Hayek on Friedman’s View of Central Banks

Central bankers like to invoke Milton Friedman’s views as an excuse for their own monetary mischief.

F.A. Hayek saw that there were problems with Friedman’s claims of the superiority of a fixed rate of growth in the money stock as the basis of macroeconomic stability.

“I wish I could share the confidence of my friend Milton Friedman who thinks that one could deprive the monetary authorities, in order to prevent the abuse of their powers for political purposes, of all discretionary powers by prescribing the amount of money they may & should add to circulation in any one year. It seems to me that he regards this as practicable because he has become used for statistical purposes to draw a sharp distinction between what is to be regarded as money & what is not. This distinction does not exist in the real world. I believe that, to ensure the convertibility of all kinds of near-money into real money, which is necessary if we are to avoid severe liquidity crises or panics, the monetary authorities must be given some discretion. But I agree with Friedman that we will have to try and get back to a more or less automatic system for regulating the quantity of money in ordinary times.”

~F.A. Hayek~ “Full Empoyment at Any Price”

Bohm-Bawerk

Armistice & Amnesty for the Drug War, NOW … !!!

The failures of the Drug War to meet its ends & the massive “collateral damage” to civil rights & good governance provide ample evidence that ending this internicine war waged by governments against citizens must end, NOW!

Students for Liberty have begun to focus on resolving the injustices, inefficiencies & stupidities associated with the Drug War. This coincides with the development of a broad & growoing consensus that drug use should not be treated as a criminalized.

When it comes to addiction, drug usage should be viewed as a medical issue NOT a criminal issue. Imagine that the law demanded that alcoholics be jailed because of their consumption. Portugal took the brave step of decriminalizing ALL drugs in 2001.

While medical marijuana use has been approved in at least 23 states of the USA with Washington & Colorado allowing markets to form for recreational use, tragically & amazingly, there has NOT been blanket amnesty in Washington or Colorado for those jailed under Drug War! This is an unjustice that must be remedied!!!

Even some law enforcement officials are part of the movement to decriminalize drugs.

Among the many egregious problems associated with the Drug War:

Rather than allow the emergence of peaceful, open markets for drugs, black markets arose based on violence and force.

Violent cartels or gangs replaced innovative entrepreneurial offerings in transparent markets that were accountable to open competition.

Instead of government agents defending citizens, governments have jailed many nonviolent drug offenders.

The War On Drugs led to an expanding domestic police force within the US that has become increasingly militarized with SWAT teams used on drug raids.

Evidence shows that the War on Drugs failed in its primary purpose & all related purposes. While drug usage has remained at least constant, drug prices have dropped.

Prison populations are higher & about 1 in every 4 prisoners are nonviolent drug offenders that possessed or consumed an arbitrarily illegal substance. Among these, minorities are heavily over-represented relative to their percentage of total population.

End the War on Drugs, NOW!!!

marijuana

Is Extremism in the Defense of Liberty Justified?

In a word, (well, more than a few words, according to Hayek!): YES!!!

“The preservation of a free system is so difficult precisely because it requires a constant rejection of measures which appear to be required to secure particular results, on no stronger grounds than that they conflict with a general rule [of non-government intervention], and frequently without our knowing what will be the costs of not observing the rule in the particular instance. A successful defense of freedom must therefore be dogmatic & make no concessions to expediency, even where it is not possible to show that, besides the known beneficial effects, some particular harmful result would also follow from its infringement. Freedom will prevail only if it is accepted as a general principle whose application to particular instances requires no justification. It is thus a misunderstanding to blame classical liberalism for having been too doctrinaire. Its defect was not that it adhered too stubbornly to principles, but rather that it lacked principles sufficiently definite to provide clear guidance . . . .”

“People will not refrain from those restrictions on individual liberty that appear to them the simplest & most direct remedy of a recognized evil, if there does not prevail a strong belief in definite principles. The loss of such belief & the preference for expediency is no part the result of the fact that we no longer have any principles that can be rationally defended.”

~F. A. Hayek~
“Law, Legislation, and Liberty,” vol. 1: ‘Rules and Order’ (1973)

Markets & Emergence of “Just” Social Order

Seeking to fulfill one’s own life purpose, guided by purposive self interest, leads to an imperative to cooperate with other individuals that are carrying on in much the same manner.

In turn, this leads us, each & all, to seek out & engage in market exchanges that are an instrument of individual empowerment that tend to lead to a “just” social order given that these outcomes (transfers) emerge out of voluntary consent.

Alas, most social scientists focus on collectivist views that model a forest while failing to grasp the importance of nurturing the (individual) trees.

As such, it is naive & misleading to speak of markets as involving atomistic individuals when markets are the outcome of humans acting to seek cooperative arrangements with other humans.

A Forecast that “Austrian” Economists Can Agree With!

“The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or 2, all nations & most of humanity will be at or above today’s Western living standards.

I also speculate, however, that many people will continue to think & say that the conditions of life are getting worse.”

~Julian Simon~ (Author of The Ultimate Resource)

ObamaCare: Law of the Land?

ObamaDuck

Concerning opposition to ObamaCare, one must be careful not to confuse politics with principles. Obstructing a law is not “wrong”, per se.

In all events, it is wrong to depict ObamaCare as the “law of the land”.

In the first instance, the US Constitution is THE Law of the Land.

Second, it is the nature of contested elections that individuals will find themselves on different sides of any given issue.

Thirdly, it can be a matter of conscience to oppose “bad” laws, e.g., Jim Crow laws of the not-so-distant past in the US.

As it is, if enough members of the Democratic Party & GOP had been “obstructionists” against the Patriot Act, we would all be better off. Neither should opposition to draconian implementation of anti-drug laws be considered to be undemocratic or unpatriotic.

As it is, jury nullification is/was an entrenched right & obligation concerning citizens’ voice against bad laws.

As for ObamaCare, it was neither read nor almost-certainly not written by members of Congress but by & for lobbyists or special interests.

To portray ObamaCare as legislation serving “social justice” by assuring “reasonable & fair” access to health care ignores that there will be as many losers as winners. And it undermines individual freedom & involves paternalistic diktat”.

In all events, it is an empty gesture for anyone to pretend to be magnanimous is caring for the poor in this regard when there are no costs to them!!!

Shutting Down the US Federal Government Did NOT Cause “Net” Economic Losses

According to Standard & Poor, the American economy lost $24B as a result of the shutdown of the federal government. But the suggestion is without substantiation & fails as a matter of economic logic.

It turns out that the shutdown merely shifted or diverted spending from one destination to another or changed its timing. As such, there is no significant net change to the overall economy since it was mostly about a redistribution of spending from place to place or across time.

Among the identified “losses” are wages by federal employees & contractors as well as the value of lost government services.

While business owners that depend on tourists visiting shuttered federal facilities, their losses are offset by gains elsewhere. While some firms might have lost money or visitors during the shutdown, some other businesses must have had more customers than they might have as holidaymakers went elsewhere. Or if they cancelled their vacations or did not spend the money, they will have saved those funds, making them available for lending to boost investments.

The notion of “lost” spending reflects an inverted lapse of logic revealed in Bastiat’s “broken window fallacy” that depicts receipt of money spent on fixing a broken window as a net gain to the economy. Inasmuch as those funds would have been spent elsewhere in the economy were they not used to repair the window, they cannot involve a net economic gain.

In a similar, albeit inverse manner, whatever went unspent in one sector of the economy during the shutdown was either spent elsewhere then or will be in the future.

As it is, the notion of “lost” wages is poppycock since federal employees will receive back pay despite not having worked during the shutdown so that spending by them is merely deferred from then to now or later.

Perhaps only federal contractors will lose wages as a consequence of the shutdown, but whatever is not paid for them does not evaporate and will either lower the deficit or be spent elsewhere by the federal government.

Keynes versus the Keynesians: Inflation & Cognitive Dissonance

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, & does it in a manner which not one man in a million is able to diagnose.”
~J.M. Keynes~

“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about, It should be embraced.”
~Kenneth S. Rogoff~

In a move to give some credibility to a really & truly stupid idea, the NYT has rounded up a gang of economist-fabulists to explain why everyone should learn to love, now wait for this, HIGHER PRICES.

Those foolish souls among you that believe that LOWER prices are good will find this a “must read”.

Of course, much of this is to give cover to Janet Yellen, the presumptimve nominee to head the Fed as of next year. For her part, he on record declaring that a “little inflation” is useful when the economy is weak. Presumably, the reference is to a rising (consumer) price index that itself is one of the several possible outcomes from central bankers inflating the money supply, which is the original definition of inflation.

In a bit of tortured logic, firms love rising price levels as a means to boost profits. But this only works if input costs (e.g., wages & salaries) rise less rapidly than output prices. Yet the same workers whose wages lag behind prices are supposedly earning (phantom?) wage hikes so they are better able to repay debt. (Like Keynes, this arguments shows an inclination to have it both ways.)

And then there is, the tried-and-true canard that consumer price inflation induces households & firms borrow more money & spend it more quickly. What this overlooks is that banks, as now, may find it cheaper & less risky to buy sovereign debt or purchase other financial assets rather than lend to small businesses or consumers.

While the US government is a clear beneficiary of a rising price level in repaying its debt with dollars that buy less than those originally lent to it, this is only advantageous if the debt is rolled over at the same interest rate, an unlikely outcome if price hikes are substantial.

Of course, Yellen is in concert with her likely predecessor, Ben Bernanke, who believes that “… falling & low inflation can be very bad for an economy.” This bit of inanity is beyond the pale in presuming that incrementally small rises in price levels could collapse into to a sharp decline the price level. Yet this sort problem only arises when central bankers monumentally mismanage the money supply as they did after the Stock Market Crash of 1929.

Just in case you tuned out, HIGHER prices are always good & LOWER prices (even smallish increases in prices) are always bad!?!