… is from pages 411-412 of Kevin Dowd‘s 1994 essay “Free Banking,” which is chapter 59 in The Elgar Companion to Austrian Economics (Peter J. Boettke, ed., 1994; links added):

Another point that stands out [in a review of the empirical evidence] is the high degree of stability of free banking systems.  Overissues of currency were corrected rapidly by the banks’ clearing system operating on the basis of the commodity standard (White, 1984; Selgin, 1988).  There is evidence that interest rates were more stable under free banking, and the less regulated banking systems of Scotland and Canada were apparently better able to weather shocks than their more regulated counterparts in England and the USA.  There is also evidence that shocks tended to originate in the more regulated systems and spread to the less regulated ones, rather than the other way round.  Banks typically observed high capital ratios by modern standards and, in the absence of ‘official’ regulation, bank management was monitored by the market.  The evidence seems to confirm that banks that were not considered sufficiently sound would lose their market share, and competition for market share would force banks to maintain the margins of safety and soundness that their customers desired (see, for example, Kaufman, 1988).  But perhaps the most striking evidence is that, in the absence of any ‘official’ lender of last resort or deposit insurance, banks only rarely faced runs, and the runs that did occur were typically confined to small numbers of banks, and often only a single bank, which had suffered some shock (such as the revelation of loan losses) which led their customers to doubt their soundness.

Add a Comment    Share Share    Print    Email

The Wall Street Journal‘s Mary Anastasia O’Grady rightly refuses to join the chorus of sanctimonious and ill-informed conservatives who blame Barack Obama for the appalling spectacle on display now on the U.S.’s southwestern border.  Obama deserves special blame for countless follies and problems; he’s an insufferably officious, duplicitous, arrogant, and economically ignorant politician (which is to say, an utter scoundrel).  But this problem is at least as much the fault of American conservatives as it is of “liberals.”

Mary’s essay is behind a paywall; here, though, are some slices:

In a nation where it is not uncommon to hear the other side of the Rio Grande referred to as “South America,” it is amusing to observe the recent wave of self-anointed experts in the U.S. opining authoritatively on the causes of child migration from Central America.

Some of these are talking heads of conservative punditry who seem to know zip about the region and show no interest in learning. They wing it, presumably because they believe their viewers and listeners will never know the truth and don’t care. What matters is proving that the large number of unaccompanied minors piling up at the border is President Obama’s fault for somehow signaling that they would not be turned back. The origins of the problem are deemed unimportant and the fate of the children gets even less attention.

Thank heaven for four-star Marine Corps Gen. John Kelly, who knows something about war and failed states and now heads the U.S. military’s Southern Command, which keeps an eye on the region. He has spent time studying the issue and is speaking up. Conservatives may not like his conclusions, in which the U.S. bears significant responsibility, but it is hard to accuse a four-star of a “blame America first” attitude.’

….

But when a U.S. interdiction strategy in the Caribbean raised costs, trafficking shifted to land routes up the Central American isthmus and through Mexico. With Mexican President Felipe Calderón’s war on the cartels, launched in 2007, the underworld gradually slithered toward the poorer, weaker neighboring countries. Venezuela, under Hugo Chávez, began facilitating the movement of cocaine from producing countries in the Andes to the U.S., also via Central America.

In a July 8 essay in the Military Times headlined “Central America Drug War a Dire Threat to U.S. National Security,” Gen. Kelly explains that he has spent 19 months “observing the transnational organized crime networks” in the region. His conclusion: “Drug cartels and associated street gang activity in Honduras, El Salvador and Guatemala, which respectively have the world’s number one, four and five highest homicide rates, have left near-broken societies in their wake.

….

Gen. Kelly writes that the children are “a leading indicator of the negative second- and third-order impacts on our national interests.” Whether the problem can be solved by working harder to bottle up supply, as the general suggests, or requires rethinking prohibition, this crisis was born of American self-indulgence.

Bottling up the supply of drugs will not work.  Episodes from history (as well as this very crisis itself) speak this conclusion loudly and clearly.  Instead, we must end drug prohibition.  Ending drug prohibition will not only reduce the horrible violence that rages today in Latin America – and, hence, help to alleviate the connected immigration woes – it is also the only policy consistent with the U.S.’s boast that it is the land of the free.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on July 21, 2014

in Environment, Property Rights

… is from page 11 of Donald R. Leal’s and Roger E. Meiners’s important 2002 collection, Government vs. Environment; specifically, it’s from Leal’s and Meiners’s chapter 1 (“Greener Pastures? The Defective Attraction of Federal Environmental Policy”):

Under national command and control of the environment for three decades, the central government [in the U.S.] has assumed astonishing power over environmental assets – land, water, air – so that not much of our world is left out of current or potential control of politicians and the bureaucrats who work under their control.  We have become much like serfs in medieval England.  We are allowed to occupy land and pay taxes on it at the whim of our lords.  They can impose so many restrictions on our land that it can become more sensible to abandon it than to try to retain possession.  This entails a huge loss of personal freedom, the destruction of economic value, and, of course, dreadful consequences for the environment.

Add a Comment    Share Share    Print    Email

John Nagle just graduated from high school in San Diego.  This Fall he’ll start college, as a political-science major, at American University in Washington, DC.  I don’t know Mr. Nagle, but on Friday he sent me a lovely e-mail expressing his appreciation for what Russ and I do at Cafe Hayek.  I would like to believe that Mr. Nagle’s already well-honed good sense and impressive knowledge are the result of his reading Cafe Hayek regularly, but I suspect that the real causes are good parents, good teachers, and Mr. Nagle’s own natural smarts.

How do I know that Mr. Nagle has well-honed good sense and impressive knowledge?  The evidence is below.  It’s a letter that he wrote in response to his Congressional representative, Scott Peters (D-CA), bragging about supporting legislation to close the ‘gender wage gap.’  I reproduce Mr. Nagle’s response here, in full, with his kind permission.  (And I look forward to treating Mr. Nagle to lunch when he arrives in a few weeks here in the Potomac swamp.)

Today I received a mailer from your campaign.  In it Congressman Peters addresses a letter to his “Fellow San Diegan[s]” which states that “it is unacceptable to me that women earn less than men for the same work.”  The letter goes on to state that nationally women earn “77 cents for every dollar earned by their male counterparts” and that this disparity is even more pronounced (“75 cents”) in the 52nd District.

However, the Congressman assures his constituents that he is “working to erase that disparity.” In fact, Mr. Peters states that he supports the Paycheck Fairness Act which he promises would “end this wage disparity.”

I am sorry to inform the Congressman that his objections come about 50 years too late.  The Equal Pay Act, signed into law by President Kennedy on June 10, 1963, already made gender pay discrimination a federal crime.  However, the bill he puts forth to end this alleged injustice is really a bill designed to enrich trial lawyers and to be used as a talking point to rally misinformed women to vote for Democrats.

However, given that gender pay discrimination has been illegal for more than half a century, if the Congressman is truly committed to “erase that disparity” as he sanctimoniously states in his letter, he may go about that in one or more of the following ways:

First, the Congressman could introduce a bill to restrict women’s ability to work fewer hours than her male counterparts to shrink the gender wage gap.  The plain fact is that one of the largest contributors to the wage disparity between men and women is the simple fact that men, on average, work longer hours than women.  In fact, of full time workers, 26% of males work more than 40 hours per week, compared to just 14% of women (How Pew Research measured the gender pay gap | Pew Research Center).  However, this can be easily remedied by government forcing men and women to work the exact same hours per week, their own personal preferences be damned!

Second, the Congressman could introduce a bill to coerce women to go into male dominated fields that they themselves have not chosen to enter.  Some of the most male dominated majors and career fields also happen to be the most lucrative, such as engineering, computer science, and business.  The fact that most women choose not to enter these fields should not stop the Congressman from attempting to get the government involved to force women to go into them, if he is serious about closing the wage gap.  As an aside, the Congressman may also, in the name of equality and wage parity, seek to force men to enter women dominated (and relatively low pay) fields such as psychology, education, and gender studies.

Third, the Congressman could introduce a bill mandating that men and women devote equal amounts of time to raising children and other household responsibilities.  Why allow individual couples the power to decide how do divide up domestic responsibilities when it could be dictated to them by their enlightened rulers in Washington DC?  The fact that most women actually enjoy and get substantial satisfaction from raising their own children should not dissuade the Congressman from attempting to stamp out this root cause behind the gender wage gap.

Upon even a cursory look at the evidence, it is abundantly clear the the gender wage gap is not chiefly (if at all) a result of discrimination or some eery unjust force that needs to be battled with legislation.  Rather it is a result in the difference choices that men and women make.

Thus if the Congressman is genuinely committed to ending this wage gap he will have no other option than to use the coercive power of the federal government to make women (and, to a lesser extent, men) do that which they would not themselves choose to do.

That hardly seems like the position of a man who purports himself to be “pro-choice.”

Sincerely,
John Nagle

It is reassuring to know that young men and women such as Mr. Nagle are out there, thinking soundly for themselves and not being taken in by the idiotic superstitions of statism.

Add a Comment    Share Share    Print    Email

David Hart on the (so-called) ‘Great War’

by Don Boudreaux on July 20, 2014

in History, War

My original plan was to include this link in today’s Some Links.  I changed my mind.  This contribution by my talented friend David Hart, of Liberty Fund, is so important that it deserves its own separate post.  Exactly 100 years ago the governments of Europe were just days away from declaring what we now call ‘World War I.’

Slaughtering people, including the innocent: now that’s an activity that governments perform with astonishing efficiency, dispatch, creativity, and cold-bloodedness.  Governments are also pretty good at glorifying their murderous rampages.  They build monuments to the genocides they commit and ‘teach’ school children how glorious and honorable those blood-soaked events were.

And capitalism, all the while, is falsely accused – especially by those who are inspired by centralized state power – of coarsening human existence.  How bizarrely backwards.

Add a Comment    Share Share    Print    Email

David Boaz’s discussion of the U.S. Chamber of Commerce’s opposition to libertarian Rep. Justin Amash (R-MI) offers further evidence that being pro-business is not at all identical to being pro-free-market (or pro-free-enterprise).  Mr. Amash, thankfully, is not pro-business; he’s pro-free-market and pro-liberty.  (Mr. Amash, by the way, is one of the tiny handful of elected officials in Washington who I would welcome into my home as a guest – and that’s not just because I’m told that he reads Cafe Hayek.  The reason is that Mr. Amash seems to be a genuinely principled, pro-liberty person.  Nearly all of the other politicians who haunt Pennsylvania Ave. are smarmy, duplicitous, and officious rent-creators and rent-distributors.  I would no more allow into my home any U.S. President or the typical buffoon in Congress than I would allow into my home someone who makes his or her living as a shoplifter or embezzler.)

Speaking of rent-creators and rent-distributors, my Mercatus Center colleague Veronique de Rugy weighs in (this time with GMU Econ PhD student Andrea Castillo) yet again against that monument to cronyism, the U.S. Export-Import Bank.

Over at EconLog, Scott Sumner writes wisely about economic inequality and Thomas Piketty (although I’m far less enthusiastic than Scott seems to be about taxing consumption – but that’s chiefly because I want nothing to be taxed).  A slice:

Unfortunately, most of the Piketty supporters seem to think it’s better to have lower tax rates on a wealthy person who devotes his wealth to riotous living, as compared to a wealthy person who is thrifty, putting the money into capital formation, charity, and/or his children’s welfare. I have yet to see a persuasive justification for this bizarre policy preference.

Also especially noteworthy at EconLog is this nice, short post by David Henderson.

Reading the New York Times, Marty Mazorra finds evidence that popular myths die hard.

Here’s audio from Econ Journal Watch – specifically, Morris Kleiner discussing, with my colleague Larry White, his (Kleiner’s) research on occupational licensing.

I’ve not read all of these yet (indeed, I’ve read only one of them), but George Smith’s essays on Thomas Paine versus Edmund Burke promise to be splendid.  (HT Dan Klein)

My colleague Tyler Cowen points us to yet further evidence – evidence in addition to that mentioned in his New York Times column - of the decline in global inequality.

Add a Comment    Share Share    Print    Email

… is from page 60 of Israel Kirzner’s 2001 book, Ludwig von Mises (original emphasis):

Unlike the newer economics of the thirties, Mises’ economics never assessed market outcomes from the perspective of imagined omniscience, but instead always took into account the manner in which market processes both stimulate and are shaped by discoveries made by imperfectly informed market participants….  [I]t is no accident that, in an era in which mainstream economics was led to call for massive arrays of government interventions in markets (in order to  correct imagined shortcomings), Mises’ economics led him to appreciate even more deeply the virtues of spontaneously inspired market processes.

Add a Comment    Share Share    Print    Email

Some Links

by Don Boudreaux on July 19, 2014

in Crony Capitalism, Environment, Inequality, Subsidies, Trade, Work

The Competitive Enterprise Institute’s Ryan Young (a GMU Econ grad) offers ten reasons to abolish the U.S. Export-Import Bank. A slice:

For most of its history, the Export-Import Bank has directed most of its benefits to a handful of large, politically connected firms. In other words, its main function is to dispense corporate welfare. With more $37 billion in business in 2013 and a total portfolio near its statutory limit of $140 billion, Ex-Im is one of the federal government’s largest corporate welfare programs. President Obama wants to raise the cap to $160 billion with this year’s reauthorization.

In his most-recent New York Times column, Tyler Cowen explains that economic inequality is falling.

Want cleaner air?  Promote economic freedom.

Doug Bandow reflects on politics, politicians, and cronyism.  A slice:

The problem is not just the money—roughly $100 billion a year for corporate welfare, for instance. Also disturbing is the message government is sending to all Americans. The way to rise and prosper, to expand one’s business and increase one’s income, is to seize control of the State to loot your neighbors. Gaining wealth by working hard is, well, hard work. It is so much better to hire a lobbyist and whisper sweet nothings in legislators’ ears. No heavy lifting there.

Moreover, the illusion of consent cannot hide the dubious moral principles these players rely upon. If government has as purpose, it is to advance particularly important and genuinely collective interests which cannot be achieved privately. Taking people’s earnings for anything less differs little from theft. Sadly, most of today’s vast transfer state looks like a complex of stolen goods.

People respond predictably to incentives – even unemployed people receiving unemployment-insurance benefits.

Here’s Richard Rahn on government spending.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on July 19, 2014

in Other People's Money

… is from page 136 of philosopher Jan Narveson’s 2008 book, You and the State:

A perception very widely held about government is that it is a creative agency that provides all sorts of things for us, the people.  We no doubt believe this for two reasons.  One is that the state appears to do so.  Certainly it busies itself with all sorts of projects.  The other is that it keeps telling us so.  But the perception is misleading.  Perhaps we should instead compare it with the member of the Mafia who brings home a nice new car for his wife.  The fact that he bought it with money recently robbed from a bank is not mentioned.  Similarly, the fact that all these things the State does are done with money taken, without asking, from the people who created the services now curtailed peremptorily by the government should, surely, matter.  Normal people do things by working or selling things or at least investing in enterprises.  Not, however, the state.  It spends its days fleecing its subjects.

(Apologies, of course, are due to those many mafiosi who earn their livings honestly: by supplying morally unobjectionable goods and services to willing buyers.  As Narveson suggests, politicians are never so ethically upright: most of the ‘services’ they supply are morally objectionable – for example, restricting immigration, subsidizing corporations, and pricing many low-skilled workers out of the job market.  And nearly all of the state’s activities are funded, not by voluntary payments as in markets, but by forced extractions as in robberies.)

Add a Comment    Share Share    Print    Email

… speaks volumes.  (Click on the photo for better resolution.)

photo

Add a Comment    Share Share    Print    Email