• timthumb

    Why Advocating Free Trade Means you Must Reject the Term “Illegal Immigration”

    Lately, immigration has been a hot button issue and because of it, the term(s) “illegal immigrant” or “illegal immigration” have been thrown around so much that they have almost lost all substantive meaning for me.  Then again, how can any objective thinker respect an argument that is solely based in ‘Authority of the State is divine, so of course it’s purposeful’? With all the rhetoric from those that claim they are pro market and liberty minded, you’d think a more Laissez-faire immigration policy would be an easy persuasion for those that are opposed to it….for reasons you think you understand, but the debate continues… so I guess we don’t.

    At face value the argument against immigration seems like a legitimate one; welfare and taxes.  I mean no one likes paying taxes and no one likes having their money go to encouraging unproductive people and increasing people’s dependency on the State. Wasteful and unnecessary spending, I’m with ya.  (If that’s the case conservatives. Eh hem…. War!) So why continue to concentrate on the symptoms of government social programs? Why still make excuses to be against immigration based on everything from a warped view of property rights to the really flimsy “They may bring in outside diseases”?

    Disease? I mean come on, they are not aliens from another planet with unknown biological conditions or time travelers from mid 14th century Europe infected with the Black Plague. Or maybe they arebut these kind of problems are not solved with putting up restrictions and making it harder for people to immigrate. Doing this just creates difficulty and assures people will take greater risk by acting in a less than favorable manner, where it will go unnoticed and unchecked, until it’s too late. (ie; the war on drugs and the violence it creates.)  A much more liberal (in the classic sense) immigration policy and a simple screening process would lower the risk and the openness of such a policy would bring potential issues to light and allow for problems to be solved quicker and easier, where we are all better off for it.

    Even more than disease is this new argument for being against immigration, of a warped view of property. Claiming government owns all the land inside the imaginary lines of jurisdiction, because the citizens “pay” taxes and therefore the USA is private property based on some misconceived Home Owner Association (HOA) idea. I mean the basic argument is: I own my house, therefore I own the land that is on it, therefore I own the entire country that my property exists within. I’m sorry, but entire counties are not and cannot be your property, (collectively) through government. I’m not even sure government owns property legitimately, let alone citizens owning large areas of a continent, via the State, just because they say so.  The imaginary lines are there for jurisdiction, not for some communist idea of shared property of everyone that has their money stolen from them (taxes) by those that operate within those same lines of jurisdiction. Even if the country was basically and HOA on a grander scale, an HOA isn’t about telling people they cannot become part of the community. The HOA is about establishing rules (that are explicitly agreed upon by buying a home/property in one) to preserve and better the community and to create growth to incentivize others to become a part of it. So even if the entire country was some massive HOA, (which it’s not) it/they would benefit from not being against the equivalent of having borders for immigration. Here is a great video explaining how property is legitimately acquired: You Can Always Leave. So at best, this “The U.S. is private property” argument, is basically the same ‘Social Contract’ theory argument that the other side often makes to justify it’s pro-government/economic ignorance perspective and as someone that doesn’t share that ideology, don’t you wan’t to separate yourself from such things?

    The only real legitimate argument against immigration is the welfare State or because it hurts the government socialized economy, but even then I’m not quite sold on that as a good reason to restrict trade and (continue to) regulate markets…specifically labor markets. Austrian economics isn’t about crunching numbers and statistics, but according to the CBPP; the Federal budget 
    for welfare spending is 10% and that is including those that had been working and paid the taxes for things like unemployment and food stamps. So factoring that in, welfare dependency spending is about 5 or 6% of the total federal budget….of everyone receiving welfare spending. Now because immigration policy is so restrictive, you essentially create a black market. So it becomes very difficult to separate the numbers between those that are “legally” in the U.S. and receiving welfare and those that are “illegally” in the U.S. and receiving benefits. Now considering the Census Bureau says that 108 Million are receiving some sort of welfare and the liberal estimates of those that “illegally” reside within the US are (way south of) 15 million. The studies also show that immigrants tend to flock to States with growth potential, rather than lavish benefits. Simple math and logic tell us that foreigners come here to produce (work) and/or create capital, rather than the opportunity to land on ‘Free Parking.’ Even if every one of those so called “border jumpers” are on welfare programs, it’s your fellow Americans that vastly outweigh and are contributing to the unsustainability of the welfare system, not the boogeymen foreigners.

    Maybe your objections to immigration are Dey tuk r jerbs, but a job cannot be taken, only given because the employer/owner/entrepreneur create the jobs and not the worker. You own your labor, but not the job. Jobs don’t simply belong to those that work them, but rather owned by those that see the  job needs to exist and thus has the final say of who should get it. The market is global, resources (such as labor) and the goods created from it are exchanged despite borders.  Also, jobs do not disappear as if there is just enough to go around. Jobs are created because to the changing and increasing economic environment due to the people in it, not by some fixed equilibrium. Jobs are not lost due to the efficiency or the saturation of the market, they simply shift to elsewhere within the structure of production or are redirected elsewhere in the economy.  This is why we are not at 50%+ employment and (while also poorer) despite the population increase over the last century. I mean, are we worse off for not having a milk man or not having an ice man and a refrigerator in our homes? My point is made with immigration at the beginning of the 20th century. They came here to work and for a better life. All they got was a simple screening process, not a welfare check (because early 20th century immigration came before government welfare programs) and the boom in population certainly didn’t result in record unemployment or bring the economy to it’s knees, but wars and government policy sure did…. has. Maybe the argument is that foreign workers in domestic markets are bringing down total wages. What about economics, does economics not apply to the labor market or what is created from letting entrepreneurs do what they do best?……Improve the lives of the masses. Here is economist Ben Powell debunking the Myths of Immigration to show you that the mainstream economics of immigration have some misconceptions.

    Don’t misunderstand, I am not defending or in support of any government welfare (redistribution). I don’t support taxes (theft) to go to foreigners that have immigrated here or American citizens alike, regardless of the reason given. I understand that the economy is tough and we need things like safety nets or ways for people to be able to sustain themselves during things like this… “recession”, but funded through the productive efforts of the rest of us in the form of taxation (theft)? It’s just asking for bubbles and economic decline. Which we are getting considering that out of 320 million people living in the U.S., only 90 million are actually doing anything for the total economy. I mean going back to those CBPP study statistics: welfare, defense, and (the only increasing thanks to the ACA) healthcare spending (yes, pensions are a problem as well, but for another post) account for nearly 60% of the total budget. There is no reason why the money that is saved by not having income subsidies, military adventurism, and socialized medicine, couldn’t be spent by individuals in the private sector (through savings/investment or creating charitable organizations) to actually properly allocate the resources to provide for the poor and needy more effectively than any government redistribution program could. The poor are worse off for having their incomes subsidized for them (through the theft of everyone else) and encouraged to be dependent, which makes us all worse off for it, as the capital is not created to flow to where it is needed the most. (providing for the needy and masses). If you still believe that immigrants come here for benefits, the best way to disincentivize such behavior is to not have have a public welfare system. It’s economics 101; simple supply and demand! To reduce demand, you raise the price and because you cannot increase prices, you’ll have to limit supply… to zero. Being the welfare system is already overburdened and we know that American citizens are mostly responsible, arbitrarily restricting immigration wouldn’t improve either the situation of welfare or immigration. So why still stand against free trade?

    Usually advocates for free markets also take issue with modern day unions, because it can make it quite easy for the workers to gang up on those who pay the wages of the worker and thus labor prices become distorted.  What you may be missing is the protectionist market unions create and what they are really benefiting from, which force artificially higher wages at the expense of productive employment. Here is our good friend Uncle Milty explaining The real role of unions. Just like the artificial markets government backed unionized labor create, immigration policy can essentially create similar externalities. Labor markets know no boundaries, productivity and people seeking a better life crosses the imaginary lines we call borders. So why put them up and be against immigration? Saying it may be a drag on our economy and protectionism in trade can be good economic policy, is essentially the same argument the other side makes with Unions.  We already know free trade is a good idea, because each party involved believes they are benefiting.  So why is labor markets that cross lines of government jurisdiction (immigration) the exception? Foreign labor into (your) domestic markets is not a zero sum game, even with welfare it’s a net positive. Why meddle in labor markets with immigration policy and burden yourself with unnecessary costs of  the restrictions, regulations, and opportunity costs of it, while create unseen negative externalities? Socialist policy always begets more socialism in attempt to fix the problems the policy was created to solve. Let’s break that cycle and embrace free trade, free the market!

    If by this point you are STILL against immigration or justifying your misconceptions by saying something like “I’m just against ILLEGAL immigration” then you are just validating my original suspicion of why you are really against immigration. This is because the State says to be and your loyalty is really with government, it promises security in the fear of the unknown (despite the chaos it delivers) and not with the prosperity of free trade and giving people the opportunity to improve their lives on their own accord and merit (which guarantees positive outcomes for everyone). Government has a terrible track record of causing serious problems in the economy and society, via it’s terrible misallocation of resources and regulatory policies. If you doubt me, pick up a major newspaper tomorrow morning and I’m sure it will go on about disruptions in markets or the instability of something or someplace. I’m not sure why you would look to them to influence your perspective and use legality as objections to free trade and labor markets, as all the evidence is against it. Can we really say that thousand of laws and thousands upon thousand of pages of legislation/regulation are necessary? I mean what has a simple government stamp of approval or using violence to control outcomes, done for the efficiency and productivity of capitalism and voluntary exchange? Government defines illegal immigrant as: an alien (non-citizen) who has entered the U.S. without government permission.  You are just agreeing with government’s definition of a government idea, that exist to serve no real purpose besides (arguably) socialism of labor. A person is not illegal, an act (that harms person or property of another) is illegal and certainly not the act for just crossing some border put up by men to restrict the the free trade of other men. I mean, permission to for the pursuit of happiness? It’s counterproductive and silly, let alone undermines The Deceleration of Independence! No person can be illegal for existing in a particular geographical location. Mere existence can never be illegal and the right to exist trumps any man made arbitrary law and border. Such acts as trade and travel should not be illegal and such government edicts should not be supported by anyone who advocates for the freedom of markets, over the coercion of the State.

    If controlling immigration through borders put up by government is such a good idea, then how has 50 country like states became so prosperous for simply having a welcome sign when people cross that  imaginary line we call a border, between let’s say Illinois and Missouri? Which are ranked 45th and 9th in Mercatus Center’s Freedom in the 50 states 2013 study. In a previous Mises Boston article; how do you think Hong Kong got so rich when it itself is a resource poor country, by putting up barriers, regulating/restricting trade? People care only to improve their lives by satisfying their subjective needs and wants of their value systems. Therefore, what’s the real objective difference between a state and a Country? Maybe imagination, just like immigration. Borders only exist in our minds, because we either believe they service a purpose or we refuse to question their validity.  By all means though, reject my argument(s) and continue to defend the safety of controls, out of fear of where accepting my premise may take you.

  • Skyline of the Freest Market in the World

    Hong Kong: A Model of Free Market Success

    As the plane descended, I saw the spectacular coastline and mountainous region that make Hong Kong a destination of such natural beauty. This was my first time in Asia and hoped it would be one of many. Fifteen hours later, I was finally on the other side of the world.

    From the moment I landed there, it was nothing short of amazing. As a special administrative region of the People’s Republic of China, Hong Kong follows the “one country, two systems” model, referring to how its political system differs from the mainland. As a sovereign state, Hong Kong enjoys a high level of autonomy for the next 100 years as stipulated by the British government upon passing control back to China in 1997.

    Along the Avenue of the Stars

    Along the Avenue of the Stars

    The first weekend I was there, I toured Hong Kong and saw the famous city skyline of Kowloon. I walked along the Avenue of Stars under the beautiful night sky illuminated by the bright lights along the water. Modeled after Hollywood’s Walk of Fame, Kowloon pays tribute to some of Hong Kong’s most famous residents, such as the late Bruce Lee, Jet Li and Chow Yun-Fat.

    Statue of Bruce Lee in Kowloon

    Statue of Bruce Lee in Kowloon

    Halfway along the Avenue of Stars, Bruce Lee, Hong Kong’s most famous resident, is memorialized in bronze against the backdrop of the skyline. Serving as a sad reminder of his premature death, the statue depicts him striking his classic pose as seen in his 1972 movie The Fist of Fury.

    World renowned for its economic prosperity and high quality of life, Hong Kong is the world’s freest economy according to the Index of Economic Freedom. Jointly created by the Wall Street Journal and the Heritage Foundation, the index measures the degree of economic freedom in every country around the glob

    Implementing the belief that individual liberty results in greater prosperity for all of society, the index designates which nations are more conducive to economic prosperity. As a supporter of free markets and limited government, I witnessed Hong Kong’s economy firsthand in a program through Georgetown University.

    In conjunction with the Asia Institute for Political Economy, I spent the month of July studying Hong Kong’s economy and how it became a free market success story. Our professors covered various topics, including the theories of Austrian economists Ludwig von Mises, Murray Rothbard, Friedrich Hayek, Carl Menger as well as economic prosperity, free trade and the decline of the American dollar.

    One of our many important economic lessons

    One of our many important economic lessons

    Another component of this unique program was to hear from the leading political, business and economic experts in Hong Kong today. Memorable guest speakers included Richard Vuylsteke, president of the American Chamber of Commerce in Hong Kong; Thomas Easton, Asia business editor of The Economist; and Andrew Work, co-founder of the Lion Rock Institute, Hong Kong’s leading free market think tank.

    While there, I wanted to absorb the culture and interact with the residents, which I was able to do during our first out-of-class activity.  An exciting yet challenging assignment for our economics class was to negotiate for five items at the night market. Temple Street marks the location of Hong Kong’s longtime tradition of vendors lining the streets selling their goods at rock-bottom prices. The night market was bright, humid and crowded as I witnessed shoppers haggling with merchants in Mandarin.

    I spent a lot of time just wanting to get lost in Hong Kong and immerse myself into its customs and traditions. A lot of us spent time exploring Lan Kwai Fong, which is a section of cobblestone streets lined with numerous shops, restaurants, bars and clubs. Known for its nightlife, Lan Kwai Fong is home to the unique Balalaika Russian Ice Bar & Restaurant. Well known for its closed-in freezer ice bar, it can accommodate a small party and is stocked with a full bar, ice counters, ice seats and fur mats.

    Lantau Island’s scenic and quaint Tai O fishing village

    Lantau Island’s scenic and quaint Tai O fishing village

    While there, I wanted to see other parts of Asia, which prompted a weekend visit to China’s other administrative region, Macau, as well as Lantau Island. I also toured an old Chinese fishing village, sang karaoke, visited an interactive exhibit in the dark, went to a trolley party, ate dim sum, climbed the highest peak for a stunning view of Hong Kong, and got caught in a typhoon.

    Hong Kong was not the only destination to choose from, but I clearly picked the right one. Due to mainland China’s oppressive government and policies, I have had some people ask, “Why China?” Anyone who has been there would understand.

    Hong Kong felt like paradise with its tropical climate and stunning landscape. It is an enchanting place full of history, high-rise buildings, mountains, bays, parks, waterfalls, and sections reminiscent of a jungle. It is, after all, Asia’s Gateway City, known for its skylines, the ice bar and free markets.

  • MisesLibrary

    Newly Rediscovered Translations of Ludwig von Mises

    Thanks to economist Andrew Silva, the Boston Austrian Economics Group has two newly unearthed translations of Ludwig von Mises.

    The first, translated by Mrs. Helena  L. Ratzka, is “Comments About The Mathematical Treatment Of Economic Problems“, an article first published in Studium Generale VI, No. 2 in 1953. This article comments on the importance of using the correct methodologies for the different sciences. Mathematics may be appropriate for the physical sciences, such as chemistry and mechanics, but it is not applicable to human action.

    The other article, translated by Andrew Silva, is “Ideas About The Postwar Political Economy“, an article originally published in the July/August 1942 edition of Cuadernos Americanos. This article, written at the height of World War II, highlights the necessary conditions for peace in Europe, and elsewhere.

    Many thanks to Andrew Silva, who has provided us with these texts!

  • federal-reserve-dc

    What Is Austrian Business Cycle Theory?

    Summary

    • The Austrian School is an under-respected economic school which unequivocally embraces free markets in favor of central planning.
    • Austrian Business Cycle Theory attempts to explain the business cycle through the actions of central banks.
    • Austrian Business Cycle Theory offers foresight into the effects of the Federal Reserve’s Quantitative Easing program.

    Austrian Business Cycle Theory

    abct-chartThe six main steps of the business cycle can be seen in my flowchart above.

    1. The first step to understanding an economic bust is knowledge of central bank policy prior to the bust period. The actions that explain the entire cycle are interventions undertaken by the central bank. For this example, we’ll use the fictitious island of Senyek. In the fictitious land of Senyek, central bank policy maker Eknanreb chooses to fix interest rates at near .1% to stimulate economic growth. Eknanreb can hold interest rates near .1% through an incredible inflation of the monetary supply.
    2. Eknanreb’s actions bring us to the second phase of the cycle, actions taken by banks in response to central bank policy. As the monetary supply increases rapidly under Eknanreb’s direction, more funds are able to be lent out. As more funds are able to be lent out, banks incentivize taking on a loan by offering a low interest rate.
    3. Once banks offer credit at low interest rates, businesses respond to the market signal and start to take on debt. Businesses then overinvest in projects with easy credit. The fundamental problem exists in that the credit offered at low interest rates by banks is not a real market signal. Sure, it’s a market signal in that it provokes another action, however, the origination of the market signal is inherently fake. In a free market, low interest rates arrive as a result of decisions made by market participants. For example, interest rates naturally reach low levels if market participants choose to save instead of borrow. As market participants stop borrowing and start saving, banks respond by lowering interest rates to incentivize borrowing. Decisions made by banks to lower interest rates in response to market signals from other market participants create real market signals as the signals represent actions of other market participants. Decisions made by banks to lower interest rates in response to policy directives from a central bank create false market signals, as the signals fail to come from the market.
    4. The next phases of the cycle can be explained by malinvestment. Malinvestment, the misallocation of resources, occurs once businesses have over-invested in projects with easy credit. A great way to explain malinvestment comes from Mises’s Human Action. Mises uses the example of a master builder who planned to build a large house. The builder, unaware that he doesn’t have enough bricks to complete the house, continues to build a house he can’t complete. The building of the house creates a great economic boom, and everyone involved in the project is thrilled. Once the builder reaches the last brick, he realizes what has happened, and the project comes to a grinding halt and an economic bust ensues. This example does a great job explaining what is happening on the island of Senyek. On Senyek, businesses are unaware of the false market signals driving their malinvestment. Likewise, the builder is unaware his great house has too few bricks. The builder has been fooled into allocating resources into building a giant house while Senyek businesses have been fooled into investing in projects derived from an artificial market signal. At last, the unsustainable boom period fueled by easy credit and fake market signals leads to a severe bust period. If only someone told the builder that he had too few bricks earlier, the fallout of the bust would be less severe. Likewise, if the central bank hadn’t created an artificial market signal, the economic bust period would be less severe.

    Applying Austrian Business Cycle Theory

    In the U.S., the Federal Reserve buys $65B worth of bonds every month. In accordance with the Austrian School, this fake stimulation is currently fueling malinvestment and overconsumption. Once the “Fed” completes the “taper” of Quantitative Easing, the current bond buying program, the master builder will realize the market signals he received were false, and his house will crumble. Likewise, the next catastrophe in the U.S. is not too far in the future. Actions taken by the Federal Reserve in response to the Great Recession have fueled a boom period characterized by overconsumption, and a severe bust will follow.

  • Student Loan Debt

    A Vicious Cycle Fuels The Massive Student Loan Bubble

    Summary

    • A vicious cycle of government-backed loans fuels the massive student loan bubble.
    • Student loan debt is a drag on economic growth.
    • Too many young people go to college.
    • The student loan bubble resembles the recent housing market bubble.

    A Vicious Cycle & Its Impact On Growth

    student-loan-cycleThe student loan bubble begins with the government. Loans offered to students are guaranteed by the federal government. Colleges can then charge higher tuition rates if the government intends to back its own loans. The effect of government-backed subsidies and loans is staggering inflation. As seen in the image below, college tuition prices have easily outpaced benchmark inflation.

    tuition-pricesIn fact, college tuition prices have outpaced inflation every year since 1981. Secondly, college tuition increases at an average of 6% greater than benchmark inflation. One method of reducing prices would be to increase the supply of students, thereby lowing tuition costs. However, colleges choose to solve the problem by raising prices and will likely continue to do so. The effects of higher tuition costs are starting to impact the financial stability of students. Two-thirds of college students are in debt and the average graduate owes $25K. In total, student debt exceeds $1T. As a result of mounting debt, the student loan default rate is growing quickly. From 2003-2010, the student loan default rate more than doubled from 4.5% to 9.1%! To compound problems, student loans from the federal government are non-dischargeable. With non-dischargeable loans students cannot declare bankruptcy and rid themselves of student loan debt. Instead, students are only allowed to purchase essential items for survival as the federal government aggressively garnishes the wages of those in debt. An increasing number of consumers that can only purchase essentials serve as a drag on the U.S. economy.

    Too Many Young People Go To College & Similarities To Th> Housing Market Bubble

    It’s hard to argue with the statistics that indicate too many high school seniors go to college. For one, the U.S. has the highest dropout rate in the industrialized world. If the federal government didn’t guarantee student loans then fewer students would go to college. With fewer students attending traditional higher education, the runaway inflation of college tuition prices would be under control. A second effect of fewer students obtaining traditional higher education degrees would be the decrease of structural unemployment. Too many decent, well-paying vocational jobs go unfilled in the U.S. In other industrialized nations such as Germany, some students choose to attend job training programs offered by companies that are happy to hire dedicated, well-trained high school graduates. It’s healthier to both the individual and the broader economy to be a vocational worker with a $44,000 salary and no college debt than an unemployed humanities major with a frightening amount of student loan debt. In fact, half of humanities students obtain jobs that don’t require a college degree.

    That being said, a simple comparison of salaries indicates that it is unquestionably better to have a college degree than solely a high school degree. The issue is not higher education, it’s too many students pursuing higher education with a huge, government-backed loan. Similarly, too many people became “homeowners” and as household debt soared, the housing market bubble increased. Homeownership is a good thing, but becomes a problem when too many pursue it. Likewise, a college education is a good thing, but not when those who don’t need it pursue it. In both cases, the root cause lies with the federal government and its inflation fueling loans and subsidies. Just as the federal government encouraged home ownership in the years leading up to the housing market bubble, the federal government is actively pushing some students to obtain a potentially unneeded major. Even worse, as college tuitions rise, public pressure increases to increase loans and subsidies to college students! Politicians, responding to the wishes of the people then increase loans and subsidies. And in increasing government loans and subsidies, those in government only add fuel to a rapidly growing bubble that threatens to puncture growth.