Murray Rothbard on the Budget Crisis and the Government Shutdown

The great dean of the Austrian school of economics, Murray Rothbard on the budget crisis and the shutdown from Making Economic Sense (hat tip Mises Blog) [bold mine]

In politics fall, not spring, is the silly season. How many times have we seen the farce: the crises deadline in October, the budget "summit" between the Executive and Congress, and the piteous wails of liberals and centrists that those wonderful, hard-working, dedicated "federal workers" may be "furloughed," which unfortunately does not mean that they are thrown on the beach to find their way in the productive private sector.

The dread furlough means that for a few days or so, the oppressed taxpaying public gets to keep a bit more of its own money, while the federal workers get a rare chance to apply their dedication without mulcting the taxpayers: an opportunity that these bureaucrats invariably seem to pass up.

Has it occurred to many citizens that, for the few blessed days of federal shutdown, the world does not come to an end? That the stars remain in their courses, and everyone goes about their daily life as before?

I would like to offer a modest proposal, giving us a chance to see precisely how vital to our survival and prosperity is the Leviathan federal government, and how much we are truly willing to pay for its care and feeding. Let us try a great social experiment: for one year, one exhilarating jubilee year, we furlough, without pay, the Internal Revenue Service and the rest of the revenue-gathering functions of the Department of Treasury.

That is, for one year, suspend all federal taxes and float no public debt, either newly incurred or even for payment of existing interest or principal. And then let us see how much the American public is willing to kick into, purely voluntarily, the public till.

We make these voluntary contributions strictly anonymous, so that there will be no incentive for individuals and institutions to collect brownie-points from the feds for current voluntary giving. We allow no carryover of funds or surplus, so that any federal spending for the year--including the piteous importuning of Americans for funds--takes place strictly out of next year's revenue.

It will then be fascinating to see how much the American public is truly willing to pay, how much it thinks the federal government is really worth, how much it is really convinced by all the slick cons: by the spectre of roads falling apart, cancer cures aborted, by invocations of the "common good," the "public interest," the "national security," to say nothing of the favorite economists' ploys of "public goods" and "externalities."

It would be even more instructive to allow the various anonymous contributors to check off what specific services or agencies they wish to earmark for expenditure of their funds. It would be still more fun to see vicious and truthful competitive advertising between bureaus: "No, no, don't contribute to those lazy louts in the Department of Transportation (or whatever), give to us." For once, government propaganda might even prove to be instructive and enjoyable.

The precedent has already been set: if it is proper and legitimate for President Bush and his administration to beg Japan, Germany, and other nations for funds for our military adventures in the Persian Gulf, why shouldn't they be forced, at least for one glorious year, to beg for funds from the American people, instead of wielding their usual bludgeon?

The 1990 furlough crisis highlights some suggestive but neglected aspects of common thinking about the budget. In the first place, all parties are talking about "fair sharing of the pain," of the "necessity to inflict pain," etc. How come that government, and only government, is regularly associated with a systematic infliction of pain?

In contemplating the activities of Sony or Proctor and Gamble or countless other private firms, do we ask ourselves how much pain they propose to inflict upon us in the coming year? Why is it that government, and only government, is regularly coupled with pain: like ham-and-eggs, or . . . death-and-taxes? Perhaps we should begin to ask ourselves why government and pain are Gemini twins, and whether we really need an institution that consists of a massive engine for the imposition and administration of pain and suffering. Is there no better way to run our affairs?

Another curious note: it is now the accepted orthodoxy of our liberal and centrist establishment that taxes must be raised, regardless of where we are in the business cycle. So strong is this article of faith that the fact that we are already in a recession (and intelligent observers do not have to wait for the National Bureau of Economic Research to tell us that retroactively) seems to make no dent whatever in the thirst for higher taxes.

And yet there is no school of economic thought--be it New Classical, Keynesian, monetarist, or Austrian--that advocates raising taxes in a recession. Indeed, both Keynesians and Austrians would advocate cutting taxes in a recession, albeit for different reasons.

So whence this fanatical devotion to higher taxes? The liberal-centrists profess its source to be deep worry about the federal deficit. But since these very same people, not too long ago, scoffed at worry about the deficit as impossibly Neanderthal and reactionary, and since right now these same people brusquely dismiss any call for lower government spending as ipso facto absurd, one suspects a not very cleverly hidden agenda at work.

Namely: a love for higher taxes and for higher government spending for their own sake, or, rather, for the sake of expanding statism and collectivism as contrasted with the private sector.

There is one way we can put our hypothesis to the test: shouldn't these newfound worriers about the deficit delight in our modest proposal one year with no deficit at all, one year with no infliction of pain whatever? Wanna bet?

Video: Murray Rothbard: The Government is not Us

As excerpted from the Murray N. Rothbard's "For A New Liberty The Libertarian Manifesto" p.60-64.

From the Liberty Pen (hat tip Bob Wenzel)

Quote of the Day: Libertarianism: Putting Justice, Truth, Goodness and Beauty into Reality

Libertarianism is not merely the intellectual contemplation of a wonderful, true and just political philosophy, it's not just the esthetic contemplation of a beautiful ideal, the ideal of a world without organized aggression, a world of harmony, of freedom, of prosperity, of mutual cooperation through voluntary activities in free markets. It is, of course, all of that. Because we become Libertarians in the first place because we fall in love, so to speak, with the goodness, the truth and the beauty of Libertarianism. But we Libertarians, it seems to me, are not content with contemplating justice, with contemplating truth, goodness and beauty. We're not playing intellectual games. We mean to change the world. We want to put this thing into reality.

This snippet from a talk given by "Mr. Libertarian", Dr. Murray N. Rothbard at the First World Libertarian convention in 1982

I posted earlier the video "The Six stages of the Libertarian movement" here.

Pls read the rest of the transcript at the lewrockwell.com

Murray Rothbard on Tax Day

Murray N. Rothbard at the lewrockwell.com on Tax Day

April 15, that dread Income Tax day, is around again, and gives us a chance to ruminate on the nature of taxes and of the government itself.

The first great lesson to learn about taxation is that taxation is simply robbery. No more and no less. For what is "robbery"? Robbery is the taking of a man’s property by the use of violence or the threat thereof, and therefore without the victim’s consent. And yet what else is taxation?

Those who claim that taxation is, in some mystical sense, really "voluntary" should then have no qualms about getting rid of that vital feature of the law which says that failure to pay one’s taxes is criminal and subject to appropriate penalty. But does anyone seriously believe that if the payment of taxation were really made voluntary, say in the sense of contributing to the American Cancer Society, that any appreciable revenue would find itself into the coffers of government? Then why don’t we try it as an experiment for a few years, or a few decades, and find out?

But if taxation is robbery, then it follows as the night the day that those people who engage in, and live off, robbery are a gang of thieves. Hence the government is a group of thieves, and deserves, morally, aesthetically, and philosophically, to be treated exactly as a group of less socially respectable ruffians would be treated.

This issue of The Libertarian is dedicated to that growing legion of Americans who are engaging in various forms of that one weapon, that one act of the public which our rulers fear the most: tax rebellion, the cutting off the funds by which the host public is sapped to maintain the parasitic ruling classes. Here is a burning issue which could appeal to everyone, young and old, poor and wealthy, "working class" and middle class, regardless of race, color, or creed. Here is an issue which everyone understands, only too well. Taxation.

Murray Rothbard on Margaret Thatcher and Thatcherism

UK’s former Prime Minister Margaret Thatcher  passed away at the age of 87, yesterday. She was known as the “Iron Lady”, which according to the Wikipedia had been due to “her uncompromising politics and leadership style”. 

Murray N. Rothbard, the great dean of the Austrian school of economics, wrote about the accomplishments or legacies of Ms Thatcher and "Thatcherism": (Chapter 63, The Exit of the Iron Lady Making Economic Sense)

Mrs. Thatcher's departure from British rule befitted her entire reign: blustering in rhetoric ("the Iron Lady will never quit") accompanied by very little concrete action (as the Iron Lady quickly departed).

Her rhetoric did bring free-market ideas back to respectability in Britain for the first time in a half-century, and it is certainly gratifying to see the estimable people at the Institute of Economic Affairs in London become Britain's most reputable think-tank. It is also largely to the credit of the Thatcher Era that the Labour Party has moved rightward, and largely abandoned its loony left-wing views, and that the British have decisively abandoned their post-Depression psychosis about unemployment rates ever being higher than 1%.

The Thatcher accomplishments, however, are a very different story, and very much of a mixed-bag. On the positive side, there was a considerable amount of denationalization and privatization, including the sale of public housing units to the tenants, thereby converting former Labour voters to staunchly Conservative property owners. Another of her successes was breaking the massive power of the British trade unions.

Unfortunately, the pluses of the Thatcher economic record are more than offset by the stark fact that the State ends the Thatcher era more of a parasitic burden on the British economy and society than it was when she took office. For example, she never dared touch the sacred cow of socialized medicine, the National Health Service. For that and many other reasons, British government spending and revenues are more generous than ever.

Furthermore, despite Mrs. Thatcher's lip-service to monetarism, her early successes against inflation have been reversed, and monetary expansion, inflation, government deficits, and accompanying unemployment are higher than ever. Mrs. Thatcher left office, after eleven years, in the midst of a disgraceful inflationary recession: with inflation at 11%, and unemployment at 9%. In short, Mrs. Thatcher's macroeconomic record was abysmal.

To top it off, her decisive blunder was the replacement of local property taxes by an equal tax per person (a "poll tax"). In England, in contrast to the United States, the central government has control over the local governments, many of which are ruled by wild-spending left Labourites. The equal tax was designed to curb the free-spending local governments.

Instead, what should have been predictable happened. The local governments generally increased their spending and taxes, the higher equal tax biting fiercely upon the poor and middle-class, and then effectively placed the blame for the higher taxes upon the Thatcher regime. Moreover, in all this maneuvering, the Thatcherites forgot that the great point about an equal tax is precisely that taxes have to be drastically lowered so that the poorest can pay them; to raise equal tax rates above the old property tax, or to allow them to be raised, is a species of economic and political insanity, and Mrs. Thatcher reaped the proper punishment for egregious error.

Read the rest here

Ms. Thatcher, R.I.P.

Video: Murray Rothbard on the Six Stages of the Libertarian Movement

(hat tip Lew Rockwell Blog)

Video: Murray Rothbard on the Benefits of Bank Runs

(hat tip: Lew Rockwell Blog)

Remembering Murray Rothbard on his 87th Birthday

The great dean of the Austrian school of economics and “Mr. Libertarian”, Murray N. Rothbard (March 2, 1926-January 7, 1995)

Civilization and human existence are at stake, and to preserve and expand it, high theory and scholarship, though important, is not enough. Especially in an age of galloping statism, the classical liberal, the advocate of the free market, has an obligation to carry the struggle to all levels of society, to government, to the general public, to political parties.

Quoted from Mises and the Role of the Economist in Public Policy

Find the list of his works here 

Video: Murray Rothbard on Why People are Attracted to Statism

From Bob Wenzel

Video: Murray Rothbard on Trade Balance and Government Budget

Many mistake the effects of balance of trade with that of government budget. Some do this deliberately, through the use of statistical ruse, to promote the mercantilist or protectionist agenda.

In the following video, the great dean of the Austrian school of economics Murray Rothdard tersely clarifies on such distinction and or dispels the mercantilist myth.

Video: Murray Rothbard on the Origin of the US Federal Reserve

[hat tip Bob Wenzel]

Video: What Murray Rothbard thought of John Maynard Keynes

[hat tip Bob Wenzel]

Video: Murray Rothbard on Understanding Libertarianism

(hat tip Bob Wenzel)

Will the Eurozone’s Deposit Insurance Policies Hasten the Unraveling of the Euro?

The great dean of the Austrian school of economics Professor Murray N. Rothbard once called deposit insurance a swindle. (bold emphasis mine)

The very idea of "deposit insurance" is a swindle; how does one insure an institution (fractional reserve banking) that is inherently insolvent, and which will fall apart whenever the public finally understands the swindle? Suppose that, tomorrow, the American public suddenly became aware of the banking swindle, and went to the banks tomorrow morning, and, in unison, demanded cash. What would happen? The banks would be instantly insolvent, since they could only muster 10 percent of the cash they owe their befuddled customers. Neither would the enormous tax increase needed to bail everyone out be at all palatable. No: the only thing the Fed could do — and this would be in their power — would be to print enough money to pay off all the bank depositors. Unfortunately, in the present state of the banking system, the result would be an immediate plunge into the horrors of hyperinflation.

Current crisis in the Eurozone seems to be partly actualizing what Professor Rothbard warned about: Europeans appear to be awakening from the “swindle” and have intensified demand for cash, which has been putting severe strains on the EU’s fractional reserve banking system.

From Bloomberg, (bold emphasis mine)

The threat of Greece exiting the euro is exposing flaws in how banks and governments protect European depositors’ cash in the event of a run.

National deposit-insurance programs, strengthened by the European Union in 2009 to guarantee at least 100,000 euros ($125,000), leave savers at risk of losses if a country leaves the euro and its currency is redenominated. The funds in some nations also have been depleted after they were used to help bail out struggling lenders, leading policy makers to consider implementing an EU-wide protection plan.

“These schemes were not designed to deal with a complete meltdown of a banking system,” said Andrew Campbell, professor of international banking and finance law at the University of Leeds in the U.K. and an adviser to the International Association of Deposit Insurers. “If there’s a systemic failure, there needs to be some form of intervention.”

With European officials openly discussing a Greek exit from the euro for the first time, savers in Spain, Italy and Portugal may start to withdraw cash on concern that those countries will follow Greece and their funds will be devalued with a switch to a successor currency. None of those nations has the firepower to handle simultaneous runs on multiple banks.

Pulling Deposits

Households and businesses pulled 34 billion euros from Greek banks in the 12 months ended in March, 17 percent of the country’s total, according to the ECB.

Deposits at banks in Greece, Ireland, Italy, Portugal and Spain fell by 80.6 billion euros, or 3.2 percent from the end of 2010 through the end of March, ECB data show. German and French banks increased deposits by 217.4 billion euros, or 6.3 percent, in the same period. Bank-deposit data for April will be released starting this week.

Using the Argentina crisis as precedent…

Savers pulled 27 percent of deposits from Argentina’s banks between 2000 and 2003 during a currency crisis, Nedialkov wrote. If Ireland, Italy, Portugal and Spain follow a similar pattern, about 340 billion euros could be withdrawn, he estimated.

Companies have already started to remove cash from southern Europe as soon as they earn it. Many already are sweeping funds daily out of banks in those countries and depositing it overnight with firms in the U.K. and northern Europe, according to David Manson, head of liquidity management at Barclays Plc in London, who advises company treasurers.

If the scale of bank run escalates, will the ECB, then, resort to massive inflationism to the point of hyperinflation just to rescue their banks??

Quote of the Day: Blinded by Science

Even some from the mainstream gets it.

Finance is often said to suffer from Physics Envy. This is generally held to mean that we in finance would love to write out complex equations and models as do those working in the field of Physics. There are certainly a large number of market participants who would love this outcome.

I believe, though, that there is much we could learn from Physics. For instance, you don’t find physicists betting that a feather and a brick will hit the ground at the same time in the real world. In other words, they are acutely aware of the limitations imposed by their assumptions. In contrast, all too often people seem ready to bet the ranch on the flimsiest of financial models.

Someone intelligent (if only I could remember who!) once opined that rather than breaking the sciences into the usual categories of “Hard” and “Soft,” they should be split into “Easy” and “Difficult.” The “Hard” sciences are generally “Easy” thanks to the ability to perform repeated controlled experiments. In contrast, the “Soft” sciences are “Difficult” because they involve trying to understand human behaviour.

Put another way, the atoms of the feather and brick don’t try to outsmart and exploit the laws of physics. Yet financial models often fail for exactly this reason. All financial model underpinnings and assumptions should be rigorously reviewed to find their weakest links or the elements they deliberately ignore, as these are the most likely source of a model’s failure.

That’s from GMO’s James Montier (source Zero Hedge).

Mr. Montier also discusses the psychological aspects of people’s predisposition for mathematical or science based models: particularly “complexity to impress” (The penchant to signal “intelligence” to acquire social acceptance—my opinion) and “defer to authority”.

And here is the warning against being blinded by science from the dean of the Austrian school of economics the great Professor Murray N. Rothbard,

Not only measurement but the use of mathematics in general in the social sciences and philosophy today, is an illegitimate transfer from physics. In the first place, a mathematical equation implies the existence of quantities that can be equated, which in turn implies a unit of measurement for these quantities. Second, mathematical relations are functional; that is, variables are interdependent, and identifying the causal variable depends on which is held as given and which is changed. This methodology is appropriate in physics, where entities do not themselves provide the causes for their actions, but instead are determined by discoverable quantitative laws of their nature and the nature of the interacting entities. But in human action, the free-will choice of the human consciousness is the cause, and this cause generates certain effects. The mathematical concept of an interdetermining "function" is therefore inappropriate.

Quote of the Day: Mathematics Diminishes Economics

Mathematics, seemingly so precise, inevitably ends in reducing economics from the complete knowledge of general principles to arbitrary formulas which alter and distort the principles and hence corrupt the conclusions.

That’s from the great Murray N. Rothbard, who discussed the origins of the methodology of praxeology or human action from J.B. Say.

Outside the promotion of self-esteem, mathematics via econometrics and or statistics serves as intellectual cover to what is truly heuristics based biases.

Murray Rothbard’s 86th Birthday

Murray Rothbard, the late dean of the Austrian School of Economics, had his 86th birthday yesterday. [hat tip Bob Wenzel]

My favorite quote from Professor Rothbard,

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a "dismal science." But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Video: Murray Rothbard on Insider Trading

Insider trading regulations are regulatory shields used by the elites to prevent competition (source: Lew Rockwell blog).

Multiple Intelligence And Human Freedom

Marketing guru Seth Godin makes another fantastic insight about the multiple intelligence of the individual which he calls ironically calls multiple dumbness.

``About twenty five years ago, Howard Gardner taught us his theory of multiple intelligences. He described the fact that there's not just one kind of intelligence, in fact there are at least seven (1 Bodily-kinesthetic, 2 Interpersonal, 3 Verbal-linguistic, 4 Logical-mathematical, 5 Intrapersonal, 6 Visual-spatial, 7 Musical, 8 Naturalistic). This makes perfect sense—people are good at different things." (emphasis added)

In other words, dumbness or intelligence depends on the relative comparison of traits, as no person can claim a monopoly or absolute superiority in all traits.

And such uniqueness makes man superior and complimentary, which highlights the case for human freedom.

Quoting Murray N. Rothbard from Inequality,

``If men were like ants, there would be no interest in human freedom. If individual men, like ants, were uniform, interchangeable, devoid of specific personality traits of their own, then who would care whether they were free or not? Who, indeed, would care if they lived or died? The glory of the human race is the uniqueness of each individual, the fact that every person, though similar in many ways to others, possesses a completely individuated personality of his own. It is the fact of each person's uniqueness, the fact that no two people can be wholly interchangeable, that makes each and every man irreplaceable and that makes us care whether he lives or dies, whether he is happy or oppressed. And, finally, it is the fact that these unique personalities need freedom for their full development that constitutes one of the major arguments for a free society." (bold emphasis added)

Quote of the Day on Wall Street: After Nearly A Century, Hardly Any Change

Here is Murray Rothbard on the predicament of the Fed's origin

``The bankers, however, faced a big public relations problem. What they wanted was the federal government creating and enforcing a banking cartel by means of a Central Bank. Yet they faced a political climate that was hostile to monopoly and centralization, and favored free competition. They also faced a public opinion hostile to Wall Street and to what they perceptively but inchoately saw as the "money power."" (bold highlights mine)

So the problem of nearly 100 years ago is basically the same as today! The difference is that the Federal Reserve- banking cartel has been realized, but is still under fire.