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While doing her research author Jane Mayer interviewed me as I knew Charles Koch 40 years ago or so, while in high school and college, and dedicated my first book to him, Robert Lefevere, and Cliff Ketzel.
She got her facts right regarding what I said. I did a post on her article that elicited a heated response from a very orthodox libertarian, and in return replied with a discussion of the Kochs and libertarianism today that some readers might find of interest.
The initial post and the discussions that followed are at
David T. Beito
On Imagine you come home from work one day to a notice on your front door that you have 45 days to demolish your house, or the city will do it for you. Oh, and you’re paying for it.
This is happening right now in Montgomery, Ala., and here is how it works: The city decides it doesn’t like your property for one reason or another, so it declares it a “public nuisance.” It mails you a notice that you have 45 days to demolish your property, at your expense, or the city will do it for you (and, of course, bill you).
Your tab with the city will constitute a lien on your property, and if you don’t pay it within 30 days (or pay your installments on time; if you owe over $10,000, you can work out a deal to pay back the city for destroying your home over a period of time, with interest), the city can sell your now-vacant land to the highest bidder.
Alabama law empowers municipalities to do just this. Officials can demolish structures that they determine, “due to poor design, obsolescence, or neglect, have become unsafe to the extent of becoming public nuisances…and [are] causing or may cause a blight or blighting influence on the city and the neighborhoods in which [they are] located.” Keep in mind, so-called standards like “obsolescence” are so vague they can mean anything, so even a well-maintained home that government officials don’t like the look of can be fed to the bulldozers.
While this may sound like eminent domain for private gain, it’s not. This is a completely different section of Alabama’s code that the city of Montgomery is now abusing habitually to tear down homes it does not like in a predominantly African American community — once home to Rosa Parks.
Jim Peera, who fought the city for years to keep a property he was rehabilitating himself — the kind of entrepreneurial private redevelopment that should be encouraged, especially in this economy — obtained copies of demolition records that indicate hundreds of homes and properties have been demolished over the past five years in Montgomery. Some may have posed an immediate threat to public health and safety — but that was certainly not the case with all of them.
Jeffrey Rogers Hummel
Admittedly, looking at only defaults under fiat currency excludes all the notorious cases before the mid-twentieth century. So I decided to do a little research, and discovered that Standard and Poor's reports 84 sovereign defaults from 1975 to 2002. The following is from their list of States (along with the dates) that defaulted either on their domestic debt, on their foreign debt, or on both. I've excluded cases like Mexico (1982-1990), where the default was not on government securities but on foreign-denominated bank debt, which shortens the list considerably. But some governments, like Argentina's have had more than one default.
Angola (1976), Argentina (1982, 1989-1990, 2002-04), Bolivia (1989-97), Brazil (1986-87, 1990), Congo (1979), Costa Rica (1984-85), Croatia (1993-96), Dominica (2003-04), Dominican Republic (1975-2001), Ecuador (1999-2000), El Salvador (1981-96), Gabon (1999-2004), Ghana (1979, 1982), Guatemala (1989), Ivory Coast (2000-04), Kuwait (1990-91), Madagascar (2002), Moldova (1998, 2002), Mongolia (1997-2000), Myanmar (1984, 1987), Nigeria (1996-88, 1992, 2002), Pakistan (1999), Panama (1987-94), Paraguay (2003-04), Russia (1998-99), Rwanda (1995), Sierra Leone (1997-98), Solomon Islands (1996-2004), Sri Lanka (1996), Sudan (1991), Ukraine (1998-2000), Venezuela (1995-97, 1998), Vietnam (1975), Yugoslavia (1992), Zimbabwe (1975-80).
the likelihood that investors’ private property rights in their capital and the income it yields will be attenuated further by government action. Such attenuations can arise from many sources, ranging from simple tax-rate increases, to the imposition of new kinds of taxes, to outright confiscation of private property. Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights.
In the latter half of the 1930s, many investors feared that the government would destroy the private enterprise system and replace it with fascism, socialism, or some other extreme transformation of the existing economic order.
In testing my hypothesis, I marshaled three distinct types of evidence: historical documentation of government actions and public reactions; findings of public opinion surveys, especially surveys of businessmen; and evidence from financial markets. The latter seems to some observers, especially to economists, to be the most telling because it is relatively “hard” and quantitative. In any event, it is the sort of evidence economists are accustomed to analyzing.
My most striking financial evidence for the New Deal episode pertains to the yield curve for corporate bonds, that is, to the spreads between the effective yields on high-grade corporate bonds with various terms to maturity. I found that this yield curve became suddenly much steeper sometime between the first quarter of 1934 and the first quarter of 1935 (a period when the New Deal lurched from its first, or business tolerant, phase to its second, or business hostile, phase) and remained very steep until sometime between the first quarter of 1941 and the first quarter of 1942 (a period when the New Deal handed over the reins to the military and the big businessmen who, along with the president himself, ran the war-command economy for the duration). I interpreted these extreme spreads as risk premiums on longer-term investments caused by regime uncertainty.
Given the extraordinary scale and scope of the actions the government has taken since mid-2008 and the many expressions of uncertainty (and hence of unwillingness to undertake long-term investments) voiced by businessmen and others as a result of this flurry – bailouts, unprecedented monetary policies, surges in government spending, and tremendous regulatory undertakings in health care and financial markets, among other things – one wonders whether the corporate bond yield curve shows the same kind of movement it displayed in the face of the regime uncertainty that prevailed from 1935 to 1941.
To pursue this matter, I have examined a number of series on corporate bond yields, by term to maturity, that I constructed from data available at Bondsonline.com. (Normally, when economists analyze “the yield curve,” they use data on U.S. Treasury securities. I caution against using such data for the purpose under discussion here. To analyze risks to private property rights as manifested by the risk premiums in bond yields, one must use private bonds, not government bonds.)
I find that back in 2008, before the onset of the financial panic in September, the corporate bond yield curve was rather flat – that is, the yields increased only slightly with term to maturity. When the panic hit, yields became extremely volatile, especially for the bonds with 2 years to maturity (the shortest term in the data), and remained volatile for almost a year. After mid-2009, the volatility diminished greatly.
Examining these data, I find that once this dust had settled, the yield curve for corporate bonds had become substantially steeper. For example, the spread between corporate bonds with 5 years to maturity and corporate bonds with 2 years to maturity increased from roughly 1 percentage point or less before the financial crisis to roughly 2 percentage points since mid-2009. Similar changes occurred in the spread between the bonds with 10 years to maturity or 20 years to maturity and the bonds with 2 years to maturity: the former increased from roughly 1 percentage point to 2-3 percentage points; the latter increased from roughly 2 percentage points to roughly 4 percentage points or more.
Similarly, at the upper end of the yield curve, the spreads widened: between the bonds with 10 years to maturity and those with 5 years to maturity, from roughly a small fraction of 1 percentage point to roughly more than 1 percentage point; between bonds with 20 years to maturity and those with 5 years to maturity from roughly 1 percentage point or less to 2-3 percentage points. Finally, the spread between the bonds with 20 years to maturity and those with 10 years to maturity increased from less than 1 percentage point before the crisis to 1-2 percentage points since mid-2009.
Thus, corporate bond yields have exhibited three distinct periods: pre-crisis stability with a shallow yield curve; extreme volatility of the yield curve, including some inversions in the latter part of 2008; and post-crisis stability with a much steeper yield curve since mid-2009.
Thus, just as the steep yield curve for the New Deal years corresponds precisely with the so-called Second New Deal, when Roosevelt and his leading subordinates and advisers went on the warpath against investors as a class, the recent transition corresponds to the volatility associated with the period of < href="http://www.harvard-jlpp.com/33-2/531.pdf">frenetic government action and financial market fluctuations between September 2008 and the middle of 2009, leaving in its wake a much steeper yield curve.
I view these financial data as consistent with the hypothesis of recently heightened regime uncertainty. Of course, they do not “prove” that it is true, just as the striking data I found for the 1930s do not “prove” the hypothesis as applied to that episode. But in economic history, one looks above all for the correspondence of various forms of evidence with the interpretation one places on the observations. In the current episode, as during that of the latter 1930s, we find that (1) a great deal of direct testimony by businessmen and investors, (2) an account of the government’s ideological character and the historical narrative of what the government has done and, and (3) the bond-market evidence (as well as the movements of the stock market, although they are more difficult to interpret) all conform with a hypothesis that places significant weight on regime uncertainty.
In any event, these preliminary explorations certainly show that the hypothesis should not be dismissed out of hand because it is not “scientific” or because it is not part of the mainstream macroeconomist’s customary style of mathematical modeling. If mainstream analysts continue to disregard the role of regime uncertainty in the major depressions of the modern era, especially in accounting for their extraordinary duration, then they will only demonstrate the poverty of their own mode of analysis.
David T. Beito
“The debate should have provided the conservative defenders of property rights with a perfect example of how the right to own property also protects the 1st Amendment rights of assembly and religion by supporting the building of the mosque.
“Instead, we hear lip service given to the property rights position while demanding that the need to be “sensitive” requires an all-out assault on the building of a mosque, several blocks from “ground zero.”
David T. Beito
According to a recent article in Der Spiegel Germany's rapid industrial advance, extraordinary production of books. and country-wide interest in reading was due to not having an enforceable copyright law, whereas in England books were kept scarce by monopoly copyright holders.
This sounds right given my experience trying to make material available to my students. The gift economy of the mind and the commodity economy of the market have very complex inter-weavings - not all of which are friendly.
For an interesting supportive example, The United States and Canadian Academy of Pathology has vaulted to being by far the largest such association in no small part because they make cutting edge research free to anyone. Their "Knowledge Hub" gets tens of millions of hits annually, worldwide, and now dwarfs more traditionally organized sources of information in pathology.
At first glance, I did not recognize that the book being advertised is one for which, in a sense, I am responsible. It turns out that the “new” book is only an old (portion of a) book, now adorned by a new subtitle and two new introductory paragraphs by the Newsweek columnist Robert J. Samuelson. If I reveal that the book’s author is Joseph A. Schumpeter, many readers will recognize it immediately as Part II of that famous economist’s best-known work Capitalism, Socialism and Democracy, first published in 1942, with subsequent editions in 1947 and 1950.
The new book’s front cover has a blurb from Fortune that declares Schumpeter to have been “the most influential economist of the twentieth century . . . a major prophet.” The back cover has an embarrassingly superficial blurb by publisher Steve Forbes that, among other things, describes Schumpeter as “the twentieth century’s foremost economist.”
I do not consider Schumpeter entitled to be called the most influential economist of the past century―that distinction unfortunately belongs to John Maynard Keynes, and Milton Friedman surely deserves the second place. As for Schumpeter’s rank as a prophet or as the intellectually foremost economist, I would place him below Ludwig von Mises and F. A. Hayek.
Nevertheless, Schumpeter was unquestionably one of the most important economists of his day, and his work has continued for good reason to attract readers ever since his death in 1950. His analysis of the historical dynamics of classic capitalism, which makes up Part II of Capitalism, Socialism, and Democracy, though contestable on various grounds, may be, all in all, the best ever written, and it certainly remains among the most thought-provoking. (My own thoughts on Schumpeter’s analysis appear briefly in my book Crisis and Leviathan, pp. 239-44.)
In the mid-1970s, having read Capitalism, Socialism and Democracy repeatedly and having used it to good effect in my teaching, I sent a proposal to Harper & Row, the publisher. I proposed that Part II of the book be published as a separate work with an introduction by me. I asked for a reasonable royalty on sales of this proposed book. Harper & Row declined my offer. The publisher liked the idea of a stand-alone publication of Part II, with my introduction, but did not want to pay me a royalty. Not long afterward, in 1978, I was surprised to find in the bookstores the very volume I had proposed, with an introduction by Robert Lekachman, who evidently had been willing to work for less than I when he was approached by the publisher. Somewhat pushed out of shape by this pilfering of my idea, I wrote a letter to Harper & Row to let their managers know how unprofessional, at best, I considered their action to be. As I recall―although my memory is foggy in this regard―Harper then sent me a nominal “finder’s fee.”
(This episode, by the way, was but one of many that led me to propound Higgs’s Law of Publishing, which states: All publishers strive to maximize losses, but by virtue of sheer stupidity, some of them screw up so royally that they earn enough income to remain in business.)
Returning from the foregoing personal digression, what are we to make of the idea that capitalism might survive, indeed, of the idea that it has survived to date, when in fact it has scarcely ever existed and, even when prevailing economic conditions and institutions verged most closely on the capitalist model, sometime between the 1830s and World War I in the United States, they suffered a variety of government interventions and distortions that made the prevailing economic order, like nearly all such orders in reality, a form of “mixed economy”?
My friend Sheldon Richman has been on something of a crusade recently against the defense of capitalism by those who favor a free society, which of course includes a free-market economy. He prefers that defenders of freedom avoid the defense of something called capitalism because, first, the term derives in large part from enemies of the free society, such as the Marxists, and, second, because it has always served and continues to serve the enemies of a free society as a perennial object of misplaced responsibility, a (nonexistent) malefactor to be blamed for every economic problem the government’s countless interventions bring about.
Thus, most recently, by undertaking a series of decisive interventions stretching from the Fed‘s mismanagement of monetary policy, to Fannie and Freddie’s subsidies of unqualified home buyers, to the self-serving idiocies of Barney Frank, Chris Dodd, and Co., among other ill-fated actions, the government created the complex of interrelated disasters that includes the housing boom and bust, the financial debacle of 2008, and the economic recession since 2007. And who’s to blame? That’s right: capitalism. Which must then be “reformed” by mountains of additional government interventions laid atop the previously existing mountain, leaving, of course, Barney and Chris sitting pretty as the reformers, and the key troublemakers―the Fed, Fannie, and Freddie―smelling like roses, with the Fed being given even more power, and Fannie and Freddie being fed a diet of hundreds of billions of dollars in ongoing taxpayer-funded bailouts to continue doing the damage they do.
Perhaps, if we all frankly admitted that capitalism has been as dead as a dodo since 1914, if not even longer, then such factually absurd, ideologically inspired, politically tactical blame-casting would be precluded. It would make no more sense than blaming our economic troubles on the divine right of absolute monarchs, centuries after that doctrine has been abandoned. Perhaps.
So far, however, I have refrained from coming completely onboard Richman’s crusade ship. For many proponents of the free society, capitalism has always signified the ideal of the free-market society more than it has referred to any of its deeply compromised and distorted instantiations that have occurred historically. These people are understandably reluctant to give up still another cherished shibboleth to their enemies, as they previously surrendered their most positive and important ideological identity as liberals. So, even though I rarely use the term capitalism, and I strive to make as clear as I can the difference between the ideal free society (which I defend) and the realities of any existing or previously existing society (which I only study), for now, I decline to condemn those who continue to defend capitalism. They may be making a rhetorical mistake, as Richman insists, yet their hearts are in the right place. It will be easier to straighten out people’s rhetoric in due course than to bring about the change of heart that so many misguided people must experience, if even a shred of freedom is to be preserved.
Jeffrey Rogers Hummel
What is more interesting is that a few have begun advocating a U.S. debt repudiation.
See for instance this 2009 op-ed by Scott Beaulier and Pete Boettke, this January 2010 article by Gideon Rachman in the Financial Times, or the following website. Indeed, as I reported in a previous post, similar musings have provoked Bruce Bartlett to attack advocates of default. And here is an article by John Seilter advocating a California default. (For a up-to-date source that monitors the pension crises facing not just California but other states, check out Jack Dean's website, Pension Watch.)
My own first article making the case for the repudiation of all government debt, which appeared in the August-September 1981 issue of Caliber (publication of the Libertarian Party of California), is now available as a pdf download on my personal webpage. I've accompanied the article with a caveat that includes the following:"If I were writing it today, the article would be a little less strident, and my discussion of the economic consequences of repudiation would be more sophisticated. I would tone down some minor hyperbole in the article's opening section. In particular, the 2007-08 financial crisis has convinced me that I was much too blase about the short-run consequences of a U.S. repudiation. But I still think my long-run economic analysis is correct, that my moral case for repudiation is justified, and that my historical examples (which could be expanded and extended to other cases) is telling."
Jonathan J. Bean
From the Fourteenth Amendment (1870):
“All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.”
Excerpt from Root’s “Born in the U.S.A.”:
“[T]he Radical Republicans of the 39th Congress passed the Civil Rights Act of 1866 over the president’s veto. As Sen. Lyman Trumbull (R-Ill.) declared from the Senate floor, “the child of an Asiatic is just as much a citizen as the child of a European.”
Today, the GOP is on the other side of this issue as they try to repeal the “birthright citizenship” clause of the 14th amendment. The business wing of the party (those who read the Wall Street Journal) might counter with a utilitarian argument that the net benefit of immigration (and resulting citizenship) outweighs costs. But consider how surprised I was at the arguments in the 1880s that “We [Republican opponents of immigration exclusion] claim that the right to liberty is a natural, inherent, God-given right, and his liberty is imperfect unless it carries with it the right of expatriation. . . .” Those sentiments echo in the immigration debates I chronicled in Race and Liberty: The Essential Reader.
Those earlier Republicans also rejected the religious prejudice that then motivated so many, first against the Irish (Catholics) and then against Asians. In the midst of the debate over the Chinese Exclusion Act, the Republican minority quoted from Senator Oliver Morton (R-IN): “Absolute religious toleration was regarded by our fathers as of vital importance. Not only were the different sects of Christians to be tolerated, but the deist, the atheist, the Mohammedan, and the Buddhist were to be free to express and enjoy their opinions. . . .”
My, how far the Grand Old Party has come to be so short sighted. And how farsighted were those in the 19th century who recognized that the Chinese were just as intelligent, hard working, and useful to America as any others. So will it be with today’s immigrants after the scare mongering dies down.
Earth to race hustlers in the GOP: The 14th amendment is here to say. Get used to it!
David T. Beito
David T. Beito
In my capacity as chair of the Alabama State Advisory Committee of the U.S. Commission on Civil Rights I am featured today in two Fox stories (print and television). Our committee has been investigating eminent domain as a civil rights issue.
The stories describe how"eminent domain through the back door" has become commonplace in Montgomery, the cradle of the modern civil rights movement. Under this system, Montgomery has demolished homes without the normal due process of conventional eminent domainand often gives little notice. The city alleges that these homes are"blighted" but, as the story on Jimmy McCall shows, at least some are in excellent repair.
Typically, under eminent domain through the back door, the city of Montgomery bills the owner for the cost of demolition and he or she is left with an essentially worthless property. The victims are often low-income blacks, many of whom live near or in Rosa Parks old neighborhood. According to the print version of the story,
Karen Jones testified before a hearing held by Beito's advisory panel, charging that the city demolished her grandparents’ property without proper notice.
“When we got here, like I said, half the house -- the back half of the house was demolished,” Jones said. “I said let me see your paperwork, I need to know what are you doing here, because the taxes are paid on this land, you’re trespassing. And they told me that I couldn't be on the land while they are demolishing the house.”
Jimmy McCall and his attorney Norman Hurst were among more than 100 witnesses and property owners who testified before the same hearing. McCall says he was building a 5000 sq. ft. home out of salvaged and recycled wood. His property sits along a busy thoroughfare. McCall says many have asked him to sell his land but he is always refused.
“It was my dream house and the day they tore it down my wife cried and my little girl cried.” McCall explained.
McCall says he took the city to court to prevent demolition and won in both state and federal courts. McCall also got an injunction forcing the city off his property. Using the blight ordinance, McCall's property was eventually demolished and he was sent the bill.
“I never thought a municipality or any other government agents would go against a court order,” McCall said. ”I never thought they were that bold and arrogant and that they, you know, could just say away with you -- we're gonna do what we want to do and they did it. You know they actually came out and did it.”