Does M&A Benefit the Economy?

Does M&A Benefit the Economy?

06/13/2018Jeff Deist

The $85 billion mega-merger of AT&T with Time Warner appears headed for consummation, which will create another big digital media company with telecom underpinnings. But will this endless scramble for eyeballs and clicks, the quest to determine which platforms finicky content consumers will choose in coming years, actually create any value for shareholders? Or will it end up like the AOL/Time Warner merger of 2000, a poster child for unduly optimistic predictions about the value of merging technology platforms?

Beyond digital media companies, questions loom about the booming M&A market in general. Is the world of deals mostly malinvestment, as David Stockman charges, or does at least some transaction activity represent organic and healthy allocations of capital? Are company valuations and purchase prices completely out of whack, due to a Fed-juiced equities market? Do stock buybacks, creative recapitalizations, and listless horizontal mergers attempt to create ersatz "financial" growth in lieu of the real thing? 

All of these are open questions, and mises.org readers need no explanation of how central banks and low interest rates create malinvestment. But (cue movie trailer voice) in a monetary world controlled by central banks, the damnable answer is we can never know. That is precisely Stockman's point: because the Fed controls the most important price in the economy — the Fed Funds rate — it's impossible to know the true price of anything. 

Value is subjective, and supply and demand drives prices. But both measures are expressed in dollars.  

So the brilliant young tech kid who gets $30 million from a VC fund for a great new idea may have created value for society that justifies it — or may be the lucky recipient of cheap shotgun money, spread around by yield-chasing fund managers hoping whiz kid's idea pays 20X or 50X to cover losses elsewhere.

This is true of all speculative markets, to be sure. VC, M&A, and equity markets would have uneven distributions of winners and losers without the Fed. But one of the big problems with central banking generally is this: when you manipulate the cost of money and credit, you necessarily manipulate that distribution. This strengthens the perception that wealth is a rigged game, and in fact actually creates an undeserving class of Fed-connected elites in heavily "financialized" industries.   

One company hoping to cash in on easy money is Vice Media, a rough and tumble media platform focused on the advertising cliche known as the "youth market." You may have happened across Vice.com, or seen their ubiquitous videos on airlines or your social media feeds. The slant is decidedly leftwing, which is no surprise, but also fairly interesting — one recent video highlighted the tragic history between Haiti and the Dominican Republic with compelling on-the-ground storytelling.  

Still, it's a niche brand at best. So imagine thinking Vice.com is worth several billion dollars, ranking it among the most valuable private companies in America. Imagine thinking it will soon be worth $50 billion, perhaps within a decade. Imagine thinking the company is wildly undervalued, so that you pull $70 million in spare change from your back pocket and invest in something you don't quite understand but imagine represents youth and revolutionary thinking. 

We might call such a person a fool, someone suffering from historical amnesia when it comes to the dot.com and housing bubbles, who forgets the importance of fundamentals and real earnings in overvalued companies. We might call them a sucker who deserves to lose money. Or we might call them a genius, if it all works out. In fact that $70 million investor back in 2012 was no less than Rupert Murdoch — by all accounts a brilliant and shrewd media mogul, not to mention hard nosed investor. And he's not alone, as a very serious private equity player — TPG — invested $450 million just a year ago. 

Fast forward to today, and Vice Media is reeling from a combination of lagging revenue, a confusing array of platforms, and the struggle to figure out millennial TV habits. So the next round of Murdochs and TPGs might not be easily identified. 

Vice, mind you, produces "content" rather than tangible goods or services. And not just any content, but edgy content, which requires an almost preternatural understanding of the shifting social media and hipster landscapes. Edgy is amorphous, and quickly lost. Worse yet is the risk of a stale company imagining it's still edgy, i.e., lacking self-awareness. Now-shuttered Rare comes to mind, as does the struggling Buzzfeed. 

All of this suggests Vice needs the right people, and a constant new stream of them, to stay relevant. This is a tall order even in the older, slower print world, as anyone familiar with Rolling Stone or Spin can attest. So investing in Vice truly means investing in people, like its wild man founder Shane Smith, not management, products, brands, processes, or systems. And people are notoriously unreliable.

Rupert Murdoch and TPG should be worried. 

Addendum: the deal world today is not just a large-cap, headline-making phenomenon. Deal activity across company sizes is robust, both in terms of volume and value, despite cooling somewhat from a recent 2015 peak. M&A buyers spend nearly $5 trillion annually, more than $1.5 trillion of it in the US.

The two primary categories of M&A distinguishes between "strategic" and "financial" buyers.

Strategic acquisitions involve existing corporations scooping up competitors, new service lines, new brands, or new technology, with the goal of greater vertical integration and the economies of scale and management such integration makes possible. "Synergy" is the awful buzzword frequently used to describe big corporations either merging with a similarly sized company, snapping up smaller bolt-on businesses as subsidiaries, or absorbing established companies to fill holes in their product and service offerings.

Vertical integration, however, comes at a potential price. As Rothbard posits in Man, Economy, and State, corporations that become too large and dominant in a field risk losing perspective on profit and loss with regard to their intra-subsidiary transfer pricing, the amount each subsidiary "charges" the others for goods and services. Corporate executives who buy up too many similar companies might find themselves with imperfect information about internal profits and losses, and thus (like Soviet planners) become unable to allocate resources and price end goods/services effectively.

As a general rule strategic buyers are less sensitive to interest rates and central bank signals, because big existing corporations often bring cash to the table or swap their own valuable stock. When Amazon simply plunks down $13.7 billion in cash to buy Whole Foods, it's not doing so to make a quick buck or even take advantage of low interest rates (though it did issue corporate debt to raise some of the money). It's not openly engaging in the kind of financial engineering David Stockman decries, although he does frequently criticize Amazon's lack of profits and dividends relative to its sky-high P/E ratio. In essence, strategic buyers (especially public corporations) often have the luxury of long-range decision-making.

Financial buyers, however, generally consist of private equity or venture funds whose investors want to buy a company and sell it within a three to five year window. As Peter Thiel describes in Zero to One, for every investment that hits, most will fizzle. So the goal is to avoid too much downside risk while biding time to unearth the big winning investment — a story Thiel knows well from his experience with PayPal, Ebay, and Facebook (note that private equity firms often invest in large public companies; the strategic vs. financial distinction is based on the identity of the buyer rather than the target entity).

During the heady go-go years of private equity M&A, from the mid-1990s until the Crash of 2008, Alan Greenspan and Ben Bernanke demonstrated their commitment to making credit cheap and easy, and to making sure stock markets didn't crash. So private equity players responded rationally, buying up companies with 1 part equity to 6, 7, 8, or more parts debt. Often the 1 part debt was divided into tranches and split between various funds, isolating the risk of losing equity even further.

Keep in mind most corporate interest payments are deductible for tax purposes, while dividend payments are not. So it made sense to load up a company with cheap debt, and use revenue to pay off that debt quickly (while deducting the interest portion) rather than funding non-deductible capital expenditures to improve future productivity. Why worry about capex, product development, or improving factories when you plan to sell the company in three years anyway? Load it up with debt, fire existing management, install overseers, put every available dollar toward debt service, and get out before any long-term cracks began to show. After all, there was always another private equity firm (or IPO) waiting to buy. 

This model is what propelled Mitt Romney from being merely a rich man to being a very rich one.

It's hardly surprising that fund managers and corporate CEOs developed a short-term mindset: monetary policy almost demanded it. And it's hardly surprising that enterprise values rose to crazy heights, with many financial deals closing for a purchase price of 10 or 12X earnings. 

It was all driven by cheap credit, and it all came crashing down in 2008. But if M&A volume is any indicator, we haven't learned a thing.

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What the Burgeoning Trade War Really Means for Entrepreneurs

2 hours agoPer Bylund

President Donald Trump followed his announcement of steel and aluminum tariffs with a declaration that “trade wars are good, and easy to win” -- a stance economists and members of his own political party immediately challenged. Not long after the U.S. announced its tariffs, international trading partners threatened retaliatory fees against American goods such as bourbon, blue jeans and Harley-Davidson.

As governments clash in big battles, small businesses are left to worry about how they might be affected by a trade war. The White House claims it’s acting in the interest of American businesses and is willing to put tariffs on more than $500 billion of imported goods (per CNBC), but not all American companies benefit from nationalistic policies. The Washington Post reports that farmers, for example, will receive $12 billion in federal aid to offset any negative effects of this trade war.

Many companies will need to pass costs on to consumers, as reported by The New York Times. These increases might seem small at first, but small price hikes across the board will leave consumers' wallets thinner from every purchase. This will be particularly problematic for individuals who cannot afford to buy American-made products and instead purchase cheap goods from China, the Atlantic reports.

For entrepreneurs, trade wars create an uncertain and often problematic situation. Which endeavors will succeed, and which will feel the tariff squeeze? How can small business owners protect their livelihood? Thankfully, entrepreneurs don’t have to wait to find out. Through proactive management, entrepreneurs can persevere in an economically volatile climate

Read the full article at Entrepreneur.com
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60 Years of 'Government - An Ideal Concept'

08/16/2018Gary Galles

In 1958, Foundation for Economic Education guiding light, Leonard Read, presented a series of lectures in Argentina against the backdrop of an economy decimated by mis-government which shares a great deal with the same country six decades later. The lectures became a small book-- Why Not Try Freedom?—an excellent encapsulation of Read’s thought.

Particularly interesting is his first chapter, “Government—An Ideal Concept,” because in a world where “each man must actually live his own answer to the challenges posed by his existence,” knowing the appropriate ideal for government is an indispensable guide to growth and social cooperation. Sixty years later, that deserves revisiting, as the ideal is almost unrecognizably distant from current reality.

The problems of man, society, and government are approached most constructively…within a moral and spiritual frame of reference.

Man’s purpose is…to come as close as he can to the realization of those creative potentialities peculiar to his own person.

Any behavior, personal or collective, which tends to retard man in his pursuit of the ideal life is, in my judgment, ipso facto bad, evil or immoral. Any behavior, personal or collective, which tends to promote or complement this objective is, in my judgment, ipso facto good, virtuous or moral.

Any person has a moral right to inhibit the destructive action of another or others. However, no person has a moral right to forcibly direct or to control what another shall invent, create, or discover; no right to dictate where he shall labor, how long he shall work, what his wage shall be, what and with whom he shall exchange, or what thoughts he shall entertain. No single person has any such moral right. No combination of persons has any such moral right. No agency, political or otherwise, has any such moral right.

There are no moral sanctions for government to intervene in any manner whatsoever with productive or creative actions. The moral sanction for establishing government springs from the right of the individual to inhibit or prohibit or restrain the destructive actions of others.

It is necessary to know why government should exist--what it is for--in order to gain an awareness of what it is not for. We must know government and its purpose…to limit it to its purpose.

An ideal theory of government and liberty is to be derived from the necessity for the free, uninhibited flow of all creative human energy .

We are all dissimilar. However, we have …one common necessity if we are to live and progress. It is that prohibitions against, or restrictions upon, the release and exchange of our creative energies be at the lowest minimum possible…this removal of inhibitory influences--the kind imposed by man on men--serves to benefit all of us in common.

Each individual in his own upgrading…builds only upon free will and volition.

Inhibitory influences are fraud, violence, misrepresentation, and predatory practices. All are immoral, be they done legally or illegally. The problem here is to remove inhibitory actions. This can be accomplished by restraining aggressive force.

No individual has the moral right to use aggressive force against any other individual. He has the moral right to use only defensive or repellent force.

If a person has a right to life…he has a right to protect and to sustain that life, the sustenance of life being nothing more nor less than the fruits of one’s labor—one’s honestly acquired property…the rights to the fruits of one’s own labor involves the restraint or the removal of obstacles to…one’s own exchange, but also the obstacles to other people’s exchange.

If one has a right to life and livelihood, every other person has a similar right… the requirement that life and livelihood be protected are coterminous with society .

The source of all creative and variable human energy…rests in…the individual, in such voluntary and cooperative actions as he may freely choose to take. This is the province of the individual and not of society. This is the vast, unlimited area of liberty, of self-reliance, and of self-discipline.

If the purpose of man on earth is self-realization…it follows that the law, the book of rules and prohibitions for social administration, can logically serve only the purpose of deterring man’s destructive actions for the sake of giving full flower to his creative actions…no just object beyond removing social obstacles to the release of the human spirit. An organized arm of society, within its proper bounds, can be but the handmaiden of liberty; government, within its proper bounds, can be but the protective servant of all individuals equally against antisocial marauders.

Cooperation for creative purposes must be left to voluntary action. Men can cooperate to use force, but they cannot be forced to cooperate…However, cooperation for creative purposes requires, as an auxiliary, cooperation to annul destructive purposes. Cooperation for creative purposes requires that inhibitory influences against creative action be neutralized.

Society’s political apparatus…[is] to inhibit, repel, restrain, penalize. [Members] can do everything else better outside the apparatus than in it. What should be inhibited, restrained, penalized? Those actions of man which are characterized by aggressive force, namely, those actions which themselves inhibit, restrain, destroy, or penalize creative effort. Defensive force may be used to neutralize aggressive force, and such a use of forces serves a social end. This use of defensive force should be the guiding principle of the political agency.

Cooperation is required among members of society to perform the negative function of prohibiting obstacles to production, communication, and exchange… limited to those actions which have a common benefit to creative effort. Ideally, the only dissenters would be those who want to live by predation.

Any logical and just organization by society derives its existence from…the common need for every man to protect himself against those who would limit his creative opportunities. Every human being is born with as much right to live his life creatively as any other man. Man, however, is incapable of protecting his life as a personal, individual project, and at the same time of realizing his human potential…By reason of this social circumstance, he is committed, in principle, to cooperating with his fellow men in the protective project…that should make no distinction whatever as to persons…where all ought to be regarded as equal… where special privilege should be unknown.

In short, the law’s limitation inheres in its justification. Force is a dangerous thing. Therefore, society's organized arm is a dangerous instrument. It is not, as some assert, a necessary evil. When limited to its proper defensive scope, it is a positive good. When exceeding its proper limitations and becoming aggression, it is not a “necessary” but a positive evil.

Aggressive force…is always evil. There are no exceptions. No man has any moral right to use aggressive force against any other man. Nor have any number of men, in or out of societal organizations, any moral right to use it.

One of the most distressing fallacies having to do with government and liberty is the assumption that the State, an agency presumably of the people, has rights beyond those possessed by the people…no reasonable person can logically believe that any such control belongs to a multitude of citizens…It has no derivation. It is an arrogation.

Any person has the natural and moral right to use repellent or defensive force against any other person who would aggress against him. No person on this earth has any moral right of control over any other person superior to the defense of his own life and livelihood.

Every living human being…has a vested interest in the creative emergence of every other human being…in the free, uninhibited flowing and exchange of the energies thus released; the true interests of all, therefore, are in harmony…every individual has a vested interest in common with all other men in restraining all inhibitory influences to creative energy and creative energy exchanges. All else is individual, voluntary, and cooperative as individuals may choose; for all else is creative.

Leonard Read provides a valuable touchstone—the universal liberty to grow or emerge--to understand what should ideally characterize a government of self-owning individuals. That, in turn, reveals a sharp contrast with “What Is and What Should Never Be,” (apologies to Led Zeppelin) about government and its impositions in our lives. We have, in many ways, moved farther from the ideal in the 60 years since Read articulated it. But he continues to offer us the wisdom necessary to retrace our mis-steps and reopen “the vast, indeed, the infinite, area of emergence” that is possible to us. And we have a lot to gain if each of us would convert our “massive potential for growth,” as Bill Murray put it in Stripes, into reality.

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Forget Security Clearance, John Brennan Should Be Prosecuted

08/16/2018Tho Bishop

In the year 2018, it is not remotely shocking to see media attention shift seamlessly from reality show villains to former CIA directors. The Trump Administration’s announcement that it has revoked the security clearance for John Brennan, America’s former Communist-sympathetic spymaster, naturally resulted in a race to see who among the professional political class could be most dramatic in their condemnation.

Many, including Brennan himself, bizarrely argued that the Trump Administration’s action was a “1st Amendment violation.” As Jim Bovard quipped on Twitter, “Can someone show me the asterisk in the First Amendment that says that former govt. officials have a divine right to confidential inside govt. info in perpetuity?”

Most entertaining was the response from ex-VP and amateur masseuse Joe Biden, who tweeted:

Biden Tweet Brennan.png

In Washington, you can always identify how dependable an ally is by the size of the lies they are willing to tell in your defense.

After all, Brennan’s tenure at the CIA was rampant with dishonesty, unaccountability, and hypocrisy – and that’s before looking at Brennan’s long record of support for war crimes.

It was Brennan’s CIA, after all, that was found guilty of spying on Senate computer servers and threatened to prosecute Intelligence community staffers investigating CIA interrogation practices. He then lied about it repeatedly until investigation into the matter made doing so indefensible.

The conduct of Brennan’s CIA wasn’t limited simply to the Senate. Though in his current capacity as an MSNBC contributor, Brennan is now a passionate defender of the 1st Amendment and free press, his agency also hacked and spied on American journalists reporting on CIA torture.

As the McClatchy reported at the time:

The CIA got hold of the legally protected email and other unspecified communications between whistleblower officials and lawmakers this spring, people familiar with the matter told McClatchy. It’s unclear how the agency obtained the material.

Of course it is understandable that Brennan was so interested in keeping CIA torture practices as hidden as possible, particularly since he himself was an advocate for them. These included waterbordering, rectal feeding, beatings, and other sometimes fatal practices. Additionally the CIA’s conduct during this period was without any sort of accountability, keeping other government agencies and even the White House in the dark. Inevitably many innocent people became ensnared by the actions of America’s rogue spy agency.

Naturally the media and the anti-Trump left would now treat a defender of these practices as a moral defender of American democracy.

If Trump really wanted to act on the Deep State, he wouldn’t settle for simply revoking John Brennan’s security clearances. He should move to strip his pension and have him prosecuted for his past actions. While it's fair to question whether the current legal system would actually allow anything to happen to Brennan, doing so would force renewed focus on his past actions and help highlight the dangers of leaving the CIA unchecked. Trump is a fan of spectacles, let this one play out for the nation to see. 

Then he should do the same for James Clapper.

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Bake the Cake: The State of Colorado Is Still Persecuting Baker Jack Phillips

08/15/2018Ryan McMaken

The Colorado Civil Rights Commission is at it again. It's going after Masterpiece Cake Shop owner Jack Phillips for refusing to "make a cake with a pink inside and a blue outside, celebrating a gender transition from male to female."

This comes only months after the US Supreme Court ruled against the Commission's regulatory attack on Phillips for not baking a cake for a gay wedding.

Although the Supreme Court ruled in Favor of Phillips, it nevertheless took a very narrow view.

Instead of criticizing the very existence of laws that trample on property rights by mandating that people be forced — under threat of state violence — to provide services for certain privileged groups, the Court only took issue with the reasoning employed by the Colorado Civil Rights Commission when it ruled against Phillips.

When the ruling came down, I commented on the specifics of the Court's narrow ruling:

The US Supreme Court today ruled 7-2 in favor of a Denver small business owner who has been threatened, sanctioned, and ultimately driven out of business by the Colorado Civil Rights Commission. The controversy arose when the cake shop owner, Jack Phillips of Masterpiece Cakeshop, refused to bake a cake for a gay wedding, claiming to be motivated by religious beliefs.

The cake shop was hauled up before the Colorado Civil Rights Commission where the commission ruled that the shop must "change its company policies, provide 'comprehensive staff training' regarding public accommodations discrimination, and provide quarterly reports for the next two years regarding steps it has taken to come into compliance and whether it has turned away any prospective customers."

Justices Kennedy, Roberts, Alito, Breyer, Kagan, Gorsuch and Thomas all voted to overturn the earlier appeals court's decision to uphold the Commission's ruling against Phillips. Only Ginsburg and Sotomayor dissented.

In the decision , authored by Justice Kennedy, much of the reasoning centered on the fact that the Colorado Civil Rights Commission had demonstrated an apparently obvious bias against religious people, even though "neutrality" is legally required in such cases. The ruling states:

As the record shows, some of the commissioners at the Commission’s formal, public hearings endorsed the view that religious beliefs cannot legitimately be carried into the public sphere or commercial domain, disparaged Phillips’ faith as despicable and characterized it as merely rhetorical, and compared his invocation of his sincerely held religious beliefs to defenses of slavery and the Holocaust.

The SCOTUS ruling also noted that both the Commission and the appeals court largely ignored and glossed over the fact that the Commission had on three prior occasions ruled in favor of bakers who had refused to bake cakes with anti-gay slogans on them. There was an enormous double standard at work.

As Kagan notes in her concurring opinion, the Civil Rights Commission was abandoning neutrality in favor of making decisions “based on the government’s own assessment of offensiveness.”

In other words, the Commission was deciding, based on the members' own personal prejudices and biases, who shall be forced to bake cakes, and who shall not.

With this ruling, the court took a small step in the right direction by taking exception to the Commission's claim that freedom of religion doesn't exist. As noted by Justice Kennedy, the Commission essentially dismissed the very idea that religious conviction could be a valid reason to claim an exemption from the Commissions rules and regulations.

The Court came back and slapped down this reasoning, but it left the Commission plenty of leeway to rule against Phillips using different reasoning.

Thus, as long as the Commission can manufacture a different rationale for ruining Phillip's business, it is free to do, as far as the US Supreme Court is concerned.

The court's limited approach here illustrates the problem with the Court's strategy on the matter of anti-discrimination law has always been problematic.

By limiting Philipp's free use of his property only to cases in which he can prove some sort of religious conviction, the Court — and the law in general — relies essentially on mind reading in determining whether or not Phillips should be allowed to use his property as he sees fit:

This has led to a number of absurd legal and legislative acrobatics in which property owners must prove that their business decisions are motivated by artistic choices or religious conviction, but not by some other motivating factor. Thus, government commissions and courts are required to read the minds of business owners and determine whether or not their internal feelings and religious views fall under some government-approved motivation for refusing some sort of business service.

Proving or disproving internal motivations, of course, has always been an extremely sketchy way of doing things. After all, the Colorado Civil Rights Commission concluded that Phillips was using his religious views to justify unlawful discrimination. This, of course, requires that the commission members somehow have certain knowledge about the thoughts in Phillips's head.

This sort of reasoning also has the habit of working against business owners who hold views that are held only by small minority or otherwise might be considered especially idiosyncratic. One might argue that one is religiously opposed to providing some sort of service. But unless those views are recognizable to judges and bureaucrats as part of a known religious movement, the business owner is likely to be accused of simply making up an ad hoc religion to "mask" unlawful discrimination.

Ultimately, this sort of subjectivity invites just the sort of corruption and bigotry we see on the Colorado Civil Rights Commission.

There's a far less complicated way of protecting rights in these cases, however, we should stop talking about "freedom of religion," and focus on ordinary property rights instead. In practice, freedom of religion can only be truly protected by protecting property rights overall. After all, all rights — including freedom of speech and freedom of religion — depend on the ability to exercise control of one's own body and property.

As Murray Rothbard has demonstrated, rights to religious expression and speech are simply types of property rights. Consequently, religious liberty and free speech can be protected with a more general respect for property rights. By saying that Phillips ought to be forced to bake a cake, the Commission is asserting that Philipps does not enjoy ownership over his own body, or the shop and tools he acquired by using his body to perform labor.

Having refused to acknowledge these property rights, though, the Supreme Court has empowered the Colorado Civil Rights Commission to continue its war against small-time bakery owners who are no threat to anyone and impose their views on no one. The Commission already knows how it's going to rule. Its hostility to Phillips is apparent, and there's not reason to believe the Commission will stop until it has succeeded in ruining him. The challenge the Commission faces, however, is in reverse engineering a ruling that can survive a legal challenge. I'm sure that with the help of a sufficient number of taxpayer-funded lawyers, the commission can succeed in this endeavor.

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Congress Has Become Very Good at Spending Money

08/15/2018

This week President Trump signed the 2019 National Defense Authorization Act, increasing America’s war budget to a whopping $717 billion. For comparison, this is roughly equal to the next 11 highest military budgets combined.

Military Spending_815.png

In fact, the $107 billion increase from last year alone is roughly equal to the total military spending of Russia and Germany together.

Congress isn’t done spending taxpayer money yet though. Next up is a spending bill that will fund the Departments of Labor, Health and Human Services, Education, and Defense, because the Pentagon apparently can’t get by with a humble $717 billion. This will be the third “minibus” to pass Congress  in 2018, the result of which has been the US running its highest deficits in years.

Of course reckless Federal spending isn’t anything new. What is particularly noteworthy about Congress’s recently behavior is that it has now become extremely efficient at passing these spending bills.

Congressional budgets are broken up into 12 different bills. When this next package clears the Senate – as expected – it will have passed 9 of the 12. As Axios notes, the Senate “has already passed the majority of spending bills by early August for the first time since 2000.” Should Congress continue on this pace and complete all 12 budgets by October, it will be the first time this has occurred since 1996.

None of this is surprising. As Ryan McMaken noted prior to the 2016 election, no one spends money more liberally than a Republican-controlled Federal government. Ideas like fiscal responsibility (and political decentralization) makes for great rhetoric in a political minority, but are extremely inconvenient when in a position of political power.

What makes this all the worse is that the GOP’s fiscal irresponsibility will inevitably result in blow back for some of its better policy victories, such as last year’s tax cuts.

Already progressive outlets are trying to peg last year’s reforms as the reason for historically high deficits, even though tax cuts have (unfortunately) increased government revenue. As such, when the Democrats next find themselves in political power, we can count on a push for tax increases to address America’s fiscal ills – likely while advocating for a new list of new government programs.

This cycle will continue to play out until the power to spend is taken away from Washington. The question is whether it will be due to a debt and monetary crisis, or pro-active restraints placed on it from the states.

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The Mission of the Mises Institute, In One Paragraph

08/14/2018Jeff Deist

The mission of the Mises Institute, as presaged by Ludwig von Mises in his 1962 review of Murray Rothbard's Man, Economy, and State: 

If we want to avoid the destruction of Western civilization and the relapse into primitive wretchedness, we must change the mentality of our fellow citizens. We must make them realize what they owe to the much vilified "economic freedom," the system of free enterprise and capitalism. The intellectuals and those who call themselves educated must use their superior cognitive faculties and power of reasoning for the refutation of erroneous ideas about social, political and economic problems and for the dissemination of a correct grasp of the operation of the market economy. They must start by familiarizing themselves with all the issues involved in order to teach those who are blinded by ignorance and emotions. They must learn in order to acquire the ability to enlighten the misguided many.

The entire review is fantastic, and demonstrates the degree to which Mises considered the young Rothbard an eminent and pioneering economist — nothing less than an "epochal" contributor to the science of praxeology. High praise indeed.

h/t Bob Robert.

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Trump vs. His Own Administration?

08/13/2018Ron Paul

Are President Trump’s senior cabinet members working against him? It’s hard not to conclude that many of the more hawkish neocons that Trump has (mistakenly, in my view) appointed to top jobs are actively working to undermine the president’s stated agenda. Especially when it seems Trump is trying to seek dialogue with countries the neocons see as adversaries needing to be regime-changed.

Remember just as President Trump was organizing an historic summit meeting with Kim Jong-Un, his National Security Advisor, John Bolton, nearly blew the whole thing up by making repeated references to the “Libya model” and how it should be applied to North Korea. As if Kim would jump at the chance to be bombed, overthrown, and murdered at the hands of a US-backed mob!

It seems that Trump’s appointees are again working at cross-purposes to him. Last week, Secretary of State Mike Pompeo announced that he was invoking a 1991 US law against the use of chemical weapons to announce yet another round of sanctions on Russia over what he claims is Putin’s involvement in the poisoning of a former Russian spy and his daughter in the UK.

The alleged poisoning took place in March and only now did the State Department make its determination that Russia was behind it and thus subject to the 1991 sanction law. Was there new information that came to light that pointed to Russian involvement? According to a State Department briefing there was none. The State Department just decided to take the British government’s word for it.

Where do we get authority to prosecute Russia for an alleged crime committed in the UK, by the way?

President Trump’s own Administration is forcing him to accept the State Department determination and agree to sanctions that may well include, according to the 1991 law, a complete break of diplomatic relations with Russia. This would be a de facto declaration of war. Over unproven allegations.

Trump has authority to reject the imposition of new sanctions, but with his Democrat opponents continuing to charge that he is in league with the Russian president, how could he waive sanctions just before the November US Congressional elections? That would be a windfall for the Democrats seeking to take control of the House and Senate.

The only way Russia could avoid the second, most extreme round of these sanctions in November is to promise not to use chemical weapons again and open its doors to international inspections. What government would accept such a demand when no proof has been presented that they used chemical weapons in the first place?

Certainly it is possible that President Trump is fully aware of the maneuverings of Bolton and Pompeo and that he approves. Perhaps he likes to play “good cop, bad cop” with the rest of the world, at the same time making peace overtures while imposing sanctions and threatening war. But it certainly looks like some of his cabinet members are getting the best of him.

If President Trump is to be taken at his word, that he welcomes dialogue “without pre-conditions” with leaders of Russia, North Korea, Iran, and elsewhere, he would be wise to reconsider those in his employ who are undermining him every step of the way. Otherwise, it is hard to believe the president is sincere. Let’s hope he does choose dialogue over conflict and clips the wings of those under him attempting to push him in the other direction.

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"FDA Approval" is a Monopolist's Scheme to Limit Competition

08/13/2018Hunter Lewis

Charging the price of an expensive car for a garden-variety amino acid, one we eat every day.

A year ago, the Food and Drug Administration ( FDA) approved a “drug” called Endari to treat sickle cell disease, which afflicts about 100,000 Americans of African descent and around 25 million more outside the US. Price tag: $28,000 a year.

So what is Endari? Anything approved by the FDA legally becomes a “drug.” But some have noted this “drug” is just a higher dose of L-glutamine, a common amino acid that is in our food and that our bodies also make. Indeed, The agency itself describes this “drug”  as "L-glutamine oral powder.” Amino acids are the building blocks for protein and we also use them for other purposes.

So here we have a “drug” intended to help Americans of African descent, but because it has been approved by the FDA, now costs more than $500 per week. Normally “drugs” benefit from two government monopoly grants: first a patent and then FDA approval. That ensures no competition and the ability to charge more than would be the case without a government-restricted market.

Glutamine, being a natural substance, cannot be patented stand alone, but the FDA approval still guarantees a monopoly, because nobody else will want to pay the cost of entering the market. The total cost of gaining approval averages in the billions. Even Endari, approved under the “Orphan Drug Act,” would have cost enough to keep a competitor out, and in addition the FDA would not look well on a second application under that Act. FDA approval is also crucial because Medicaid and Medicare and Veterans will then pay for it. They will not pay for a supplement, even if it is the same thing, even if it costs less than a tenth as much.

There is still an existing drug for sickle cell disease called hydroxyurea, which also costs less than a tenth as much as Endari, but which has serious side effects. The insert warns of anemia and leukemia, and in addition it may not work. Nevertheless, some insurance companies are telling doctors to continue to use hydroxyurea first. They are not of course telling doctors to do the logical thing which is to use the supplement form of glutamine.

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Facebook Censored Me, Criticize Your Government and It Might Censor You Too

08/09/2018James Bovard

Responding to Russian-funded political advertisements, Facebook chairman Mark Zuckerberg declared last month that “we will do our part to defend against nation states attempting to spread misinformation.” But Facebook is effectively sowing disinformation by kowtowing to foreign regimes and censoring atrocities such as ethnic cleansing in Myanmar. In the name of repressing fake news and hate speech, Facebook is probably suppressing far more information than Americans realize.

Facebook blocked a post of mine last month for the first time since I joined it nine years ago. I was seeking to repost a blog article I had written on Janet Reno, the controversial former attorney general who died last year. I initially thought that Facebook was having technical glitches (no novelty). But I checked the page and saw the official verdict: “Could not scrape URL because it has been blocked.”

“Pshaw!” I said, or some other one-syllable epithet. I copied the full text of the article into a new blog post. Instead of using “Janet Reno, Tyrant or Saint?” as the core headline, I titled it: “Janet Reno, American Saint.” Instead of a 1993 photo of the burning Branch Davidian compound in Waco, Texas, I substituted an irreproachable official portrait  of Reno. Bingo — Facebook instantly accepted that crosspost. I then added a preface detailing the previous blockage and explaining why I sainted Reno. The ironic headline attracted far more attention and spurred a torrent of reposts by think tanks and other websites.

I contacted Facebook’s press office to learn why the initial post was blocked. Facebook spokeswoman Ruchika Budhraja checked into the matter and notified me that I would be permitted to post that link. "But why was it blocked?" I replied. She responded: “There was an image in the post that incorrectly triggered our automation tools. That issue has been corrected.”

So when did showing the home of more than 70 people engulfed in flames after a FBI assault become beyond the pale? Facebook presumably blocked everyone who sought to share that image from the most vivid law enforcement debacle of the 1990s.

This was not the first time Facebook erased an iconic image that the U.S. government would be happy to see vanish. Facebook likely deleted thousands of postings of the 1972 photo of a young Vietnamese girl running naked after a plane dropped napalm on her village.  After coming under severe criticism last year, Facebook announced that it would no longer suppress that image. Unfortunately, Facebook is unlikely to disclose a list of the images it bans. Because most Americans are clueless about current events and recent history, they will have little idea of what vanishes into the Memory Hole.

Read the full article at USA Today
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