Power & Market

Switzerland Bans Welfare Recipients From Obtaining Citizenship

01/11/2018Ryan McMaken

Swiss news site The Local reports that new laws taking effect this month will make it even more difficult for immigrants to obtain citizenship. 

It has apparently been established law for some time that immigrants collecting social benefits are barred from naturalization. The new law, however, now also prohibits naturalization if an applicant has accepted social benefits at any time during the previous three years. 

An exception is made if the benefits "are paid back in full." 

On the other hand, applicants for citizenship now must only have resided in Switzerland for ten years instead of 12, as was the case before the new law took effect. 

It's important to make a distinction here. The change in law is not saying the recipients on social welfare will be deported. It is merely closing them off from citizenship until they can demonstrate they do not require social assistance. 

There is a difference here between residency and naturalization, and the two ought not to be confused. The state is quite flexible with legal residency. The rules for extending citizenship, though, are far more rigorous. 

Indeed, Switzerland has a large number of foreign born residents, and its economy includes many immigrant workers. 

Unlike many other nations, though, the Swiss recognize that the political system is distinct from the economic system, and admitting a migrant to the Swiss economic sphere does not necessarily mean the state must also grant access to the political sphere. 

Moreover, in nearly all cases, immigrants residing in Switzerland have citizenship. They're simply citizens somewhere else. (Swiss law specifically protects immigrant residents from deportation in case of statelessness.)

This is true everywhere, of course. Non-resident immigrants residing in the US, for example, are already citizens. They're simply citizens somewhere else. This fact is confused by the usage of phrases like "illegal alien" or "undocumented worker" which ignore the actual citizenship status of these workers. In most cases, the term "foreign national" — which highlights the fact these people are not stateless — is really more useful than "illegal immigrant." 

After all, the "illegality" of an immigrant is a totally arbitrary status made up by government bureaucrats, and is no more morally legitimate than the term "illegal drugs." In both cases, the only difference between legal and illegal is some government paperwork. 

On the other hand, there is no clear reason why foreign nationals residing anywhere ought to be given an easy path to citizenship, especially in cases where those residents rely on taxpayer funded services. 

This position, by the way, need not violate the property rights of immigrant residents. After all, property rights exist everywhere, regardless of location, and a respect for property rights suggests that persons ought to be allowed to freely contract with others for employment, housing, and other goods — regardless of an arbitrary government decree of illegality. 

In a 2017 column titled "Don't Confuse Immigration with Naturalization," I explore this topic further.

Preferably, access to the economic system is open to anyone with whom persons are willing to contract, whether they be employers, landlords, shopkeepers, and potential customers for new immigrant-owned businesses. Given that people tend to be quite open to economic ties with others, accessing the economic sphere has long been quite easy for immigrants to the United States. This is precisely because the economic sphere is relatively free and open in the US. 

Granting access to the political sphere, however, opens up a variety of other problems, such as extending access to the ballot box, and encouraging the use of political power to enrich one's self or one's own group. This problem is hardly unique to immigrants, as I've explained here, but as the Swiss understand, restricting access to the political system in this case is often quite prudent. Thus, is makes sense to be open to migration, while being less open with the extension of citizenship privileges. 

The ideal, of course, is to shrink the political sphere in such a way that citizenship ceases to be important. In a laissez faire economy where the state has only a tiny role in the regulation and ownership of property, then it would not be terribly important if one enjoys citizenship or not. The free exercise of one's property rights would be assured regardless. 

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Downward Trend in Initial Jobless Claims Is Flattening Out

01/11/2018Ryan McMaken

CNBC reports that "US jobless claims increase for fourth straight week":

The number of Americans filing for unemployment benefits unexpectedly rose last week, hitting their highest level in more than three months, likely as a cold snap kept some workers at home.

The news story uses the seasonally-adjusted numbers, which I'm not crazy about. There's always an easy way to incorporate seasonal issues: simply make year-over-year comparisons. 

If we do this — using the non-seasonally-adjusted data, we find that there is indeed some slow creeping upward in YOY numbers. But note that the YOY changes still mostly remain in negative territory: 

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Last week (January 6), the YOY change in initial claims was still down 2 percent, although the change was flat at zero percent the week before that (December 30). 

As the graph suggests, the downward trend has lessened, and we're seeing more and more YOY changes clustering around zero in recent weeks. 

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A similar trend emerges if we look at monthly totals. December 2017's initial claims were down 5.6 percent compared to December of 2016. That, however, is one of the smaller YOY declines we've seen in recent years. With the monthly data, also, we see a slowing in the downward trend. Initial claims even went up last September, compared to September of 2016, rising 7 percent. But most monthly comparisons continue to show downward movement in total claims. 

This flattening out will probably continue as the current expansion continues, although by itself, this data does not suggest any sort of turning point in the current economic trend. 

For greater context, here's are the monthly numbers over a ten-year period:

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Farewell, Steve Bannon

01/10/2018Ryan McMaken

It's been a bad few months for Steve Bannon. He was fired from his White House job in August. Then he supported Roy Moore and other political dead ends in an attempt to put himself forward as the leader of "Trumpism." Bannon then decided to provide a variety of juicy quotations denouncing Donald Trump in order to help Michael Wolff with his anti-Trump expose. Shortly thereafter, Bannon backtracked and apologized. After that, Bannon lost one of his most prominent sources of funding — the wealthy Mercer family. Finally, to cap it all off, Bannon was fired from his position as an adviser and radio host at Breitbart, where he had long enjoyed positions of leadership. 

This year-long run of total failure comes at the end of a remarkably short period of fame for Bannon, who, prior to Andrew Breitbart's untimely demise in 2012, was neither especially influential or well known. 

In his short period at Breitbart, Bannon did, however, manage to cozy up with Donald Trump and many within his movement, and turn this into an influential position at the White House. Bannon quickly faded as an influential figure in Washington.

In spite of Bannon's short and not-especially-notable tenure as a senior political adviser, Bannon continues to benefit from myths about his status as a kingmaker in Washington and around the nation. But, as Barbara Boland notes this week at The American Conservative, the myth was always just that — a myth. 

Bannon — always a relentless self-promoter — also managed to create the impression that he was the purveyor of some new kind of insightful and revolutionary political plan and vision. The idea was that he was going to create a Republican majority that would persist for generations. 

Upon closer inspection, however, there was never anything especially insightful, creative, or unique about this vision. It has always been nothing more than a re-tread of economic populism in which the Republicans would buy votes with lavish government spending on pensions and other social programs that are allegedly attractive to the "working classes." This would be coupled with economic nationalism opposed to free trade and devoted to aggressive foreign policy. 

David Stockman explains how Bannon's position was just the usual warfare-welfare state vision dressed up in nationalist and culture-warrior rhetoric: 

The last thing America needed was a conservative/populist/statist alternative to the Welfare State/Warfare State/Bailout State status quo. Yet what Bannonism boiled down to was essentially acquiescence to the latter — even as it drove politicization deeper into the sphere of culture, communications and commerce.

Stated differently, the heavy hand of the Imperial City in traditional domestic, foreign and financial matters was already bad enough: Bannonism just gave a thin veneer of ersatz nationalism to what was otherwise the Donald's own dogs' breakfast of protectionism, nativism, xenophobia, jingoism and strong-man bombast.

As Stockman correctly notes, Bannon never exhibited any real understanding of how central banking, Wall Street cronyism, and economic policy were driving the American cultural and economic trends that Bannon so often condemned. 

Instead, Bannon took to blaming people who do understand economics — i.e., Austrian-school economists and various free-market activist types — for various national ills, and for leading the Republican party astray. Says Bannon: 

 And then the Republicans, it’s all this theoretical Cato Institute, Austrian economics, limited government — which just doesn’t have any depth to it. They’re not living in the real world.

Later, Bannon returned to the theme, claiming that free-market ideas don't matter, and that "it is workers, not libertarian theorists, who are the backbone of the country.” (It's unclear if Bannon intends to imply that all libertarians are pie-in-the-sky "theorists" or if he is willing to admit that many libertarians do, in fact, work for a living.) This sort of right-wing Leninism-Maoism functions on the idea that "the working man" is all that matters, and that entrepreneurship, capital, and markets, are all somehow at odds with ordinary people being able to make a living. Not surprisingly, Bannon proposed to prop up the working classes with prohibitions on free trade, on migration, and by protecting federal social programs — thus expanding the debt burden and tax burden on everyone. 

The realities of economics matter little, though, when your political ideology relies primarily on sentimentalism. Bannon bases much of this position on his own nostalgia for the good ol' days in "an observant Catholic family" in a working class neighborhood. 

For Bannon, though, his devotion to this worldview never gets much beyond politics. Indeed, Bannon has an odd way of expressing his supposed devotion to the Catholic social milieu he praises. Divorced three times, Bannon apparently couldn't be bothered to personally do much toward creating the “typical fifties-sixties Americana neighborhood” that he says he wants to re-create. And this well illustrates the problem with turning to politics to cure every social ill. Erecting trade barriers and trashing immigrants isn't going to rehabilitate the American family, or convert people to a devout religious life. That sort of thing requires a lot of difficult non-political action. Were Bannon committed to getting government off the backs of people so they could pursue these goals voluntarily — via decentralization or other practical measures — that would be a good thing. But that has never been Bannon's goal. 

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Vermont Senate Votes to Legalize Recreational Marijuana

01/10/2018Ryan McMaken

The Hill reports today that the Vermont Senate has voted to approve the legalization of recreation marijuana for users over 21 years of age.

With its passage in the Senate, the law proceeds to the governor's desk where he is expected to sign. 

While eight states (AlaskaCaliforniaColoradoMaineMassachusettsNevadaOregon, and Washington) have already legalized recreational marijuana, Vermont will be the first state to legalize via action of the state legislature. All other states that have legalized have done through statewide referenda or voter initiative. 

Since 2012, when Colorado voters approved recreational marijuana, state-level voters have repeatedly shown indifference toward federal drug law — which, of course, is in violation of Article I of the Constitution, and the Tenth Amendment. 

But now, for the first time, a state legislature and governor have joined the movement. This comes, we might note, mere weeks after US Attorney General Jeff Sessions announced he plans to ratchet up the Drug War against marijuana users. 

Apparently, Vermont legislators are happy to disregard him. 

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China Considering Ditching US Treasuries

01/10/2018Tho Bishop

A day after Bill Gross called bonds a bear market, reports are out that the Chinese government is considering slowing our halting US Treasury purchases. While it's easy to connect the dots between this potential change and anti-trade rhetoric from President Trump - which, to date, has thankfully been more bark than bite - the larger issue is central banks are slowly backing away from policies that have inflated bond markets. It's a good time to re-vist an article by Thornton Polleit titled "The Super Bubble Is in Trouble":

First and foremost, the US economy appears to be addicted to cheap money. The latest economic recovery has been orchestrated, in particular, through a hefty dose of easy monetary policy. It is therefore fair to assume that market agents will have a hard time coping with higher interest rates. For instance, corporations, consumers, and mortgage borrowers, in general, will face higher credit costs and a less favorable access to funding if and when interest rates edge higher.

In particular, higher interest rates could send the inflated prices of stocks, bonds, and housing southward. For instance, expected future cash flows would be discounted at a higher interest rate, deflating their present values and thus market prices. The deflation of asset markets would hit borrowers hard: Their asset values would nosedive, while nominal debt would remain unchanged so that equity capital is wiped out — a scenario most investors might assume to be undesirable from the viewpoint of central banks.

Moreover, the yield curve has become flatter and flatter in recent years. This, in turn, suggests that banks' profit opportunities from lending have been shrinking, potentially dampening the inflow of new credit into the economic system. A further decline of the yield spread could bring real trouble: In the past, a flat or even inverted yield curve has been accompanied by a significant economic downturn or even a stock market crash.

That said, investors might expect that central banks find it hard to bring interest rates back up, especially back to a level where real interest rates are positive. This holds true for the Fed as well as for all other central banks, including the ECB. This is because the monetary policy of increasing borrowing rates by a significant margin would most likely prick the “Super-Bubble” which has been inflated and nurtured by central banks’ monetary policies over the last decades.

However, it wouldn’t be surprising if, again, central banks, the monopolist producers of fiat money, turn out to be the major course of trouble. After many years of exceptionally low interest rates, central banks may well underestimate the disruptive consequences an increase in borrowing rates has on growth, employment, and the entire fiat money system. In any case, the artificial boom created by central banks must at some point turn into bust, as the Austrian business cycle theory informs us.

The boom turns into bust either by central banks taking away the punchbowl of low interest rates and generous liquidity generation; or the commercial banks, in view of financially overstretched borrowers, stop extending credit; or ever greater quantities of fiat money need be issued by central banks to keep the boom going, inflating prices so that ultimately people start fleeing out of cash. In such an extreme case, the demand for money collapses, and then a Super-Super-Bubble pops.

As Troy Vincent, a market analyst and Mises Wire contributed, offered an additional note this morning on Facebook:

The fact that Bitcoin didn't get bid up in response to this news, while treasury yields and physical gold did, is pretty interesting.

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The Net Worth of Americans Still Hasn't Recovered from the Last Recession

01/09/2018Ryan McMaken

Axios is reporting today on commentary from Deutsche Bank economist Torsten Slok in which Slok concludes that Americans now have a smaller net worth than they did in 1989: 

A greater share of Americans have more debt than money in the bank than at any point since 1962, according to Deutsche Bank economist Torsten Slok. And, in a note to clients yesterday, Slok said that, despite record stock market wealth and home price levels just shy of housing-bubble highs, Americans are poorer than at any point in nearly a quarter century.

Why it matters: The data suggest that the third-longest economic expansion in history, and the lowest jobless rate in 17 years, has benefitted an exceedingly thin slice of the American public.

Here's the graph that goes with the story: 

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Unfortunately, no link is given to the client note. 

If you're like me, though, you always like a context for research like this, and aren't content with a quick blurb. 

So, to add some background to this, I managed to find a working paper from the NBER, titled "Household Wealth Trends in the United States, 1962-2013: What Happened Over the Great Recession?" which goes into a little more detail on these calculations. 

The Deutsche Bank data appears to be continuing Wolff's research from this older NBER report, which stopped with 2013 data. 

In it, we do indeed see that median household net worth as of 2013 was lower than at any other time shown since 1962: 

networth.png

As the report notes, household wealth plummeted during the Great Recession, and as of 2013, at least, had not recovered. Slok's update suggest that net worth has increased since then. It looks like median household net worth increased from about $63,000 to about $78,000 between 2013 and 2016. That's good, but it's still well below where it was in both 2001 and 2007. 

But why do households appear to be largely spinning their wheels on household net worth?

For decades, net worth in the United States has been closely connected to housing prices. The homeownership rate reached 69 percent in 2004, and those homeowners saw their net worths expand as home prices expanded in the same period. 

In recent years, home prices have gone up considerably. So why has net worth not done the same? 

According the the NBERreport:

Asset prices [including home prices] plunged between 2007 and 2010 but then rebounded from 2010 to 2013. The most telling finding is that median wealth plummeted by 44 percent over years 2007 to 2010, almost double the drop in housing prices... Relative indebtedness expanded, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable primarily to the high leverage of middle class families and the high share of homes in their portfolio. The racial and ethnic disparity in wealth also widened considerably. Households under age 45 saw their relative and absolute wealth declined sharply. Rather remarkably, there was virtually no change in median wealth from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class, though their debt continued to fall. 

So, the situation did indeed stabilize as home prices rebounded, but Americans were also neglecting to save any money in other forms. In part, they stopped saving in order to pay off debts, which were substantial:

The stagnation of median wealth from 2010 to 2013 can be traced to the depletion of assets. In particular, the middle class was using up its assets to pay down its debt, which decreased by 8.2 percent over these years. This shows up, in particular, in reduced asset ownership rates. The homeownership rate fell from 68.0 to 66.7 percent, that of pension accounts from 45.8 to 44.4 percent, that of unincorporated businesses from 8.2 to 6.6 percent, and that of stocks and financial securities from 15.3 to 14.2 percent. However, the reduction in assets was greater than the reduction of debt. 

So, we end up with a picture in which Americans did see their asset values increase, which did help net worth. But at the same time, owner asset rates among many Americans actually declined, and at a faster rate than debt declined. 

This is a fairly grim picture, and does paint a good picture for the standard of living Americans will enjoy once their prime earning years pass us by. 

All too often, economic indicators rely on current earnings, and current spending. Net worth, however, gives us a glimpse into the future. If net worth is declining or stagnant, than future retirees will eventually spend down their savings more quickly, and then have to cut back their standard of living to pay for basic necessities. 

Moreover, if the current trend continues, Americans will begin the next recession from a far lower level of net worth than they started the 2007-2009 recession with. That is, we'll begin the next recession with our net worth not even having recovered from the last one. That's not a great place to start. 

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Minimum Wage Laws: More Losses at Red Robin

01/09/2018Mark Thornton

The Red Robin chain of 570 restaurants has decided to eliminate busboys due to rising labor costs. Its business is mostly in western states several of which have raised the local minimum wage rate. Previously they eliminated the job of "expediter" who prepared plates in the kitchen due to rising labor costs. Clearly the labor force is losing jobs due to the increases in the minimum wage. However, also notice that the cook and wait staff are going to take on new responsibilities in terms of preparing plates and cleaning tables. This means that customers are also losing in terms of time, quality of service, cleanliness, and the visual appeal of their meals.

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Bovard: Cliven Bundy-FBI debacle: Another example of why the feds need to be leashed

01/05/2018James Bovard

Writes James Bovard in USA Today:

The Justice Department was caught in another high-profile travesty last month that continues to reverberate through the western states. On Dec. 20, federal judge Gloria Navarro declared a mistrial in the case against Nevada rancher Cliven Bundy and others after prosecutors were caught withholding massive amounts of evidence undermining federal charges. This is the latest in a long series of federal law enforcement debacles that have spurred vast distrust of Washington.

Bundy, a 71-year old Nevadan rancher, and his sons and supporters were involved in an armed standoff with the Bureau of Land Management (BLM) beginning in 2014 stemming from decades of unpaid cattle grazing fees and restrictions. The Bundys have long claimed the feds were on a vendetta against them, and 3,300 pages of documents the Justice Department wrongfully concealed from their lawyers provides smoking guns that buttress their case.

A whistleblowing memo by BLM chief investigator Larry Wooten charges that BLM chose "the most intrusive, oppressive, large scale and militaristic trespass cattle (seizure) possible'' against Bundy. He also cited a "widespread pattern of bad judgment, lack of discipline, incredible bias, unprofessionalism and misconduct, as well as likely policy, ethical and legal violations" by BLM officials in the case. BLM agents even "bragged about roughing up Dave Bundy, grinding his face into the ground and Dave Bundy having little bits of gravel stuck in his face'' while he was videotaping federal agents. Wooten also stated that anti-Mormon prejudice pervaded BLM's crackdown.

The feds charged the Bundys with conspiracy in large part because the ranchers summoned militia to defend them after they claimed that FBI snipers had surrounded their ranch. Justice Department lawyers scoffed at this claim in prior trials involving the standoff but newly-released documents confirm that snipers were in place prior to the Bundy’s call for help.

The feds also belatedly turned over multiple threat assessments which revealed that the Bundys were not violent or dangerous, including an FBI analysis that concluded that BLM  was "trying to provoke a conflict" with the Bundys. As an analysis in the left-leaning Intercept observed, federal missteps in this case “fueled longstanding perceptions among the right-wing groups and militias that the federal government is an underhanded institution that will stop at nothing to crush the little guy and cover up its own misdeeds.”

Read the rest of the article at USA Today.

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Sessions to Renew War on Cannabis

01/04/2018Mark Thornton

According to multiple sources, Attorney General Jeff Sessions is going to revoke the Obama-era Cole Memo, which directed federal law enforcement to respect states' marijuana legalization laws. Once revoked, federal prosecutors in states where marijuana has been legalized will independently decide how to enforce federal marijuana policy in their states. This could create chaos in the fast-growing cannabis business which has been creating large numbers of jobs and burgeoning tax revenues for state and local governments.

It is unclear how Mr. Sessions thinks that such a move would benefit Sessions or help him carry out his job, other than repealing an Obama-era rule might get him back into the graces of President Trump.

The only other option is that Session is supposed to help address the Opioid Crisis. He thinks that cannabis has somehow contributed to the crisis ala the Gateway Theory of drugs, which assumes that cannabis smokers will turn into heroin addicts. The Gateway Theory has long been debunked for many reasons. In fact, cannabis and cannabis legalization has actually reduced the crisis somewhat. Cannabis is now being successfully used to treat opioid addiction. In states that have legalized cannabis, the number of opioid overdose deaths have actually decreased.

In any case, it will be interesting to see how people react to a new crackdown on cannabis in states that have successfully repealed federal law and enjoy very positive results.

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Poor Logic from Forbes and Paul Tudor Jones

01/03/2018Hunter Lewis

As the Austrian School has pointed out, the ultimate source of human poverty and failure lies in poor logic.

Here is an example from Forbes Magazine and a leading hedge fund investor who is also a major charitable donor genuinely devoted to helping humanity and the planet.

The editor of Forbes, Randall Lane, quotes Paul Tudor Jones, as follows

There is no bigger threat to our democracy than wealth disparity. It is a story normally reserved for monarchies, dictatorships and plutocracies….We got into this pickle because over the past 40 years the corporate focus on profits took on manic proportions relative to other stakeholders such as employees, communities and the planet.

There are several things wrong with this logic. In the first place, a focus on profits is not at odds with a focus on employees, customers, communities, or the planet. Profit, properly defined, is the net present value of all future profits, that is, what you should be able to realize by selling that profit stream today. To maximize profit, therefore, one must take a long term view and seek to provide exemplary service over many, many years to employees, customers, communities, and the planet. What Paul Tudor Jones is describing is not profit maximization, but rather short term profit taking, which will actually reduce the net present value of all future profits. As Henry Hazlitt pointed out in Economics in One Lesson, real capitalism focuses on the long run, not just the short run, and considers all consumers, not just some.

The problem of course is that we have never had the benefit of real capitalism. Thanks to the interventions of government into the economy, and especially into the pricing system, we get crony capitalism instead. This is bound to happen in a monarchy or dictatorship. But, contra Mr. Jones,  it is no less likely to happen in an American style democracy, as American history has shown. So long as government influences, manipulates, or controls prices, powerful special interests will strive to use the power of government to gain monopolies or other advantages. There are, however, certain periods in which government ( and in particular central bank) policy puts crony capitalism on steroids, with a resultant sharp increase in economic inequality,  and that is what we are seeing today.

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