One of the most important principles of economics is that people respond to incentives. You get more of whatever you incentivize. You get less of whatever you disincentivize. This is irrefutable. The supplemental unemployment payment does both—it incentivizes people not to work, and simultaneously disincentivizes them from working.
The number of people who have dropped out of the labor force in Colorado, those who are not actively seeking employment, remains near record highs even as open jobs go begging. Employers cannot find sufficient workers to restart their businesses, or to expand existing operations back to full capacity. They face higher costs by having to entice people out of unemployment. After a full year of partial economic lockdown in Colorado, this is holding back our recovery.
According to U.S. government data, total employment in Colorado has yet to return to pre-lockdown levels. Personal income in Colorado has yet to return to pre-lockdown levels. Real GDP in Colorado has yet to return to pre-lockdown levels. Furthermore, employment and income losses are concentrated among the poor and minorities. The last thing they need is an increased incentive not to work.
Another important economic principle is that income is created by production. When fewer people work and fewer businesses operate at capacity, it is axiomatic that less income is produced. Government payments in lieu of earned income may help some individuals in the short run, but it harms the economy as a whole in the long run. One dollar of supplemental unemployment does not have the same economic impact as one dollar of production-based earned income.
Progressives imagine that they can ignore the laws of economics. But they cannot ignore the consequences of ignoring the laws of economics. They imagine that their policies, that pay people not to work, do not result in fewer people working. They are shocked, shocked, at the very suggestion.
With supplemental benefits, many people receive more in unemployment than they earned in their previous job. And, although even more people receive less in unemployment that at their previous job, the differential at the margin is frequently not enough to incentivize a return to work. A recent article in the Wall Street Journal makes my point, “Unemployment Rolls Shrink Faster in States Cutting Aid.” Businesses see an increase in job applications as jobless aid is reduced. That is based on data—what used to be called “science.”
Even for those who receive more in unemployment than by working, the short-term money cannot make up for the long-term loss of moving up the employment ladder, achieving seniority, and earning raises. At a sociological level, the loss of earned self-esteem that comes from gainful employment is incalculable. Generational damage will occur from children not observing the social benefits of employed parents.
The unintended economic consequences to Colorado of paying people not to work go far beyond the immediate impact of reduced employment. From where will the money come? Taxes on job creators? That harms all Coloradans as fewer jobs will be created. The government printing press? That harms all Coloradans through increased inflation. From Communist China buying more U.S. Treasury debt? That harms all Coloradans by making us more beholden to a country that has shown itself to be a global enemy of freedom.
I am reminded of a saying by one of my favorite economists, Murray 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.”
Ludwig von Mises
Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact. That gold—and not something else—is used as money is merely a historical fact and as such cannot be conceived by catallactics. In monetary history too, as in all other branches of history, one must resort to historical understanding. If one takes pleasure in calling the gold standard a “barbarous relic,”one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency.
The demonetization of silver and the establishment of gold monometallism was the outcome of deliberate government interference with monetary matters. It is pointless to raise the question concerning what would have happened in the absence of these policies. But it must not be forgotten that it was not the intention of the governments to establish the gold standard. What the governments aimed at was the double standard. They wanted to substitute a rigid, government-decreed exchange ratio between gold and silver for the fluctuating market ratios between the independently coexistent gold and silver coins. The monetary doctrines underlying these endeavors misconstrued the market phenomena in that complete way in which only bureaucrats can misconstrue them. The attempts to create a double standard of both metals, gold and silver, failed lamentably. It was this failure that generated the gold standard. The emergence of the gold standard was the manifestation of a crushing defeat of the governments and their cherished doctrines.
In the 17th century, the rates at which the English government tariffed the coins overvalued the guinea with regard to silver and thus made the silver coins disappear. Only those silver coins that were much worn by usage or in any other way defaced or reduced in weight remained in current use; it did not pay to export and to sell them on the bullion market. Thus England got the gold standard against the intention of its government. Only much later the laws made the de facto gold standard a de jure standard. The government abandoned further fruitless attempts to pump silver standard coins into the market and minted silver only as subsidiary coins with a limited legal tender power. These subsidiary coins were not money, but money-substitutes. Their exchange value depended not on their silver content, but on the fact that they could be exchanged at every instant, without delay and without cost, at their full face value against gold. They were de facto silver printed notes, claims against a definite amount of gold.
Later in the course of the 19th century, the double standard resulted in a similar way in France and in the other countries of the Latin Monetary Union in the emergence of de facto gold monometallism. When the drop in the price of silver in the later 1870s would automatically have effected the replacement of the de facto gold standard by the de facto silver standard, these governments suspended the coinage of silver in order to preserve the gold standard. In the United States, the price structure on the bullion market had already, before the outbreak of the Civil War, transformed the legal bimetallism into de facto gold monometallism.
After the greenback period, there ensued a struggle between the friends of the gold standard on the one hand and those of silver on the other hand. The result was a victory for the gold standard. Once the economically most advanced nations had adopted the gold standard, all other nations followed suit. After the great inflationary adventures of the First World War, most countries hastened to return to the gold standard or the gold-exchange standard.
The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market.2 It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another.
It is easy to understand why people viewed the gold standard as the symbol of this greatest and most beneficial of all historical changes. All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum, the symbol, of all those doctrines and policies they wanted to destroy. In the struggle against the gold standard, much more was at stake than commodity prices and foreign-exchange rates.
The nationalists are fighting the gold standard because they want to sever their countries from the world market and to establish national autarky as far as possible. Interventionist governments and pressure groups are fighting the gold standard because they consider it the most serious obstacle to their endeavors to manipulate prices and wage rates. But the most fanatical attacks against gold are made by those intent upon credit expansion. With them, credit expansion is the panacea for all economic ills. It could lower or even entirely abolish interest rates, raise wages and prices for the benefit of all except the parasitic capitalists and the exploiting employers, free the state from the necessity of balancing its budget — in short, make all decent people prosperous and happy. Only the gold standard, that devilish contrivance of the wicked and stupid “orthodox” economists, prevents mankind from attaining everlasting prosperity.
The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard. The purchasing power of gold is not stable. But the very notions of stability and unchangeability of purchasing power are absurd. In a living and changing world there cannot be any such thing as stability of purchasing power. In the imaginary construction of an evenly rotating economy there is no room left for a medium of exchange. It is an essential feature of money that its purchasing power is changing. In fact, the adversaries of the gold standard do not want to make money’s purchasing power stable. They want rather to give to the governments the power to manipulate purchasing power without being hindered by an “external” factor, namely, the money relation of the gold standard.
The main objection raised against the gold standard is that it makes operative in the determination of prices a factor that no government can control — the vicissitudes of gold production. Thus an “external” or “automatic” force restrains a national government’s power to make its subjects as prosperous as it would like to make them. The international capitalists dictate and the nation’s sovereignty becomes a sham.
However, the futility of interventionist policies has nothing at all to do with monetary matters. It will be shown later why all isolated measures of government interference with market phenomena must fail to attain the ends sought. If the interventionist government wants to remedy the shortcomings of its first interferences by going further and further, it finally converts its country’s economic system into socialism of the German pattern. Then it abolishes the domestic market altogether, and with it money and all monetary problems, even though it may retain some of the terms and labels of the market economy.3 In both cases it is not the gold standard that frustrates the good intentions of the benevolent authority.
The significance of the fact that the gold standard makes the increase in the supply of gold depend upon the profitability of producing gold is, of course, that it limits the government’s power to resort to inflation. The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence. Every method of manipulating purchasing power is by necessity arbitrary. All methods recommended for the discovery of an allegedly objective and “scientific” yardstick for monetary manipulation are based on the illusion that changes in purchasing power can be “measured.” The gold standard removes the determination of cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.
It has been asserted that the gold standard too is a manipulated standard. The governments may influence the height of gold’s purchasing power either by credit expansion — even if it is kept within the limits drawn by considerations of preserving the redeemability of the money-substitutes — or indirectly by furthering measures that induce people to restrict the size of their cash holdings. This is true. It cannot be denied that the rise in commodity prices that occurred between 1896 and 1914 was to a great extent provoked by such government policies. But the main thing is that the gold standard keeps all such endeavors toward lowering money’s purchasing power within narrow limits. The inflationists are fighting the gold standard precisely because they consider these limits a serious obstacle to the realization of their plans.
What the expansionists call the defects of the gold standard are indeed its very eminence and usefulness. It checks large-scale inflationary ventures on the part of governments. The gold standard did not fail. The governments were eager to destroy it, because they were committed to the fallacies that credit expansion is an appropriate means of lowering the rate of interest and of “improving” the balance of trade.
No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which nationalistic governments try to isolate their countries from the rest of the world, gold is still used as money. It does not matter that governments confiscate the gold coins and bullion they can seize and punish those holding gold as felons. The language of bilateral clearing agreements by means of which governments are intent upon eliminating gold from international trade, avoids any reference to gold. But the turnovers performed on the ground of those agreements are calculated on gold prices. He who buys or sells on a foreign market calculates the advantages and disadvantages of such transactions in gold. In spite of the fact that a country has severed its local currency from any link with gold, its domestic structure of prices remains closely connected with gold and the gold prices of the world market. If a government wants to sever its domestic price structure from that of the world market, it must resort to other measures, such as prohibitive import and export duties and embargoes. Nationalization of foreign trade, whether effected openly or directly by foreign exchange control, does not eliminate gold. The governments qua traders are trading by the use of gold as a medium of exchange.
The struggle against gold, which is one of the main concerns of all contemporary governments, must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction that is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.
It may happen one day that technology will discover a method of enlarging the supply of gold at such a low cost that gold will become useless for the monetary service. Then people will have to replace the gold standard by another standard. It is futile to bother today about the way in which this problem will be solved. We do not know anything about the conditions under which the decision will have to be made.
Ludwig von Mises was the acknowledged leader of the Austrian school of economic thought, a prodigious originator in economic theory, and a prolific author. Mises’s writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. His contributions to economic theory include important clarifications on the quantity theory of money, the theory of the trade cycle, the integration of monetary theory with economic theory in general, and a demonstration that socialism must fail because it cannot solve the problem of economic calculation. Mises was the first scholar to recognize that economics is part of a larger science in human action, a science that he called praxeology.
I read on MSN yesterday that Joe Biden claims he sees “no evidence” for people staying home because of unemployment benefits that surpass the salary of most jobs.
Clearly, Joe Biden doesn’t own a small business. Nor does he know anyone who does. He doesn’t care, either. Why should he? He has made millions (perhaps even billions) off of corruption and pull, thanks to his criminal family’s association with the Communist Party of China.
Joe lives in the world of payoffs. He’s the career politician to end all career politicians. He and his kind only understand what Ayn Rand called “the aristocracy of pull”. And it has nothing whatsoever to do with merit, achievement, or an honest day’s work. NOTHING.
Joe, like all tyrants, is a liar. He knows full well what the purpose of inflated, endless unemployment is: To make people dependent on the government; and to punish small businesses for not paying what elite politicians think employees should be paid. He has no grasp whatsoever of market economics, supply and demand, or the challenges small business owners in particular face every day of their lives.
There’s nothing wrong with big business, by the way. But big business should receive NO benefits or handouts due to pull or connection with the government. The only way to keep big business from becoming corrupt (as it has) is to separate economics and state … completely. A healthy economy will give rise both to big businesses and small enterprises. May the best products and services win, and often there’s room in the free market for plenty of big and small.
But the reality remains: Small businesses comprise most of the economic activity in America. By paying their workers to STOP WORKING, we are systematically murdering those small businesses.
Michael J. Hurd, Daily Dose of Reason
How will the passage of Biden’s sweeping COVID relief bill affect our futures and those of our children? What does $1.9 trillion mean for the national economy and your investments?
In a word, inflation.
And trust me, the government is just getting started.
The Fed is engaged in a dangerous bit of fiscal table-setting, creating an environment where asset prices will surge at a rate that’s inconsistent with our economy’s fundamentals.
Cue the bubble bursting… Ready yourself for the likes of the dot-com implosion or 2008’s financial crisis.
Plus, as many are getting vaccinated and heading back to work, this stimulus spending appears to be too much, too late – what sort of economic hangover should we expect in the coming year?
On the American Consequences podcast this week, I sat down with famed publisher Steve Forbes, chairman and editor in chief of Forbes Media, who thinks we’re poised for a real comeback in the American economy… if only the government would get out of the way.
Washington in Its Own Way
Steve believes the American economy could right itself organically if given a chance. Even California’s looking like it could rebound, as the threat of a recall seems to have pushed Gavin Newsom into action.
But Washington’s putting barriers in the way of our recovery… The government hasn’t even spent the money from the past two relief bills… And we’re looking at another almost $2 trillion on top of that, along with chatter about trillions more in spending bills down the pike.
All of this spending will only dampen an economy trying to thrive. We have nearly 7 million job openings, yet we’re giving people a reason not to work.
Steve says, “If the government took a six-month vacation, the economy would boom.”
And all of this is compounded with Biden’s new aggressive taxation. We’re talking hiked income and business taxes, a capital gains tax up to 44%, and even carbon taxes (thereby raising the cost of energy).
From Steve: “Jerome Powell, head chair of the Fed, is Titanic’s captain right now – and we have an inflation iceberg straight ahead.”
The Fed thinks prosperity causes inflation… No, weak monetary policy as summoning trillions from the ether causes inflation. Click here to see how Steve Forbes would fix the Fed.
And it’s going to be a wave of destruction when the Fed suddenly raises interest rates. Remember, due to these low rates and high debt, a 1% increase in interest rates would cost the economy $280 billion annually, putting real pressure on government finances and businesses. And Steve has no confidence that the Fed will navigate this properly.
An Endangered Dollar
While central banks and the Fed flail around the marketplace and the U.S. dollar potentially flounders, other currency options will be even more appealing – from blockchain to Swiss francs.
Steve thinks bitcoin believers will wake up and realize how to leverage their cryptocurrency for daily transactions or long-term investments. Forbes finds the flaw of crypto in that it’s finite, as he suggests that suppressing supply isn’t the best use of a currency – it’s value stability.
And Steve lauds the Swiss franc as the best national currency for maintaining value for the past century. Then there’s that other 5,000-year-old store of value: gold. Cryptos could back themselves with either gold or the Swiss franc in a fiscal shotgun wedding of the analog and digital – folding in the former’s gravitas with the ease of use of the latter.
In terms of the inevitable digitization of money, the U.S. government has mismanaged paper currencies, and it’ll do the same with digital currencies – and China’s certainly more aware of this than the Fed.
A Plea for Economic Peace
Biden says we’re at war with COVID and that we need these trillions of dollars to combat the virus– but guess what?
The battle is nearly over, everyone… This is D-Day, and we’re storming the beaches of Normandy armed with pharmaceuticals. We have not one, but three vaccines between Moderna, Pfizer, and Johnson & Johnson, and so far, more than 100 million vaccinations have been administered nationally.
With spring and summer upon us, new life blooms, and fresh opportunities beckon. From Connecticut to even California (I know), the country and its businesses are reopening – even Disney World is back in action. It’s time for something approaching hope, America.
But the Biden administration doesn’t want to hear it. It seems bent on convincing the American people that we’re far worse off than reality would suggest.
The Dems continue to leverage the pandemic for their political agenda, thereby deterring the economic freedom that’s intrinsic for Americans. We have to ensure prosperity for our children… And unfortunately, taxation, inflation, and regulation won’t get us there.
Publisher, American Consequences
With Editorial Staff
Productiveness is your acceptance of morality, your recognition of the fact that you choose to live–that productive work is the process by which man’s consciousness controls his existence, a constant process of acquiring knowledge and shaping matter to fit one’s purpose, of translating an idea into physical form, of remaking the earth in the image of one’s values–that all work is creative work if done by a thinking mind, and no work is creative if done by a blank who repeats in uncritical stupor a routine he has learned from others–that your work is yours to choose, and the choice is as wide as your mind, that nothing more is possible to you and nothing less is human–that to cheat your way into a job bigger than your mind can handle is to become a fear-corroded ape on borrowed motions and borrowed time, and to settle down into a job that requires less than your mind’s full capacity is to cut your motor and sentence yourself to another kind of motion: decay–that your work is the process of achieving your values, and to lose your ambition for values is to lose your ambition to live–that your body is a machine, but your mind is its driver, and you must drive as far as your mind will take you, with achievement as the goal of your road–that the man who has no purpose is a machine that coasts downhill at the mercy of any boulder to crash in the first chance ditch, that the man who stifles his mind is a stalled machine slowly going to rust, that the man who lets a leader prescribe his course is a wreck being towed to the scrap heap, and the man who makes another man his goal is a hitchhiker no driver should ever pick up–that your work is the purpose of your life, and you must speed past any killer who assumes the right to stop you, that any value you might find outside your work, any other loyalty or love, can be only travelers you choose to share your journey and must be travelers going on their own power in the same direction.”
― Ayn Rand