Monday, May 18, 2015

Lost in the Woods

The New York Sun has written an editorial about the New York Times's proposal that the International Monetary Fund, an organization that should have been closed four decades ago, should be strengthened.  The Times' s views have become irrelevant to intelligent thinking about policy, but it is sometimes fun to through darts at the dying paper, much as children tear off a moth's wings. 


The Sun mentions that Arthur Hays Sulzberger, the husband of the Times heiress, Iphigene Ochs Sulzberger,  sacked Henry Hazlitt, who is stil alive to some of my students because I assign his Economics in One Lesson in one of my classes.  

Sulzberger's sacking of Hazlitt must have been a point of inflection in the Times's downward trajectory, an earlier one having been Adolph Ochs's 1935 death.  Hazlitt's perspective is radically different from today's Times's social democratic goose-step, so it is hard to conceive that Hazlitt was on the Times's staff as recently as 1946.  

Why did Sulzberger care so much about the Bretton Woods agreement? The post-war period was an inflection point because of the introduction of monetary stimulus that had long-term effects on the stock market and on real estate development. The 1949 Housing Act, which created urban renewal, was passed three years after Hazlitt's sacking.  New York City developers were among the chief recipients of loan money that was used to construct suburbia and Manhattan's office buildings as well as public housing. The Times played a critical role in stimulating urban renewal, as recounted by Robert Caro in The Power Broker. 

 A national central bank-created currency that is used around the world will tend to be inflated as the national bank expands the money supply to meet special interest pressures at home but, because of global demand for the excess currency, does not pay the penalty of decreased imports and higher consumer prices . The amount of dollar currency in circulation around the world is forty percent to sixty percent of the total.  There has been inflation indeed, but the dollar has not devalued at the rate it should have given the rate of money printing. 

An exodus of manufacturing, an overconstruction of real estate, and the 2008 financial meltdown have resulted from importers' not paying the full penalty of a devalued dollar and from developers' not paying the full cost of money.  The system has produced stagnant wages and misallocated resources through subprime construction and excessive specialization in services that can't be exported.  It is unstable in the long term.  

At this point, the abolition of the legal tender law, which will be consistent with recent attacks on holding cash that Joe Salerno described at the Stamford Von Mises Institute event two weeks ago and so might be palatable to America's dictators at the IRS, might be a more realistic step than reintroduction of gold backing. By abolishing the legal tender law private sector monetary alternatives can evolve.  

Saturday, May 9, 2015

Once Again, America Lags by a Year

Margaret Thatcher preceded Ronald Reagan by a year, for she was elected prime minister in 1979, and Reagan was elected president in 1980. The recent election of David Cameron may portend a similar reaction to big government excess and contempt for the Constitution under Barack Obama and the Democrats. 

The United States has been in decline with respect to the economy. Putting aside President Obama's massive subsidization of the super rich through quantitative easing and the subsidies to Wall Street that he has continued from the day he took office through today, the real hourly wage has stagnated:



There are different results if you look at production and nonsupervisory workers rather than all workers, but the message is similar: There has been wage stagnation since 1964, and the Democrats have not changed the trend.  Rather, the trend began with Johnson's escalation of the Vietnam War in 1964 and Nixon's abolition of the gold standard in 1971. The stagnation
in the average worker's wage that has occurred during the Obama administration, during the rule of a party that claims to represent the working class, suggests a failure of economic policy. 

As well, President Obama has precipitated a Constitutional crisis. Through a policy of centralization with respect to health care, the Common Core, and now police, during the past six years President Obama has shredded the Constitution's chief assumption: division of powers. 

Under Nazism Hitler centralized police enforcement in the federal Schutzstaffel or SS. Wikipedia writes, "The Nazi Party monopolized political power in Germany... key government functions such as law enforcement were absorbed by the SS, while many SS organisations became de facto government agencies." 

In 2013 Radley Balko wrote in the Huffington Post that Obama has continued seven federal programs that can be interpreted as steps on the way to federalization of the police. In 2014 CBS News wrote,"President Obama is using an executive order to standardize the way the federal government distributes military-style equipment to state and local law enforcement agencies." Such centralization is among the most extreme breaches of the spirit and substance of the Constitution outside the economic sphere. The Constitution hsa been irrelevant with respect to economics since the days of FDR. 

Given the failure of the Democratic Party to live up to any of its claims, either that it is more libertarian on civil rights issues than the Bush administration was or that it can improve its voters' economic lives, the election of David Cameron may presage a new Reagan.  


The Wall Street Journal  describes Cameron's policies as less-than-enthusiastic about globalizing institutions and also in favor of  decentralizing decision making in Scotland. Most importantly, though, the British seem to have rejected the Labor Party's economic incompetence, with the Conservatives seizing the center. 


Hopefully, Americans will find a center that not only rejects the anti-Constitutional centralizing trend of the Obama years but also reinvents the free market system that once made America the richest country and now, because of its rejection, has made America the eleventh-richest country, a has-been. 





Monday, May 4, 2015

For Economic Opportunity, Learn Spanish and Move to Chile

I just sent this email to the class. A student raised the claim, apparently circulating in the state-and-big business propaganda machine, that power needs to be concentrated in the office of the president.

I was wrong about Saudi Arabia, which is among the wealthiest countries.  If you look at the slightly out-of-date rankings of wealthy countries in Wikipedia at http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita , all of the top ten  are small countries. Until the 1930s the United States maintained a strict division of powers so that the states played a larger role in governance than the federal government. As the federal government has assumed control, the economic performance here has stagnated.  As of this year the US has fallen out of the top-ten countries in terms of wealth.  The ten wealthiest countries are all small, and the top-twelve countries are all small with the exception of the US. (Number twelve, Saudi Arabia, has a population of about 28 million, similar to Canada's 36 million.)

All of the wealthiest countries are either endowed with oil (Qatar, Brunei, Kuait, Norway, UAE), are among the most free market countries (Singapore, Hong Kong, Switzerland, United States), or engage in global trade or banking (Luxembourg, Singapore, Switzerland, Hong Kong).   If you extend the wealth ranking to the top twenty, you still have modest-sized countries (Saudi Arabia, Bahrain, Irelnad, Netherlands, Australia, Austria, Sweden, Germany, Taiwan, and Canada), Most of rankings ten to twenty are engaged in global trade, have high oil endowments, or are among the more free market countries (with the least government regulation).

Heritage Foundation ranks the freest market economies at  http://www.heritage.org/index/ranking as follows:

1. Hong Kong (wealth ranking 9)
2. Singapore (wealth ranking 3)
3. New Zealand (wealth ranking 31)
4. Australia (wealth ranking 15)
5. Switzerland (wealth ranking 9)
6. Canada (wealth ranking 20)
7. Chile (wealth ranking 53)
8. Estonia (wealth ranking 42)
9. Ireland (wealth ranking 13)
10 Mauritius (wealth ranking 63)
11. Denmark (wealth ranking 21)
12. United States (wealth ranking 10)

Countries without natural resource endowments like Hong Kong, Singapore, Switzerland, and Ireland have become among the wealthiest countries through free market policies.  What this list says is that countries like Chile, Estonia, Mauritius, and Denmark that have recently chosen free market policies pose better opportunities for your economic success than the US does. If I were your age, I would brush up on Spanish, move to Chile, and open a restaurant.

As far as the list of the ten largest countries, with the exception of the United States, which enjoyed decentralization and federalism until the 1960s,virtually all very large countries are among the poor countries. See
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita

The two other exceptions in the top twenty, Japan and Germany, had the advantage of having lost World War II. In Rise and Decline of Nations Mancur Olson shows why losing the war, which eliminated the special interest groups such as labor unions, entrenched banking interests, and large industrial lobbies, enabled Japan and Germany to develop rapidly.  Since 1990, with the growth of special interests, Japan's growth has stagnated.


List of high-population countries

1      China 1,339,190,000
2 India 1,184,639,000
3 United States of America 309,975,000
4 Indonesia 234,181,400
5 Brazil 193,364,000
6 Pakistan 170,260,000
7 Nigeria 170,123,000
8 Bangladesh 164,425,000
9 Russia 141,927,297
10 Japan 127,380,000
11 Mexico 108,396,211
12 Phillipines 94,013,200
13 Vietnam 85,789,573
14 Germany 81,757,600
15 Ethiopia 79,221,000

Wednesday, April 29, 2015

A Brief History of the Catskill Mountain Railroad and Kingston's Politicians



The Catskill Mountain Railroad is a tourist train that drew about 40,000 visitors to the Catskills last year, with the number growing.  For the past few years Ulster County Executive Mike Hein has been attacking the railroad.  He wants to remove the tracks and replace them with a hiking-and-biking trail.

Senator Schumer, Governor Cuomo, or both have been eager to extend a hiking trail into the Catskills.  Moreover, UCE Hein has a limited commitment to Ulster County because he aims for higher office, so his chief commitment is to Schumer and/or Cuomo.  He also appears not to be troubled by harming the county's economy.

Ulster County has a long history of subjugation under New York City's Department of Environmental Protection, which used to be called the Board of Water Supply.  Since 1905 the state has permitted the city to regulate the Catskills because, well, the city stole the land on which its reservoirs now sit fair and square, and since the city stole the land fair and square,  it should also have the authority to violently compel Town of Olive residents to bend to its whims.

Mike Hein has seen that there are advantages to playing along with the Big Apple’s H2O imperialists. Just as the city has a long history of convincing the state to allow it to regulate Olive without its representation, so it has a long history of choosing to do so in lieu of spending money in order to filter its water.

The first time New York chose to claim--via state violence--regulatory authority over people whom it does not represent rather than pay for a filtration system was in 1915. The memorandum of agreement of  the 1990s, when gullible-and-self-destructive town supervisors agreed to even greater city authority in exchange for nickel-and-dime grants from the city, was one more step in the history of the Town of Olive’s immolation in the name of New York City’s greed.  

Long before it commenced work on the Catskill reservoirs in 1905, the city had received a bid from a private water company that had offered to sell the city water, which the company had purchased from private sellers. The city had refused because, well, it was too expensive to buy the water. It was  cheaper to steal it from farmers in the Town of Olive and their political leaders, a large number of whom, like Mike Hein today, were happy to sell out small town residents in exchange for a small amount of money or small-time business opportunities from the BWS or DEP. In Hein's case the sellout is for political advancement.

Back in 1905 the leadership of Ulster County had been sideswiped by the rest of the state, which negotiated a deal whereby Dutchess, Westchester, Putnam, and Rockland Counties made small or no sacrifices and received a cut of the Catskills’ water, while Ulster County, especially the Town of Olive, was sold down the river.*  At the same time, many of Kingston's turn-of-the-twentieth-century elite were happy to sell out Olive because they saw themselves profiting by doing business with the BWS, now the DEP. The same was true of Ulster County's leadership in the 1990s.   

I interviewed an architect named Kevin Bone, who is a professor at Cooper Union and an author of two books on New York’s water supply.  Prof. Bone said that a railroad is an ideal business for the Route 28 corridor because it has limited environmental impact, draws tourists, and does not interfere with the water supply.  The loss of 40,000 visitors may cause business closures along a Route 28 already depressed by the incompetence of the Democratic-and-Republican political regime.

If anyone thinks a hiking trail through Hurley will bring one-tenth of the 40,000 number, they should invest their own money. No one will, because the claim is ludicrous. That Mike Hein should attack the railroad and gain the support of the DEP suggests a political motive by one of New York’s hammer-and-sickle-waiving politicos. It is tragic that Ulster County is led by Mike Hein, who is happy to sacrifice the county's economy for his political career.

*According to NPR, the origin of the expression “sold down the river” was on the Mississippi in the course of the slave trade.  Slave laborers were sold further south and sent down the river to hard labor and likely death.  In contrast, the Town of Olive was sold down the Hudson River to a century of serfdom and political abuse by greedy, power-crazed, urban politicians and their Kingston lackeys.