White and Selgin at Heritage on the Fed tomorrow

by Bradley Jansen March 18th, 2014 2:36 pm

Larry White and George Selgin and Jerry Dwyer will be speaking at the Heritage Foundation tomorrow.

The Federal Reserve at 100: How Well Has It Done?

Has the Federal Reserve functioned as it was intended? How well has the Fed managed the economy and calmed business cycles? Do its successes outnumber and outweigh its failures? Join us as leading experts address these and other important questions.

RSVP to attend in person or just watch online.



Cayman Financial Review: Repeal the AMLs

by Bradley Jansen February 24th, 2014 3:23 pm

My call to repeal the anti-money laundering laws got published in the current issue of the Cayman Financial Review.  In "Repeal the anti-money laundering laws" I explain how the AMLs stifle currency competition.  I concluded:

There are political costs to consider. The increased scrutiny of politically exposed persons and sanctions greatly complicate AML compliance, increase costs and can cause unintended political by-products. In addition, to the extent the AML programs are successful, they can divert funds away from monitored channels to places with no financial intelligence. Iran trades with gold marginally reducing demand for the U.S. dollar in international trade. Individual Iranians use bitcoins as an alternative to their currency instead of the U.S. dollar. Just recently, the Cuban interest section in Washington, D.C. is closing for lack of legitimate banking options because of AML and FATCA compliance concerns.

Even when the authorities shut down the Liberty Reserve operation (an alternative electronic currency operation allegedly set up for money laundering), they admitted that most people using the site were there for the low 1 percent transaction fees for remittances or get around forex restrictions. The plight of the KenyanGuatemalan and Somali people and others around the world who depend on low-cost money transfers to survive or rise out of poverty or recover quickly from disasters should not be ignored.

AMLs stifle needed new payment systems such as bitcoin. Less regulated industries such as technology are adapting much faster than the financial system. Actors in the financial industry are often late adopters to quickly changing technologies. On the other hand, new electronic monies have been less regulated (though this is changing).

It is bitcoin, Liberty Reserve and others that are allowing faster and cheaper mobile payments to more of the world’s population, including the unbanked, than has ever been possible. These changes mean more money is reaching the people who need it most ─ and faster including situations when lives depend on it. Grafting a failed AML approach from the polyester-wearing disco music era onto the fast changing 21st Century technologies can’t end well.

In conclusion, as I cited in my 2001 Congressional testimony on what became the USA PATRIOT Act, money launderers do not have a statistically significant chance of being caught so the deterrent effect of our AML approach is negligible. Only a minuscule fraction one percent of CTRs and SARs result in criminal convictions. I know of no examples where AML reports prevented any terrorist events.

Our AMLs are a failure: the drug trade continues unabated, financial fraud is more prevalent now than ever, and terrorist groups continue to finance their operations. The greatest tragedy is what everyone knows and policymakers don’t seem to care: it is the unbanked, the poor, and the racially and ethnic minorities in rich countries (and the populations of poorer countries) that suffer these costs for such elusive benefits.

Time to reboot our AML policies to aid law enforcement, encourage innovation, cut costs and protect privacy and other human rights.

On a humorous personal note, the original story ran with a bio that added a "g" to the end of my dot org email address before I got it corrected.

Relatedly, Larry White made many of the same points in his talk at the Cato Monetary Conference last year.  Video here.

Edit: The American Banker has a white paper out calling for reform of the AMLs making similar arguments to mine.  They want to "modernize" them "using predictive analytics to pinpoint suspicious activity."


Selgin on RT

by Bradley Jansen February 23rd, 2014 8:17 pm

Since George is going to be modest, I'll take the liberty of pointing out that George Selgin was interviewed on RT television's "Boom and Bust" show.

The link is here:


The segment with George comes on about halfway through.  As the show describes it, "monetary and banking economist George Selgin discusses price and debt deflation."


Madder Props(?) for Kurt Schuler

by Bradley Jansen February 18th, 2014 10:46 am

As I noted in a recent post, the prolific Ralph Benko gave mad props (which was what I understood kids were saying when praising someone or something last time I was even attempting to keep up on pop culture) to Freebanking.org blogger Kurt Schuler.  Well, he's at it again, so thanks again to Ralph for acknowledging Kurt's work.

On TheGoldStandardNow.org site, Ralph has a post up "Lenin's Plan for the Annihilation of the Power of Money" that starts:

Two eminent monetary scholars, Michael V. White and Kurt Schuler -- as noted in an earlier posting -- published in a 2009 issue of the Journal of Economic Perspectives as Retrospectives: Who Said “Debauch the Currency”: Keynes or Lenin? 

before going on to explain the Bolshevik's plans for printing lots of money not to fill their coffers but to destroy the value of money for payment.  Lenin thought work, and work alone, should be used--because, you know, evils of capitalism, etc.  (This makes me wonder if some of the work-based hourly valued local currencies such as the Ithaca hours were inspired by this idea.  Before digressing too much, note to self, write blog post on Marx and Hayek.)

Ralph's post concludes:

Lenin's savage statements toward money may have been a blend of ignorance and rationalization.  White and Schuler: "the underlying rationale for the argument was subsequently explained by the historian E. H. Carr in a brief memorandum for Fetter (1977, p. 78): 'None of the Bolsheviks wanted, or planned, inflation. But, when that happened (since the printing press was their main source of revenue) they rationalized it ex post facto by describing it as (a) death to the capitalists and (b) a foretaste of the moneyless Communist Society.'"

On a slightly related note, Ralph Benko and I are among the cast of characters scheduled to speak at the upcoming and soon-to-be-announced Committee for Monetary Research & Education dinner in New York in May.


Gene Callahan Gets it (but Bob Murphy and Joe Salerno Don't)

by George Selgin February 13th, 2014 3:29 pm

It seems that, even when I'm not trying to do so, I manage to raise the hackles of some of the 100-percent crowd. Most recently I did so by trying to explain, a couple posts ago, my preference for remaining independent of the Austrian School, or any other economic school of thought. The particular passages at which my critics took aim were this one:

And what sort of economics [do I want to do]? I can't tell you--I've never thought much about it. But perhaps that's just it: I don't "think" about writing any "sort" of economics. I don't want to have to think about whether what I'm up to qualifies as "praxeology" or not, or whether Mises would mind my using terms like "money" and "inflation" the way most contemporary economists use them, instead of the way Mises himself used them a century ago. Nor am I any more inclined to trouble myself over whether my work fits neatly into any other economic school's pigeonhole.

and this:

But if there's one thing I truly believe concerning the "methodology" of economics, it's that thinking about it is as helpful to actually doing economics as contemplating one's steps is to dancing the rumba. In short, having to look over my shoulder while I think or write, at any methodological strictures at all, cramps my style.

According to Joe Salerno, the implication of the first of these passages is "that those of us who pursue a research program within the praxeological paradigm continually sweat and fret about using terms or formulating concepts in exactly the same way as Mises did 'a century ago.'" Joe then goes on to point out, with what (I can't help observing) seems like a fair amount of fretting and sweating, that plenty of Austrian economists, including Mises himself, have in fact not hesitated to depart from Mises' 1912 definitions. To this I can only say, Bully for them! But why is Joe pointing this out to me? He should be telling the legions of self-styled Austrian economists, most of whom presumably formed their opinions by reading various Mises Institute publications, who burst a blood vessel every time someone uses the term "inflation" to mean a general rise in prices, or the term "money" to refer to a fractionally-backed bank deposit or note.

As for me, I wasn't pretending to characterize the preoccupations of each and every Austrian economist, by means of "equivocations, omissions, and errors" (as Joe reckons) or otherwise. Nor did my remarks have much to do with my desire (however fervent it may be) "to prevent 'the 100 percent crowd' from 'hijacking the ‘Austrian’ brand name'." I was just tossing out an example of the sort of ruminating I'd just assume not bother with when setting out to do some economics. (Next time I should be more careful and add a disclaimer like the ones you find in novels, you know, "This illustration is a work of fiction. Any resemblance between my economist worrying about Mises' old definitions and any particular member of the current Austrian school is entirely coincidental.")

As I might have predicted, some of my critics (who never seem to come up short when it comes to putting an uncharitable spin on things) went still further, by understanding me to say that I don't find thinking of any sort especially helpful to doing economics! Bob Murphy, for instance, has fun with what he took to be my suggestion that the best way to dance the rumba is to never have learned it in the first place. In a comment to Gene Callahan's favorable notice of my post, Bob went so far as to characterize me as someone who "rips on the philosophy of science, saying he don't need no stinkin' thinkin' about *what* he's doing."

Ah well, that's the risk one takes in employing a metaphor. The gain, of course, is that the metaphor helps readers who aren't merely interested in playing "gotchya!" Such readers won't bother to put the poor little thing on a rack to see what it will confess to when stretched to the breaking point. Gene Callahan himself, for instance, was quick to come to my defense, both in his own post and in the comments to mine, where he (quite properly) ridiculed the suggestion that, in saying (as he nicely put it) that I didn't want to look over my shoulder "at some 'methodological' scold," I meant to declare, among other things, that I "didn't care about logic or consistency."

Of course I do care about logic and consistency; indeed, I insist upon them both for myself and for others who wish to engage me in a discussion. And of course (news flash!) I believe that good economics takes some thinking! Besides requiring one to think about whether one is being logical and consistent, it takes thinking about whether one's reasoning is consistent with available evidence, and thinking about whether one is expressing his ideas clearly, and (ahem) thinking about whether one is characterizing rivals' views accurately. Indeed, the only sort of thinking that I insist is unhelpful to doing good economics is thinking about, so as to better obey, the methodological credos of some particular school of thought.

What's more, I have what I consider to be the best possible reason for having this opinion--an opinion that, remember, is intended only to justify my personal decision not to belong to any school, and not to browbeat others into joining me in my heterodoxy. The reason is simply this: that I have found that, when I set out to address some economic issue, I do not find it at all helpful to concern myself with "methodology" except of the "very small-m" sort that supplies such rules as ought to command the assent of economists of all schools. In particular, though I sympathize with the arguments that underlay what Joe calls "the praxeological paradigm," and what's more believe that I understand them, I don't give that paradigm any thought in pursuing my research; if someone claims that despite this I've been doing praxeology all along, I can only say, like Molière's* Monsieur Jourdain when informed that he's been speaking prose, that I have been quite unaware of it.

Addendum: Joe Salerno's rejoinder. I never accused Joe personally, by the way, of insisting on Mises' 1912 definitions of "money" and "inflation." Much less did I ever mean to hold him responsible for the many "Austrians" (for they present themselves as such) who insist on those old definitions. That such Austrians exist, and in large numbers, cannot reasonably be denied by anyone familiar with the economics blogosphere. As for where their understanding comes from, I should be glad to hear Joe or anyone else offer an alternative to my own conjecture.
*I had previously (and foolishly) written "Proust's." I thank Andras Toth for correcting me.


Bitcoin Hyperbole on Both Sides

by Bradley Jansen February 13th, 2014 3:25 pm

As vikingvista pointed out in a comment on my last Bitcoin post, the reporting on this issue often has little to do with reality.  In this example, after the central bank of Thailand issued a warning about Bitcoin that was reported by some as "Thailand Bans Bitcoin" which wasn't entirely accurate, as the Library of Congress explained:

"According to news reports, the Bank of Thailand ruled the bitcoin illegal on July 29, 2013.128
However, it appears that “it issued a preliminary ruling that using bitcoins . . . was illegal
because of a lack of existing laws” in the case of a currency-exchange license application by
Bitcoin Co. Ltd. Other businesses that have licenses have continued operating bitcoin exchanges
in Thailand."

On the one hand, some libertarians/digital currency enthusiasts pretty much equate the advent of Bitcoin as manna from Heaven.  On the other hand, some like Paul Krugman equate it with a harbinger of the end of (Progressive) Western Civilization as they know it.  Hype is hype, and I'll leave it at that.  More notable has been the counter-factual reporting on Bitcoin--on both sides.

AmongTech posts that the Reserve Bank of India, "Dogecoin recognized as official currency by Bank of India."  They explained:

The online currency based on the famous internet meme “Shibe” or Doge has been recognized as an official currency by the Bank of India. It has also recognized similar online currencies such as Bitcoins and Litecoins as official currency.

But here is what their link to substantiate their story said, "RBI cautions users of Virtual Currencies against Risks."  The press statement from India's central bank went on to warn people against Virtual Currencies (VCs).  It elaborated:

The creation, trading or usage of VCs including Bitcoins, as a medium for
payment are not authorised by any central bank or monetary authority. No regulatory
approvals, registration or authorisation is stated to have been obtained by the
entities concerned for carrying on such activities. As such, they may pose several
risks to their users . . .

The RBI press statement could hardly be construed as recognizing Dogecoin an "official currency."  No, the sky isn't falling, but nor are the streets paved with gold.


Central Banking: the Real "Dangerous Mistake"

by George Selgin February 12th, 2014 4:49 pm

Kurt Schuler just alerted me to this recent FT article attacking Bitcoin, by a former Federal Reserve employee named Mark Williams. The article is noteworthy for its pie-in-the-sky view of central bankers--a view that seems to be informed by sheer wishful thinking, rather than by even the most meager recognition of how actual central banks, including the Fed, routinely botch up their economies.

Here is a sampling of the sort of pablum Mr. Williams dishes out, seemingly cooked up by his former employer's PR staff:

Keeping money stable and trustworthy has traditionally been a function of national governments. By controlling the money supply and targeting interest rates, the authorities try to promote job creation and economic growth, while preventing runaway inflation that would cause the system of market exchange to break down. Calibrating monetary policy to the needs of the economy is an enormous undertaking. Central banks such as the US Federal Reserve employ hundreds of people to analyse economic data, chart the best path for monetary policy and explain their decisions to the public.

Bitcoin, in contrast, Williams observes, appears to have been motivated by "the libertarian ideal of putting money creation beyond the reach of meddling central bankers." "Meddling?" (I imagine Mr. Williams thinking); "Where do those libertarians get such silly ideas? Don't they realize that central bankers are just technicians seeing to it that money is scientifically managed so as to maximize social welfare? Why, to listen to them you'd think that there was something in central banks' records to complain about--you know, inflation and cycles and bailouts and moral hazard and that kinda stuff. Geez, what a paranoid bunch! Why don't they read economics principles textbooks like I did so that they can understand what central banks are really like?"

For Mr. Williams it is not central banks, with their almost unchallenged currency monopolies, but Bitcoin, with its miniscule share of total payments, that we should all be worried about. For the Bitcoin set-up, with its predetermined supply schedule, "ignores the ebbs and flow of economic cycles" altogether, thus constituting a "reckless" alternative to conventional monies that "is the equivalent of a doctor giving penicillin to every patient without first checking whether they are suffering from infection, depression or mania."

Letting the clunky analogy pass, Mr. Williams has a point: the Bitcoin monetary "rule," to call it that for argument's sake, is unlikely to prove ideal, should Bitcoin ever manage somehow to become a true rival to established monies. But that hardly justifies Mr. Williams' suggestion that Bitcoin is "dangerous," or that it ought to be either stamped out altogether or (what amounts to the same thing) subjected to central bankers' control. Mr. Williams here seems to forget that, whatever its other qualities, Bitcoin, unlike, say, Federal Reserve dollars, is a voluntary exchange medium; no one is obliged to either receive or to pay it, whether by legal tender laws or by banking and other regulations. Because Bitcoin is voluntary, it doesn't carry the risk of holding an entire economy at its mercy. Only official paper monies can do that. Only such monies have done it, time and time again.

What's more, as Mr. Williams recognizes, rival cryptocurrency entrepreneurs have been busy (with the help of some prodding by yours truly) developing more macroeconomically smart alternatives to Bitcoin. But Mr. Williams, like any good technocrat (or, for that matter, any ca. 1948 socialist) is cocksure that no amount of old-fashioned entrepreneurial ingenuity can ever be a match for "central bankers who can adjust monetary policy to promote prosperity when people behave in unexpected ways," that is, for white lab-coat donning scientists who fine-tune the money stock against a backdrop of spinning gauges, bubbling Erlenmeyer flasks and steaming retorts, all according to Mr. Williams' black-and-white B-movie version of how central banks function.* No sir: we can't expect any private money to cope with "patterns of human behaviour that are too complex to capture in a simple rule." After all, real human beings, unlike Mr. Williams' sci-fi central bankers, are made of flesh and blood.

Addendum (2/12/2014, 5:50PM): Jerry Dwyer (another former Fed employee, but one who actually knows a lot about monetary policy and history, not to mention alternative currencies) responds to the same FT piece.

*As Mr. Williams served the Fed as a bank examiner, he presumably never witnessed an actual FOMC meeting, let alone the behind-the-scenes dealings of that committee's chief with senior government officials. Whether he can possibly entertain a similarly starry-eyed view of Fed bank examiners, even in the wake of the last decade's events, is a good question.


Inflation Getting Noticed

by Bradley Jansen February 11th, 2014 9:52 pm

Free banking proponents often criticize central banking, rightly, for its poor track record maintaining the purchasing power of the monetary unit.  That is, we suffer from inflation under central banking.  Despite our criticisms, there remains a lot of confusion (equating the Consumer Price Index--or one of them at least--with inflation, eg.).

One of the biggest lessons that seems to have pierced a popular discussion is the minimum wage debate.  Including, but not limited to, President Obama's State of the Union address.  In that address recently, the president spelled out his case citing a few states that have acted on their own as well as private businesses acting of their own accord before adding:

Today the federal minimum wage is worth about twenty percent less than it was when Ronald Reagan first stood here. And Tom Harkin and George Miller have a bill to fix that by lifting the minimum wage to $10.10. It's easy to remember: 10.10. This will help families. It will give businesses customers with more money to spend. It does not involve any new bureaucratic program. So join the rest of the country. Say yes. Give America a raise.

PolitiFact.com rated the claim as "mostly true."

Our ruling

Obama said, "the federal minimum wage is worth about twenty percent less than it was when Ronald Reagan" gave his first State of the Union address. Obama's not far off, but it’s actually closer to 16 percent less.

And using Reagan to make a case to raise the minimum wage should be taken with a grain of salt since the former president never increased it during his two terms. And by Reagan’s last State of the Union, the minimum wage was $2 less than when he first took office, if you factor in inflation.

The statement is largely accurate but needs clarification or additional information, so we rate it Mostly True.

The Associated Press however put the proposal in perspective and was less kind.

Anecdotally however, I have noticed that there is a strong correlation between those who support a raise in the federal minimum wage and having a central bank with easy credit policies.  I would love to be able to see some cross tabs in polls to back up my observation, but I'm pretty sure of it based on personal observation.

Ideally, one would think, that the intellectual disconnect would offer a teaching opportunity, but there seems to be little sign of that.  I suspect that since so very few people are personally affected by the minimum wage that the debate is more about style than substance.  And half of those affected positively are young (I don't want to get into the debate now about those priced out of the workforce).

Since the minimum wage idea is more abstract than meaningful for most supporting the idea of raising it at the federal level (and, I think, of the Fed's easy money policies), we may has lost that teaching opportunity.  Or so I thought.  At least locally in DC, one friend of ours Dave Doctor made the same inflation points at a hearing that actually does affect the lives of people here.  As the Washington Post reported (and an audio clip here),  the issue affects Metro riders too:

"There was Dave Doctor, 43, of Arlington, holding forth on the nation’s monetary system, then pivoting to the issue of subway dust."

“If you’re upset about the increase, the place to go is not to these people, it’s to the federal government,” said Doctor, in defense of Metro. After rattling off a bunch of percentages regarding growth in the nation’s money supply, he said: “There are so many more dollars out there now. The Federal Reserve created this. . . . The fares actually are not going up. The value of our money has gone down.”

Doctor, who manages an apartment building, said: “To put it in perspective, let’s say they charged one bottle of water for a fare. Then they increased it to two bottles of water. But then you find out the bottle only has 25 percent as much water as it used to.” He went on in this vein until a buzzer sounded, signaling his three minutes were up.

Hopefully these and other examples will start to get those who default to defending the Fed to challenge their thinking.


Economic Schools of Thought

by George Selgin February 10th, 2014 11:23 pm

At the close of my last post here, I referred to myself as a "non-Austrian," causing one of our regular commentators to wonder why. "Because," I answered, "belonging means conforming."

That admittedly cryptic reply (I was anxious to get back to the book I was reading) led to speculation to the effect that I was inclined to identify "Austrian" economics with the economics of Murray Rothbard, and particularly with his and his devotees' opposition to fractional reserve banking.

But although it's true that I have a low opinion of the ideas and arguments put forward by the 100-percent crowd, and that I'd rather swallow a dozen toads than have anyone confuse my thinking with theirs, I don't believe they've yet succeeded, despite trying their damnedest, in hijacking the "Austrian" brand name. There are, thank goodness, still plenty of non-Rothbardian "Austrians," including my fellow blogger and former colleague and mentor Larry White. But though there is no such radical difference--and in some cases hardly any difference at all--between my views and those of such non-Rothbardian Austrians, I wouldn't consider myself an Austrian even if they were the only self-styled Austrians around. My reason has nothing to do with any particular "Austrian" belief to which I object. I don't consider myself an Austrian economist for the same reason that I don't consider myself a Chicago economist, or a Keynesian economist, or a New Classical economist, or a--well, you get the point. I don't want to belong to any economic school of thought, or to "do" any sort of economics. I just want to "do" my own sort of economics.

And what sort of economics is that? I can't tell you--I've never thought much about it. But perhaps that's just it: I don't "think" about writing any "sort" of economics. I don't want to have to think about whether what I'm up to qualifies as "praxeology" or not, or whether Mises would mind my using terms like "money" and "inflation" the way most contemporary economists use them, instead of the way Mises himself used them a century ago. Nor am I any more inclined to trouble myself over whether my work fits neatly into any other economic school's pigeonhole. I don't worry about not having a "model," meaning a bunch of equations, when I'm perfectly confident that I can say what I need to say in plain English. (I rather wish that other economists both appreciated the power of plain English, and knew how to make proper use of it.) But if there's one thing I truly believe concerning the "methodology" of economics, it's that thinking about it is as helpful to actually doing economics as contemplating one's steps is to dancing the rumba. In short, having to look over my shoulder while I think or write, at any methodological strictures at all, cramps my style.

I can't imagine, on the other hand, what it could possibly mean for me to declare myself an Austrian (or a Chicagoan, or a Keynesian...) unless it means precisely that when I think or write about economics I seek while doing so to abide as much as possible by what I consider to be the distinguishing maxims of the Austrian (or Chicagoan or Keynesian...) approach. That is what I meant when I said that "belonging is conforming." And though I suppose some will take issue with this--that they will insist that being "Austrian" is not so strict a matter as all that--I can only observe in return that they might wish to consider what it would mean--no, what it has already meant--to have that label bandied about by every other anti-government nitwit. No sir: a school of thought had better insist upon its defining tenets, or risk becoming a laughing stock.

Does this mean that I think schools of economic thought entirely useless, except perhaps as convenient labels to be used by historians of the discipline after the fact? Not quite. For while I hold self-conscious devotion to any school of thought to amount to putting blinkers on one's brain, I can't deny that such devotion brings offsetting, psychological advantages. The academy is no bed of roses, especially for young faculty; and having the moral support of an organized body of like-minded peers can help a lot. What's more, it can be lots of fun. The alternative is...well, it can get pretty darn lonely.

And that, I suppose, is why, despite everything, I don't really mind being called an Austrian. That at least makes one school whose parties I don't have to crash.


Gold Standard Now Gives Schuler Mad Props

by Bradley Jansen February 7th, 2014 1:26 pm

Our friend and colleague Ralph Benko gave freebanking.org blogger Kurt Schuler mad props (do the kids still say that?) over on the Gold Standard Now site "Lenin on Keynes: "more striking ... than any ... Communist revolutionary."  He raises the question, was this quotation attributed to Lenin authentic or apocryphal, “the best way to destroy the capitalist system [is] to debauch the currency.”  He continues to label Kurt and his coauthor Michael V. White "two eminent monetary scholars" and goes to them for the answer.

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