Friday, October 24, 2014

White and Salerno on Gold and Banking

Joe Salerno has commented on an interview by Lawrence White, an interview on the topics of the gold standard and banking.  Salerno’s comments are here; White’s interview is in three parts: here, here, and here.  I will offer my two cents on comments provided by each of them – plus a few words regarding comments made by George Selgin in the feedback to Salerno’s post.

White makes points about the bought-and-paid-for nature of many academic economists, the myth that the instability in price of demonetized gold is proof of the expected instability of gold if/when monetized, the myth that the gold standard amplified business cycles, the superiority of banking free from government edict and government backing, the fragility of the “jerry-rigged” gold-standard of Bretton Woods (although he credits the designers as “well-meaning”), and the value in debunking the superiority of central bank managed money as opposed to free-market money.

On each of these points, I am in agreement (except the “well-meaning” part).

As to the seemingly growing interest in the gold standard and other alternate money regimes that are gaining exposure:

LW: Among the policy think tanks, the Cato Institute’s annual monetary conference has kept the fundamental issues alive for more than thirty years. I see their efforts expanding and reaching a wider audience.  The Heritage Foundation is now showing some interest.  The Atlas Network is now championing sound money. The Gold Standard Institute is growing in visibility.

To this point, Salerno takes some exception:

JS: A glaring omission in White’s answer is, of course, the Mises Institute, which held its first conference on the gold standard over 30 years ago.  Since that time it has campaigned tirelessly for the gold standard, devoting many of its conferences and publications to sound money.  Its associated academic economists and other scholars have published thousands of pages on the subject.

It is an inevitable, and unfortunate, situation regarding this feud between certain academic Austrians and the Mises Institute.  Inevitable, because on some levels certain of the differences can never be reconciled absent an abandonment of the position; unfortunate, because the two camps serve different, yet what could be complementary, roles.  I will expand on this feud, using this specific debating point.

White specifically started his sentence with the term “policy think tanks.”  While many scholars associated with the Mises Institute publish academic papers, contribute to economic journals, etc., I am certain that the term “policy think tank” cannot be applied to LvMI – nor do I believe the Institute would want to be burdened with that chain:

Think Tank: A think tank (or policy institute, research institute, etc.) is an organization that performs research and advocacy concerning topics such as social policy, political strategy, economics, military, technology, and culture.

I associate such a thing with an organization that seeks to influence government policy – what other “policy” are they thinking about while in the tank?  To my knowledge, most of those behind LvMI run as far away from government policy as possible – they are located in Auburn, Alabama, for goodness’ sakes.  White’s inclusion of Cato and Heritage offer compelling evidence of my view – these are certainly think tanks dedicated to influencing government policy.

For this reason, White’s narrowed definition would thankfully exclude the Mises Institute, therefore – on a technicality – Salerno has no reason to complain.  But not so fast: White offers examples in his response of influential organizations that in no way fit the definition of a “policy think tank,” for example The Atlas Network:

Our mission is to strengthen the worldwide freedom movement by identifying, training, and supporting individuals with the potential to found and develop effective independent organizations that promote our vision in every country.

We aim to cultivate, support, and inspire potential and existing free-market organization partners around the world. Currently Atlas Network serves more than 400 partners in over 80 countries worldwide.

This sounds like a well-organized meet-up group, not a policy think tank in the same vein as a Cato or Heritage.

Thursday, October 23, 2014

Department of Defense Declares War on the Sun

Iraq, Afghanistan, Libya, Yemen, Syria, Russia, China; terrorists, communists, Ebola.  Need a war? They have an enemy.

Not yet satiated, The Department of Defense has found a new one; Rachel Martin interviews Admiral David Titley.  Let’s leave the story-telling to them:

RM: The debate over climate change in this country has dramatically shifted over the years. The question is no longer whether climate change exists, but rather what can be done to slow its effects? And the U.S. Department of Defense is asking the same question.

I agree completely – there is no question that the climate is changing, much as has happened in every chapter of history.  Cold spells, warm spells, droughts, floods.  Almost like clockwork, the climate changes.

RM: This past week, the Pentagon released a report saying that rising temperatures pose an immediate threat to national security, and it outlined a plan to the crisis.

I guess the Navy has run out of wars to fight?  How is this a threat that the Navy can handle?

DT: So while I don't think anybody claims that climate change caused the Arab Spring, there's a lot of research that shows that it was probably one of the contributing factors.

Oh.  Blame it on the Arabs.  Those darn sun spots – they drive people crazy, I guess.  Perhaps when the entire world gets as hot as the Arabian Desert, we will all become terrorists?

The Admiral suggests that the battle for climate change will be fought in the Arctic.  Don’t worry, the interviewer is equally confused:

RM: Can you make the connection? Can you make the connection for me? Why would the U.S. military have to open up that front? Why would they be working in the Arctic?

DT: Oil and gas, I think many people know that some of the last greatest reserves of oil and gas are up in the Arctic.

So, the navy must protect access to oil and gas – one of the primary contributors (per the bogus science) of man-made global warming climate change?

RM: But how would the military respond? …What do you propose that the U.S. military be doing to combat climate change? Is there anything from a tactical level that can be done?

DT: Sure. So from a tactical level….

Tactical nukes – enough to lower the temperature a few degrees:

Nuclear winter (also known as atomic winter) is a hypothetical climatic effect of countervalue nuclear war. Models suggest that detonating dozens or more nuclear weapons on cities prone to firestorm, comparable to the Hiroshima city of 1945, could have a profound and severe effect on the climate causing cold weather and reduced sunlight for a period of months or even years by the emission of large amounts of the firestorms' smoke and soot into the Earth's stratosphere.

How about just lobbing twenty or thirty thousand warheads in the direction of the sun?  Knock a few hundred thousand square kilometers of the Sun’s photosphere out of commission, diminishing the area from which energy is released?  Call it “Operation Enduring Winter.”

Just kidding, he didn’t say this. 

Maybe they can attach a thermostat to the Sun.  Yeah, that’s it.

Tuesday, October 21, 2014

White House Confirms Air Drop Intended for ISIS

Apparently the US Air Force air-dropped some weapons in a region controlled by ISIS. 

An ISIS-associated YouTube account posted a new video online Tuesday entitled, “Weapons and munitions dropped by American planes and landed in the areas controlled by the Islamic State in Kobani.”

This must not be right – just because there is a video doesn’t prove anything:

The authenticity of this latest video could not be independently confirmed…

Exactly my point.

Let’s ask the question directly; it doesn’t get any more direct than straight from the top:

On Monday, White House Deputy National Security Advisor Ben Rhodes said the U.S. government was confident that the emergency airdropped supplies for the Kurdish forces near Kobani were falling into the right hands.

“We feel very confident that, when we air drop support as we did into Kobani… we’ve been able to hit the target in terms of reaching the people we want to reach,” Rhodes told CNN.

There you have it; the White House is “very confident” that the weapons “were falling into the right hands.”

(HT ZeroHedge)

Saturday, October 18, 2014

Unit of Value or Unit of Measure

Answer first, analysis later: money is a perfect unit of measure; there is no such thing as a unit of value.

John Tamny is out with a piece suggesting that David Gordon, of the Mises Institute, inadvertently attacked Ludwig von Mises when Gordon reviewed Money, the book released last summer by Steve Forbes and Elizabeth Ames. (HT EPJ)

I have, in the past, found much to agree with in Tamny’s writings, and some to disagree with.  I have agreed with him on topics that were disagreeable to some in the Austrian school.  Sadly, Tamny even prompted me to write one of the dumber posts I think I have ever written – or at least one aspect of my post was such (boy, I hate re-living that one…).

Back to the current Tamny piece:

What struck this writer as odd is that in lightly attacking Forbes and Ames, Gordon only succeeded insofar as he perhaps unintentionally revealed a strong disagreement about money with the intellectual father of the Institute which employs him, Ludwig von Mises.

I am not going to deal with the views of Mises on this matter, for two reasons: first, I don’t read enough of Mises directly to comment either way.  I have explained why this is so elsewhere, but in a nutshell: I want to work through problems of economics myself; if I later find that I landed where someone like Mises has previously landed, I feel pleased.  If I find I disagree with someone like Mises, I feel confident.  But for me, the journey is most important.

Second, if someone wants to challenge David Gordon on just about any topic, he better bring his lunch…and dinner.  Don’t let Gordon’s diminutive physical stature and mild manner fool you – not too far below the surface, one will find a mind more than capable of dealing with any challenge.  In any case, Gordon has already done this work.

In this piece, Tamny is mostly wrong.  He is also mostly wrong on the same issues upon which his boss and co-author of the subject book, Steve Forbes, is also mostly wrong.  Let’s walk through it….

Gordon has a problem with the Forbes and Ames assertion that money is merely a measure meant to facilitate exchange.

Again, I will leave the defense of Gordon to Gordon.  From this quote, the key open question is “measure” of what?  Tamny answers:

Rather than viewing money as a concept, meaning a measuring rod of value meant to foster the exchange of actual value…

There can be no such thing as “a measuring rod of value” if value is subjective.  Last time I checked, I think it still is.

Friday, October 17, 2014

For Every Question the Answer is War

Forgive a somewhat rambling post – several recent and not-so-recent events have prompted my thoughts here….

When I started this blog, I didn’t really have it in mind that I would write much about history – and that much of that history would focus on war.  Also when I started this blog, while I felt empathy with those who are victims in war – the non-combatants foremost – my further writing and reflection has brought this empathy into sharp focus.

I think the first revisionist war topic that I wrote about with some substance was the myth behind Pearl Harbor – in some ways a subject no longer controversial to even the professional supporters of FDR, although still a narrative than might result in a fist fight if questioned in the wrong crowd. Since then, the list of my work on this topic has grown rather long.

After several posts on the revisionist view of war history, I began to understand one reason I was drawn to this topic: war and the military is a god to many in the West, certainly in the United States.  It is supported by myths (the Japanese attacked Pearl Harbor as a complete surprise, the bombs ended the war, the US brings democracy to the world, Germany started every war, blah, blah, blah); these myths deserve to die. 

In my own small way, I felt I could contribute to destroying these myths – I am satisfied if I feel I might have reached even one person with a post on this topic.

After some time, I began to put together something else: for a libertarian, war is THE issue.  Now, I don’t mean to suggest that to be a libertarian this must be so; I am suggesting that in war, every violation of freedom is to be found – whether on the (so-called) winning side or losing side.  Absent war, life for all would be much freer.

In war, everything about liberty and freedom hinges.  To begin: the life and death of the victims.  I recall reading, in the book Nuclear Deterrence, Morality and Realism, by John Finnis, Joseph M. Boyle, Jr., and Germain Grisez:

If I may hark back to those charming debates of the 1950s, it has always seemed to me that red is better than dead because the red can choose to be dead but the dead cannot choose to be anything at all.

It is, of course, unarguable.  Not to get into an afterlife discussion (as you are free to advance yourself toward this end whenever you like), is there any separation from liberty more complete and permanent than death?  Yet, if one finds himself in a situation that he prefers “dead” to “red” (so to speak), he can always make this choice for himself.  “Give me liberty or give me death.”  Those alive are free to choose; those taken to death without a choice?  Not so much.

I was happy to find that once again, like on so many other topics, I found myself in a square occupied by Rothbard many years before.  I recall reading or hearing somewhere that Rothbard felt war was the paramount issue, the most significant issue to address by those of us who care about liberty.  I can’t find the quote (although, a read of this article, sent to me by a friend, will likely lead you to this conclusion).  I found another quote that at least somewhat comes to the same point:

It is in war that the State really comes into its own: swelling in power, in number, in pride, in absolute dominion over the economy and the society.
               Murray Rothbard

While this quote does not touch on the issue of death separating the victim from liberty on this earth, I have no doubt regarding Rothbard’s view on this matter.

This sounds so simple to me now; humbly I submit it wasn’t always so for me.

The QE Will Continue Until Inflation Improves

Ambrose Evans-Pritchard has nailed this one, hit it out of the park.  I am not kidding.  He has written a piece entitled “World economy so damaged it may need permanent QE.” 

Combined tightening by the United States and China has done its worst. Global liquidity is evaporating.

What looked liked [sic] a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in "secular stagnation".

I don’t want to get into a debate about the concept of “tightening”; I accept that to people like AEP a slowing of monetary pumping is the same as tightening.

There is no growth; there is no recovery. 

If this growth scare presages the end of the cycle, the consequences will be hideous for France, Italy, Spain, Holland, Portugal, Greece, Bulgaria, and others already in deflation, or close to it.

Forward-looking credit swaps already suggest that the US Federal Reserve will not be able to raise interest rates next year, or the year after, or ever, one might say.

He is correct; other than a feeble attempt here or there, the Fed cannot.

Ambrose offers a point that would not be considered news to an Austrian:

It is starting to look as if the withdrawal of $85bn of bond purchases each month is already tantamount to a normal cycle of rate rises, enough in itself to trigger a downturn.

I believe it is consistent with Austrian theory about money and credit to suggest that even a slowdown in the rate of expansion will lead to the bust.  A stop or even a reversal is not necessary.  Perhaps instead of mocking Austrians, Ambrose might pay some attention.

Put another way, it is possible that the world economy is so damaged that it needs permanent QE just to keep the show on the road.

Ambrose is right, at least for the foreseeable future.  But it can’t last forever; just ask Mises:

Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes.

Ambrose should also listen to another point by Mises:

Continued inflation inevitably leads to catastrophe.

What do I think will happen?  Take it from Ambrose’s piece:

Traders are taking bets on capitulation by the Fed as it tries to find new excuses to delay rate rises, this time by talking down the dollar. "Talk of 'QE4' and renewed bond buying is doing the rounds," said Kit Juckes from Societe Generale.

I see no reason for money printing to stop until consumer price increases become politically intolerable.  This is the “inflation” that the “people” in Mises’ statement are watching (I know it is not the “inflation” to which Mises refers).  Of course, they are watching the wrong walnut shell, but it is the one they are watching.

Central banks might try to slow it down or stop for a time, but I suspect they will reverse course when markets start to fall.

Eventually the Fed will have to stop, as eventually, I suspect, consumer price inflation will show signs of life.  But if consumer price inflation doesn’t show such signs, or for as long as it doesn’t, what would prompt the credit expansionists to quit their game?

But if they wait that long, will it be too late?  Will too many have lost faith in the inflated currency such that, as Mises suggests “Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed.”

My guess the pumping will continue until the Fed (and other major central banks) faces mass consumer price inflation – “mass” being subjectively defined as that level which is politically unpalatable.

The Fed will then take actions to end it – and a central bank will have the tools to end it, painful as the implementation of those tools might be to most of us.  If necessary, they will even tie the currency to gold (a phony standard, of course) to protect the currency – at a value not easily comprehended today, perhaps, but tie it they will (as a last resort).

This is when asset prices will finally find the level that they have been attempting to find since around 1982.

If the consequence is mass-inflation heading toward hyper-inflation, the central banks will protect their currency.  Asset prices (and the impact to those of us who live in the general economy) be damned.

Thursday, October 16, 2014

Sennacherib’s Return

The exclusion of non-combatants from the scope of hostilities is the fundamental distinction between civilized and barbarous warfare.
FJP Veale

Sennacherib, the great king,
And their small cities, which were beyond numbering I destroyed, I devastated, and I turned into ruins. The houses of the steppe, (namely) the tents, in which they lived, I set on fire and turned them into flames.

Over the whole of his wide land I swept like a hurricane. The cities Marubishti and Akkuddu, his royal residence-cities, together with small towns of their area, I besieged, I captured, I destroyed, I devastated, I burned with fire.

In the course of my campaign, Beth-Dagon, Joppa, Banaibarka, Asuru, cities of Sidka, who had not speedily bowed in submission at my feet, I besieged, I conquered, I carried off their spoil.

As for Hezekiah the Judahite, who did not submit to my yoke: forty-six of his strong, walled cities, as well as the small towns in their area, which were without number, by levelling with battering-rams and by bringing up seige-engines, and by attacking and storming on foot, by mines, tunnels, and breeches, I besieged and took them.

I captured their cities and carried off their spoil, I destroyed, I devastated, I burned with fire.

Furthermore, 33 cities within the bounds of his province I captured. People, asses, cattle and sheep, I carried away from them as spoil. I destroyed, I devastated, and I burned with fire.

The cities which were in those provinces I destroyed, I devastated, I burned with fire. Into tells and ruins I turned them.

…strong cities, together with the small cities in their areas, which were countless, I besieged, I conquered, I despoiled, I destroyed, I devastated, I burned with fire, with the smoke of their conflagration I covered the wide heavens like a hurricane.

Veale continues his examination of the Advance to Barbarism, focusing first on the World War II bombing of areas outside of the battlefield and culminating in the carpet bombing of German cities.  This bombing marked the complete repudiation of one of the cornerstones of the concept of civilized warfare: warfare should be the concern only of the armed combatants engaged; non-combatants should be left outside of the scope of military operations.  It marked the return, or advance as Veale puts it, to a form of warfare for which Sennacherib the Assyrian was well known.

May 11, 1940

 Veale introduces J. M. Spaight and his book “Bombing Vindicated.” Spaight describes the awesomeness of this day, the “splendid decision” to bomb German targets well outside of the area of military operations.  The next day, newspapers announced that “eighteen Whitley bombers attacked railway installations in Western Germany.”

Looked at from today’s eyes, there is nothing shocking in this statement; however, compared to what came before in European wars, this was news:

Western Germany in May 1940 was, of course, as much outside the area of military operations as Patagonia.

At the time the battle for France was in high gear, yet the pilots flew over these battlefields to reach their objective:

To the crews of these bombers it must have seemed strange to fly over a battlefield where a life and death struggle was taking place and then over a country crowded with columns of enemy troops pouring forward to the attack…Their flight marked the end of an epoch which had lasted for two and one-half centuries.

…against a background of prosaic twentieth railway installations we can imagine the grim forms of Asshurnazirpal and Sennacherib stroking their square-cut, curled and scented beards with dignified approval….

This was only the beginning, with the culmination to come in Dresden some five years later, but this is to get too far ahead in the narrative.