidence that both insurance coverage and wage effects exhibit spillovers into occupations moderately higher up the wage distribution. For these groups, reductions in coverage offset a more substantial share of the wage gains we estimate.
Simply put, as the minimum wage rises, other elements of worker compensation fall.
Hire Fewer People, More Robots
If a business that plans to add 10 jobs over a year cancels these plans on the passage of a minimum wage hike, those 10 jobs have been destroyed without ever showing up in the data.
Economists from Washington University in St. Louis use wage data on one million hourly wage employees from over 300 firms spread across 23 two-digit NAICS industries to estimate the effect of six state minimum wage changes on employment. They find “…that firms are more likely to reduce hiring rather than increase turnover, reduce hours, or close locations in order to rebalance their workforce.”
As we look at responses over time, we also see the possibility that employers can substitute capital inputs for labor inputs.
Economists Grace Lordan and David Neumark analyze how changes to the minimum wage from 1980 to 2015 affected low-skill jobs in various sectors of the US economy, focusing particularly on “automatable jobs – jobs in which employers may find it easier to substitute machines for people,” such as packing boxes or operating a sewing machine. They find that across all industries they measured, raising the minimum wage by $1 equates to a decline in “automatable” jobs of 0.43 percent, with manufacturing even harder hit.
They conclude that
groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.
Minimum wage hikes are bad public policy. Economics, like all social sciences, has difficulty testing its models against data, but even where we can, the evidence bears this out.
If you enrolled at university today, you would find economics modules filled with mathematics and statistics to explain economic phenomena. There would also be next to no philosophy, law, or history, all of which are much more important to understanding the way our world works and how it impacts the economy.
The reason is that since the end of the 19th century, there has been a push toward turning economics into a science—like physics or chemistry. Much of this has been done by quantifying phenomena and explaining it through graphs. It has been precisely since this shift that there has been such a poor track record of public policy, from fiscal to monetary.
What many contemporary economists fail to realize is that economics is as much of a philosophical pursuit as a mathematical one, if not more so.
A Brief History
Modern economics was first introduced as a formal subject called “history and political economy” in 1805. Economics was a three-decade-old discipline then, as Adam Smith had published his Wealth of Nations in 1776. The earliest economists were philosophers who used deduction and logic to explain the market. Smith deployed numerical analysis only as a means of qualitatively assessing government policies such as legislated grain prices and their impact. No graphs or equations were used.
Even earlier, 17th-century philosopher John Locke contributed more to economic liberty than any mathematician has since. Likewise, philosopher David Hume successfully explained the impact of free trade with his price-specie flow mechanism theory, which employs pure logic. John Stuart Mill’s book On Liberty likewise furthered the cause for free markets without using math.
In 1798, Malthus mathematically predicted mass starvation due to population growth, but he could not quantify the rule of law and free markets.
The first substantial misuse of mathematics was by Thomas Malthus. In 1798. He predicted mass starvation due to population growth, which was exponential and outpacing agricultural production, which was arithmetic. Malthus was evidently wrong, as contemporary free-market Japan’s population density towers over collectivist sub-Saharan’s Africa. Malthus could not quantify the rule of law and free markets.
Alfred Marshall’s Principles of Economics (1890) was the first groundbreaking textbook to use equations and graphs. One of Marshall’s students, John Maynard Keynes, would further the cause of quantifying economics by mathematically linking income and expenditure and how government policy could impact this. Keynes’ General Theory (1936) would serve as a blueprint for 20th-century economic policy as more scientific methods of economics gained favor in the coming decades. Friedrich Hayek summarized this shift in his Nobel Prize acceptance speech.
It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the physical sciences—an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude—an attitude which is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.
Quantifying the Unmeasurable
It is impossible to quantify human action. Although equations, such as utility measures, do exist to quantify human behavior, they are faulty when examined. How can an equation tell me when I am no longer satisfied with a certain good? Mathematically speaking, it is when marginal utility becomes negative. This may be true. However, the problem is how to determine how much chocolate will give me a stomach ache—mathematically speaking, what amount will produce negative marginal utility. A doctor could not figure this out, let alone an economist.
There cannot be “catch-all” formulas due to the complexity of economic phenomena. Measuring the elasticity of demand for a certain good is at best a contribution to economic history. Elasticity will hardly be constant in the same country throughout time, let alone in other countries. However, the economists pursuing this analysis do not do it to update economic history—it is done for the purpose of having government micromanage demand for these goods. In reality, government should allow the free market to produce a certain good. The market will determine the demand/supply.
Economics is more related to jurisprudence than math.
Economics, among other things, is the study of the allocation of scarce resources. If there is a limit of a certain good, it’s not the government’s job to utilize an equation to distribute it. Rather, governments must ensure that the property rights of that good are clearly defined. It is then up to the person who owns the good to allocate it. As such, economics is more related to jurisprudence than math.
The Solow-Swan growth model is a perfect example of quantifying economics. It claims to explain long-run economic growth based on productivity, capital accumulation, and other variables. It is unquestionable that these factors impact growth, however, it oversimplifies the complex interactions between various qualitative factors.
For example, English Common Law has allowed countries such as the US or Hong Kong to prosper more than African nations with no basis for the rule of law and where corruption is still widespread. Protestant nations were historically more favorable toward capitalism compared to other religions. Both of these factors undoubtedly affected the variables in the Solow-Swan model—the problem is quantifying them. Productivity and capital accumulation do not “just happen.”
Monetary policy has suffered the worst. Today, central banks manipulate interest rates to stimulate the economy due to a false belief in purely theoretical mathematical models. Such sophisticated analysis would be welcoming if it offered a better track record. By artificially lowering interest rates, central banks create malinvestment in the economy, creating a bubble.
Once the economy is deemed to be “overheating,” the rates are raised, causing the bubble to burst. This is precisely what has happened since the introduction of discretionary monetary policy in many instances. The 2008 crisis is the most recent example.
However, such policy was not possible with the gold standard because there was no need for a central bank nor monetary policy, as a tool, to even exist. Likewise, the economy was much more stable. Why did gold work? It could not be manipulated easily by the government, and furthermore, it was spontaneously chosen by people because it fulfilled the necessary criteria. Mathematical formulas cannot replicate this.One economist jokingly described it:
Instead of trading away your valuable pigs for horses, why not accept some smooth stones? Don’t worry that you don’t want them, someone else will give you horses in exchange for them! If we could just all agree on which smooth stones are valuable, we’d all be so much better off!
It should be recognized that mathematically-driven economics is a divergence from the foundation of traditional economics.
Sadly, Cowperthwaite’s skepticism of central planning based on models is rarely heeded today, evidenced by the Keynesianism that has reemerged in the intellectual sphere. Furthermore, considering that publishing in mathematically-driven economics journals is needed to secure tenure, it is questionable whether mainstream economics will be changed by such incentives.
Mathematics has a place at best for budgets and debt servicing—but it should be recognized that mathematically-driven economics is a divergence from the foundation of traditional economics.
Luka Nikolic is a Master’s student at the University of Ljubljana. He holds a Bachelor’s Degree in Business and Economics from the same University and his main interests are economics, politics, and finance. He was born in 1995 in Subotica, Serbia, and is looking to pursue a career in investment banking.
What That Giant Asteroid of Gold Would Really Do to the Economy – Article by David Youngberg
In Greek mythology, Psyche was a woman of such beauty that she inspired jealousy in the love goddess Venus. The 19th-century Italian astronomer Annibale de Gasparis named a massive asteroid after her. How appropriate that it turns out that 16 Psyche, one of the biggest asteroids in the asteroid belt, is made out of a metal famous for inspiring lust: gold.
Unlike gold discoveries of the past, there’s no rush to harvest Psyche. NASA wants to send a probe only to study it, prompting severalarticles to erroneously breathe a sigh of relief. According to one:
….if we carried [Psyche] back to Earth, it would destroy commodity prices and cause the world’s economy – worth $75.5 trillion – to collapse.
No one tries to explain how cheap gold would cause an economic collapse, and for good reason: it wouldn’t.
There’s Gold In That There Asteroid!
Psyche has a lot of gold—about $10,000 quadrillion worth at current prices. The eye-catching headlines that claim it’s enough gold to make “everyone on earth a billionaire” are, of course, complete fantasy. Selling that much gold would cut prices nearly to zero.
Harvesting Psyche would not cause an economic collapse.
If gold was still used for money, that much gold would create massive inflation, resulting in a lot of economic hardship. No country uses the gold standard anymore, so that’s hardly a concern. Rock-bottom gold prices would certainly be devastating for gold mining companies and people who keep their wealth in gold bars. That’s really bad for them, but they’re a tiny part of the global economy.
Perhaps the confusion rests in simple reverse causation. Recessions definitely cause lower commodity prices, but lower commodity prices cause recessions no more than umbrellas cause rain.
Harvesting Psyche would not cause an economic collapse. If that much gold could cheaply be brought to market it would be a boon, not a bust. It’s impossible to predict what a world of cheap gold would look like, but the story of aluminum gives us a hint.
The Precious Metal That Became Trash
Even though it’s the most abundant metal on the planet, most aluminum is trapped in bauxite and was difficult to purify for most of human history. Pure aluminum was incredibly rare, and there was once a time when the stuff of soda cans was more precious than gold. Aluminum bars were displayed next to the French crown jewels, and pure aluminum caps the Washington Monument.
Cheap gold probably won’t give us an economic boom, but that doesn’t mean it wouldn’t be an economic boon.
Techniques like the Hall–Héroult process changed all that. What was once the metal of monarchs and monuments became readily available to everyone. It’s so cheap that we now use it in fishing boats, airplanes, and beer kegs. Its foil version keeps food fresh—we throw aluminum away all the time.
Making aluminum cheap didn’t cause an economic collapse. Quite the opposite. It made society wealthier because refining improvements made everything else cheaper, thereby creating new opportunities. Wood that once went for beer kegs could be used for something else. Aluminum boats don’t corrode in water, and this application freed up steel and timber that would otherwise be used to replace degrading vessels. Modern airplanes wouldn’t even be possible without aluminum, and their existence frees up fuel, time, and materials that would have otherwise gone to passenger ships and trains.
Harvesting Psyche Would Be an Economic Boon
True wealth is not found in precious metals, and Bloomberg’s Noah Smith rightly points out that harvesting Psyche won’t cause a new industrial revolution. But he goes too far when he claims that it won’t make society richer because, holding everything else constant, a cheaper resource is the definition of economic progress. It’s only a question of magnitude.
If a future entrepreneur were to harvest Psyche, it would certainly be devastating to the gold industry. For everyone else, it would be a stellar improvement.
Harvesting Psyche, if it can be harvested at the right price (a big if), would make society richer because that much gold would allow us to reallocate our efforts to other endeavors. No one knows what exact effects cheap gold would have because the price of gold has never been anywhere near zero. While gold has limited production applications now, who knows how people will adapt if gold is functionally free? There are substitutes, and there are substitutes for substitutes.
Gold, for example, is incredibly ductile and an excellent conductor of electricity; perhaps houses would be wired with gold instead of copper, freeing up copper that could be used in other ways. Or maybe there’s an industry that’s only possible with cheap gold, like aviation is for aluminum. We can’t look at how gold is used now, with its sky-high price, and assume it’ll be the same with a rock-bottom price. Cheap gold probably won’t give us an economic boom, but that doesn’t mean it wouldn’t be an economic boon.
If a future entrepreneur were to harvest Psyche, it would certainly be devastating to the gold industry. For everyone else, dirt-cheap gold would be a stellar improvement.
David Youngberg is an associate professor of economics at Montgomery College in Rockville, MD.
The mainstream media was too busy obsessing over Russiagate to notice that, according to an annual Social Security and Medicare Boards of Trustees report, the Social Security trust fund will run out of money by 2035. The trustees also reported that the Medicare Hospital Insurance trust fund will be empty by 2027.
The trustees’ report is actually optimistic. Social Security is completely funded, and Medicare is largely funded, by payroll taxes. Therefore, their revenue fluctuates depending on the employment rate. So, when unemployment inevitably increases, payroll tax revenue will decline, hastening Medicare and Social Security’s bankruptcy.
Another dark cloud on the government’s fiscal horizon involves the Pension Benefit Guaranty Corporation (PBGC), which provides federal bailouts to bankrupt pension plans. The PBGC currently has an over 50 billion dollars deficit. This deficit will almost certainly increase, as a number of large pension funds are likely to need a PBGC bailout in the next few years. Congress will likely bail out the PBGC to avoid facing the wrath of voters angry that Congress did not save their pensions.
Unfunded liabilities like Social Security and Medicare are not included in the official federal deficit. In fact, Congress raids the Social Security trust fund to increase spending and hide the deficit’s true size, while leaving the trust fund with worthless IOUs.
The media also ignored last week’s Congressional Budget Office (CBO) report predicting the federal debt will increase to an unsustainable 144 percent of the gross domestic product by 2049. The CBO’s report is optimistic as it assumes interest rates remain low, Congress refrains from creating new programs, and there are no major recessions.
Few in Congress or in the Trump administration are even talking about the coming fiscal tsunami, much less proposing the type of spending cuts necessary to pay down the debt and have the funds to unwind the entitlement programs without harming those currently reliant on them. Instead, both parties support increasing spending and debt.
Republican control of both houses of Congress and the While House led to increased federal spending of over $300 billion dollars. The House Democratic majority now wants even more spending increases. House Speaker Nancy Pelosi is threatening to not raise the debt ceiling unless President Trump and congressional Republicans agree to lift the spending caps put in place by the 2011 budget deal.
The Republican Congress routinely exceeded the caps’ minuscule spending limits. Therefore, Speaker Pelosi should have no problem getting President Trump and his Republic congressional allies to once again exceed the caps on welfare spending as long as Democrats agree, as they are likely to agree, to bust the caps on warfare spending.
America’s military budget already equals the combined budgets of the next seven highest-spending countries. Instead of allowing himself to be neoconned into wasting trillions on another Middle East quagmire, President Trump should bring home the nearly 170,000 troops stationed in almost 150 countries.
Unless Congress immediately begins making substantial spending cuts, America will soon face a major economic crisis. This crisis will likely involve the Federal Reserve’s debt monetization resulting in a rejection of the dollar’s world reserve currency status. Since the media and most politicians refuse to discuss this topic, it is up to those of us who understand the truth to spread the word, grow the liberty movement, and force politicians to make real cuts right now.
Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.
Watch this wide-ranging discussion between U.S. Transhumanist Party Chairman Gennady Stolyarov II and Steele Archer of the Debt Nation show, addressing a broad array of emerging technologies, the aspirations of transhumanism, and aspects of both broader and more personal economic matters – from the impact of technology on the labor market to how Mr. Stolyarov paid off his mortgage in 6.5 years. This conversation delved into Austrian economics, techno-optimism, cultural obstacles to progress, the work and ideals of the U.S. Transhumanist Party / Transhuman Party, life extension and the “Death is Wrong” children’s book, science fiction, and space colonization – among many other topics.
Join the U.S. Transhumanist Party / Transhuman Party for free here.
Why California Cities Are Becoming Unlivable – Article by Andrew Berryhill
California has the highest poverty rate in the U.S. and is rated dead last in quality of life.
In July, the mayor of San Francisco frankly stated that poverty in the city is so bad, that “there is more feces on the sidewalks than I’ve ever seen.” And it’s not just her – the local NBC investigative unit found a “dangerous mix of drug needles, garbage, and feces throughout downtown San Francisco.”
While such conditions are thankfully not widespread, California still has the highest rate of poverty of any state when factoring in living costs and is rateddead last for quality of life. It’s no wonder that from 2007 to 2016, California lost a million residents on net to domestic migration.
This plight may appear counterintuitive since California’s economy is booming. If the state were an independent country, its economy would rank as the 5th largest in the world. However, a high GDP does not necessarily entail socioeconomic wellbeing.
So, what’s the main problem ailing California and creating such a high cost of living?
How bad are housing costs? The median price of a home in California is over $600,000 (compared with $300,000 nationally) and a recent study found that:
“Across California, more than 4 in 10 households had unaffordable housing costs, exceeding 30 percent of household income, in 2015. More than 1 in 5 households statewide faced severe housing cost burdens, spending more than half of their income toward housing expenses.”
Housing costs are so high that in San Francisco and San Mateo counties the government considers a household of four making $105,350 as “low income”.
And it’s not just low and middle-income families that are suffering – even many “elite” technology workers can barely make ends meet. Lucrative six-figure salaries don’t go far when you live in the most expensive housing markets in America while also paying some of the highest taxes.
You can save money by living in the suburbs, but multi-hour commutes in soul-crushing traffic may await. Is such an arrangement worth it? Many have said “no” and moved to other states. While their new jobs elsewhere might pay less, other benefits more than make up for it.
But why is the housing situation in California so terrible?
It’s easy to simply say “supply and demand” – so many people have moved to cities that housing construction can’t keep up, causing real estate prices and rents to skyrocket.
However, this invites an important question: why can’t residential developers build fast enough?
Regulations play an especially large role in the San Francisco Bay Area, which shockingly includes 15 of the 30 cities with the highest rents in the country. One article explains these struggles well:
For new housing developments in San Francisco, there’s a preliminary review, which takes six months.
Then there are also chances for your neighbors to appeal your permit on either an entitlement or environmental basis. The city also requires extensive public notice of proposed projects even if they already meet neighborhood plans, which have taken several years of deliberation to produce. Neighbors can appeal your project for something as insignificant as the shade of paint. . .
If those fail, neighborhood groups can also file a CEQA or environmental lawsuit under California state law, challenging the environment impact of the project. . .
These barriers add unpredictable costs and years of delays for every developer, which are ultimately passed onto buyers and renters. It also means that developers have problems attracting capital financing in weaker economic years because of the political uncertainty around getting a project passed.”
Why aren’t politicians working to fix this? Self-preservation. Here’s the unfortunate reality:
“The reason the San Francisco city government won’t fix things that seem obvious . . . is because it fears a backlash from the hundreds of neighborhood associations that blanket the city and can reliably turn people out to the polls.”
This cultural opposition to development is not a modern phenomenon:
“San Francisco’s orientation towards growth control has 50 years of history behind it and more than 80 percent of the city’s housing stock is either owner-occupied or rent controlled. The city’s height limits, its rent control and its formidable permitting process are all products of tenant, environmental and preservationist movements that have arisen and fallen over decades.”
Development proposals have been shot down for reasons ranging from burrowing owl protection to complaints that the size of new residential buildings will block sunshine and thereby “devalue human life”.
The power of this “Not In My Back Yard” (NIMBY) movement has been considerable, but counter-movements are growing. When one homeowner recently complained in a Berkeley city council meeting that a proposed residential building would block sunshine for her zucchini garden, one young woman angrily responded: “You’re talking about zucchinis? Really? Because I’m struggling to pay rent.” Young workers facing unaffordable rents are increasingly fed up with petty opposition to more affordable housing.
However, Californian cities still seem more preoccupied with banning straws, cocktail swords, scooters, delivery robots, and workplace cafeterias.Even when politicians try to help, they frequently ignore the root causes of the issue. For example, California Representative Kamala Harris recently proposed a bill called the “Rent Relief Act” that would provide a tax credit for people spending over 30 percent of their income on rent.
Harris’ proposal only addresses symptoms of an underlying disease and would almost certainly be counterproductive. It doesn’t encourage more housing construction, which is the only real solution.
Until sweeping housing reform to enable residential development is passed at the state and local levels, Californians will keep fleeing to Texas, Nevada, and Arizona. I don’t blame them.
Andrew Berryhill is an Alcuin Fellow at Intellectual Takeout and a rising senior at Hillsdale College majoring in economics. Andrew has interned on Capitol Hill and was a research fellow for Hillsdale’s economics department. In his spare time, he enjoys practicing the violin and playing golf.
Uncertainty makes human beings uncomfortable. Not knowing what’s going to happen in the future creates a sense of unrest in many people. That’s why we sometimes draw on predictions made by leading experts in their respective fields to make decisions in our daily lives. Unfortunately, history has shown that experts aren’t often much better than the average person when it comes to forecasting the future. And economists aren’t an exception. Here are five economic predictions that never came true.
1. Irving Fisher Predicting a Stock-Market Boom—Right Before the Crash of 1929
Irving Fisher was one of the great economists of the first half of twentieth century. His contributions to economic science are varied: the relationship between inflation and interest rates, the use of price indexes or the restatement of the quantity theory of money are some of them. Yet he is sometimes remembered by an unfortunate statement he made in the days prior to the Crash of 1929. Fisher said that “stock prices have reached what looks like a permanently high plateau (…) I expect to see the stock market a good deal higher within a few months.” A few days later, the stock market crashed with devastating consequences. After all, even geniuses aren’t exempt from making mistakes.
2. Paul Ehrlich on the Looming ‘Population Bomb’
In 1968, biologist Paul Ehrlich published a book where he argued that hundreds of millions of people would starve to death in the following decades as a result of overpopulation. He went as far as far as to say that “the battle to feed all of humanity is over (…) nothing can prevent a substantial increase in the world death rate.” Of course, Ehrlich’s predictions never came true. Since the publication of the book, the death rate has moved from 12.44 permille in 1968 to 7.65 permille in 2016, and undernourishment has declined dramatically even though the population has doubled since 1950. Seldom in history has someone been so wrong about the future of humankind.
3. The 1990s Great Depression that Never Happened
Economist Ravi Batra reached the number one on The New York Time Best Seller List in 1987 thanks to his book The Great Depression of 1990. From the title, one can easily infer what was the main thesis of the book, namely: An economic crisis is imminent, and it will be a tough one. Fortunately, his prediction failed to come true. In fact, the 1990s was a period of relative stability and strong economic growth, with the US stock market growing at an 18 percent annualized rate. Not so bad for an economic depression, right?
4. Alan Greenspan on Interest Rates
In September 2007, former Fed Chairman Alan Greenspan released a memoir called The Age of Turbulence: Adventures in a New World. In the book, he claimed that the economy was heading towards two-digit interest rates due to expected inflationary pressures. According to Greenspan, the Fed would be compelled to drastically raise its target interest rate to fulfill the 2-percent inflation mandate. One year later, the Fed Funds rate was at historical lows, reaching the zero-lower bound shortly after.
5. Peter Schiff and the End of the World
Financial commentator Peter Schiff became famous in the aftermath of the 2007-2008 Financial Crisis for having foreseen the housing crash back in 2006 (even a broken clock is right twice a day). Since then, he has been predicting economic catastrophes every other day, with very limited success. There are many examples of failed predictions from which to draw upon. For instance, in a 2010 video (see below), Schiff foretold that Quantitative Easing (the unconventional monetary policy undertaken by the Fed between 2008 and 2014) would result in hyperinflation and the eventual destruction of the Dollar. Unfortunately for Schiff, the average inflation rate per year since the onset of QE has been 1.68%, slightly below the 2% target of the Fed.
Luis Pablo is a PhD Candidate in Economics at the University of Valladolid. He has been published by several media outlets, including The American Conservative, CapX and the Foundation for Economic Education, among others.
While warnings of caution can be condoned without much guilt, my concern is critiques like Dr. Shiller’s (which he has since considerably softened) will cause some value-oriented investors to completely exclude cryptocurrencies and related assets from their portfolios. I will not wax poetically about the myriad of forms money has assumed across the ages, because it is already well-covered by more than one rarely read treatise. It should be said, though it may not need to be, that a community’s preferred medium of exchange is not arbitrary. The immovable wheels of Micronesia met the needs of their makers just as digital stores of value like Bitcoin will serve the sprawling financial archipelagos of tomorrow. This role will be facilitated by the ability of blockchains not just to store transactions, but to enforce the governing charter agreed upon by their participants.
Tokens are abstractions, a convenient means of allotting ownership. Bradley Rivetz, a venture capitalist, puts it like this: “everything that can be tokenized will be tokenized the Empire State Building will someday be tokenized, I’ll buy 1% of the Empire State Building, I’ll get every day credited to my wallet 1% of the rents minus expenses, I can borrow against my Empire State Building holding and if I want to sell the Empire State Building I hit a button and I instantly have the money.” Bitcoin and its unmodified copycats do not derive their value from anything tangible. However, this is not the case for all crypto projects. Supporters tout its deflationary design (which isn’t much of an advantage when there is no value to deflate), its modest transaction fees, the fact it is not treated as a currency by most tax codes (this is changing and liable to continue changing), and the relative anonymity it offers.
The fact that Bitcoin is still considered an asset in most jurisdictions is a strength. This means that since Bitcoin is de facto intermediary on most exchanges (most pairs are expressed in terms of BTC or a major fiat, many solely in BTC), one can buy and sell other tokens freely without worrying about capital gains taxes, which turn what should be wholly pleasurable into something akin to an ice cream sundae followed by a root canal. This applies to sales and corporate income taxes as well. A company like Walmart, despite its gross income, relies on a slender profit margin to appease its shareholders. While I’m not asking you to weep for the Waltons, I am asking you to think about the incentives for a company to begin experimenting with its own tax-free tokens as a means of improving customer spending power and building brand loyalty.
How many coins will be needed and, for that matter, how many niches they will be summoned to fill, remains unknown. In his lecture on real estate Dr. Shiller mentions the Peruvian economist Hernando De Soto’s observation about the lack of accounting for most of the land in the world. Needless to say, for these areas to advance economically, or any way for that matter, it is important to establish who owns what. Drafting deeds, transferring ownership of properties or other goods, and managing the laws of districts where local authorities are unreliable or otherwise impotent are services that are best provided by an inviolable ledger. In the absence of a central body, this responsibility will be assumed by blockchain. Projects like BitNation are bringing the idea of decentralized governance to the masses; efforts like Octaneum are beginning to integrate blockchain technology with multi-trillion dollar commodities markets.
As more than one author has contended, information is arguably the most precious resource of the twenty first century. It it is hardly scarce, but analysis is as vital to making sound decisions. Augur and Gnosis provide decentralized prediction markets. The latter, Kristin Houser describes it, is a platform used “to create a prediction market for any event, such as the Super Bowl or an art auction.” Philip Tetlock’s book on superforecasting covers the key advantages of crowdsourcing economic and geopolitical forecasting, namely accuracy and cost-effectiveness. Blockchains will not only generate data, but also assist in making sense of it. While it is just a historical aside, it is good to remember that money, as Tymoigne and Wray (2006) note, was originally devised as a means of recording debt. Hazel sticks with notches preceded the first coins by hundreds of years. Money began as a unit of accounting, not a store of value.
MelonPort and Iconomi both allow anyone to start their own investment funds. Given that it is “just” software is the beauty of it: these programs can continue to be improved upon indefinitely. If the old team loses its vim, the project can easily be forked. Where is crypto right now and why does it matter? There is a tendency for academics (and ordinary people) to think of things in the real world as static objects existing in some kind of Platonic heaven. This is a monumental mistake when dealing with an adaptive system, or in this case, a series of immature, interlocking, and rapidly evolving ecosystems. We have seen the first bloom – some pruning too – and as clever people find new uses for the underlying technology, particularly in the area of IoT and other emerging fields, we will see another bloom. The crypto bubble has come and gone, but the tsunami, replete with mature products with explicit functions, is just starting to take shape.
In the long run Warren Buffett, Shiller, and the rest will likely be right about Bitcoin itself, which has far fewer features than more recent arrivals. Its persisting relevance comes from brand recognition and the fact that most of the crypto infrastructure was built with it in mind. As the first comer it will remain the reserve currency of the crypto world. It is nowhere near reaching any sort of hard cap. The total amount invested in crypto is still minuscule compared to older markets. Newcomers, unaware or wary of even well-established projects like Ethereum and Litecoin, will at first invest in what they recognize. Given that the barriers to entry (access to an Internet connection and a halfway-decent computer or phone) are set to continue diminishing, including in countries in which the fiat currency is unstable, demand should only be expected to climb.
Adam Alonzi is a writer, biotechnologist, documentary maker, futurist, inventor, programmer, and author of the novels A Plank in Reason and Praying for Death: A Zombie Apocalypse. He is an analyst for the Millennium Project, the Head Media Director for BioViva Sciences, and Editor-in-Chief of Radical Science News. Listen to his podcasts here. Read his blog here.
How Marcus Aurelius Influenced Adam Smith (No, Really) – Article by Paul Meany
Adam Smith’s appreciation for the Stoic emperor’s writings is evident in his own work.
Who Was Marcus Aurelius?
Marcus Aurelius Antoninus Augustus was the last of the five good emperors of Rome. He was born in 121 AD, reluctantly became emperor in 161 AD, and reigned for 19 years until his death in 180 AD. His reign was punctuated by numerous wars during which he repelled Rome’s enemies in long campaigns. When not at the frontiers of the empire, he spent his time administering the law, focusing his attention particularly on the guardianship of orphans, the manumission of slaves, and choosing city councilors.
Lord Acton memorably stated, “Power corrupts, absolute power corrupts, absolutely.” Lord Acton’s aphorism is, for the most part, true, but there was one exception to it in history: Marcus Aurelius. He famously had a keen interest in philosophy. Perpetually practicing self-control and moderation in all aspects of his life, he was the closest any person ever came to embodying Plato’s ideal of the “philosopher king.”
While on the front lines of his campaign against the German tribes, Marcus Aurelius wrote his own personal diary. This was originally titled Ta Eis Heauton, meaning To Himself in Greek. Subsequent translations of the text changed the title numerous times; we now know it as Meditations. In Meditations, Marcus Aurelius writes his personal views on the Stoic philosophy.
He focuses heavily on the themes of finding one’s place in the cosmic balance of the universe, the importance of analyzing your actions, and being a good person. Asserting that one should be judged first and foremost on their actions, he decisively urged us to “waste no more time arguing about what a good man should be. Be one.” Meditations is a masterpiece of Stoic philosophy, brimming with insightful, emotional and, most importantly, useful observations on morality and the human condition.
Who Was Adam Smith?
Adam Smith was a Scottish moral philosopher who is renowned as one of the first modern economists. He was born in 1723 in Kirkcaldy and died in 1790. He is famous for his two seminal works, The Wealth of Nations and The Theory of Moral Sentiments. His work was massively influential on classical liberal thought as he was one of the first defenders of the free market.
In The Wealth of Nations and The Theory of Moral Sentiments, Smith articulated a persuasive case for the efficacy and morality of a free-market commercial society. Ludwig Von Mises, speaking about Smith’s works, wrote that they “presented the essence of the ideology of freedom, individualism, and prosperity, with admirable clarity and in an impeccable literary form.” Classical liberal economist Milton Friedman often wore a tie bearing a portrait of Adam Smith to formal events.
Adam Smith’s Readings of Marcus Aurelius
These two figures lived in vastly different times, under vastly different circumstances, so how did Marcus Aurelius ever influence Adam Smith? The answer lies in the ancient philosophy of Stoicism.
Stoicism was one of the three major schools of Greek philosophy in the ancient world. It was founded in Athens in the 3rd century BC by a man named Zeno of Citium. The name “Stoic” was given to the followers of Zeno, who used to congregate to hear him teach at the Athenian Agora, under the colonnade known as the Stoa Poikile. Over time, Stoicism expanded and developed sophisticated views on metaphysics, epistemology, and ethics.
While Stoicism posits numerous views on a huge variety of topics, its most interesting and relevant observations are on ethics. The Stoics were concerned with perfecting self-control which allowed for virtuous behavior. They believed that, through self-control, one could be free of negative emotions and passions which blinded objective judgment.
With a peaceful mind, the Stoics thought, people could live according to the universal reason of the world and practice a virtuous life. Marcus Aurelius described the ideal Stoic life in book three of Meditations, writing, “peace of mind in the evident conformity of your actions to the laws of reason, and peace of mind under the visitations of a destiny you cannot control.”
Adam Smith was educated at the University of Glasgow where he studied under Francis Hutcheson. Hutcheson was a Scottish intellectual and a leading representative of the Christian Stoicism movement during the Scottish Enlightenment. He hosted private noontime classes on Stoicism which Adam Smith often attended. Smith’s preference for Marcus Aurelius was encouraged by Hutcheson, who published his own translation of Meditations.
In The Theory of Moral Sentiments, Smith referred to Marcus Aurelius as “the mild, the humane, the benevolent Antoninus,” demonstrating his deep admiration for the Stoic emperor. Marcus Aurelius influenced Adam Smith in three main areas: the idea of an inner conscience; the importance of self-control; and in his famous analogy of the “Invisible Hand.”
Our Inner Conscience
Both Marcus Aurelius and Adam Smith believed that the key to understanding morality was through self-scrutiny and sympathy for others.
Marcus Aurelius wrote Meditations in the form of a self-reflective dialogue with his inner self. He thought that moral conviction lay within “the very god that is seated in you, bringing your impulses under its control, scrutinizing your thoughts.’’ He interchangeably referred to this inner god as the soul or the helmsman and believed that it is a voice within you that attempts to sway you from immoral doings; we now call this a conscience.
Similarly, Smith emphasized the role of people’s innermost thoughts. A key aspect of Smith’s moral philosophy in The Theory of Moral Sentiments is the impartial spectator. Smith theorized that morality could be understood through the medium of sympathy. He thought that before people acted they ought to look for the approval of an impartial spectator.
“But though man has… been rendered the immediate judge of mankind, he has been rendered so only in the first instance; and an appeal lies from his sentence to a much higher tribunal, to the tribunal of their own consciences, to that of the supposed impartial and well-informed spectator, to that of the man within the breast, the great judge and arbiter of their conduct.”
The Importance of Self-Control
The Stoics listed four “cardinal virtues” — wisdom, justice, courage, and temperance — for which they held great reverence. These were believed to be expressions and manifestations of a single indivisible virtue. Smith used slightly different names, but he endorsed the same set of virtues and the idea that they were all facets of one indivisible virtue.
Smith and Aurelius had a mutual appreciation for the virtue of self-control. They both believed in an impartial, self-scrutinizing conscience that guided morality: while Aurelius called it the God Within, Smith called it the Impartial Spectator.
Marcus Aurelius said, “You have power over your mind — not outside events. Realize this, and you will find strength.” The primacy of self-control is intrinsic to the Stoic philosophy. In a similar vein of thought, Smith writes that “self-command is not only itself a great virtue, but from all other virtues seem to derive their principal lustre.” This respect for self-control was encouraged and cultivated by Smith’s Impartial Spectator and Marcus Aurelius’ Inner God.
The Invisible Hand
Marcus Aurelius argues that we must work together in common cooperation in order to improve humanity as a whole. He argues that we “were born to work together.” Aurelius stressed the vital nature of human cooperation.
“Constantly think of the universe as one living creature, embracing one being and soul; how all is absorbed into the one consciousness of this living creature; how it compasses all things with a single purpose, and how all things work together to cause all that comes to pass, and their wonderful web and texture.”
In The Wealth of Nations and The Theory of Moral Sentiments, Adam Smith’s defense of the free market is expressed through the analogy of the Invisible Hand. Smith argues that in a society of free exchange and free markets, people must sympathize with one another and understand how best to benefit their fellow man in order to better their own situation.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
The transaction will not occur unless the parties involved demonstrate their sympathy for the interests of others. In the analogy of the Invisible Hand, Smith argues that we must think of others before ourselves and consider how best to serve our fellow neighbor. This famous passage bears a striking resemblance to the previous passage by Marcus Aurelius who also argues for the importance of conscious cooperation among people for the common good.
We Are All Standing on the Shoulders of Giants
A Roman emperor seems like an unlikely intellectual influence for a classical liberal thinker such as Adam Smith. Upon closer inspection, however, Smith and Aurelius are like two peas in a pod: both men believed that the root of morality lies within the self-scrutiny of one’s conscience; both believe in the primacy of the virtue of self-control; and both believe in the importance of sympathy as a tool for cooperation and the betterment of civilized society.
No thinker is entirely alone in their pursuit of truth. All people discover truth by building upon the previous discoveries of others. This explains how an emperor came to influence so strongly an Enlightenment moral philosopher and economist more than a thousand years after he had passed away. I believe that the best expression of the development of such ideas was written by a medieval philosopher and bishop, John of Salisbury, who spoke of the wisdom of Bernard of Chartres:
“He pointed out that we see more and farther than our predecessors, not because we have keener vision or greater height, but because we are lifted up and borne aloft on their gigantic stature.”
We are all dwarfs standing on the shoulders of giants in the pursuit of the system of natural liberty and prosperity that Adam Smith sought during his lifetime.
Paul Meany is a student at Trinity College Dublin studying Ancient and Medieval History and Culture.