New Mises, Pathetic Attempt to Refute Libertarianism, Some New Numbers, and Putting the Boot on CDS in the Euro Zone

I have an article at the Ludwig von Mises Institute today entitled "Rethinking the Gold Bubble."  An excerpt:

Once QE2 ended, commodities at the consumer level continued to increase in price until the "Operation Twist" announcement.  There are a few conclusions to draw from this.  First, we are experiencing the bursting of a commodity bubble caused by interest rates being kept artificially low by central banks around the world.  These low interest rates entice large investors such as university endowments and pension funds to seek higher returns elsewhere.  For example, the University of Texas endowment took the unprecedented move of purchasing $1 billion in gold bullion last April.  Bernanke even boasted at the onset of QE2 last November that stock prices were up as more investors were willing to risk their money for better returns.  Like commodities, stock-market gains have been heavily correlated to increases in the Fed's balance sheet.  As Henry Hazlitt acknowledged, "no actual inflation happens by a simultaneous or proportional increase in everybody's money supply or money income."  New money hits the economy in stages and flows into different sectors.  The effect isn't felt all at once.  This is just one of the consequences of artificially low interest rates. 

Second, the market was expecting Bernanke and the other leaders at the Federal Reserve to do a lot more at the recent Federal Open Market Committee meeting than replicate a failed monetary trick from the 1960s.  Even Goldman Sachs was surprised by the market effects of the "Twist."  Judging by the plunge commodity prices took following the Fed's announcement, the market has become accustomed to expecting further monetary "easing" — especially given Bernanke's record of meeting any economic slowdown with more money printing.  It should also be pointed out that China's recent attempt at slowing down its inflation-driven economy has also lowered demand for commodities; yet another case of fiat boom and subsequent bust.

While I think this piece is more comprehensive than most of my material, it has admittedly been outdone by Ron Paul's great editorial in the Wall Street Journal today entitled "Blame the Fed for the Financial Crisis."  Staying true to form, Paul employes the Austrian theory to once again make the case for why Greenspan and the Fed are the true cause of the Great Recession:

The great contribution of the Austrian school of economics to economic theory was in its description of this business cycle: the process of booms and busts, and their origins in monetary intervention by the government in cooperation with the banking system. Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.

In many respects the governors of the Federal Reserve System and the members of the Federal Open Market Committee are like all other high-ranking powerful officials. Because they make decisions that profoundly affect the workings of the economy and because they have hundreds of bright economists working for them doing research and collecting data, they buy into the pretense of knowledge—the illusion that because they have all these resources at their fingertips they therefore have the ability to guide the economy as they see fit.

Nothing could be further from the truth. No attitude could be more destructive. What the Austrian economists Ludwig von Mises and Friedrich von Hayek victoriously asserted in the socialist calculation debate of the 1920s and 1930s—the notion that the marketplace, where people freely decide what they need and want to pay for, is the only effective way to allocate resources—may be obvious to many ordinary Americans. But it has not influenced government leaders today, who do not seem to see the importance of prices to the functioning of a market economy.

Paul may not win the GOP nomination or the presidency but he has done wonders to bring the Austrian view to the masses.  This editorial is just the frosting on the cake.

One of the most frustrating things I come across in my daily reading is a clueless attempt at refuting libertarianism.  A good example is the comment section in my Mises piece today where some guy is trying to make the case that a gold standard would be highly inflationary because everyone in the world would mine it.  The fact that gold came into widespread use as a currency because it took time to mine, produce, and mint and is limited in quantity doesn't seem to bother him.  Gresham's law and the overall supply and demand laws that govern commodities seem to escape his consideration as well.

Well that trend continues today as T.M. Scanlon does his best to trash libertarianism in the Boston Review.  Let's review the overall lame attempt. First Scalon makes the continually aggravating argument that a lack of regulation caused the financial crisis:

One route to libertarian conclusions appeals to an idea of productive efficiency. As Hayek argued, the market is, in an important range of cases, a more efficient mechanism for deciding what to produce than decisions by any central planner. This is so for two reasons. The first is the flow of information: no planner could acquire information about what consumers want to buy as efficiently as the market does. The second is capture by interests: decisions by state-owned industries are likely to be guided by the interests of those who run or work in those industries rather than by the goal of efficient overall production. Where they apply, these arguments are powerful. As recent financial crises show, however, these considerations do not lead to the conclusion that government regulation is always a bad thing.

As I said in my OWS article in the Press and Journal yesterday:

The belief that unfettered capitalism caused the financial crisis is absurd. Since when did the existence of the Federal Reserve, the Securities and Exchange Commission, the F.D.I.C. and Fannie Mae and Freddie Mac constitute a free market?

Yes, Wall Street gorged itself on toxic securities (approved by government sanctioned rating agencies, mind you) and brought the world economy to its knees. Yet hardly anyone who treats Keynesianism as the Gospel actually questions why this occurred.

The idea that the federal government provided an implicit backing for risky behavior is like premarital sex on “Leave it to Beaver” – it just doesn’t happen.

And unlike June and Ward Cleaver, large financial institutions don’t sleep in a separate bed from their government purveyors. Just ask current White House Chief of Staff and former JP Morgan executive Bill Daley or former Treasury Secretary and Goldman Sachs CEO Hank Paulson.

The myth that the free market caused the financial crisis has been debunked so many times it's hard to take Scalon seriously past this point.  His elementary view on the financial system is on par with a college sophomore majoring in political science yet his take is what passes off as conventional wisdom in the mainstream press.  Is it any wonder why the world economy continues on its roller coaster ride of fiat gorging when the real culprit of booms and busts goes unacknowledged?

Next Scanlon attempts to show that while individuals striving to achieve market efficiencies is a concept libertarians promote, it has the unfortunate effect of leaving some workers behind:

The productive efficiency of a market economy depends importantly on its ability to shift resources from industries that are no longer needed or efficient—such as typewriters manufacturers in an era of the computer—to those making products for which there is greater demand—such as computers and software to use on them. This efficiency is attained at a cost to workers, who must find new employment when such changes occur. Workers who are constantly subject to such disruption have less control over their lives than they would in a more stable society.

By this, one can only assume that the automobile should have been prevented from being produced to save all the horse and buggy jobs.  After all, stable society depends upon a lack of technological achievement, right?  If only the spear had  never been invented than hunters who relied on the brute strength of their hands to catch and kill their prey would still be gainfully employed and being living comfortably, stable lives.  Again, Scanlon makes the same often repeated mistake of treating technological improvements as detrimental to society.  I can only assume he wrote out his article with ink and quill first in order to guarantee the jobs of the manufactures who produce such outdated writing devices.  Scanlon concludes his attack on technology by stating " the choice between different systems is not something that individuals express a preference about through their market behavior."  So computers, automobiles, cell phones, and modern medicine weren't the products of consumers opting to improve their standard of living?

Next Scanlon attempts to make the case for what "rights" are in society.

The distinction involved here is one of several that can be referred to, somewhat misleadingly, as between positive and negative rights. As I have said, however, it is not a distinction between two kinds of rights but between rights and considerations that must be taken into account in justifying them. The lesson to draw from it is not that there are no “positive rights”—rights to particular benefits—but rather that not every desirable thing that is relevant to justifying rights can be directly transformed into a “right to” realize that thing.

Scanlon may not realize it but he is applying his own subjective values to determine what constitutes as rights.  While he is correct in saying "not every desirable thing that is relevant to justifying rights can be directly transformed into a “right to” realize that thing" he goes on to do just that:

If we ask what conditions are most important for having meaningful liberty—meaningful control over one’s life—in a modern society, one of the first things that comes to mind is education, which enables one to understand one’s choices and to acquire the skills needed to pursue them, including the skills needed participate in the market economy. A second important factor is a strong social safety net, including unemployment benefits, which enable people to plan responsibly for having a family despite the uncertainties of employment in an efficient market economy. Neither of these is part of the “low taxes and limited government” program normally favored by libertarians.

Scanlon himself has come to the conclusion that "meaningful liberty" in modern society includes being educated enough to make your own choices as well as a type of social insurance for protection against unseen occurrences.  How universal, compulsory education and the social safety net are achieved does not disturb Scanlon's interpretation of rights. He doesn't regard the practice of compulsion, theft, or the threat of aggression by government officials as a violation of liberty and property rights but as a necessity!  Yes, you have seen this before etched into the side of the Ministry of Truth in George Orwell's dystopian "1984."  War is peace and freedom is slavery in Scanlon's world where forcing children to attend school and using pillaged funds to pay people not to work ensures liberty.

In an odd string of double talk, Scanlon makes a peculiar case for why property rights are impractical when applied to commercial transactions:

But it is extremely implausible to think that I can, by an exercise of my will, confer upon you the right to exclude anyone else from the use of a thing, and give you the power to transfer this right to yet other people. Having this power would make me an odd kind of moral legislator.

So Scanlon has never heard of contract law whereas two parties reach a legally binding agreement in regard to a particular transaction?  Finally Scanlon goes off the deep end by suggesting that only an institution with the monopoly on force and coercion can dictate property rights:

There are no property rights independent of some institution defining them, but it is generally agreed that there should be such an institution. The question is what form this institution should take.

Scanlon has clearly never encountered Hans-Herman Hoppe's "argumentation ethics" approach to property rights whereas the virtual act of Scanlon thinking, formulating, and writing his article is demonstrative of his use of his own mind and body to produce.  Or Scanlon doesn't even consider the idea that rights are derived from one's creator (whom or whatever that may be).  Most importantly, he implies that an institution composed of fallible men should be able to determine the property rights for the whole of the population as if men are knowledgeable and endowed with enough wisdom to make such judgements.  In Scanlon's view, Jews in Nazi Germany were rightly denied their right to life seeing as how the state as an institution determine they were undeserving.

While Scanlon makes a better-than-most attempt at refuting libertarianism, he ends up utterly confused on determining the beneficial nature of property rights, why they are outside the realm of being arbitrarily picked by bureaucrats, and what a free market really encompasses.  In other words, he fails like all opponents of freedom.

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There are some new econ numbers out showing once again that the economy is slowly improving.  First is the Philly Fed Manufacturing Index, via Zerohedge:

the Philly Fed surges from -17.5 to 8.7, the biggest jump since October 1980, and 6 standard deviations above the Wall Street consensus. The index which was at -30 a few months ago, has now retraced back to April 2011 levels to supposedly confirm that Operation Twist is working even despite a massive plunge in Refinancing Applications reported yesterday. And confirming that we are now all supposed to be taking crazy pills, the Shipments index jumped from -22.8 to 13.6: the largest jump ever!

The Conference Board's leading economic index is also up:

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.2 percent in September to 116.4 (2004 = 100), following a 0.3 percent increase in August, and a 0.6 percent increase in July

The ten components of The Conference Board Leading Economic Index^® for the U.S. include:
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers’ new orders, consumer goods and materials
Index of supplier deliveries – vendor performance
Manufacturers' new orders, nondefense capital goods
Building permits, new private housing units
Stock prices, 500 common stocks
Money supply, M2
Interest rate spread, 10-year Treasury bonds less federal funds
Index of consumer expectations

Even gas prices are poised to move higher, via MarketWatch:

Gasoline prices at the pump have been creeping higher in the last few days.
On Thursday, the average price per gallon for regular gasoline stood at $3.474, up about 5 cents from a week ago, according to AAA’s Daily Fuel Gauge Report. Prices are also 64 cents a gallon higher than a year ago, AAA data showed.

It looks like this holiday season may still beat pessimistic expectations.

Yesterday I mentioned how the CFTC's new regulations on commodity speculation would ultimately be disastrous in terms of supply and price volatility in an environment of constant currency debasement.  Well it looks like the idiocy has migrated to Europe:

In a confidential preliminary plan to reform the law on credit rating agencies, EU Internal Market Commissioner Michel Barnier seeks to prohibit rating agencies from publishing judgments about ailing EU countries.

Barnier proposes that the new Securities and Exchange ESMA is granted the right "to temporarily prohibit" the disclosure of assessments of the ability to pay.

Yes, because prohibiting the ability to judge a country's true financial condition is really going to smooth out the calamity known as the Euro debt crisis.  Barnier wasn't bitching when the credit ratings of indebted countries and banks were higher than the actual market value but now that bond prices are down and yields have skyrocketed for the PIIGS, there is something terribly wrong.  Keep your popcorn handy for more political theater.

Update- A few more indicators of rising prices and growth, first is Joe Weisenthal on falling unemployment claims over at Business Insider:

It's getting harder and harder to imagine we're in a recession.
With today's initial jobless claims report, the closely-watched 4-week moving average of initial claims has fallen to its lowest level since this spring.

And of course airline prices are going up as many indicators improve, via WashPo:

NEW YORK — Holiday travelers may want to lock in airfares now, because they’re going up.
Major airlines are joining in the first widespread airfare increase since early August. The hike was initiated by Delta Air Lines Inc. late Tuesday when it raised fares by $4 to $10 on roundtrip flights across most of its U.S. routes, according to Rick Seaney of Farecompare.com. Soon after, United Continental Holdings Inc. matched the increases.

By early Wednesday, every other major airline had raised fares, including Southwest, according to JPMorgan’s Jamie Baker. Southwest had been running a fare sale for winter travel, excluding popular travel days around the holidays.

If you haven't seen it, here is the very graphic video of a very dead Muammar Gaddafi.  Warning it is pretty graphic a kind of hard to watch for those with a weak stomach:

Looks like the CIA is gonna be busy finding a new dictator to implant...