The Weird Phenomenon of “Labor Shortages” as Millions of People Who Could Work Are Not Working

Estimated Reading Time: 2 minutes

A sign of how messed up the moving parts of the economy have become, amid massive excesses and distortions connected by malfunctioning gearing.

In an interview a few days ago that aired locally, the owner of an Italian restaurant in San Francisco – the restaurant scene is now vibrant in a different way than before – put her struggles with hiring on the table. The kitchen staff had come back, she said, but she had trouble hiring back the staff for the front of the restaurant, the wait staff, who are normally fairly well paid via tips.

She said that many of these people have other dreams. They were artists or writers or students or entrepreneurs, or whatever, and waiting tables wasn’t their career, it was just a way to make ends meet. And many of them had moved on during the pandemic or were using their unemployment benefits to push their dreams forward, rather than returning to restaurant work.

Employment in food services and drinking places rose by 186,000 in May from April, according to the Bureau of Labor Statistics today. In the leisure and hospitality industry overall – which also includes hotels and casinos – employment jumped by 292,000 in May, and has been gaining all year as restaurants and hotels reopened, but was still down by 2.5 million people compared to the peak in February 2020.

Every restaurant owner has their own struggles. Pay raises are being implemented to bring people back, including at big chain restaurants. But what the owner of the Italian restaurant said was that for her, hiring waitstaff, who earn substantial tips, was the difficulty; and that her kitchen staff, the hourly employees, were largely back at work. Which makes the whole story a lot more complex.

Then there is manufacturing. The complaints from manufacturers about the difficulties of hiring have been circling for decades, as the industry is requiring ever more sophisticated labor because automation is playing an ever-larger role.

But now, in addition to the difficulties of finding the right kind of labor, manufacturers are deeply tangled up in supply-chain issues and being able to get components, raw materials, and supplies in time, with lead-times blowing out, putting a damper on what they could manufacture, and on the labor, they could employ if they got everything they needed…..


Continue reading this story at Wolf Street.

Good Reason To Vote For The Recall

Estimated Reading Time: 3 minutes

Governor Newsom is maneuvering in every way he can to make sure he wins the recall vote. Don’t doubt the state reopening on June 15th was a political decision. There are many reasons to consider voting to replace the Governor. Let me convey a tale of incompetence that is symptomatic of why this state is a disaster for its residents and we need someone in charge who has a clue.

You may be familiar with PPP loans. Billions of dollars were provided by the federal government to small business employers in 2020 with the idea that the businesses use the monies to keep their employees on staff. At the time the program was established the idea was that the employers would keep their staff together for a quick bounce back after a couple of months of the pandemic. Of course, that plan failed because the pandemic ended up stretching out months longer than initially anticipated. But millions of Americans received salaries as opposed to unemployment benefits.

The federal government determined last December that the proceeds of the loans were not taxable, and the related expenses would still be deductible. Immediately after that, the state government of California decided that was too favorable to employers and out of sync with their normal habit of punishing businesses and determined the proceeds of the loan were taxable. It was annoying, but at least we knew the rules we were operating under and so did the people writing tax software so we could prepare tax returns.

We come to the end of February. California passed a law providing benefits to residents for their COVID disruption.  We were told another bill was being passed that week to aid the employers who had PPP loans. It was good news for business owners even though some tax returns that were already filed would have to be amended. It is nuts to start changing tax law two months into tax season, but the benefit was so big for hurting employers we could adjust.

Then at the end of the week, no bill was passed. Then another week goes by and another and another.  There was no news about AB80, the bill to provide the state PPP loan relief. The March 15th deadline for filing of entity returns came and went. Tens of thousands of tax returns had to go on extension because the state had left tax preparers and thus residents in limbo. 

We get to the end of March and Congress is working on passing the Biden COVID bill. Senate Majority Leader Chuck Schumer decides to slip a clause in the bill at the end that says that any state receiving money from the federal government from the bill cannot cut their taxes until after 2024. This is blatantly unconstitutional, but the clause had to be taken to court and a lawsuit was filed by Ohio the day after the bill was signed and later joined by 20 other states.

Governor Newsom realizes that AB80 which should have been passed weeks ago was now potentially illegal as it might be considered a tax cut. He asks for a ruling by the Treasury Dept. By now April 15th was upon us and we were extending hundreds of thousands of tax returns. Tax returns that people needed for loans and school scholarships and other reasons.  Newsom does not ask for a quick answer, so the feds blow another two weeks. The feds finally say that AB80 was not a tax cut and would be legal. 

The legislature and our Governor rewrite AB80 totally. When the bill passes there was a bundle of questions that needed to be clarified by the state. That takes another nine days. Finally, on May 7th tax preparers were provided clarity on how the state of California was taxing PPP loans.  Hundreds of thousands of businesses and individuals now had rules allowing them to file their tax returns in California. Rules that should have been in place on January 1st

Tens of thousands of individuals were delayed in getting their federal or state refunds.  Many businesses overpaid taxes because they had to pay their taxes as if they would not have any state PPP tax benefit. God only knows when people will get their money back. Then there are the people who filed their returns before the unthinkable happened – the state discussing changing tax law in the middle of the filing season. It will take them months to get their overpaid taxes back.

This is an incompetent government on steroids. But then again this is the same state that gave out unemployment benefits to criminals to the tune of billions of dollars. The irony here is that is easier for criminals to get money out of the state than it will be for taxpayers to get their state-caused tax overpayments returned to them. 

To my knowledge, not one person has been fired for any of these messes. Maybe the guy at the top needs to be.


This article was published on June 6, 2021 in FlashReport and is reproduced with the permission of the author.


Governments Don’t Hate Gold Because It’s Gold. They Hate It Because It’s Not Fiat Money.

Estimated Reading Time: 8 minutes

Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact. That gold—and not something else—is used as money is merely a historical fact and as such cannot be conceived by catallactics. In monetary history too, as in all other branches of history, one must resort to historical understanding. “If one takes pleasure in calling the gold standard a barbarous relic, one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency.”(1)

The demonetization of silver and the establishment of gold monometallism was the outcome of deliberate government interference with monetary matters. It is pointless to raise the question concerning what would have happened in the absence of these policies. But it must not be forgotten that it was not the intention of the governments to establish the gold standard. What the governments aimed at was the double standard. They wanted to substitute a rigid, government-decreed exchange ratio between gold and silver for the fluctuating market ratios between the independently coexistent gold and silver coins. The monetary doctrines underlying these endeavors misconstrued the market phenomena in that complete way in which only bureaucrats can misconstrue them. The attempts to create a double standard of both metals, gold and silver, failed lamentably. It was this failure that generated the gold standard. The emergence of the gold standard was the manifestation of a crushing defeat of the governments and their cherished doctrines.

In the 17th century, the rates at which the English government tariffed the coins overvalued the guinea with regard to silver and thus made the silver coins disappear. Only those silver coins that were much worn by usage or in any other way defaced or reduced in weight remained in current use; it did not pay to export and to sell them on the bullion market. Thus England got the gold standard against the intention of its government. Only much later the laws made the de facto gold standard a de jure standard. The government abandoned further fruitless attempts to pump silver standard coins into the market and minted silver only as subsidiary coins with a limited legal tender power. These subsidiary coins were not money, but money-substitutes. Their exchange value depended not on their silver content, but on the fact that they could be exchanged at every instant, without delay and without cost, at their full face value against gold. They were de facto silver printed notes, claims against a definite amount of gold.

Later in the course of the 19th century, the double standard resulted in a similar way in France and in the other countries of the Latin Monetary Union in the emergence of de facto gold monometallism. When the drop in the price of silver in the later 1870s would automatically have effected the replacement of the de facto gold standard by the de facto silver standard, these governments suspended the coinage of silver in order to preserve the gold standard. In the United States, the price structure on the bullion market had already, before the outbreak of the Civil War, transformed the legal bimetallism into de facto gold monometallism.

After the greenback period, there ensued a struggle between the friends of the gold standard on the one hand and those of silver on the other hand. The result was a victory for the gold standard. Once the economically most advanced nations had adopted the gold standard, all other nations followed suit. After the great inflationary adventures of the First World War, most countries hastened to return to the gold standard or the gold-exchange standard.

The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market.(2) It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another.

It is easy to understand why people viewed the gold standard as the symbol of this greatest and most beneficial of all historical changes. All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum, the symbol, of all those doctrines and policies they wanted to destroy. In the struggle against the gold standard, much more was at stake than commodity prices and foreign-exchange rates.

The nationalists are fighting the gold standard because they want to sever their countries from the world market and to establish national autarky as far as possible. Interventionist governments and pressure groups are fighting the gold standard because they consider it the most serious obstacle to their endeavors to manipulate prices and wage rates. But the most fanatical attacks against gold are made by those intent upon credit expansion. With them, credit expansion is the panacea for all economic ills. It could lower or even entirely abolish interest rates, raise wages and prices for the benefit of all except the parasitic capitalists and the exploiting employers, free the state from the necessity of balancing its budget — in short, make all decent people prosperous and happy. Only the gold standard, that devilish contrivance of the wicked and stupid “orthodox” economists, prevents mankind from attaining everlasting prosperity.

The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard. The purchasing power of gold is not stable. But the very notions of stability and unchangeability of purchasing power are absurd. In a living and changing world there cannot be any such thing as stability of purchasing power. In the imaginary construction of an evenly rotating economy there is no room left for a medium of exchange. It is an essential feature of money that its purchasing power is changing. In fact, the adversaries of the gold standard do not want to make money’s purchasing power stable. They want rather to give to the governments the power to manipulate purchasing power without being hindered by an “external” factor, namely, the money relation of the gold standard.

The main objection raised against the gold standard is that it makes operative in the determination of prices a factor that no government can control — the vicissitudes of gold production. Thus an “external” or “automatic” force restrains a national government’s power to make its subjects as prosperous as it would like to make them. The international capitalists dictate and the nation’s sovereignty becomes a sham.

However, the futility of interventionist policies has nothing at all to do with monetary matters. It will be shown later why all isolated measures of government interference with market phenomena must fail to attain the ends sought. If the interventionist government wants to remedy the shortcomings of its first interferences by going further and further, it finally converts its country’s economic system into socialism of the German pattern. Then it abolishes the domestic market altogether, and with it money and all monetary problems, even though it may retain some of the terms and labels of the market economy.(3) In both cases it is not the gold standard that frustrates the good intentions of the benevolent authority.

The significance of the fact that the gold standard makes the increase in the supply of gold depend upon the profitability of producing gold is, of course, that it limits the government’s power to resort to inflation. The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence. Every method of manipulating purchasing power is by necessity arbitrary. All methods recommended for the discovery of an allegedly objective and “scientific” yardstick for monetary manipulation are based on the illusion that changes in purchasing power can be “measured.” The gold standard removes the determination of cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.

It has been asserted that the gold standard too is a manipulated standard. The governments may influence the height of gold’s purchasing power either by credit expansion — even if it is kept within the limits drawn by considerations of preserving the redeemability of the money-substitutes — or indirectly by furthering measures that induce people to restrict the size of their cash holdings. This is true. It cannot be denied that the rise in commodity prices that occurred between 1896 and 1914 was to a great extent provoked by such government policies. But the main thing is that the gold standard keeps all such endeavors toward lowering money’s purchasing power within narrow limits. The inflationists are fighting the gold standard precisely because they consider these limits a serious obstacle to the realization of their plans.

What the expansionists call the defects of the gold standard are indeed its very eminence and usefulness. It checks large-scale inflationary ventures on the part of governments. The gold standard did not fail. The governments were eager to destroy it, because they were committed to the fallacies that credit expansion is an appropriate means of lowering the rate of interest and of “improving” the balance of trade.

No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which nationalistic governments try to isolate their countries from the rest of the world, gold is still used as money. It does not matter that governments confiscate the gold coins and bullion they can seize and punish those holding gold as felons. The language of bilateral clearing agreements by means of which governments are intent upon eliminating gold from international trade, avoids any reference to gold. But the turnovers performed on the ground of those agreements are calculated on gold prices. He who buys or sells on a foreign market calculates the advantages and disadvantages of such transactions in gold. In spite of the fact that a country has severed its local currency from any link with gold, its domestic structure of prices remains closely connected with gold and the gold prices of the world market. If a government wants to sever its domestic price structure from that of the world market, it must resort to other measures, such as prohibitive import and export duties and embargoes. Nationalization of foreign trade, whether effected openly or directly by foreign exchange control, does not eliminate gold. The governments qua traders are trading by the use of gold as a medium of exchange.

The struggle against gold, which is one of the main concerns of all contemporary governments, must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction that is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.

It may happen one day that technology will discover a method of enlarging the supply of gold at such a low cost that gold will become useless for the monetary service. Then people will have to replace the gold standard by another standard. It is futile to bother today about the way in which this problem will be solved. We do not know anything about the conditions under which the decision will have to be made.

(1) Lord Keynes in the speech delivered before the House of Lords, May 23. 1944.
(2) T.E. Gregory, The Gold Standard and Its Future (3d ed. London, 1934), pp. 22 ff.
(3) Cf. Human Action, chapters XXVII–XXXI.


This article was published June 5, 2021 and is reproduced with permission from the Ludwig von Mises Institute. It is excerpted from Mises’ magnum opus Human Action.

Lone Republican Derails Arizona Flat Income Tax Proposal

Estimated Reading Time: 2 minutes

Arizona Republicans weren’t able to convince one defecting member of their caucus to vote in favor of their budget that scraps the state’s progressive income tax brackets for one flat rate.

Rep. David Cook, a Globe Republican, voted against all Republican-sponsored amendments to budget bills Monday that others in his party had agreed on, leaving the bills at a 30-30 stalemate.

Cook has been vocal about the proposed flat tax, saying it cuts taxes too low when the state should pay down debt or repurchase buildings the state sold and now are leasing.

House Majority Leader Ben Toma, R-Peoria, deflected Cook’s assertions the state would end up in dire fiscal straits just as Kansas did when it eliminated its state income tax.

Toma said Arizona’s growth is expected regardless of whether the state flattens its income tax with his legislation, something Kansas couldn’t say.

Taking offense to Toma’s inference that Cook opposed the theory in general, he asked, “You don’t think I don’t want to cut taxes?”

Toma replied, “I think we’re about to find out.”

Cook’s subsequent votes against the budgetary proposals mean the GOP will either have to capitulate and propose a smaller cut or convince a Democrat to vote for their bills.

If enacted, the GOP-sponsored budget would gradually lower the state’s four tax brackets to a single 2.5%. It also would cap the total tax rate at 4.5%, including the 3.5% tax from Proposition 208, which affects single filers making more than $250,000 and $500,000 for those filing jointly.

The current lowest income tax rate is 2.59% for income below $27,272. If Prop. 208 survives legal scrutiny, the combined top marginal income tax rate would increase to 8%, putting Arizona among the 10 highest marginal rates in the country.

Democrats, in the minority by one member, were unified in their opposition to the $1.5 billion tax cut.

“We can never be Texas and Nevada unless we have gambling all over the state or we strike oil,” House Minority Leader Charlene Fernandez, D-Yuma, said. “We are Arizona, and we should start listening to our Arizona citizens.”

They criticized Republicans for amending bills late at night and giving legislators a short time to read the proposed changes before voting on them.

Having failed to pass any of their proposed budgetary items, lawmakers adjourned until Thursday, the deadline they had given themselves to send a budget to Gov. Doug Ducey. Lawmakers have until the end of June before the budget they’re debating goes into effect, as is required in the state constitution.

If they cannot agree and send a set of bills to Ducey, the state will enter into nearly uncharted territory. Illinois lawmakers and former Gov. Bruce Rauner once locked horns for nearly two years over the budget, resulting in Democrats raising taxes after seeing the state’s reserve funding depleted and forming a backlog of bills worth billions of dollars.


This article was published on June 8, 2021 and is reproduced with permission from The Center Square.

MIT Data Scientist: Lockdowns Not Correlated With Fewer Deaths (But Are Correlated With More Unemployment)

Estimated Reading Time: 3 minutes

Coming to grips with the failure of lockdowns is important for several reasons.

Dozens of studies show that lockdowns were an ineffective pandemic response. The list just got longer.

In May, Youyang Gu, an MIT-trained engineer, and data scientist released data showing that government restrictions were not correlated with lower COVID mortality in America. Government restrictions were correlated with higher unemployment, however.

“In the US, there is no correlation between Covid deaths & changes in unemployment rates. However, blue states are much more likely to have higher increases in unemployment,” wrote Gu, the creator of, a pandemic modeling site. “More restrictions in a state is NOT correlated with fewer COVID-19 deaths. However, more restrictions IS correlated with higher unemployment.”

The COVID-19 pandemic is finally winding down and more and more people are beginning to acknowledge some hard truths about the failures of the collective response to the virus.

George Orwell famously observed that during deceitful times telling the truth is a revolutionary act, so the fact that so many people are finally acknowledging hard truths appears to be a sign we are emerging from deceitful times.

For some, such as Dr. Anthony Fauci, these truths are bitter medicine. As Hannah Cox recently observed, Fauci has been on the wrong side of numerous pandemic confrontations with Sen. Rand Paul—and has found himself on the losing end each time.

Yet facts are stubborn things. And 14 months after the pandemic’s arrival, we have an abundance of data that shows stay-at-home orders backfired and lockdowns were terribly ineffective at slowing the spread of the virus.

The harms of lockdowns, however, are undeniable: economic collapse, millions of jobs and businesses lost, rampant spending, surging debt and poverty, an explosion of drug overdosespoor mental health, and a collapse of health screenings (including cancer) that will result in hundreds of thousands of excess deaths in the coming years—if not millions.

It will not be easy to acknowledge this failure. As The New York Times noted in 2017, humans struggle mightily to admit we were wrong.

“Mistakes can be hard to digest, so sometimes we double down rather than face them. Our confirmation bias kicks in, causing us to seek out evidence to prove what we already believe,” wrote Kristin Wong. “The car you cut off has a small dent in its bumper, which obviously means that it is the other driver’s fault.”

There’s a name for this psychological phenomenon: cognitive dissonance.

“Cognitive dissonance is what we feel when the self-concept — I’m smart, I’m kind, I’m convinced this belief is true — is threatened by evidence that we did something that wasn’t smart, that we did something that hurt another person, that the belief isn’t true,” Carol Tavris, a co-author of the book Mistakes Were Made (But Not by Me), told the Times.

Tavris added that cognitive dissonance poses a threat to our sense of self.

“To reduce dissonance, we have to modify the self-concept or accept the evidence,” Tavris said. “Guess which route people prefer?”

Coming to grips with the failure of lockdowns is important for several reasons.

For starters, the pandemic of 2020 will not be the last pandemic Americans face. If we’re to avoid the painful experience in the future, we’ll need to better understand how the unorthodox pandemic response came about and determine which public health policies worked and which did not.

But there’s an even larger lesson that can be learned. In his Nobel Prize acceptance speech, F.A. Hayek warned of the danger of mankind’s inability to recognize the limits of its knowledge and power.

“There is danger in the exuberant feeling of ever-growing power which the advance of the physical sciences has engendered and which tempts man to try, “dizzy with success”, to use a characteristic phrase of early communism, to subject not only our nature but also our human environment to the control of a human will,” Hayek said.

Dizzy with success in this age of wonders, Hayek feared humans would be bewitched by their accomplishments and believe they could achieve anything if they could only control society—”a striving which makes him not only a tyrant over his fellows but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

We witnessed firsthand in 2020 the fruit borne from this effort to control society to save it. There’s an important lesson in humility there if humans are wise enough to see it.


This article was published on June 4, 2021 and is reproduced with permission from the FEE, Foundation for Economic Education.

International Energy Agency’s Green Energy Fantasy Is A Hoot

Estimated Reading Time: 3 minutes

Looking for laughs? The International Energy Agency has produced a laugh-filled report, grandly titled: “Net Zero by 2050: A roadmap for the global energy system“. Redesigning the global energy system. My, oh my. Below are a few highlights, out of many.

To begin with, it is not a roadmap, as it does not tell us how to get there. In fact, you cannot get there from here, which makes their there very amusing. This is perhaps the most elaborate net-zero fantasy concocted so far.

IEA Executive Director Faith Birol explains where the fantasy comes from: “…combining for the first time the complex models of our two flagship series, the World Energy Outlook and Energy Technology Perspectives.”

So two, not just one, complex computer models, that have never before been combined. I feel better already. Instead of the world energy outlook, it is IEA’s outlook for world energy. I hope they are not predicting this because there is zero chance of it happening.

Since it is loaded with fantastical technologies, you might think this is at least a technology assessment, but it is not, for two reasons.

First of all, there is a heavy emphasis on what they call “behavioral changes.” When the technocrats start talking about behavioral changes it is time to step back and shut the door, because it is something they know nothing about. So there is nothing about how these deep behavioral changes will be brought about, most likely including by force.

Second, a technology assessment looks at feasibility and cost. That is what “assessment” means. This non-roadmap never considers either. Instead they gleefully point out that 50% of the needed technology does not yet exist in working form. How it can possibly be fielded globally, in unbelievably massive amounts, in 9 to 29 years is not explained. It is simply assumed, which is hilarious. I say 9 years because they also claim that all of the technology we need between now and 2030 already exists. Another laugh.

The biggest laugh of all is probably their most fundamental assumption. They assume that total global energy use in 2050 will be 8% LESS than today. Yes, less. Mind you they assume 2 billion more people, with more developing countries emerging from poverty, more people getting more electricity, and so forth. But still some-magical-how they need considerably less energy than we do now.

Apparently, it is all due to that great green magic wand called energy efficiency. I do not see how people getting cars, home heat and cooling, endless appliances, etc., that they never had before can be overcome with efficiency, but then I am not a complex computer model.

One thing I do like is that they do not buy the 100% renewables fantasy. They only get 70%, mostly from solar. How that is possible given that the sun does not shine 70% of the time is fun. Apparently, they make a lot of hydrogen which is pumped all over the place or something. That is a separate fantasy.

Apparently, the other 30% of energy comes mostly from nuclear. I guess they did not get the memo that nuclear is forbidden in green fantasyland. Surely they could just make more hydrogen.

Of course, everything is electrified. That is where the pesky behavioral changes come in. Apparently, no one wants to drive a gasoline-powered car, or cook or heat with natural gas, etc., even in developing countries. Or maybe these unhappy choices are forced upon them. The complex computer models are silent on this potentially unpleasant forced-march scenario.

Also funny is the great long list of peer reviewers of this so-called study. Almost all are promoters of renewables. Almost none are from developing countries. Even fewer are from electric power utilities, which are supposed to power this low energy wonderland.

So in its way, this study is very useful. IEA shows us in glorious detail just how laughable the green energy dream really is.


This article was published on June 5, 2021 and is reproduced with permission from CFACT, The Committee for a Constructive Tomorrow.

Inflation Is a Dangerous Way to Get Rid of Debt Burdens

Estimated Reading Time: 13 minutes

Suppose you lent someone $100, and when they paid you back they only handed you, say, $99 or $80. Would you consider the borrower to have kept his promise and contractual obligation? Or would you think that he had cheated you out of a part of the money you had lent him in good faith? Well, there are those who say that doing so is just fine if it’s done through price inflation so the borrower repays the lender in depreciated dollars.

Binyamin Appelbaum, who makes this argument, is the lead writer for The New York Times on financial and economic affairs. He approaches economic and social policy issues from a consciously “progressive” perspective on the regulatory role and redistributive responsibility of the U.S. federal government. Indeed, he is so “progressive” in his thinking that in a recent article on the opinion page of The New York Times, Mr. Appelbaum made it clear that he considers FDR’s New Deal to be, well, almost socially “reactionary.” 

The New Deal was enlightened government reform by men in government for men out of government and designed to make it easier for the “little woman” to stay at home rather than enter the world of “man’s” work. Equally “backward,” Roosevelt’s policies did not mandate that the private sector had to provide paid family leave or paid sick leave. How “unprogressive” for Roosevelt to presume to leave such questions and issues to the people themselves, based on marketplace voluntary association and agreement.

Wanting Government to Do So Much More, and More

True political enlightenment is to use the threat of government regulatory force to make people do what “the enlightened” know to be right and better for “the people,” than those people themselves. Some might consider such political paternalism to be examples of arrogance and hubris on the part of those in political authority (and by those who are advising them) to presume to dictate how people are to live and work and interact. But not Mr. Appelbaum.

He is absolutely delighted that Joe Biden has such big budgetary plans to rectify all the policy blinders and inadequacies that even past “progressive” Democratic administrations have failed to advance and implement. Government will subsidize more of parents’ child care costs, and the caregivers of such services will be boosted with more government-insisted upon wages and benefits. Plus, the government will more widely subsidize the expense of people staying home from work to care for sick or elderly family members.

In an earlier opinion piece, Mr. Appelbaum was equally delighted with the widened definition of “infrastructure” to be found in Joe Biden’s spending agenda. He said, “When we define infrastructure, we are asserting a public responsibility to make certain things possible. Infrastructure is the stuff people don’t have to worry about.” Many people may think that infrastructure means things like roads, bridges, a dam, or a dredged harbor, or maybe a lighthouse. But that would clearly show that any such person was not enlightened and “progressive” enough in his thinking. (See my article, “Biden’s ‘Democratic’ Agenda of Paternalism and Planning”.)

What Joe Biden and Binyamin Appelbaum mean by infrastructure is to provide “the means to address the inequalities of wealth, health and opportunity plaguing our society,” which include educating the young, caring for the old, planning the physical environment in the face of “climate change,” and directing and subsidizing the ability for “people to travel in electric vehicles.” Plus, a wide variety of other welfare redistributive “good things.” One wonders if Mr. Appelbaum has ever seen or imagined a human activity not requiring the paternalistic and intrusive hand of government, or the political financing of it in some way. If he does, he does not talk about it much. 

Big Spending Requires Big Taxes and More Borrowing

So how will all of this be paid for? Like Joe Biden, Mr. Appelbaum knows the answer: significantly raise taxes on “the rich,” along with on big businesses and large corporations. Make them pay their “fair share,” assuming that that phrase means anything other than what people like Mr. Appelbaum think is the right amount according to their own subjective and arbitrary sense of “social justice.” Or in more direct and unambiguous language: “I think you have too much, and I’m going to use government to take it by force, since I know the right uses for it better than you, especially since I know you are a greedy, selfish person who does not care about others the way I do. Thank goodness there are people like me around!”

Joe Biden’s fiscal plan calls for increasing those taxes on “the rich” and on corporate America to the tune of $3.6 trillion over the coming years. But as an article in The Washington Post (May 28, 2021) pointed out, even if all of Biden’s tax increase proposals were to successfully pass through Congress, their effect in raising federal government revenues would not be fully felt for years ahead.

So, the Biden budget proposal assumes a deficit of $1.8 trillion in the fiscal year 2022, based on $6 trillion of government spending (or almost one-third of total planned federal expenditures); and there will be budget deficits for many years after that of at least $1.3 trillion per year. Given the current national debt of over $28.3 trillion, if this were to be the pattern of government spending and borrowing over, say, the next ten years, then, in 2031, the accumulated national debt would reach more than $42 trillion.

How will the federal government ever succeed in paying off this debt? Or even covering the interest payments on the accumulated debt? According to the Congressional Budget Office, in An Overview of the 2021 Long-Term Budget Outlook (May 20, 2021), by 2031, almost half of all money borrowed by the government in that fiscal year will be used just to pay the interest owed on the national debt at that time. So, over the next decade the government will be borrowing huge sums of money merely to stay current with the interest payments due on all the years of past deficit spending.

This, now, finally, gets us to the question raised in the opening paragraph about how you might feel if a borrower failed to repay all that you had lent him and whether you would consider this to be a breaking of a promise and a breach of a loan agreement. This is also why I have taken the time to share Binyamin Appelbaum’s views on government spending and taxing and what, clearly, will be needed borrowing to cover all the expenditures that he sees Joe Biden trying to implement, and with which he wholeheartedly agrees. 

Inflation to Do “Good Things” and Reduce the Real Value of the Debt

In a series of tweets on May 25, 2021, Mr. Appelbaum, said that,

“I find the fixation on 1970s inflation puzzling for several reasons. Inflation really wasn’t that high, certainly not by the standards of ‘historically memorable inflations.’ Also, high inflation was good for a lot of people. Student loans disappeared! Home ownership spiked! . . .

“Describing inflation as the ‘primary risk’ to the U.S. economy strikes me as overstating the risk of inflation and overstating the consequences. The primary risk to the economy is that half the population isn’t vaccinated. Second place is the need for jobs . . .

“P.S. You know how we dealt with the massive federal debt incurred during World War II? I-N-F-L-A-T-I-O-N.”

It is easy enough for him to say that the “fixation on 1970s inflation” seems “puzzling,” since Mr. Appelbaum was only born in the late 1970s, and would only have any earliest personal memory, no doubt, from when he was a small child in the early 1980s, when Paul Volcker, then Federal Reserve Chairman, put the brakes on monetary expansion and brought price inflation way down. While price inflation as measured by the Consumer Price Index (CPI) followed a rollercoaster path during the decade of the 1970s, it, nonetheless, saw the highest price inflation experienced in the United States since about hundred years earlier during the American Civil War.

The Harmful Effects from 1970s Inflation

In 1975, the CPI rose for a period of time at a 12 percent annualized rate, and then in 1979-1980, it again spiked, reaching an annualized rate of about 15 percent. Mr. Appelbaum may shrug that off, but it means that something that cost, say, $100 at the beginning of the year cost $115 at the end of the year at that annualized rate. Unless someone’s income had risen over that period by a comparable 15 percent, that person would have experienced a noticeable decline in their real income. Labor unions at the time pushed for increases in nominal wages for members in an attempt to maintain their average real income with the CPI as a benchmark.

But it needs to be recalled that price inflations never bring about rises in all prices at the same rate and at the same time. Monetary expansions are non-neutral in their impact affect due to the temporal sequence of how new money is injected into the economy and how that money is spent and then received as higher revenues due to the patterns of the resulting increasing demands for different goods and services in different amounts, at different times, and different places in the economy in the process. (See my articles, “Monetary Inflation’s Game of Hide-and-Seek” and “Macro Aggregates Hide the Real Market Processes at Work”.)

Thus, some selling prices may have been running ahead of increases in particular wages in an industry negotiated based on the CPI estimate of a change in the cost of living, while in other instances, money wages negotiated up in a sector of the economy at a higher rate based on that CPI estimate of changes in price inflation may have been more than the particular prices for the specific goods those workers were employed in manufacturing.

For instance, if selling prices for a set of particular goods were increasing at, say, 7 percent, while revised money wages in that part of the economy were only rising at a CPI-based negotiated rate of 5 percent, then employers would have experienced a decline in their real labor costs; however, if in some other sectors or industries CPI-based money wage adjustments were increasing at that 5 percent annual rate, while the selling prices of the goods in those sectors or industries were only rising at a 3 percent annual rate, those employers would have experienced a rise in the real wage in employing labor, thus making it more costly and less profitable to increase or maintain all those at work in that part of the economy.

This is because the “real wage” as estimated on the basis of the employee’s general cost of living as calculated by a consumer price index for finished goods as a whole, is not the same as the “real wage” from an employer’s perspective who is comparing the money selling price for his own particular good (which may or may not be rising at the same average increase as prices in general), and the money wage that may be insisted upon by employees or negotiated by labor unions based on the CPI.

The Era of Stagflation – Rising Prices and Increasing Unemployment

This is part of the reason behind the period of the 1970s known as the era of “stagflation;” that is, generally rising prices combined with increasing unemployment. This was exacerbated by the downward rigidity of a wide variety of money wages at the time, such that if the rate of price inflation declined, the money wage demands of, especially, unionized workers did not moderate, which further increased the real cost of employing labor from the employers’ perspective.

This dilemma was summarized at the time by Austrian-born economist, Gottfried Haberler, in an essay on, “Stagflation: An Analysis of Its Causes and Cures” (American Enterprise Institute, March 1977):

“It is well known that every prolonged inflation tends to become cumulative and to accelerate. This does, of course, not mean that every creeping inflation must inexorably become a trotting and a galloping one. What it does mean is that to provide the same stimulus inflation must accelerate. The reason is that prolonged inflation generates inflationary expectations: Nominal interest rates rise because borrowers and lenders expect higher prices; unions press for higher wages to protect their members from the expected price rise; businessmen place orders ahead of time and accumulate inventories, etc.

“Expectations of price rises may even run ahead of reality which is essentially an unstable situation. No wonder that sooner or later a stage is reached where a slowdown of the rate of inflation, or perhaps a mere reduction in the rate of acceleration, leads to unemployment and recession. If most people expect prices to rise at 15 percent and the actual price rise then turns out to be only 7 or 8 percent, the consequence for the economy will be the same as a complete stop of inflation would have had at an earlier stage. This is stagflation.”

Inflation May Benefit Some, But at Others’ Expense

Mr. Appelbaum seems quite happy that some student loans during the 1970s were being paid back in depreciated dollars, which reduced the real burden of the debt. But does he forget that for every borrower there is a lender, who, as a consequence, will have received less in real buying terms when the loan was repaid? He, no doubt, thinks of the lenders as greedy “bankers” sitting in their offices, feet up on their desks, wearing a top hat with a cigar in their mouth, like a caricature from the Monopoly game.  

But, to use Frederic Bastiat’s term, “what is unseen” are all the bank depositors behind that more visible bank officer, whose individual savings have been pooled to extend loans, including to those attending college. Those savers often are families attempting to build up enough, themselves, to make a down payment on a house or a car, or to be accumulating a fund so when their own son or daughter goes off to college they would not have to possibly go as much into debt to pay for their higher education; or household members may be saving for their retirement at some point in their future.

The real value of their savings – and the personal and family financial hopes and dreams behind it – were and are damaged in terms of the real purchasing power that is lost with every percentage rise in the cost of living as time goes by, along with the reduced real interest income to the extent that nominal rates of interest do not rise sufficiently to fully compensate for the general increase in prices. Inflationary premiums added on to nominal interest rates to adjust for expected rises in prices rarely can be formed precisely, particularly due to that non-neutral, “ragged,” manner that monetary expansions generate rising prices in those different ways and at different times.

Home ownership rose in the 1970s, but this was partly due to the housing market becoming a casino, in which people bought and sold – “flipped” – property and houses in speculative attempts to make quick profits on a house that could be bought at price “x” one day, and resold not long after at, possibly, price “x+2”. The housing market saw a noticeable retreat once the price inflation came to an end in the early 1980s. And, no doubt, some who bought housing property for real or speculative purposes in the late 1970s suffered losses a few years later then the inflation expectations frenzy subsided. But this, too, does not seem to enter Mr. Appelbaum’s story.

Irrelevant Talk About Vaccinations and a Lack of Jobs

He says that the concerns right now should not be about “inflation” but people not getting vaccinated and “the need for jobs.” Big government spending and expanded welfare programs under the camouflage of “infrastructure” do not get people to get their Covid-19 vaccinations. For most people, the vaccine is already either covered by insurance policies or are heavily subsidized. There has been so much confusing and contradictory talk about the efficacy and the possible side effects from the injections that some people just don’t believe what they hear in favor of vaccination anymore, or consider that if they are not elderly and do not have a serious “precondition,” there is little need to worry that much if they just wait it all out.

Does Mr. Appelbaum think people should be forced to be vaccinated against the virus? If so, he can consider himself comfortably in the company of the government authorities in the Russian region of Yakutia in Siberia where mandatory vaccination has been made the local law. Given that he clearly has little problem with the government taking one group of people’s monies and deciding how others will be made or influenced to live through how those taxed away or borrowed dollars are politically spent, maybe he might apply for U.S.-Yakutian dual citizenship.

Mr. Appelbaum also insists that a far more important issue is the “need for jobs.” But there is no such abstract or amorphous thing called “jobs.” Production and employment are means to ends, the better and fuller satisfaction of the demands of consumers in society for useful and desired specific goods and services. As long as there are unfulfilled ends and wants, there is work to be done. So, willing hands can always find employments. But this will not happen if either government command people not to work and, therefore, not to earn, as was done in 2020, due to the government lockdowns and shutdowns; or if you subsidize some people not to work, by sending supplementary government checks that sufficiently add to already received unemployment benefits that it is more financially attractive for some to stay at home than to accept gainful employment at a more market-based wage.

Applying the Inflation Swindle to Eliminate the Debt Burden

Finally, what is to be done with the huge and growing national debt? As far as Mr. Appelbaum is concerned, the answer is simple: just inflate it away through debasement of the currency so the nominal dollars paid back to creditors in depreciated units of money makes its real burden just go away. This type of swindle is certainly not a new one. We can turn to Adam Smith in The Wealth of Nations (1776, Book V, Chapter III: “Of Public Debts”): 

“When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of its having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed [an admitted] one, but always by a real one, though frequently by a pretended payment. “The raising of the denomination of the coin [debasement of the currency through inflation] has been the usual expedient by which a real public bankruptcy has been disguised under the appearance of a pretended payment.”

It has long been understood that price inflation is a form of tax, under which portions of the citizenry’s income and wealth is taken from them through reducing the real buying power of the nominal sums of money held by all those in the private sector and the general public. But, as has also been pointed out many times, while actual taxation is targeted in various ways at defined groups in society, price inflation is indiscriminate in negatively affecting the real incomes earned by various segments of the overall population. It is far more arbitrary and deleterious in its effects on people.

Considering that Mr. Appelbaum is a lead writer for The New York Times on financial and economic policy issues, perhaps it would be useful to quote at some length on this issue from one of his predecessors in that staff position at the Times. Henry Hazlitt (1894-1993) was, also, from 1934 to 1946 the editorial writer for The New York Times on financial and economic issues. Toward the end of his stint in that position, in 1946, he wrote and published his most famous book, Economics in One Lesson. He discusses the very inflation that Mr. Appelbaum argues for. Said Henry Hazlitt in a chapter on “The Mirage of Inflation:”

“If no honest attempt is made to pay off the accumulated [government] debt, and resort is had to outright inflation instead, then the results follow that we have already described. For the country as a whole cannot get anything without paying for it. Inflation is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay.

“On the assumption that inflation affected everyone and everything evenly (which we have seen, is not true), it would be tantamount to a flat sales tax of the same percentage on all commodities, with the rate as high on bread and milk as on diamonds and furs. Or it might be thought of as an equivalent to a flat tax of the same percentage, without exemptions, on everyone’s income. It is a tax not only on every individual’s expenditures, but on his savings account and life insurance. It is, in fact, a flat capital levy, without exemptions, in which the poor man pays as high a percentage as the rich man.

“But the situation is even worse than this, because, as we have seen, inflation does not and cannot affect everyone evenly. Some suffer more than others. The poor may be more heavily taxed by inflation, in percentage terms, than the rich. For inflation is a kind of tax that is out of the control of the tax authorities. It strikes wantonly in all directions. The rate of tax imposed by inflation is not a fixed one; it cannot be determined in advance. We know what it is today; we do not know what it will be tomorrow; and tomorrow we shall not know what it will be on the day after.

“Like every other tax, inflation acts to determine the individual and business policies we are forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”

The United States is in dangerous waters if it becomes “general wisdom” and “popular opinion” among public policy analysts and politicians that governments can spend all they want, in any amount, by just running huge annual budget deficits and expanding the national debt because it can all be made to go away through a magician’s trick of monetary expansion and currency debasement. It needs to be remembered that the political magician’s conjuring does not change reality; he merely succeeds in diverting our attention from what is really going on through a temporary illusion. It does not go away with the longer-term harmful consequences that cannot be made to disappear.


This article was published on June 1, 2021 and is reproduced with permission from the AIER, American Institute for Economic Research.

Arizona, Sonora, Sign Water and Air Quality Agreement

Estimated Reading Time: 2 minutes

Gov. Ducey and Sonoran Governor Claudia Pavlovich met for the last time to sign an agreement to secure Sonora’s access to water and further monitor air quality.

The agreement marks the end of a six-year professional relationship between Ducey and Pavlovich, who was elected in 2015 and will leave office this year. She is the first woman to govern Sonora, one of the 32 states which make up the Federal Entities of Mexico.

Gov. Ducey tweeted three aspects of the agreement.

First, the agreement includes “an ongoing study of international opportunities for desalination along the coast of Sonora in the Sea of Cortez,” Gov. Ducey said. Desalination is the process of improving the drinking quality of water by removing salt and other minerals.

Officially signed on May 18, the agreement also provides for examining alternatives for water delivery between Arizona, Sonora, and the Colorado River Basin with the help of federal partners.

Third, he tweeted that the agreement will “expand collaboration between Arizona and Sonora on projects to monitor air quality in our region.”

The agreement, a Memorandum of Understanding, is the result of negotiations between Sonora and Arizona’s representatives in the Arizona-Mexico Commission(AMC). The document is not legally binding but shows that all parties agree to move forward with a contract.

Gov. Ducey attributed the growth in opportunity in the Arizona-Sonora region to their strong relationship and devotion to mutual economic prosperity.

“It’s our duty to lay groundwork for the generations of people that will live here after us,” he said. “I’m proud to sign a Memorandum of Understanding with Governor Pavlovich today to do just that by protecting our water and air quality future.”

Gov. Pavlovich thanked Gov. Ducey for his work on the agreement.

“The strong relationship between Arizona and Sonora has created jobs, enhanced trade and improved public safety.”


This article was published on May 31, 2021 and is reproduced with permission from the Center Square.

There’s No Conflict Between Profit and “Social Responsibility”

Estimated Reading Time: 6 minutes

The slogan People over Profits once again is being heard in Washington and elsewhere in the country. This time, however, the sloganeering doesn’t come from Jane Fonda or Bernie Sanders (although both have used that mantra for many years) but rather from business sources themselves. From the US Chamber of Commerce to the Business Roundtable, we are being told that private enterprise has “discovered” that “social responsibility” should be the key to running a business, not profitability:

“The American dream is alive, but fraying,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of Business Roundtable. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

“This new statement better reflects the way corporations can and should operate today,” added Alex Gorsky, Chairman of the Board and Chief Executive Officer of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee. “It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

The new rhetoric we hear from business leaders such as Tim Cook from Apple and Jamie Dimon from JPMorgan Chase seems to be in line with the Build Back Better slogan of the Joe Biden presidential campaign and the Great Reset that seems to be the rage today with the Bilderberg crowd. The idea seems to be as follows: capitalism unleashes uncontrollable forces that while creating new wealth also create problems such as air and water pollution, along with climate change, and the process of making some people wealthy also means many others are thrown into poverty.

Profits themselves in this view are an extraction of wealth from the community, something that “responsible” businesses try to mitigate by ensuring that “stakeholders” are not neglected. (Defining “stakeholders” is a bit more difficult, as the list of people meeting that qualification seems to be ever expanding.) Thus, by seeking to do something other than just be profitable, businesses become “responsible corporate citizens.”

For all the self-congratulations members of the Business Roundtable are heaping upon themselves for this supposed newly discovered role for private enterprise, a few things are in order. First, business executives in 2021 are more than a century late in the “We want to be respectable” sweepstakes. The progressives more than a century ago sought to make “big business” respectable and shake the “robber baron” image that had been a staple in the press since the late 1800s.

Whether or not such descriptions were warranted is quite another matter. Burton W. Folsom dealt with that era effectively in his The Myth of the Robber Barons: A New Look at the Rise of Big Business in America and pointed out that there was a difference between the market entrepreneurs and the political entrepreneurs. Unfortunately, today’s climate of business “respectability” doesn’t make that distinction, assuming, instead, that all business success is the result of a firm exercising “power,” a term progressives don’t try to [define] accurately, confusing the power of the state with the so-called market power that business firms have. The former can have you killed without recourse; the latter is subject to the whims and decisions of consumers. Mises writes in Bureaucracy:

The capitalists, the enterprisers, and the farmers are instrumental in the conduct of economic affairs. They are at the helm and steer the ship. But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain’s orders. The captain is the consumer.

Mises’s words are important because they point away from the standard progressive belief that businesses can extract wealth from the community through normal business practices without possessing the legal privileges reserved for state actors. The simple acts of producing goods and selling them, according to progressives, can be interpreted as a forced extraction and, thus, coercive and violent. (Black activist Jesse Jackson, for example, often has referred to normal business practices as “economic violence.”)

Conversely, progressives refer to state action as democracy in action, implying that such action toward regulation of business firms is done to protect people from private sector predations. That “our democracy” is run by people with guns who are not afraid to use them on innocent people somehow does not register with them. The state is a manifestation of The Will of the People; private enterprise fosters violence upon us.

If one concludes that businesses in a market system (as opposed to what Randall Holcombe calls political capitalism) operate in a setting in which they cannot coerce buyers and suppliers, but must depend upon voluntary contracts and trust, then the popular descriptions of their activity using terms related to violence simply don’t fit. Nonetheless, our leading institutions, from education to media to religion to government, portray markets as coercive and exploitative, earning profits at the expense of the well-being of others.

While Karl Marx claimed that profits were unjust expropriations of wealth from labor, most of the modern criticism of private enterprise is less systematic and, frankly, less sophisticated than any analysis that Marx might have undertaken. Despite the lack of rigorous thought that characterizes much of today’s anticapitalism (and especially the anticapitalism held by American elites), one still needs to provide some answers that deal with their objections, even though we know that the usual suspects have no intention of honestly dealing with other systems of thinking.

So, what is the typical objection to profits? Some critics claim that profits create higher prices, which the Jimmy Carter administration believed when it laid out its wage-price-profit guidelines in the late 1970s. In fact, any firm that had profit margins of greater than 6 percent could be declared ineligible to receive federal government contracts. I dealt with that objection in 2004, writing:

Indeed, to “fight” against the inflation that plagued his presidential term, Carter’s “inflation czar” Alfred Kahn of Cornell University announced a “voluntary” wage/price/profit plan. Firms that wished to do business with the government first had to demonstrate their “anti-inflation” credentials by raising prices and wages by six percent or less annually and by earning six percent or less in profits. In other words, according to Kahn, “high” business profits significantly contributed to inflation.

The first thing to remember is that profits do not come about because businesses charge exorbitantly high prices but rather because entrepreneurs have successfully found ways to lower potential costs. Murray N. Rothbard writes in Man, Economy, and State:

What gave rise to this realized profit, this ex post profit fulfilling the producer’s ex ante expectations? The fact that the factors of production in this process were underpriced and undercapitalized—underpriced in so far as their unit services were bought, undercapitalized in so far as the factors were bought as wholes.

Peter Klein in The Capitalist and the Entrepreneur points out that uncertainty is necessary for profitability in a market system:

Profit … is a reward for anticipating the uncertain future more accurately than others (e.g., purchasing factors of production at market prices below the eventual selling price of the product), and exists only in a world of “true” uncertainty. In such a world, given that production takes time, entrepreneurs will earn either profits or losses based on the differences between factor prices paid and product prices received.

The anticapitalist critics would pounce here, claiming that the greedy capitalist had “underpaid” factor owners (especially labor) to gain profits. (Most likely, the critics would claim that the business owners also charged “unjust” prices, but they are going to make that claim no matter what the circumstances, with the assumption of “injustice” also being the conclusion, the classic “begging the question” informal fallacy.) There is a major weakness in that argument, however, and while the critics never will move past their own anticapitalist assumptions (since all progressives know that capitalism causes poverty), they assume that the entrepreneurs know that labor is “underpriced” ex ante. Yet, as Klein and Rothbard point out, because entrepreneurs operate within the arena of uncertainty, they only can surmise that at least some factors are underpriced, since they only can know for sure ex post.

Furthermore, since entrepreneurs also experience losses, factors owners are overpaid in those situations, and that includes labor. (One doubts that the progressive critics of capitalism will demand that workers give back their windfall should the entrepreneurial venture lose money.)

Note again that the critics of capitalism hold that it is naturally exploitative and that unless government steps in to force employers to pay “just” wages employers will force employees to work for substandard wages. Declares the Christian socialist publication Sojourners:

In the capitalist economy in which we live, the labor market and wages are matters of profound inequality, exploitation, and injustice. For example, according to the Economic Policy Institute, a nonpartisan organization committed to policies that benefit low-and middle-income workers, the current federal minimum wage is just $7.25 per hour and hasn’t been raised in over 10 years. Even raising the minimum wage modestly to $15 per hour would give more than 32 million Americans a raise. Black, Latinx, and Indigenous workers would be the biggest beneficiaries of raising the minimum wage.

If the above statement were correct, then most people would be employed at $7.25 an hour (unless state or local minimum wages were higher) and supply and demand for labor would have no effect upon what people are paid. In other words, they believe that wages are not connected to economic reality and are nothing more than mere numbers.

(One doubts that anyone at Sojourners would have their minds changed when confronted with the real and racist history of the minimum wage—that it was implemented precisely to make the abovementioned minority workers less employable. It is utterly ironic that the people at Sojourners believe that even though progressives in the first half of the twentieth century hated racial minorities and wanted them eliminated from American society, they somehow unwittingly imposed and demanded economic policies that benefitted the very people they hated.)

If one believes what clearly is obvious—that prices in unhampered markets send accurate signals to market participants—then profits are not gained by harming others. Markets by their very nature involve voluntary action by consenting parties, which by definition is nonexploitative. Profits in a free market system exist, because entrepreneurs have made correct predictions about future consumer choices and acted on their beliefs. This is not profits over people, but rather profits benefitting people.


This article was published on May 27, 2021, and is reproduced with permission from the Ludwig von Mises Institute.

What Makes Biden and Yellen’s “Global Minimum Tax” Push So Hypocritical

Estimated Reading Time: 2 minutes

Joe and Janet the robber barons

Imagine if oil companies got together and agreed to charge consumers no less than $3.50 per gallon for gas. Let’s call it a “global minimum price.” How long—in minutes—do you think it would take for the news media to cry foul and for the Justice Department to file an antitrust suit?

In recent days, President Joe Biden and Treasury Secretary Janet Yellen endorsed the identical concept—so long as the perpetrators are governments.

Yes, unbelievable as it may be to small children, governments and double standards go together like peanut butter and jelly.

Biden and Yellen are leading the charge for a “global minimum tax” on businesses. They want to get governments all over the world to agree to charge companies no less than 15 percent for the State’s wisdom and beneficence. No more of this competition stuff that might encourage firms to move to, say, Ireland where the government only charges them 12.5 percent! “That’s not fair!” cry the anti-competition “progressives” like Biden and Yellen.

If private firms connived to fix a minimum price for their goods, they would be branded “robber barons” and their CEOs would be vilified before congressional committees. Do not expect Biden, Yellen and the government price-fixers who endorse a global minimum tax to ever face so much as a tough question at a press conference.

To date, major media has not only been silent on this glaring hypocrisy, but it has also cheered on the price-fixers—which reminds me of something Adlai Stevenson said more than half a century ago: “The job of the journalist is to separate the wheat from the chaff, and then print the chaff.”

Poor old John D. Rockefeller of Standard Oil! He still catches Hell from armchair historians who claim he colluded with competitors to fix minimum prices for oil products, even though the evidence is scant at best. Unlike governments, Standard charged less and less for products that steadily improved in quality. (See my essay, “Witch-Hunting for Robber Barons: The Standard Oil Story”).

In a May 27 editorial, The Wall Street Journal pointed out that Ireland is a superb example of the wisdom of tax competition between countries. For decades now, the previously over-taxed Emerald Isle has kept its flat-rate business income tax rate at 12.5 percent:

Ireland has reaped the benefits. Between 1986 and 2006, the economy grew to nearly 140% of the EU average from a mere two-thirds. Employment nearly doubled to two million, and the brain drain of the 1970s and 1980s reversed. Ireland became a destination for global capital.

If Ireland were to sign on to the Biden/Yellen global minimum tax proposal, it would have to impose a 20% tax hike. Its finance minister is no idiot. He’s against it.

So the next time your teacher or professor says that getting together with your competitors to fix minimum prices and reduce competition makes you an evil robber baron, raise your hand and ask, “You mean like Joe Biden and Janet Yellen?”


This article was published on May 29, 2021 and is reproduced with permission from FEE, Foundation for Economic Education.