Is Christmas Inefficient?

Authored by Jeffrey Tucker via The Mises Institute,

After hundreds of years of attacks on Christmas, economists have finally gotten into the act.

Yale University’s Joel Waldfogel, writing in the American Economic Review, condemns what he calls “The Deadweight Loss of Christmas.” Once you cut through the calculus and graphs, his conclusion is clear: though Christmas generates a $50 billion gift-giving industry, a tenth to a third of that is sheer loss. Why? Because the recipient doesn’t always get what he wants. Given the chance, the recipient would have purchased something else.

All of this follows directly from his underlying theory. In neoclassical economics, the consumer is best off when he chooses, within his means, the highest-rank good or service on his “utility” scale. If he can afford a steak, and he has to settle for a hot dog because the restaurant is out of t-bone, he experiences dead-weight loss. It’s even worse if he has to pay the price of steak and gets a wiener instead.

So it is with gifts. They generate a net loss, this theory says, unless the recipient would have otherwise purchased, with his own cash, precisely what he unwraps. Of course, this is rarely the case. To provide empirical meat to his theory, Professor Waldfogel interviewed students. The students received an average of $438 in gifts, for which these kids reported they would have paid only $313 if they had done the shopping themselves. The gap narrows when the gift is from a friend, and widens when it’s from the family.

Imagine Mr. Waldfogel attending your next Christmas gathering. Aunt Janie gives her nephews soap-on-a-rope, and they all praise her for her generosity and thoughtfulness. The economist then prods the youngsters to ‘fess up that soap-on-a-rope isn’t so great after all, and with the $9.95, they would have bought the newest Spice Girls tape. He declares the gathering a waste and encourages the party to break up in the interest of everyone’s economic welfare.

Professor Waldfogel proposes that we could eliminate these losses, which could be as high as $13 billion per year, by giving money instead of gifts, and letting the recipient spend it as he chooses. But then why not take matters one step further? What is the point of all this shuffling around of cash in the first place? According to neoclassical theory, it would be far better if everyone just clung to his own bank account and spent his own money as he saw fit. Indeed, we’d all be better off economically if Christmas were merely abolished—heck, maybe the Congress should do it—until such time as we all have perfect knowledge of each other’s preferences and are willing to act on them.

Far from being one man’s opinion, this thesis is becoming a classic “extra credit” question on microeconomics tests. Waldfogel is only distinguished for having formalized the model and tested it against his own students’ experience. The conclusion allows economists to presume they are smarter than the mass of the buying public, which persists in the irrational habit of buying things for each other instead of sending money or, even better, just spending it on themselves.

So, what’s wrong with the theory? Plenty. It equates personal utility with dollars spent, the classic conflation of value and price. In fact, a gift is a special kind of good with its own value. For example, we value the soap from the Aunt precisely because of its tie-in with familial affection. Even if the recipient would never have bought it, his personal utility is enhanced by the knowledge that his extended family is thinking about him and cares enough to give.

The source matters. If soap were given by a classmate who complains that you are odoriferously challenged, the “gift” is an insult in disguise. It has negative value. “Rich gifts wax poor when the givers prove unkind,” writes Shakespeare, who seemed to have a more complete view of economics than Professor Waldfogel. Neither is the person who receives a gift purchased under duress likely to be grateful. People on long-term welfare, for example, tend to think of taxpayers as suckers.

A comment later published in the same journal picked up on this. The authors (one from Harvard, one from the University of Miami) also did an empirical test. They used a different method (asking students about prices of specific gifts, not whole bundles), a larger sample of students (209 instead of 78), and asked more detailed questions. The results were the opposite of Waldfogel’s. The authors showed that more than half valued the gift above its retail price, suggesting that Christmas giving actually represents a gain in social welfare.

Moreover, these authors found that gifts asked for were less valued than gifts that were not. This fits with experience: we’re pleased to get what we want, but especially appreciative when we like something we had not expected. Indeed, good gift shoppers think about this ahead of time. They buy someone a tie he would never buy for himself. They buy items the receiver might be too modest or frugal to purchase himself, even if he had the resources.

Some items are just gifts and nothing more: fancy soaps, paisley boxer shorts, blankets with school logos, coffee cups printed with witty slogans, and the like. That’s why there can be such things as “gift shops” as distinguished from regular stores. Gifts have a different value because they are altogether different goods. They embody not only themselves but also their meaning. Imagine if someone came to dinner, and instead of bringing a bottle of wine, gave you $15 and told you to spend it on anything you wanted. It’s just not the same.

For his part, Waldfogel responds by accusing the authors of biasing their results. The very nature of their survey questions encouraged students to report “sentimental value” instead of pure “material value.” Going back to the drawing board, and correcting for this and other supposed errors, Waldfogel surveyed another group of students—455 this time—and still found a dead-weight loss, less than before, but a substantial one nonetheless. Christmas is inefficient: that’s his story and he’s sticking to it.

Of course there is no way to decouple one kind of value from another kind of value, since all economic value is ultimately subjective. Surveys can’t reveal what people value; only action in the marketplace does that. What’s deeply odd about this wrangling is that everyone seems to agree that only the value to the recipient should matter. That leaves out the really crucial point of gift giving: that it benefits the giver as well as the receiver.

People feel good in being generous, especially towards family and friends. Giving is an act of charity and liberality, virtues people practice because they’re good for the soul. And even if they aren’t, economists should follow the rule of “demonstrated preference”: if a person gives a gift, it is because he preferred giving the gift to keeping his own money. The action is “utility enhancing” on its own terms. Why? Because it, as opposed to something else, took place. Value is revealed in the preferences people demonstrate voluntarily. A well-chosen gift also reveals something about ourselves: we care enough to make our affections known in a personal way.

Again, the problem of the welfare state presents itself. In its form of “charity,” people do not give voluntarily. So resistant are people to dumping billions of dollars on millions of freeloaders, that the government has to threaten them with fines and jail terms (that’s what taxation is) to get them to fork over this “gift.” No one demonstrates a preference for the welfare state (voting doesn’t count since people are not using their own resources to purchase the services for which they vote). This degree of redistribution has to be imposed. Taxation, in contrast to Christmas, is a clear example of a utility-reducing activity.

But economists of the neoclassical school have rarely bothered with such distinctions. Their theories leave little room for reflection on property rights, individual choice, and the distinction between market exchange and forced redistribution. For them, a mathematically determined standard of efficiency is the only test that matters. Not even an absurd conclusion—for instance, that giving gifts is inefficient—causes them to rethink their core theory.

Economists are hardly alone in this. Skeptics and opponents of the market economy have long had a beef with the idea of giving and charity, especially as it occurs at Christmas.

Perhaps the socialists have long understood something about Christmas that others, even advocates of the market, have overlooked. In the institution of the gift, we find a strong rationale for the establishment and protection of private property and the capitalist economy. In order to give, we must first produce, acquire, own.

G.K. Chesterton, a great defender of Christmas against English Puritans who regarded it as corrupt and pagan, observed that collective ownership would mean the end of voluntary giving. Moreover, he clarified, “giving is not the same as sharing: giving is the opposite of sharing. Sharing is based on the idea that there is no property, or at least no personal property. But giving a thing to another man is as much based on personal property as keeping it to yourself.”

And contrary to the complaints of materialism at Christmas, meaningful gifts can be as elaborate as gold, frankincense, and myrrh, or as humble as two fish and five loaves.

It’s no wonder, then, that history’s dreariest socialists have denounced Christmas. The economic core of its gift giving centers on private property, while its ethical core belies the claim that private property institutionalizes greed.

“There is the greatest pleasure in doing a kindness or service to friends or guests or companions,” wrote Aristotle in The Politics, “which can only be rendered when a man has private property. These advantages are lost by excessive unification of the state…. No one, when men have all things in common, will any longer set an example of liberality or do any liberal action; for liberality consists in the use which is made of property.”

As for intellectuals—economists no less—who have failed to understand this simple truth, it’s staggering to think of the dead-weight loss their ideas have imposed on society.

In A Stateless World, Can You Grow Veggies In Your Front Yard?

Authored by Ryan McMaken via The Mises Institute,

The Miami Herald reports that a local couple is going all the way to the state supreme court to fight a local ordinance banning front-yard vegetable gardens: 

Hermine Ricketts and her husband Tom Carroll may grow fruit trees and flowers in the front yard of their Miami Shores house...

 

Vegetables, however, are not allowed.

 

Ricketts and Carroll thought they were gardeners when they grew tomatoes, beets, scallions, spinach, kale and multiple varieties of Asian cabbage. But according to a village ordinance that restricts edible plants to backyards only, they were actually criminals.

 

“That’s what government does – interferes in people’s lives,” Ricketts said. “We had that garden for 17 years. We ate fresh meals every day from that garden. Since the village stepped its big foot in it, they have ruined our garden and my health.”

These sorts of stories pop up several times a year. They are often discussed at free-market oriented and libertarian sites to illustrate just the myriad of ways that the state interferes in our daily lives. Many times, they intervene to prohibit totally innocuous activities like growing a front-yard garden. 

What articles like these often fail to point out of course, is that these laws didn"t appear out of nowhere. They are often passed because some voters demanded the city council or the county commission pass laws prohibiting front-yard gardens, or backyard chicken coops, or other non-violent activities deemed by some to be a nuisance to the neighborhood. These laws then persist over time because the majority of voters either agree with the laws, or don"t feel strongly enough about the matter to demand a change. 

In Miami Shores, the law against front-yard gardens was likely passed because at least a few people felt that front yard gardens were not so innocuous after all. 

This situation illustrates, yet again, a problem with majoritarian government. If a majority of the citizens of Miami Shores — or whatever jurisdiction — hate front-yard gardens, then they likely to vote for candidates who will vote to ban them. The minority, of course, is simply out of luck.

The implied solution in many of these free-market publications is that government should just get out of the business of regulating front yards. OK. But then people will begin to ask the inevitable questions: 

• Should people be able to just dump garbage in their front yards then?


• Can they park a food truck there 24-hours a day and sell hamburgers out of them? 


• Can they put in their front yards a 20-foot sculpture of a jackalope? 

If the response is "of course not" then the next question is "why not?" or "so what is prohibited in front yards?" If a pile of old appliances is not acceptable in the front yard, why is a vegetable garden acceptable? What if many people think gardens are nearly as unsightly as an old car on blocks? 

You can probably figure out where this leads. We"re right back at regulating what people can do in their front yards. 

Indeed, when Ricketts laments that "government interferes in people"s lives" in response to the ban on her garden, one wonders if she"d be equally libertarian if her neighbors had piles of junk cars in their front yards. 

So, is there no solution here? Must we choose between bans on gardens on the one side, and piles of garbage on the other? 

The solution, of course, lies in decentralization and privatization. 

The Role of the Homeowners Association

Were local governments to totally abandon all regulations on neighborhood aesthetics, it"s easy to imagine what would happen next.1 Assuming, of course, that they were unable to convince local governments to ban allegedly "unsightly" features like front-yard gardens, those who hate the veggie gardens would then seek a solution in private homeowners associations.2

Those who want to be surrounded by neighbors who only plant nicely manicured lawns can have it — provided they find others willing to enter into a private agreement banning front-yard gardens. 

And this is exactly what many people do when they choose to move to covenant-controlled communities where they believe their "property values" will be protected by private agreements banning unsightly features to front yards or houses. 

People like to complain about their homeowners associations, of course, but there"s a reason they aren"t going away. The homeowner agreements don"t actually deter a large number of people from purchasing homes in those communities. Thus, the developers who sell houses there have little reason to believe consumers want a more laissez-faire neighborhood. Many residents actually like knowing that the local association won"t tolerate a weed-filled front yard or an old car up on blocks in the driveway. 

This is why the homeowners association became widespread in the first place: 

These developments were often more self-contained than the large-scale communities in that they maintained stricter standards regarding the appearance of the homes (both the structures and the landscaping). The general idea was that people who were looking for certain amenities (whether restrictions on pets or rules governing hedge planting) would be drawn to these communities; those who sought other amenities would look at other developments. 

Some homeowners association are more strict than others, but most are far more strict than the local municipal governments. Indeed, those who want front-yard gardens will probably find it easier to find a municipal government that tolerates them, than a private homeowners association. Finding a homeowners association that allows chicken coops is probably even harder. Many municipal governments, on the other hand, allow them. 

Decentralization Is the Key

A second option — decentralization — can achieve a similar result. 

Imagine, for instance, that Ricketts convinced a group of people on her side of town to form a secessionist neighborhood that was able to separate from the city of Miami Shores. It became West Miami Shores. 

The Ricketts and their neighbors would then get to have their front-yard gardens. This would also be good for the residents in Old Miami Shores. When potential new residents come looking around to buy a house in Old Miami Shores, the anti-garden people can simply say "you want a front-yard garden? Don"t move here, move over there."

Problem solved. 

Yes, it"s true that some residents in both areas will then have to move if they want to live in a neighborhood that favors their particular views on front-yard gardens. But at least now both groups have the option of getting what they want. 

In the absence of either of these options, we"re only left with a situation in which the majority can run untrammeled over a minority, and the minority has no escape.

Asset Prices Are "Prices" Too...

Authored by Thorstein Polleit via The Mises Institute,

We live in inflationary times.

Some people might consider this statement controversial. This is because these days inflation is widely understood as a rise in the consumer price index (CPI) of more than 2 percent per year. However, there are convincing reasons to question this viewpoint. On the one hand, the CPI does not include “assets” such as, for instance, stocks, housing, real estate, etc. As a result, the price developments of these goods are not accounted for by the changes in the CPI.

On the other hand, and even more essential, price changes of goods and services are associated with changes in the quantity of money. This is why economists used to understand a rise in the quantity of money as inflationary (and a decline in the quantity of money as deflationary): Without money sloshing around, there could not be a phenomenon like inflation — that is an ongoing upward trend in all prices of goods and services over time. The truth is that rising prices across the board is inextricably linked to money.

Asset Prices Are Prices

One indicator of an inflationary monetary development is the link between the US money stock M2 and nominal GDP. This ratio can be referred to as a measure of "excess liquidity." Since the outbreak of the crisis 2008/2009, excess liquidity has been growing strongly — as GDP growth lagged behind the increase in the quantity of money. Why? Well, a great deal of the monetary expansion has been driving asset prices upwards — most notably in the stock and housing market.

The Federal Reserve (Fed) has created yet another “inflationary boom." The US economy is fueled by extremely low interest rates, accompanied by additional credit and money growth created out of thin air. The monetary expansion leads to an artificial rise in consumption and investment spending, resulting in production and employment gains. Furthermore, the newly created liquidity finds its way into financial (asset) markets, driving up asset prices and even valuation levels.

How To Keep the Boom Going: More Inflation

To keep the inflationary boom going - and prevent the “bust,” - the Fed has to make sure that credit and money supply keep increasing and that, by no means less important, borrowing and capital costs remain at fairly low levels. That said, the ongoing inflationary policy must - and for political reasons most likely will - go on. Higher interest rates and a slowdown of credit and money creation would take away the punch bowl - and the party would come to a shrieking halt. The economic boom would turn into bust.

Inflation only works if it comes unnoticed, if there is “surprise inflation.” However, as soon as people find out that the purchasing power of money goes down more than they had expected, the chickens come home to roost: People factor in higher inflation into their contracts for wages, leases and credit. If this happens, there is no longer surprise inflation, and inflation loses its power to stimulate the economy (through misleading price signals, that is).

A central bank that wants to keep the boom going and prevent the bust is left with just one option: it has to create a higher dose of surprise inflation. The reader may already know what such an “inflation game” is leading to. It puts the economy on a high-inflation road or, in the extreme case, a super-inflation road or even a hyper-inflation road that will ultimately destroy the purchasing power of the currency.

Why There Is No Perceived Crisis

So far, financial markets have remained fairly relaxed. Inflation is not seen as a major problem as proven by, for instance, inflation expectations. How come? There might be two reasons for this. First, the majority of people derive their inflation expectations from experienced CPI inflation (we can speak of “adaptive inflation expectations”). As the latter has been relatively low for many years, people do not expect inflation to edge up in the years to come.

Second, many people still do not seem to realize that “asset price inflation” ruins the purchasing power of money in the same way as CPI inflation does: If you want to buy stocks, houses or land with your money, you will get less for your money if prices for these goods go up. However, as long as asset price inflation is not understood as a form of "true inflation," inflation expectations are tamed, and central banks can continue their inflationary scheme. 

Against this backdrop we can draw two conclusions. First, inflation is alive and kicking, it is currently raging in asset price increases. Second, an inflationary boom runs the risk of turning into a bust at some point — a scenario which would hit the economy, the financial system, and asset prices hard. Unfortunately, one cannot forecast (with any scientific precision) when the boom will turn into bust; it really depends on certain conditions.

That said, the current boom may go on for quite a while — with the economies keeping expanding and asset prices rushing from one record level to the next. However, we do know from sound economics that the current inflationary boom — which is presumably welcomed by many as it provides more jobs and additional incomes — is actually sowing the seeds of a bust.

The investor should keep in mind that central banks do not only set into motion an inflationary boom in the first place (which will end in tears), but that they will fight an approaching bust with even more inflation (by increasing the quantity of money even further). That said, investors are well-advised to live up to a rather uncomfortable truth: We"ve had inflation, and there will be more of it. Money will continue to lose its purchasing power.

The Non-Crime Of "Lying To The FBI"

Authored by Ilana Mercer via The Mises Institute,

In a fit of pique in 2016, then-President Barack Obama expelled Russian diplomats from the United States. K. T. McFarland, Michael Flynn"s deputy in the Trump transition team, worried that Obama"s expulsion of the diplomats was aimed at "boxing Trump in diplomatically," making it impossible for the president to "improve relations with Russia," a promise he ran on. (For her perspicacity, McFarland has since been forced to lawyer-up in fear for her freedom.)

To defuse President Obama"s spiteful maneuver, Flynn spoke to Ambassador Kislyak, the upshot of which was that Russia "retaliated" by inviting US diplomats and their families to the Kremlin for a New Year"s bash.

Was a crime committed by Flynn in this exchange and subsequent meeting? Not according to the FBI. Laying the cornerstone for the president-elect"s promised foreign policy - diplomacy with Russia - is not illegal.

Perversely, however, lying to the US Federal Government’s version of the KGB (the FBI) - which apparently does its own share of lying - is illegal.

An easy way for the government to create criminality where there is none is to make it a crime to lie to its agents, in this case the FBI, which is Deep State Central. The object of creating bogus categories of crime, naturally, is to leverage power over adversaries; to scare them.

Likewise was Martha Stewart imprisoned — not for the offense of insider trading, but for lying to her inquisitors. During interrogation, the poor woman had been so intimidated, so scared of conviction— wouldn"t you? — that she fibbed. The lead federal prosecutor in her case was the now-notorious James B. Comey. (See "Convicted For Fearing Conviction")

This kind of entrapment — the criminalization of the act of lying to the government, in Flynn"s case about a non-crime — is facilitated under the unconstitutional Section 1001 of Title 18, in the United States Code.

It makes it an offense to make "a materially false" statement to a federal official — even when one is not under oath.

It"s perfectly fine, however, for said official to bait and bully a private citizen into fibbing. By such tactics, The State has created a category of crime from which a select few are exempt.

Is this equality under the law or inequality under the law?

Section 1001 neatly accommodates a plethora of due-process violations.

Yet another tool in the Deep State toolbox is to lean on family members in order to extract a confession. To get Flynn senior to confess, U.S. Special Counsel Robert Mueller is purported to have threatened Mike Flynn junior with a legal kneecapping.

Ultimately, The State has overwhelming power when compared to the limited resources and power of an accused. The power differential between The State and an accused means he or she, as the compromised party, will cop a plea.

The Flynn guilty plea bargain, if you will, is nothing more than a negotiated deal which subverts the very goal of justice: the search for truth.

In the process of hammering out an agreement that pacified a bloodthirsty prosecutor, Flynn"s punishment for doing nothing wrong has been reduced.  President Trump"s former national security adviser will still have to sell his home to defray the costs of a federal onslaught.

 

Is The NFL"s Problem "Poor Product", Not "Disrespect"?

Authored by Doug French via The Mises Institute,

President Trump has lambasted the NFL more than 20 times for players’ “Total Disrespect of Our Great Country.”

Ratings are down for NFL games and Trump figures it’s because some players aren’t standing, hand over heart, and mouthing the words to the national anthem.

Trump may have made some political hay out of all this, but one only has to follow the money to learn the real reason pro football ratings are down - competition from college football.

The fact is, “Their product isn’t very good these days,” Nick Bogdanovich told the Las Vegas Sun. He is the chief oddsmaker for William Hill, which operates 107 sportsbooks in Nevada.

The league that used to claim any team could win on “any given Sunday” has turned into a predictable “If you have a quarterback, you have a chance. If you don’t, you don’t,” as Ben Volin wrote of the Boston Globe at the finish of last year’s regular season. As evidence, he pointed to “the four quarterbacks remaining in the playoffs — Tom Brady, Ben Roethlisberger, Aaron Rodgers, and Matt Ryan.”

Jimmy Vaccaro has been running sports books for four decades. He says, it used to be, “Nearly $4 on the NFL for every buck on a college game.” That is no longer the case. Now it is more like 60–40 with the college betting handle gaining.

Joe Drape writes of the sportsbook legend,

And when Vaccaro says he is becoming bearish on the betting health of professional football, you lean in and listen. Last month, for three consecutive weeks, for the first time that he can remember, betting on college football at South Point surpassed betting on the NFL, by as much as $400,000.

The Wall Street Journal did a study back in 2010 and found that of the 174 minutes of an NFL broadcast there was 11 minutes of game action. The WSJ found there was about 60 minutes of commercials and “As many as 75 minutes, or about 60% of the total air time, excluding commercials, is spent on shots of players huddling, standing at the line of scrimmage or just generally milling about between snaps.”

This has only become worse with the advent of constantly replaying questionable calls. Meanwhile, many college teams have gone to the no-huddle offense to squeeze in more plays.

Making accurate point spreads on 16 pro games is much easier than getting 50 college games right.

“There’s more volatility and room for mistakes in the college game,” John Avello, a bookmaker at the Wynn Las Vegas, told the Sun. “You can find an edge there, and that is what gamblers do. We are hard to beat when it comes to the NFL.”

Professional gambler Chris Lawless wagers more on college games not only because there are flawed betting lines to take advantage of, but also because the games are more enjoyable.

“There are more momentum shifts and more exciting plays and more passion,” Lawless said.

Vaccaro believes betting on college football will continue to gain on NFL action. Overall, Nevada sports books are expected to post their eighth consecutive year of record handle, with Las Vegas taking in $5 billion in sports wagers.

September saw Nevada set a new betting handle record of $558.4 million, and the Nevada Gaming Control Board has now revealed that the handle in October came in at $522 million, the best-ever performance by Nevada sportsbooks in the month of October, as well as the third consecutive month of a betting handle in excess of $500 million.

Why Eliminating The State And Local Tax Deduction Is A Terrible Idea

Authored by Ryan McMaken via The Mises Institute,

The tax "reform" currently being discussed in Washington is mostly a political exercise for politicians who can use the process to extract more campaign contributions from supporters, and punish non-supporters. The actual tax burden imposed on Americans overall will change little.

The proposed elimination of the deduction for state and local taxes (SALT) is an excellent illustration of how the tax reform is really about playing political games. Forever in pursuit of "revenue neutral" tax reform, the GOP is simply turning to the elimination of the SALT deduction so it can raise federal revenues, and this allows for a tax cut for some other well-heeled special interest group. Using bizarre "logic," supporters of the deduction"s elimination claim that an increase in the federal tax burden will somehow lower state and local taxes — some day. Why? They imagine that if they raise federal taxes for people in states with high taxes (i.e., California, New York) then the majority of voters in those states will then be clamoring for a cut in state and local taxes. The GOP also relies on the tired claim that that a tax deduction (e.g., the home mortgage interest deduction) "subsidizes" those who claim the exemption. But only in the Orwellian world of Washington doublespeak is a tax break a "subsidy."  Moreover, given that states like California and New York are among the least reliant on federal funds, claiming that taxpayers there are "subsidized" by the rest of the country is an odd claim indeed.

There are several problems with this approach...

First of all, the SALT  deduction — like all federal tax increases —  will drive ever more tax revenues to the federal government, putting more power, both in relative terms and absolute terms, in the hands of the federal government. This is one reason federal tax increases are even worse than state and local tax increases. They skew political power in the US ever more toward the federal government. By increasing the federal government"s share of all tax revenues collected, the federal government will also then be in a better position to manipulate state governments and state policymakers with federal grants. The federal government does this today by using federal highway funds. As the old saying goes, "he who pays the piper calls the tune." 

An additional problem is that the elimination of the deduction is specifically aimed at increasing federal power at the expense of state and local power. There is no doubt that some conservatives and libertarians will cheer this. For many of them, the federal government and the county government are pretty much the same thing. In their minds, a Congress of out-of-touch millionaires 2,000 miles away is more or less the same thing as — or maybe even preferable to — a cash-strapped local government headed by middle-income part-time legislators.

This naive attitude is totally understandable for those who have never witnessed the very real differences between Washington politics and the politics of the local city council. But, there is a reason that subsidiarity and decentralization in politics have long been foundational elements of libertarian ideologies. Decentralization weakens political institutions, increases options for taxpayers, and contributes to a more vibrant private sector. 

The GOP"s efforts at eliminating the state and local tax deduction works in the opposite direction. The reform"s likely effect will be to further federalize the tax burden while making states more reliant on federal programs and federal grants. 

Americans Pay Most of their Taxes to the Federal Government 

At the core of the GOP"s drive to eliminate the SALT deduction is the assumption that state and local taxes are "too high" while federal taxes are apparently either just right, or even too low.  

But, it"s hard to see how anyone could come to the conclusion that the federal tax burden is the more harmless piece of the puzzle. The federal government already — by far — receives the largest share of the tax revenue pie.

If we look at how much Americans pay to each level of government, we find that the federal government receives approximately two-thirds of all tax revenue, while only one third goes to state and local governments — combined.

In 2016, the federal government collected more than $3.4 trillion dollars in revenue via income taxes, customs duties, fees, and revenues from federally-owned lands. 

State governments, on the other hand, collected only $1.1 trillion in revenues. Local governments pulled in even less, with under $800 billion in revenues.

What the GOP is now telling us is that the federal government"s huge share of the pie is too small, and federal revenues ought to be increased further via elimination of the deduction. This, we"re then told, will lead to declines in state and local taxes. 

The GOP doesn"t mention, naturally, that state and local governments are already falling in their share of overall tax collections. 

During the current economic expansion, the share of local tax collections — as a percentage of all tax collections — dropped from 17 percent to 15 percent. State tax collections meanwhile dropped from 22 percent to 20 percent. The federal government"s share of the pie, however, increased from 60 percent to 64 percent. 

The federal government now controls nearly two-thirds of all revenues paid into governments in the United States, and if current trends continue, we may soon see the feds in control of 70 percent, or maybe even three-fourths of all tax revenue. 

If this is the GOP"s plan, this is a rather odd position to take for a political coalition that claims to be in favor of "local control" and decentralization and federalism. In reality, the outcome of this war on the SALT deduction is to make the American political system even more dominated by federal power. 

Federal Revenues vs. State Revenues 

Even in high-tax states, the federal government plays a disproportionately large role in tax collection.

If we compare state tax collections to IRS collections in each state, we find that taxpayers pay much more to the federal government than they pay to the state government. 

In California, for example, the federal government collects $405 billion from California taxpayers. The state government, meanwhile, collects $155 billion. Federal revenues in California are more than two-and-a-half times as large as state-level revenues. 

In many states, of course, the results are even more lopsided. 

In Minnesota, for example, federal revenues are more than four times the size of state revenues. In Colorado, federal revenues are more than three times the size of state revenues. 

We don"t have data on specific local revenues here, but given that local revenues make up only 15 percent of tax collections nationwide, its a safe bet that federal taxes are considerably larger than local revenues in most cases. 

And yet, to hear the GOP tell it, its state and local taxes that are imposing the real burden on Americans. Their solution? Pay more taxes to the federal government! 

Decentralize the Taxes 

None of this is to say that state and local taxes are a good thing. There is no shortage of waste, corruption, and cronyism at the state level — but compared to the federal government the dollar amounts are tiny in state-level boondoggles. 

Nevertheless, the diversity of tax regimes across states and localities has long been one of the good things about the relatively decentralized political system in the United States. 

As we"ve already been seeing, this reality has allowed countless productive Americans to vote with their feet and to move from high tax jurisdictions to low tax ones. This phenomenon thus imposes pressure on many jurisdiction to keep taxes low compared to other nearby jurisdictions. This is known as "tax competition" and it results only when states and localities have considerable autonomy over their tax rates.

Unfortunately, tax competition is restrained by the fact that tax revenues in the United States are primarily a federal matter. Taxpayers thus have far less power to change their tax fortunes by moving across state lines that would be the case in a truly decentralized system. 

The downside to local autonomy, of course, is that some states and localities will have especially high taxes. The solution to this, of course, is to avoid investing in those areas until tax competition is sufficient to force more restraint on tax rates. 

Raising federal revenues via eliminating the SALT deduction — as the GOP seeks to do — is hardly any sort of solution at all. Indeed, Congress should be moving in the opposite direction. Instead of eliminating the deduction, Congress should substitute a tax credit instead. Every dollar that state and local taxes increase would lead to an equal drop in federal taxes. Then, we might start to see some real diversity in tax burdens across the United States. 

In reality, we"re seeing quite the opposite. Our current situation is made worse as federal taxes make up a larger and larger share of the overall American tax burden. This leads to greater homogenization of tax rates across the United States, which makes it even harder to escape from especially bad tax policy. If the tax burden is ever "equalized" across all states, then taxation will all simply be equally bad nationwide, and moving across state lines will bring no relief.

Will Americans Die Young Enough To Save Pension Plans?

Authored by Doug French via The Mises Institute,

“Pension fund problems worsen in 43 states” says the Bloomberg headline.

Laurie Meisler writes,

New Jersey, Kentucky and Illinois continue to lose ground and now have only about one third of the money they need to pay retirement benefits. And three states had double-digit declines in their pension funding ratios in the past year: Colorado, Oregon and Minnesota - though some of this can be attributed to actuarial changes in the way pension liabilities are calculated.

Nevada PERs is thinking about making a change, from assuming 8% investment returns to 7.5%. The higher the assumed rate, the less future beneficiaries have to contribute.  And, ultimately, Sean Whaley writes for the LVRJ,

The assumptions are used to ensure the solvency of the plan over the long term for the approximately 105,000 active members and 54,000 retired and disabled members. Because the public retirement plan is a defined benefit plan where retirees get a fixed monthly pension, taxpayers are ultimately responsible for its fiscal health.

Nevada PERS Executive Officer Tina Leiss said NvPERs funding ratio of 74.1 could drop if the returns assumption is lowered.

The good news (or maybe it"s bad news) is “Americans are retiring later, dying sooner, and sicker in-between” says Bloomberg. Ben Steverman writes,

Data released last week, reports Bloomberg,  suggest Americans’ health is declining and millions of middle-age workers face the prospect of shorter, and less active, retirements than their parents enjoyed.

The mortality rate increased 1.2% from 2014 to 2015, the first time its increased since 2005 and the first time it"s jumped over 1% since 1980.

Full social security benefits don’t kick in until a person is 66+ now, so,

“Almost one in three Americans age 65 to 69 is still working, along with almost one in five in their early 70s.”

That sounds okay, except, University of Michigan economists HwaJung Choi and Robert Schoeni have studied middle-aged folks and found,

“the number of middle-age Americans with ADL (activity of daily living) limitations has jumped: 12.5 percent of Americans at the current retirement age of 66 had an ADL limitation in their late 50s, up from 8.8 percent for people with a retirement age of 65.”

Then you might say, well, I might not be able to get around, but at least my mind is sharp. Except, “Cognitive skills have also declined over time. For those with a retirement age of 66, 11 percent already had some kind of dementia or other cognitive decline at age 58 to 60, according to the study. That’s up from 9.5 percent of Americans just a few years older, with a retirement age between 65 and 66.”

Maybe that’s why people are either killing themselves quickly - suicide - or slowly with alcohol, drugs, or overeating.  

This is all good news for pension plans...

As life expectancy drops - The Society of Actuaries says a 65-year-old man can expect to live to 85.6 years, and a woman can expect to make it to 87.6.

So - the group calculates a typical pension plan’s obligations could fall by 0.7 percent to 1 percent.

That"s a start but it won’t do much good, in New Jersey, Kentucky and Illinois.

*  *  *

Simply put, we"re gonna need a bigger die-off - or perhaps a few more years of unhealthy living will start to really help.

The Government Has Created Every Step In The Development Of The Opiod Crisis

Authored by Mark Thornton via The Mises Institute,

The Washington Post and “60 Minutes” have just peeled back another sordid layer in the War on Drugs by exposing Big Pharma’s role in expanding the Opiod Crisis that has resulted in more than 30,000 deaths per year.

All the disgusting details can be found here, but it is really a straight forward case of legal bribery and corruption in the market for legal opiates — the driving force in this crisis as doctors continue to turn untold thousands of innocent people into opiate addicts.

Opiate medicines have been a Godsend to humanity, but it comes also with scourge of addiction, dependence, and overdose deaths. The Harrison Narcotics Act of 1914 made the situation worse thanks to the meddling of federal bureaucrats who turned regulation and oversight into prohibition.

One of the most demaging side effects of federal meddling in drug markets, however, has been the Opiod Crisis. I have detailed here and here the primary cause as Big Pharma bribing the board responsible for setting pain maintenance guidelines and the resulting explosion of prescriptions for Opiod drugs by doctors.

The newest wrinkle uncovered shows that pharmaceutical drug distributors have paid off select members of Congress to rewrite the enforcement guidelines for the Drug Enforcement Agency (DEA). A good case in point is Representative Tom Marino who withdrew his name from consideration as President Trump’s Drug Czar.

The new guidelines and their enforcement have effectively neutered any restraint on pharmaceutical producers and distributors. They can sell untold millions of these pills to pharmacies and pain clinics without any constraints. The additional cost of producing these heroin-like pills is virtually zero.

Is Bribery and Corruption a Good Thing?

Normally, bribery and corruption of public officials is a good thing because it allows more producers and more consumers to obtain gains from trade from each other. Such is not the case with prescription opiates in this environment.

The problem here is that there is not a functioning marketplace at all when it comes to distribution of prescription opiates. It is a government-granted monopoly in every respect. The products we are examining have not passed the market test and the producers are effectively protected by the government against torts, liability, and claims of misrepresentation.

In addition, pharmaceutical drugs have been approved by the Food and Drug Administration (FDA) and, essentially, the FDA grants monopolies to drug companies for their patented drugs and gives them an FDA seal of approval that the drugs are safe and effective.

Then another government-created monopoly, the American Medical Association (AMA) and its doctor-members have the monopoly on writing the necessary prescriptions to obtain drugs from yet another monopoly the pharmacists.

A doctor’s prescription is essentially another AMA seal of approval that the vast majority of people do not even question or even concern themselves with what they are taking. All of these monopolies are usually protected when consumers die as long as it happened when all the monopoly rules are followed.

Thus, with these products, like Oxycontin and Vicodin, there is no attempt to pass the "market test" by seeking to primarily please consumers. Instead, consumers end up being an afterthought after producers of the drug have catered to the needs and desires of countless regulatory agencies.  In real free market competition, an entrepreneur of dangerous products has to assure consumers that the products are safe and effective enough to use compared to the alternatives.

Opiates in Unhampered Markets

In other words, pain medications do not have to be perfectly safe and perfectly effective to be the best alternative choice for people who suffer with pain. However, they have to be reasonably safe and effective. The high potential for addiction, harm to health, and even death would be a “competitive disadvantage” in a real free market.

Just the opposite is the case here.

The government has created and overseen the creation of every step in the development of this crisis. The fact that crony capitalists have taken advantage of the situation should not be a surprise, especially when it is the only way to legally participate in the pharmaceuticals "market." 

 

What Makes A Good Economic Model?

Authored by Frank Shostak via The Mises Institute,

In order to make the data "talk," economists utilize a range of statistical methods that vary from highly complex models to a simple display of historical data. It is generally held that by means of statistical correlations one can organize historical data into a useful body of information, which in turn can serve as the basis for assessments of the state of the economy. It is held that through the application of statistical methods on historical data, one can extract the facts of reality regarding the state of the economy.

Unfortunately, things are not as straightforward as they seem to be. For instance, it has been observed that declines in the unemployment rate are associated with a general rise in the prices of goods and services. Should we then conclude that declines in unemployment are a major trigger of price inflation? To confuse the issue further, it has also been observed that price inflation is well correlated with changes in money supply. Also, it has been established that changes in wages display a very high correlation with price inflation.

So what are we to make out of all this? We are confronted here not with one, but with three competing "theories" of inflation. How are we to decide which is the right theory? According to the popular way of thinking, the criterion for the selection of a theory should be its predictive power. On this Milton Friedman wrote,

The ultimate goal of a positive science is the development of a theory or hypothesis that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed.

So long as the model (theory) "works," it is regarded as a valid framework as far as the assessment of an economy is concerned. Once the model (theory) breaks down, we look for a new model (theory). For instance, an economist forms a view that consumer outlays on goods and services are determined by disposable income. Once this view is validated by means of statistical methods, it is employed as a tool in assessments of the future direction of consumer spending. If the model fails to produce accurate forecasts, it is either replaced, or modified by adding some other explanatory variables.

The tentative nature of theories implies that our knowledge of the real world is elusive.

Since it is not possible to establish "how things really work," then it does not really matter what the underlying assumptions of a model are. In fact anything goes, as long as the model can yield good predictions. According to Friedman,

The relevant question to ask about the assumptions of a theory is not whether they are descriptively realistic, for they never are, but whether they are sufficiently good approximation for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.

Why the Predictive Capability for Accepting a Model Is Questionable

The popular view that sets predictive capability as the criterion for accepting a model is questionable. Even the natural sciences, which mainstream economics tries to emulate, don"t validate their models this way. For instance, a theory that is employed to build a rocket stipulates certain conditions that must prevail for its successful launch.

One of the conditions is good weather. Would we then judge the quality of a rocket propulsion theory on the basis of whether it can accurately predict the date of the launch of the rocket? The prediction that the launch will take place on a particular date in the future will only be realized if all the stipulated conditions hold.

Whether this will be so cannot be known in advance. For instance, on the planned day of the launch it may be raining. All that the theory of rocket propulsion can tell us is that if all the necessary conditions will hold, then the launch of the rocket will be successful. The quality of the theory, however, is not tainted by an inability to make an accurate prediction of the date of the launch.

The same logic also applies in economics. We can say confidently that, all other things being equal, an increase in the demand for bread will raise its price. This conclusion is true, and not tentative. Will the price of bread go up tomorrow, or sometime in the future? This cannot be established by the theory of supply and demand. Should we then dismiss this theory as useless because it cannot predict the future price of bread?

Or consider a situation when a stock market is following an "up" trend over several years. As a result, an analyst has established that it is possible to outperform the stock market by following the barking of a dog.

If the dog barks three times it is a buy and if he barks once it is a sell. Should such a framework be accepted as a valid theory because it makes good forecasts?

Contrary to the popular way of thinking the criteria for selecting a model is not how well it worked in the past — i.e. passed the criteria of back testing and a life test — but whether it is theoretically sound.

Is Population Decline Catastrophic?

In the 1970’s we heard the earth was going to get so crowded we’d be falling off. Now the panickers have flipped to population decline. They were wrong in the 70’s, so are they wrong again? Is a declining population catastrophic?

Countries from Germany to Japan are investing in mass immigration or pro-birth policies on the assumption that they must import enough warm bodies to stave off economic collapse. I think this is mistaken.

Falling population on a country level is certainly no catastrophe and, indeed, may be positive. I’ll outline some reasons here...

Historically, the first question is why population declined. If it’s the Mongols invading again then, yes, the economy will suffer. Not because of the death alone, but because wholesale slaughter tends to destroy productive capital as well.

On the other hand, if the population is declining from non-war, we have a well-studied natural experiment in the Black Plague. Which is generally credited with the “take-off” of the West. Because if the population declines by a third while capital including arable land stays the same, you get a surplus. Same resources divided by fewer people.

Think of zombie movies where dude’s running around with unlimited resources at his disposal — free cars, riverfront penthouses. That, in diluted form, is what a declining population gives us — more land, more highways or buildings, more resources per person.

Now, if the population’s declining not because of a terrible disaster like the Plague, rather because people simply want fewer children, then you don’t even get the massive hit from losing productive people. A worker dying at 40 takes a lot of productivity with him, while a child unborn isn’t actually destroying anything but hopes and dreams.

So if the Plague was a per capita economic bonanza to Europe, having fewer children should be an even larger per capita bonanza.

Take Germany; before recent rises in immigration, Germans averaged 1.25 children per woman. This translates into a 1/3 decline in population per cycle (i.e every 75 years if people are living 75 years). So without immigration, Germany might expect a 1/3 decline by 2100. Is this good or bad?

The question breaks into 2 parts: absolute number of people, and changes in age composition. On numbers alone, it’s great for Germans; same physical capital, same amount of land and air and water. True there are fewer taxpayers to amortize shared costs like defense, but these costs are small and, empirically, often scale to the population anyway. For example Holland’s military budget and population are both about 1/5 of Germany’s.

So on numbers it’s great — more stuff for fewer people.

Now the second question is age profile. The key here is that a declining population means fewer working-adults to pay out pensions, but it also means even fewer kids. Who are very expensive. The number that captures both is “dependency ratio,” which is the ratio of workers to children-plus-elderly.

To take a real-world example, the UN expects Germany in 2100 to have 68 million people, compared to today’s 82 million — about a 20% decline. The age profile shifts so they expect a third more over-65’s — from 17 to 23 million. Meanwhile, children 14 and under fall from 11m to 9m. So total dependents goes from 28 million today to 32 million in 2100. Meanwhile, population age 15 to 64 goes from 54 million today to 36 million in 2100. Upshot is today a single working-age person supports half a dependent — 54 million carrying 28 million. But in 2100 that worker will support a single dependent — 36 million carrying 32 million. So far so bad, right?

Well, there are 2 big caveats here, both based on long-lasting trends.

First, for over a century now people are not only living longer, but living healthy longer. This is called “health expectancy” and, sticking with Germany, is rising by about 1.4 years per decade.

This implies that 65 year-olds in 2100 will be as healthy as 53 year-olds today. While today’s 65-year-olds are as healthy as 2100’s 78-year-olds. This alone would bring the elderly numbers back down to today’s, but the lower number of children means worker burdens actually decline.

Of course, this would require raising retirement ages in line with health expectancy - 1.4 years per decade - which politicians are obviously deeply reluctant to do.

Second caveat is another long-term trend, economic growth. The irony here is that, from a population growth viewpoint, economic growth is actually the worst-case scenario. Because if the economy crashes instead, then historically the population actually soars — kids become your safety net if the welfare state goes bankrupt. So if we fail to grow, the demographic problem actually solves itself anyway. Either we grow, or population decline was a false alarm anyway.

Quantifying this growth, over the past 50 years Germany has grown 1.65% per year, real per capita. That trends puts a 2100 German worker making 4 times what they do today. Keep in mind this is likely underestimating the benefit, because any outperformance makes Germans richer yet, while any catastrophe probably makes them have more kids.

So, summing up, rising health expectancy implies there will actually be fewer dependents in 2100 Germany, while economic growth implies German workers will be 4 times richer, just on growth alone. The demographic burden plunges by 80% or more.

By the way, if you’re freaked out at the prospect of working an extra 1.4 years per decade, that economic growth alone suggests a 50% decline in worker burdens - twice the dependents on four times the income. So even if politicians are spineless, the welfare burden declines even with more dependents.

Bottom line, whether we look at total numbers or demographically, population decline coming from simply choosing to have fewer kids is nothing remotely catastrophic.

Now, a final point: in a worldwide context, more people does tend to increase investment, therefore innovation and economic growth. This is obvious in the aggregate - there wouldn’t be any factories if there weren’t any humans - but people forget. So, on a world-wide level, we should have a bias towards more humans, while recognizing that, on a country level, a shrinking population is certainly no catastrophe.

After Vegas Shooting, It's Time To Take Private Security Seriously

Authored by Ryan McMaken via The Mises Institute,

In the wake of the Aurora Theater shooting, I suggested that private sector establishments ought to be expected to be more concerned about the safety of their customers. In the case of the Aurora Theater, this was magnified by the fact that the theater was a "gun free zone" and did not allow patrons to carry their own firearms as self defense. At the same time, the theater owners themselves couldn"t be bothered with taking even the most rudimentary steps against allowing a gunman to casually carry multiple weapons from his car into one of the theater"s back doors. 

The issue came up again with the Orlando shooting in 2016, when the perpetrator simply walked into a private establishment with a rifle and started shooting. Again, we find ourselves with a situation in which the owners of a private establishment refused to take simple steps such as checking entrances for people with rifles, or employing reasonably well-trained security personnel to be present inside the club. 

I wasn"t the only one to suggest that maybe, just maybe, private establishments such as the Orlando nightclub and the Aurora Theater may share some responsibility in preventing violence on their own premises. 

In response to this position, numerous commentators - mostly conservative and libertarian - took the position that it is outrageous to expect private owners to take steps to prevent events like these. At the time, I noted Reason magazine"s response as representative of this type of thinking:

Reason magazine has ... hopped on the bandwagon of pre-emptively and unconditionally absolving the theater owners of any possible responsibility. Reason writer Lenore Skenazy claims that a focus on worst-case scenarios is "worst-first thinking" and that such thinking "promotes constant panic. The word for that isn"t prudence. It"s paranoia."

In other words, Skenazy"s position is that private owners should simply assume terrible things won"t happen and proceed accordingly. If bad things do happen, then let"s all just throw our hands in the air and declare "who woulda thunk?" 

This sort of thinking results in what security consultant Bo Dietl calls  the "panic, forget, repeat." It"s not a serious approach to security. 

Unfortunately, this problem has become apparent again with last weekend"s shooting in Las Vegas which has so far claimed at least 59 lives, making it the worst mass shooting in modern American history.

To perpetrate the shooting, the shooter used the Mandalay Bay hotel as a sniper"s nest from which to rain down death on a crowd assembled at a nearby music festival. (Both the hotel and the venue are owned by MGM Resorts International.)

At the same time, it appears the organizers of the event did not take steps to prevent a shooting of this nature. The police response to the shooting, not surprisingly, appears to show disorganization and lack of knowledge about the situation. 

The State Protects Its Own

Some readers will scoff and say "how could anyone be expected to anticipate a sniper situation like this?"

In response, I suggest this thought experiment: imagine that a US president or any important political figure were present at the music festival. What do you think security would have looked like? There would have been well-trained security personnel stationed to keep an eye out for snipers, with spotters and "good guy" snipers all around. 

Obviously, we would have found out that looking for the worst-case scenario would suddenly have mattered when "important" people are involved. But protecting ordinary members of the public? Well, that"s just "paranoia," we"re told. The state, of course, is highly invested in protecting its own personnel and its own interests. The organizers of the music festival, however, appear to have relied on blind faith as their primary defense. 

The importance of competent professional private security in this case is also illustrated by the fact that a large number of private individuals armed with side arms would have done little to prevent the situation. Even if festival-goers on the ground had been able to quickly spot the source of the gunfire — which itself seems unlikely — a handgun would have been of little use. The often-repeated claim by gun-rights activists that conceal-carry is the answer to all shootings falls flat in this case. 

Inaction from Public and Private Police Forces 

Private security weren"t the only ones who appear to have taken a rather lackadaisical view of the situation. 

Interviewed in the wake of the Las Vegas shootings, The Boston Herald interviewed former Boston Police Commissioner — and current security consultant — Edward Davis about the situation. Davis notes: 

There"s always been a fear — not so much among the security chiefs, but by the police out here — that there would be an attack. It is their worst fear coming true.

There are two things we can take away from this claim. First of all, assuming Davis is right, we learn that the private sector security chiefs weren"t terribly concerned about this situation arising. Second, we learn that the public-sector police were concerned about it. Yet, it appears that nothing was done to address the fear by either group. 

Moreover, Las Vegas has long been recognized as a target for terrorism, given its iconic status. "This is, just on its face, a big glaring target for Islamic terrorists," Davis added. (Davis is right that it"s a target. But he"s wrong that only "Islamic" murderers are interested.) 

Davis also confirms our suspicion that the safety of government personnel in the area have been a subject of worry, in regards to security. The general public? Not so much:

Working on presidential visits and with the Secret Service, snipers are a concern for them, but you don"t think about it around a concert.

And why not consider security around a concert? Are we already incapable of remembering the Paris theater shooting of 2015? This sort of amnesia-based thinking is apparently the best that our security personnel have to offer. Had security personnel and their employers been taking the situation seriously, they might have concluded that the chosen locale for the event could not be conducted while offering sufficient security. Certainly, were the Secret Service to conclude that a location can"t offer sufficient safety for a political figure, they would recommend against that political figure accepting the risk at all. Perhaps concert organizers in Vegas should bring the same level of scrutiny to their own events. 

The Imagined Cure-All: Gun Control 

Predictably, in the wake of the shooting, gun control advocates have already seized on the tragedy to push for preferred legislation. They like to portray the US as an exceptionally violent place, and claim the reason is too little gun control. 

Forgotten, of course, is the French Bataclan Theater shooting, which resulted in 130 deaths. Forgetten, of course, is the 2016 Brussels airport bombing which took 35 lives. Forgotten is the spate of car-rammings, including the Nice, France, massacre which alone took the lives of 86 innocent people. 

Indeed, if we look at mass-murder events such as these public rammings and shootings in 2016 and 2017 - and thus excluding the 2015 Bataclan Theater shooting - we end up with a total of approximately 140 victims in Western Europe, and around 120 victims in the US (this includes the Orlando shooting.) This alleged juxtaposition between chaotic America and serene Europe appears to be rather misplaced.

Moreover, as total gun sales in the US climbed repeatedly in the 1990s and the 2000s, homicide rates fell. Stringent gun control laws are common in Latin America, yet homicide rates are much higher in that region than in the more laissez-faire United States. Clearly, gun control does not explain away differing levels of violence absent consideration of other factors. 

Government Won"t Protect Us 

Shootings in night clubs and theaters simply are not matters requiring national policy. Nor is the challenge of stopping terrorists from driving trucks through crowds of revelers, as has happened repeatedly in Europe in recent years. Prevention in these cases require that security personnel on the scene employ competent security to control what goes on inside their own buildings and venues. 

The knee-jerk appeal to national policy such as nationwide gun control, however, highlights what happens when the private sector blithely relies on a disinterested government to provide security instead. In the US, the Supreme Court has ruled (in Castle Rock vs. Gonzalez) that police are not obligated to provide protection to citizens. As a result, de facto policy is that the lives of police officers receive priority over that of members of the public. It also means that government police are protected from any liability should they be AWOL or incompetent when homicidal maniacs unleash themselves on the public. Thus, there is absolutely no reason to expect public-sector police agencies to provide security at night clubs, movie theaters, or large public events. 

Nor is there any reason to simply sit back and assume that gun control will protect us. Experience in high-gun-control zones like Latin America, Russia, and Europe suggests otherwise. 

Should Private Owners Be Expected to Provide Security? 

But, as soon as someone suggests that private owners of public-access venues be expected to take security seriously, then the very idea is denounced by many as simply a bridge too far. For these critics, apparently, it"s much better to just trust in government, and hope for the best. 

It"s easy to see why the private sector and its defenders might vehemently oppose the idea that private owners need to do more. Private security is costly and could drive up prices of goods and services. If the legal system simultaneously protects these owners from any responsibility in allegedly "unforeseeable" events, then we have no reason to expect them to do anything differently. The Aurora-Shooting lawsuits against the theater"s owners was significant because it called into question whether or not a private owner should be held legally liable for allowing a nut with multiple guns to so easily plan and set-up a mass-shooting scenario under their noses. 

In the end, the theater was found not liable, and the theater owners"s attorney claimed the event was "unpredictable, unforeseeable, unpreventable and unstoppable." This claim is obviously nonsense. Of course the shooting was preventable. It simply wasn"t preventable using the minimal amount of time and effort the theater owners were willing to devote to customer safety. 

In the future, will we continue to label shootings of this nature as "unforeseeable"? It"s true that, given the size of the population, events of this magnitude remain exceedingly rare. Yet, how many times must an event of this nature take place before it does become foreseeable? How long will it be before customers should enjoy a reasonable expectation that private owners will plan ahead to prevent these sorts of threats?

The response of some people to this revelation will be to indulge in maudlin declarations of "it"s a crying shame." "It"s a crying shame we have to live in a world where we have to worry about gunmen!" Perhaps. It"s also a crying a shame we live in a world where not everyone drives the posted speed limit in residential areas. If they did, we wouldn"t have to worry about our children as much when they play outside. It"s a crying shame we live in a world where the plane you"re flying in might malfunction and fall out of the sky. Thanks to human error, malice, and stupidity, many bad things happen every day. 

Many other bad things happen thanks to an unwillingness to plan ahead. And so as long as we continue to declare things like mass shootings on private property to be "unforeseeable" and "unstoppable" and generally not worth the effort needed to prevent them, we"ll just be left relying on the same government agencies who are under no obligation to protect citizens from anything.

"The Fed Is Afraid..."

Janet Yellen this week cast doubt on the Fed"s announced plan to continue Fed rate hikes and reverse its years of "unconventional" monetary policy. 

“My colleagues and I may have misjudged the strength of the labor market,” Yellen announced on Tuesday, adding that they"d also misjudged "the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation."

Yellen also "noted that the labor market, which historically has been closely linked to inflation, may not be as tight as the low unemployment rate suggests."

In other words, Fed economists are concerned by the fact they"ve been unable to achieve their arbitrary 2% price-inflation objective, which they believe indicates a healthy level of economic activity.

Moreover, they"re concerned the low unemployment rate — which can be deceptive since it can show a "tight" market even in the presence of unemployed discouraged workers and involuntary part-timers — is not telling the whole story. 

The end result is that the Fed is not at all sure that it can continue with its promised path of raising the target interest rate as has been the "plan" for the past several years. 

As we"ve noted here at mises.org before, the Fed has a habit of announcing big plans to scale back quantitative easing, and increasing the target rate — only to later backtrack or downplay the extent to which it will "normalize" monetary policy. 

Since 2009, the target rate has been at rock-bottom rates. Over the past year, the Fed has raised the target rate from 0.5 percent to 1.25 percent, but this has only gotten the rate back up to where it was when it was attempting to stimulate the economy in the wake of the dot-come bust in 2001. On other words, the Fed is still deep into "stimulative monetary policy" territory. 

And now we"re being told that the Fed may have overestimated the rate to which it can scale back monetary policy. 

Nine Years of Stagnant Incomes 

Looming over the latest admission of "miscalculating" the economy"s success is the ongoing myth that the Fed and its economists are wisely and carefully steering the economic ship to a safe port. 

Actual experience — given that the target rate was kept near zero for eight years — more suggests panic and dismay, rather than the presence of a steady hand. 

If we look at the Federal government"s own data on incomes through 2016, we find an unimpressive record indeed. 

Real median personal income, for example, peaked during the last cycle at $30,821 in 2007. This total was not exceeded again until 2016 when it reached $31,099. That"s 0.9 percent growth over a period of nine years. 

We see a similar picture with both median family income and median household income. 

Median family income grew 2.3 percent from 2007 to 2016. It grew 2.7 percent from 2000 to 2016. Growth was nearly zero from 2000 to 2015, and only began to really surpass old peaks in 2016. 

 Median household income grew 1.5 percent from 2007 to 2016. It grew 0.6 percent from 2000 to 2016. 

(See here and here for more discussion on how demographic changes can affect income growth levels.)

These number by themselves don"t prove that real incomes are flat for everyone of course. But, lackluster numbers in employment, and in GDP over the last 20 years — compared to the post-war economy overall — hardly point to a period of economic gain for many ordinary Americans. 

The Fed Is Afraid 

For years, the Fed has been telling us repeatedly that the economy is moving forward, that growth is "moderately" robust, and that they"ll return to more "normal" interest rates and more normal monetary policy. The reality has been eight yeears of no action followed by about 18 months of extremely mild and cautious increases in the target rate. 

So the question is this: if we"re seeing moderate growth month after month, and year after year, why has the Fed been too afraid to do anything except make only the smallest changes?

The answer, most likely, is that the Fed knows the economy is extremely fragile. This latest admission from Yellen serves to — yet again — manage expectations and tell us to not expect much of anything from the Fed in terms of normalization. Perhaps we"ll need another seven or eight years to get the targe rate up to 2 percent.