# How Not To Use Percentages In a News Story

## How Not To Use Percentages In a News Story

06/18/2019Joakim Book

Using numbers to describe the world is fraught with peril. The problem is not that you can prove anything with statistics (you can’t) or the Mark Twain quip equating statistics with lies, but rather that numbers unaccompanied by correct reference points tend to be very misleading. Hayek’s famous quote where aggregates conceal is merely a subsection of this larger mistake; to report one number (an average, a percentage, a growth statistics) when the correct or more fully elaborated story includes that number in combination with other numbers, is the major concern.

In politics (and the media tasked with covering it), the stakes to portraying numbers in one’s own favor are very high and so we see this mistake all the time. Let me address what may be the most common one: failing to divide by the correct denominator – disguised by the frequent and careless use of percentages.

Normally, claims expressed in percent such as “87.2% of American households have a computer” have straightforward meanings; the word ‘percent’ literally means “by the hundred.” If there were 100 American households, we would know that about 87 of them have a computer. Our brains correctly read “almost all American households”, since 87.2 is the vast majority of 100. If we have some additional information about the number of households (119 million) we can quickly establish that some 104 million households have a computer; the remaining 12.8% (around 15 million or so) don’t, which we know since the groups are mutually exclusive (either your household has a computer or it doesn’t) and that percentages sum to a hundred (87.2+12.8=100). Easy.

Dealing with non-negative numbers such as car-owners, votes, revenues or incomes like this is rarely a problem, and percentages are ideally suited to perform that task; they don’t require the reader to have detailed information about the number of households in order to gauge the meaning of the 87.2% digit. Numbers reported in percent give us a natural reference point: households with computers divided by all households.

This quickly changes when the subset of numbers you’re describing may include negative numbers, such as net job creation or income growth. Since those numbers can occasionally turn negative for even large subsections of a population, the meaning of “percent” is completely lost. The intuition is this: when you include negative numbers in a sample, and take a percentage based on some remaining (positive) number, individual percentages easily sum to more than a hundred.

Here’s an illustration of a hypothetical economy of three people (A, B, and C), whose combined earnings in the first year is \$300 (distributed as \$50 for A, \$100 for B, and \$150 for C). In year two, A increased his income to \$70 (a 40% increase), B only earned \$80 (a 20% reduction) and C’s income went from \$150 to \$180 (a 20% increase). The total growth of income in our economy was 10% (A+B+C equaled \$300 in year one, A+B+C equaled \$330 in year two), for a total income gain of \$30. If we divide A’s income gain (\$20) with the total income gain (\$30) we find that two-thirds, or 66.7% of the income gain went to A. If we similarly divide C’s income gain (\$30) by the total income gain (\$30) we find that a 100% of the year’s income gain went to C. How in the world can C have gotten the entire income gain when we just said that A received two-thirds of it?

 Year 1 Year 2 Income gain(%) Income gain(dollars) Income gain% of total A 50 70 40% +20 +66.7% B 100 80 -20% -20 -66.7% C 150 180 20% +30 +100% Sum \$300 \$330 10% +30 100%

Any data presented this way would quickly raise questions: clearly, there’s something wrong with the statement that A and C together received 166.7% of total income gain. Because B’s negative income gain distorts the picture, the percentages reflecting A’s and C’s share of income gains no longer mean what they usually mean.

#### What Has Gone Wrong Here?

As made evident in the table, we can quickly see that because A’s income gains in absolute numbers cancel out B’s income gain, any discussion including somebody’s share of income growth is seriously misleading. The shares of income growths only sum to a hundred when we include B’s negative income gain, but if we only care about the top earners – in this case C – we could easily (and erroneously) conclude that all the income gain was captured by the rich.

Let’s use another example to make the mistake even more blatantly obvious. If you remember Mitt Romney’s job creation debate in the run-up to the 2012 election, this is a great illustration of using incorrect denominators. The RNC and the Romney Campaign calculated that the net job loss from January 2009 to March 2012 was 740,000 , but that the net job loss for women during the same period was 683,000. Quick calculations show that women accounted for 92.3% (683,000/740,000=0.923). Of course, we can make this even more absurd by comparing February 2009 to March 2012 instead, where the net job loss was 16,000 jobs. On net, women lost almost half a million jobs during that period, which yields a result of around 3100% of all job losses! The straightforward meaning of “percent” as fraction of a hundred has entirely disappeared.

Because “net job losses” involve jobs created minus jobs lost, dividing the number of jobs lost by women by net job losses is entirely the wrong denominator to use. “Percent” no longer carries the straightforward meanings it usually does, but it still conveys that message to the uninformed reader.

#### Percentage-Flingers Abound

Sure, anybody with even rudimentary understanding of statistics knows not to use selected percentages when underlying set of numbers can be negative. But the skilled deceiver or the careless fool can still say things like “100% of the income gain between year one and year two went to earner C”, and the reader will interpret “100%” with its usual meaning (“all”). But whenever the full set includes negative numbers, the relevant denominator is no longer 100.

Either through malice or ignorance, economists and media pundits fall into this trap all the time. CNBC reported last year that “in nine states, the income growth of the top 1 percent was half or more of all income growth in that time period.” A few years ago, the inequality Joseph Stiglitz wrote that “all the growth in recent decades — and more — has gone to those at the top”. A recent working paper by Emmanuel Saez — a U.C. Berkeley economist who really should know better — summarized his findings that the “top 1% families captured 49% of total real income growth per family from 2009-2017”. Coming out of the Great Recession, the British Magazine The Economist remarked that “around 95% of the increase in American income since 2009 has gone to the top 1%”. Of course, leftist politicians make these kinds of claims on a regular basis, but they are statistically unsound.

In his successful How Not To Be Wrong, Maths professor Jordan Ellenberg concluded that “the combination of positive and negative allows you, if you’re not careful, to tell a fake story, in which the whole work of job creation in the tradeable sector was done by [a single] industry.”

Reporting percentages when the underlying dataset include negative numbers removes the standard meaning of percent. 90% of something that includes negative numbers no longer means "almost all" or "a very large majority."

Numbers presented alone indeed conceal or mislead the reader; “Always Be Comparing Thy Number” ought to be a statistical commandment. While numbers reported in percentages do provide a useful reference for the reader, dividing by the wrong denominator or involving negative numbers, seriously distorts the story. Be aware when statistical deceivers or careless fools fling percentages around. Sometimes they really shouldn’t.

## America After 9/11: The Terrorists Won

09/11/2019Ryan McMaken

In September 11, 2001, terrorists flew planes into the World Trade Center and the Pentagon. Hours later, more than 2,900 people were dead, the overwhelming majority of them in the civilian office buildings at New York's World Trade Center.

Within 24 hours, the US government was doing what it does best. It demanded more power, and set to work coming up with schemes for using its enormous military and national security apparatus — a group of agencies which had received more than half-a-trillion dollars during that fiscal year.

When the US national security state failed on 9/11, not a single person with any significant level of responsibility lost his job.

Notably, the very same people who failed utterly to provide national security on September 11th were the same people who were entrusted with providing security on September 12. Except now, those people, and their government agencies, were granted more power, bigger budgets, and were held to less legal and public scrutiny than ever before.

By November, the federal government had already rewarded itself lavishly for its incompetence. Congress passed, and the President signed, the USA Patriot Act a measure that transformed American jurisprudence and made every American a suspected terrorist, open to surveillance by government agents. DC politicians had also created yet another federal department, the department of Homeland Security, because apparently the Defense Department is concerned with things other than the defense of the US "homeland."

This war against the American people was complemented by ordinary shooting war against other nation states, including ones that had absolutely nothing to do with the 9/11 bombings. The invasion of Iraq, for instance was built upon intelligence manipulated and distorted by the White House and by CIA Director George Tenet. Iraq was not threat to the United States at all. But Washington, DC loves a war, and in the wake of 9/11, the American public was apparently willing to believe anything. So the politicians got their war. And have gotten many since.

Meanwhile, back home, the US government was transforming itself into something that looked like it was modeled more on China than on a government that claimed to revere the Bill of Rights.

As Jacob Hornberger writes :

Moreover, the [Chinese] regime can and does torture prisoners. Again, there is nothing anyone can do to prevent this. The torture is oftentimes so brutal that some independent minded, courageous individuals who were were protesting come out of the prison process as broken people, ones whose minds have been fixed through brutal and tortuous reeducation.

Before the 9/11 attacks, that sort of thing could not happen here in the United States, at least not legally. If the government arrested someone, it was required to file formal written charges (e.g., an indictment) that would notify the person of what he was being charged with. He also would be entitled to a jury trial instead of judge trial or a tribunal trial. He had the right to an attorney to represent him. He also had a right to an independent judge. And no cruel and unusual punishments, such as torture. That’s all because our American ancestors had the wisdom to guarantee such rights in the Bill of Rights.

What if U.S. officials did to someone what the Chinese government has done to Simon Cheng. In that event, the Constitution enables him to file a petition for writ of habeas corpus, a right that stretches back several centuries in English history and which actually is a lynchpin of a free society. An independent federal judge orders the government to bring the person to court and show cause why he should not be released. At the habeas hearing, the judge orders the government to charge the person with a crime or release him. No indefinite detention, like there is China. And of course no torture.

All that came to an end with the 9/11 attacks. At that point, the national-security branch of the federal government adopted many of the same powers as the Chinese communist regime, and without any amendment to the Constitution. The military and the CIA, two of the principal elements of the national-security state, now wield the power to take anyone, including both Americans and foreigners, into military or CIA custody by simply labeling them a “terrorist,” hold them as long as they want in a military dungeon or secret CIA prison camp, torture them, and even assassinate them. While Americans still have the right to file a petition for habeas corpus, federal judges will customarily defer to the Pentagon and the CIA on their determination that a person poses a threat to “national security.”

In today's America, everyone is a potential terrorist. The country is always at war. "National security" demands American citizens be murdered by drone without trial. Or dropped into Guantanamo and forgotten about. Just in case.

In the wake of the terrorist attacks, we were often told that we must go on about our daily lives, or else "the terrorists win." Except it wasn't the terrorists who did the most to change America. For America, the post-9/11 world meant more searches, more regulations, more spying, more debt, and more endless haranguing about how we must all "support the troops" and how "you're either with us or with the terrorists." "We must sacrifice" we were told. Your "freedom" demands it.

What was the upside? So far, there's no reason to believe that there is one. No evidence is provided, especially since the federal government maintains everything is secret, classified, or unfit for the public. "Trust us, we're keeping you safe" is the constant refrain. For some reason, a lot of people buy it.

Meanwhile, the feds themselves didn't sacrifice anything. For the feds, it was just more of what they'd always wanted. More taxpayer money. More power. More untrammeled authority to imprison, spy, tax, search, and control. Their abysmal failures on 9/11 led to no changes, no reforms, and no accountability. For them, everything got better.

If the destruction of American liberties was something the terrorists wanted, then they got what they wanted, too.

## Modi's Policy of Higher Taxes, Spending, and Inflation Make India a Growing Risk in Emerging Markets

09/10/2019Daniel Lacalle

India’s economy had an annual growth of 5.0 percent in the April-June quarter, the slowest in more than six years dragged down by weak consumer demand and private investments.

A Reuters poll of economists had forecast annual growth of 5.7 percent for April-June, compared with a 5.8 percent rise the previous quarter. For April-June 2018, India reported 8 percent growth.

Last year I commented about the risks for India here.

Governments always consider that economic problems come from lack of demand, and they assign themselves the task of “correcting” that wrong assumption by massively increasing deficits and using monetary policy well beyond any logical measure.

India’s rising populist policies are part of the nation’s current problems.

Recent data is quite concerning.

Industrial production, manufacturing PMIs  and growth estimates are coming down (according to Focus Economics).

According to Kotak Economic Research, India’s current account deficit is forecast to be the highest in six years. The overall balance of payments is moving into larger deficits than expected, as capital inflows weaken and are unable to current account deficit.

Another warning comes from the maturities in foreign exchange. Nearly \$220 billion of short-term debt, equal to more than half of India’s foreign exchange reserves, will come up for maturity in 2018-2019 fiscal year. Moody’s states that India is one of the countries that are least exposed to a rising US dollar. However, Moody’s did not expect the rupee to fall this much.

The average maturity of debt is close to 10 years and over 96 percent of it is in the local currency, according to Moody’s. However, it also notes the country’s low debt affordability. Given that the vast majority of debt is in the local currency, the incentive to depreciate the rupee is very high.

Foreign exchange reserves remain acceptable but can fall rapidly. Foreign exchange reserves are likely to suffer another dip as the rupee falls against the US dollar.

At the same time, 68% of the fiscal deficit target for 2019 consumed in the first quarter.

India expects a fiscal deficit of 3.3% of GDP in 2018-19 that seems quite challenging, given the weakening of data and the rise in expenses. The deficit was revised up to 3.5% of GDP in 2017-18.

The combination of wider trade and fiscal deficits added to lower reserves makes the currency weaken severely. The rupee keeps plummeting to new lows vs the USD.

India’s government usually solves this equation increasing subsidies and raising taxes. That combination will not work in a world that has a lower tolerance for fiscal and trade imbalances and a risk-off scenario. Additionally, the tax wedge is already a high burden. As Prateek Agrawal notes, “if one looks at GST and taxes on the affluent sections, India would rank as one of the highest taxed countries globally. For consumption, these sections are actually paying close to 60 percent of the income as taxes).

Additionally, printing more rupees is not going to solve the challenges.

The situation in India is not as desperate as in Turkey or Argentina, because FX reserves are not being depleted at a high rate, but the trend is concerning and the outlook for growth, trade and fiscal balances is weakening.

The government has preferred to raise taxes and increase spending, and the demonetization policy was a big mistake (read). All the cash that was taken out of the system came back a few months later. It is time for India to change its historical policies of subsidizing the low productivity sectors to penalize the high productivity ones with more taxes.

India can easily navigate this turmoil if it changes some misguided demand-side policies. The question is, will the government do it? Or will they prefer to blame an external enemy and increase the imbalances?

If the government decides to ignore these issues, India could become a big risk in emerging markets.

## Trump Pauses the Government's War Against Incandescent Lightbulbs

09/09/2019Gregory Morin

This past week Trump’s Energy Department announced a relaxation of a set of light-bulb energy efficiency standards ( EISA ) first implemented under George W. Bush and finalized under Obama. The standards were set to go into full effect in January 2020 (eliminating incandescent versions of three-way bulbs, candle-shaped, globe-shaped and reflector bulbs).

The autistic screeching from the corporate press and leftist “public policy” lackeys only underscores the lengths to which “ the Cathedral” will go to in order to maintain the hell-fire of climate alarmism. For Cathedral adherents the sky is quite literally falling. It is because of their prescient guidance that the rest of us are corralled into doing “the right thing” – namely spending \$10 on a bulb to save \$15 in electricity – over the next 30 years. Even though the market has always deprecated older technology in favor of newer, we just can’t wait when it comes to energy efficiency. In the words of New York Times columnist John Schwartz , we need the federal government to “force(d) Americans to use more energy-efficient light bulbs.” Please note that “force” here is a politically correct euphemism for “threaten with initiatory violence”. Now it is true, force can solve problems quickly. All the mugger needs to do is to wave his gun in my face and moments later his monetary problems are solved. One would like to believe that in the “land of the free” such state sponsored aggression would not be so readily lauded as the primary method deployed against perceived societal problems. Of course I do not expect the state to abjure this special power it has any time soon, it is the qua sine non of every state/government. When a such a body dictates to the citizenry what they may or may not manufacturer and buy, then that country is no longer entitled to call itself “the land of the free” or claim “liberty and justice for all.”

One of the more vocal critics of this rollback, an Andrew deLaski of the Appliance Standards Awareness Project went on record with some rather eyebrow-raising comments. For example

“The Trump administration is trying to protect technology that was first invented in the 1800s. It’s like trying to protect the horse and buggy from the automobile technology.”

Correct me if I’m wrong, but as I recall the government did not OUTLAW the sale or manufacture of the horse and buggy in favor of promoting the automobile. Consumers transitioned to the newer technology over time at a rate mediated by both the cost and advantages of the new technology.

To imply that removing regulations that are annihilating an industry is equivalent to “protecting” said industry makes about as much sense as saying someone who was in the process of knifing you to death but then pauses and begins to only punch you in the face is actually now “protecting” you. The truth is the polar opposite. The manufacturers of fluorescent and LED bulbs are the ones receiving state protection insofar as competing technology have being outlawed. But we’re “protecting” the planet so greater good trumps all. Makes one wonder what the left is capable of when they eventually hold power and the climate apostates are in their cross hairs. In the words of Cole Porter I suspect it will be “anything goes!”

## The Economic Theory of Costs Now in Paperback

I’m happy to announce that the 2018 collection The Economic Theory of Costs: Foundations and New Directions, is now available in paperback at a substantially reduced price (see the post announcing its original publication here). This collection includes contributions from both leading and up-and-coming scholars working in the Austrian tradition. The contributors include many of the senior faculty members of the Mises Institute, as well as many of the younger fellows. It focuses especially on price theory, the unique feature of Austrian economics.

At the moment, the cheapest copies are available here and here.

Introduction: “The Economic Theory of Costs in Perspective” Matthew McCaffrey

Cost and Choice

Chapter 2: “The ‘Income Effect’ in Causal-Realist Price Theory” Joseph T. Salerno

The Evolution of Causal-Realist Production Theory

Risk, Uncertainty, and Cost

Chapter 5: “The Myth of the Risk Premium” Jörg Guido Hülsmann

Chapter 6: “Time and the Theory of Cost” Jeffrey M. Herbener

Causal-Realist Price Theory: Debate and Synthesis

Chapter 7: “Monopsony Theory Revisited” Xavier Méra

Chapter 8: “Costs and Pricing: An Austro-Post-Keynesian Synthesis?” Mateusz Machaj

Economic Organization, Entrepreneurship, and the Firm

Chapter 9: “Austrian Economics and Transaction Cost Economics: Notes on a Doubtful Compatibility” Mihai-Vladimir Topan

__________

## The National Debt Is Now More than Ten Times Annual Tax Receipts

09/06/2019Ryan McMaken

Politicians from Alexandria Ocasio-Cortez to Dick Cheney are united in their agreement that deficits don't matter. Of course, that's exactly what a politician would say. Politicians score points by spending other people's money, so naturally, they don't want to hear anything about how prudence suggests it might be a good idea to not spend that extra 800 billion dollars they don't have.

But there is apparently little concern in Washington, DC as the annual deficit — for a single year, mind you — approaches one trillion dollars for the first time since the hit-the-panic-button days of the Great Recession. Except that now huge deficits are coming during "good" economic times.

Moreover, as the Congressional Budget Office has forecast, the debt load is expected to rise to 125 percent of GDP over the 20 years. That's higher than the US debt-to-GDP ratio during World War II.

This, of course, assumes no major geopolitical or economic disruptions, whicih would make things far worse.

For those who believe huge debts are no big deal, however, there's still no need to worry. After all, they say, actual debt payments are still only a minor issue. In fact, they're still lower than where they were during the early 1990s.

Consider the first graph, for example. If we take the federal government's interest payments, and calculate them as a percentage of federal tax revenue, we find 12 percent of what the feds take in has to paid out as interest. Back during the early nineties, on the other hand, the feds were paying more than twenty percent of their tax revenue toward debt service.

Source Office of Management and Budget and US Bureau of Economic Analysis.1

Of course, that's not all due to debt load. A lot of it depends on the interest rate. Back in late 1990, for example, the target federal funds rate was over 7 percent. The 10-year note rate was around seven percent also — compared to around two percent today. Not surprisingly, the feds were paying more on the debt they owed than under current conditions with a note rate of two percent.

But, the CBO estimates the 10-year note rate to double between now and 2020. I'm skeptical it will rise that fast from its current low levels, but when it does go up, so will the amount of money the federal government has to devote to servicing the debt. And that means cuts to things like defense, social security, and medicare.

Moreover, as the debt gets bigger and bigger, the need to keep the interest rate low via central bank "quantitative easing" will become more important, meaning middle class savers will take more of a hit to savings accounts and pension plans.

But perhaps the most striking aspect of the growing debt is the fact there really is no end in sight, and the US has no chance of ever paying off the debt.

We can see this when we compare the total size of the debt with government revenue.

#### Comparing Debt to Tax Revenue

Part of the reason people have a hard time comprehending the sheer size of the debt is because it is often compared to total GDP size. For example, it's easy to find online that the US debt-to-GDP ratio right now is around 105 percent. But what does that mean? One problem we encounter here is the fact when it comes to personal debt, people don't think of making debt payments as a percentage of their household "GDP." That wouldn't make much sense since the ability to pay off debt usually depends on income.

So what is the national debt as a percentage of the federal governments income? Income, in this case is the federal government's tax revenue. And it turns out by this measure, we're in uncharted waters.

In fact, the national debt is now eleven times annual federal revenue. And as far as I can tell, that's the highest it's ever been. (In 1945, the national debt was \$251 billion, and tax receipts were \$45 billion, meaning the national debt was 5.6 times tax revenue that year.)

Specifically, in 2018, the national debt (\$21.4 trillion) was 10.9 times the size of annual tax receipts (\$1.9 trillion). That's even higher than what it was during the dark days of the "stimulus" following the great recession. In 1981, on the other hand, the total debt load was only two-and-a-half times annual tax receipts.

From the perspective of household management, this is easier to comprehend. For example, if a household has an income-to-debt ratio like the federal government, that would mean an annual income of \$100,000 and a debt load of a million dollars.

Now, at ultra low interest rates, if payments are interest-only, and non-debt-related daily expenses are fairly low, one could certainly manage this. But there are risks here. Interest rates could go up. Other expenses could rise. And in the end, the great-grandchildren are still paying off the debt for vacations and fancy trinkets their ancestors bought decades earlier. Even worse, if interest rates go up significantly, one's great grandchildren have a lower standard of living because they have to devote more and more of their possible savings and consumption to unproductive debt service.

None, of this, however, is likely to convince those who think debt doesn't matter. Some may still cling to the idea that the government can just print more money and purchase bonds to drive down interest and make payments.There are at least two problems that emerge here. The constant forcing down of interest rates is a problem for those who rely on pension funds and other investments that need relatively lower-risk yield to grow. Meanwhile, households that are on fixed incomes will be harmed by growing inflation, if it takes the form of consumer price inflation. If, on the other hand, the money-supply growth leads to asset -price inflation (which is what we have now) then this will make housing more unaffordable, while locking out lower-income and lower-net-worth people from a variety of assets, such as homes.

Now, none of this is an apocalyptic scenario, but it is a scenario in which people with low and moderate incomes must pay more, and are able to save less and invest less. It's a scenario of a standard of living that in decline. It's a scenario in which much of the population faces more roadblocks to wealth accumulation and must devote increasing levels of income and resources to paying off the debts of past generations. Government amenities such as welfare payments and transportation facilities must also shrink as more tax revenue must be spent on debt service. And, of course, the tax burden on ordinary people certainly won't be going down.

• 1. For interest payment information, see Table 3.2 from OMB's historical tables. https://www.whitehouse.gov/omb/historical-tables/

## Why Property Rights Are Indispensable

In today’s political discussion, one of the fundamental principles our society is built on has been on the defense: private property rights and the protection of such rights. Just take the current debate about the housing shortage in Germany as a prime example. A very prominent policy proposal is flat-out expropriation of housing. Another one is the limitation of ownership of residential apartments.

Ideas such as these are not only supported by extremists. An activist group in Berlin collected over 77,000 signatures for the expropriation of private real estate corporations in Berlin. No worries, the appropriate vehicle for something like this already exists by the way: the German capital city already has an expropriation authority (Enteignungsbehörde).

Some proposals are less obvious, though they have the same basis. Rent control or the prohibition of “luxury renovations” seem harmless – but they are still major intrusions in one’s property. After all, these policies would result in the owner, in the legal sense, without real power or control over his own property.

Opponents of those policies correctly emphasize that housing in public ownership will lead to a state of disrepair, as it happened back in East Germany and as it still does to this day in socialist countries. The reason is that if the government has its hands in the housing sector to such a large extent, an imbalance of supply and demand will occur. And, as Mises and Hayek have shown, if too much tinkering with market prices fails, the price system will ultimately fail as well, leading to chaos, or that state of despair. At this point, socialists will point to a central planning board as a solution, but that would be no more than a “pretense of knowledge.”

However, the fundamental problem, of course, is the attack on private property itself. Property rights have not been created – they are a result of human action. Property rights developed over time through the interaction of people. Through a bottom-up process, this institution came into being organically, as Carl Menger, the founder of the Austrian School of Economcis, put it. It was not someone deciding top-down that we shall have property rights now. It came into being because people who accepted and protected property rights had an advantage over others, and so those others adopted the same approach.

The reason property rights have to be in place is scarcity. If the world was a utopia without any scarcity, private property would not be necessary. In such a world there would be no conflict between people over goods and services. There would be no necessity of an economy at all, as there would be no reason to trade. You could just have whatever you want. But the real world is characterized by scarcity. In the real world, not all dreams come true and human wishes stay unfulfilled. Some people have certain desirable goods, while others don’t.

At this point, there are two options: a Hobbesian anarchy, where everyone fights it out with hands and fists (or worse) who “owns” what – owning it only until someone else, someone stronger, comes along again. Or, you safeguard ownership, so that property is protected and the owner can be assured that he or she will own whatever he or she owns for longer, ultimately having the option to cultivate, to further develop the property – or to trade it for something else. Thus, property rights are at the basis of a genuine rule of law.

Without property rights, distrust and violence gain the upper hand. But with property rights, a peaceful order can emerge. It is this that Berlin’s expropriators seemingly have not realized yet.

## Democrats and Republicans Team Up to Send Federal Spending to New All-Time Highs

09/06/2019Ryan McMaken

This summer's budget deal, negotiated by Nancy Pelosi and Donald Trump made few headlines. And that's exactly how these power brokers wanted it.

According to The Hill:

The new law suspends the debt ceiling through July 2021, removing the threat of a default during the 2020 elections, and raises domestic and military spending by more than \$320 billion compared to existing law over the next two fiscal years.

Anxious to avoid a budget debate which Trump obviously thought he couldn't win, the President quickly signed a new agreement to keep federal spending growing quickly into the future.

Democrats crowed:

Importantly, Democrats have achieved an agreement that permanently ends the threat of the sequester ... With this agreement, we strive to avoid another government shutdown, which is so harmful to meeting the needs of the American people and honoring the work of our public employees.

Trump, in his usual unwarranted hyperbole, called the deal "phenomenal."

In nominal terms, spending has gone up relentlessly since Republicans gained control of both the White House in Congress in 2016. The Democratic takeover of the House has, not surprisingly, done nothing to stop the spending juggernaut.1

The budget deal ensures defense spending will go up for the sixth year in a row.2 Spending will hit a new all-time high in 2019, and will surpass a trillion dollars in 2020.

Growth is less impressive when adjusted ot the CPI. In 2018 dollars, defense spending will be just about back to the previous all-time high reached in 2011, hitting 989 billion in 2020. Welfare programs such as Medicare and Social Security all continue to reach new all-time highs nearly every year, with the exception of non-Medicaid poverty programs, such as TANF. Those programs have seen cuts in recent years.

From 2017 to 2020, the OMB estimates (in 2018 dollars) growth rates in each area as:

• Defense: 16 percent
• Soc Sec: 10.4 percent
• Medicare: 8.1 percent
• Healthcare such as Medicaid: 8.9 percent
• Other Poverty-Related Programs: -3.7 percent

Not surprisingly, the Trump administration has shown little inclination toward cutting or even moderating federal spending. Republicans had total control of Congress and White House during 2017 through early 2019, but total federal spending increased at sizable rates.

In fact, the sort of spending we saw in the 2019 fiscal year (which ends this month) and which is expected in 2020, is the type of spending we haven't seen since the wake of the 2008 financial crisis when the federal government greatly expanded spending in the name of "stimulus."

But, as I noted here, the Trump administration's budgets are huge — with growing deficits — during a period of economic expansion. That is, even orthodox Keynesians might counsel slowing spending growth under current conditions, because stimulus is expected when recession hits. But the federal government is now going full bore into recession-type spending, even though there's no recession (yet.)

So, expect spending growth and deficits to become even more astronomical when the economy shows greater signs of slowing.

• 1. See table 3.2 covering federal functions and subfunctions from the Office of Management and Budget. Functions included in this article include 050, 550, 570, 600, 650, 700, and 750.  https://www.whitehouse.gov/omb/historical-tables/.
• 2. Defense spending here includes all "national defense" spending, plus veterans benefits, plus "Administration of Justice" funds, such as those going to the FBI which now describes itself as a national security organization. See Table 3.2 in OMB estimates.

## Forget the Russians: It’s the Federal Reserve Seeking to Meddle in Our Elections

09/05/2019Ron Paul

The US Constitution never granted the federal government authority to create a central bank. The Founders, having lived through hyperinflation themselves, understood that government should never have a printing press at its disposal. But from the very beginning of America’s founding, the desire for a crony central bank was strong.

In fact, two attempts were made at creating a permanent central bank in America prior to the creation of the Fed. Fortunately, the charter for The First Bank was allowed to expire in 1811, and President Andrew Jackson closed down the Second Bank in 1833.

But, unfortunately, a third attempt was successful and the Federal Reserve was unconstitutionally created by Congress in 1913. Americans have been living under a corrupt and immoral monetary system ever since. The Federal Reserve is the printing press that has financed the creation of the largest government to ever exist. Endless welfare and endless military spending are both made possible by the Federal Reserve. The Fed can just print the money for whatever the US establishment wants, so those of us who long for a Constitutional and limited government have few tools at our disposal.

Despite all the propaganda claiming “independence,” the Fed has always been a deeply political institution. Because the Fed is a government-created monopoly with key government-appointed employees, its so-called “independence” is a mere fiction. However, the US Congress created the Fed with legislation; it can also abolish the Fed with legislation.

Last week, the facade of Federal Reserve “independence” was dealt a severe blow. Ironically, the person who broadcast to the world that the Fed is anything but “independent” was ex-New York Fed President Bill Dudley. Dudley wrote that, “Trump’s re-election arguably presents a threat to the United States’ and global economy, and if the goal of monetary policy is to achieve the best long-term economic outcome, the Fed’s officials should consider how their decisions would affect the political outcome of 2020.”

The timing of Dudley’s threats to use Fed monetary policy to affect the outcome of a US election couldn’t come at a more striking time. After all, for more than two solid years Americans have been bombarded with fabricated stories about Russians rigging our elections. And yet here is a Federal Reserve official threatening to do the same exact thing - but this time for real!

Whether it’s the mainstream media, the CIA, the FBI, or now the Federal Reserve, more and more Americans are waking up to the fact that there is a Deep State in America and its interests have nothing to do with American liberty. In fact, our liberty is what the Deep State wants to abolish.

When it comes to the Federal Reserve, I stand firmly by my conviction that it needs to be audited and then ended as soon as possible.

America’s Founders were not perfect. They were human beings just as capable of error as we are. But they had a remarkable understanding of the ideas of liberty. They understood that liberty cannot exist with a government that has access to a printing press. Sound money and liberty go hand-in-hand. If we want to enjoy the blessings of Liberty, we must audit and then end the Federal Reserve!

## Tariffs Add to China's Banking Bust

09/04/2019Doug French

While Americans contemplated Jeffrey Epstein’s demise, Chinese authorities had more pressing matters as the country’s third bank was bailed out late last week. HengFeng Bank with \$200 billion in assets fell into the hands of “Central Huijin Investment, a subsidiary of the China Investment Corporation that acts as the Chinese government’s shareholder in the country’s four biggest banks,” according to a brief report overnight by Shanghai Securities News, published by state news agency Xinhua and cited by Zero Hedge.

Prior to HengFeng, Bank of Jinzhou was propped up using “state-owned strategic investors,” according to Dai Zhifeng, analyst with Zhongtai Securities Co.

In plainer terms, Zero Hedge reports ,

“The latter approach is more market-oriented and showcased the determination of regulators to resolve problematic banks, while injecting confidence into the market,” Dai said, although when stripped of all the pig lipstick, what just happened in China is that another major bank, one with \$100 billion in assets, just collapsed and received a government-backed rescue.

China’s banks hold \$30 trillion in deposits according to Alexander Campbell, more or less double the amount of aggregated U.S. bank deposits. Campbell was pitching Alex Rosenberg on Real Vision on his thesis of buying gold in Yuan terms with the idea that bank bailouts take a flood of central bank created fiat money to paper over. So while the Chinese may want to keep the Yuan near the 7 to the dollar range, bank busts are just beginning in China and 7 may become a distant memory.

Campbell’s view is,

Bank of Jinzhou just went under, Baoshang went under. They're providing liquidity while trying to take out the small guys.

There's some big guys coming up. Industrial Bank looks fine. But by all of our metrics, it's the sketchiest big bank. Minsheng is not that far behind them. If you start to get those banks under question, the liquidity that they have to provide to offset the deleveraging, the negative liquidity from bank runs will be so big that I think the question of do you want to keep seven is obvious. And you say, no, who cares? Like, let's have it go down. And let's stimulate the economy. I think the cruxy thing, and the thing for the trade then is will do we print money as well?

China’s rural banks have classified loans totaling 4.1% which may not sound bad, but is the equivalent of circling the drain in the fractionalized banking world. ZH cited a JP Morgan report downgrading Chinese banks.

The J.P. Morgan economics team revised down its GDP growth forecast for 2020 by 0.1ppt due to the recent sharp turn in Sino-U.S. trade negotiations. But even prior to that, declining PPI and industrial profits growth, suggesting declining debt-servicing ability and weakening cash flow for Corporate China, increase the risks that banks will be asked to support macro growth at the potential expense of profitability. Recent official PBOC comments on an accelerating interest rate liberalization process are illustrative of such rising risks.

Meanwhile, Donald Trump is thrashing China with tariffs. In a piece for Bloomberg, Stephen Mihm compared Trump’s tariffs with the bad old days of Smoot-Hawley and the failure of Austrian bank, Credit-Anstalt, and the European liquidity crisis which followed.

While FDR finally backed off, Mihm, doesn’t believe Trump will. “Donald Trump is no FDR,” he writes. “Trump isn’t going to get religion and suddenly work for international cooperation on trade and currency before things go off the rails. He’s going to stay the course.”

China will have no choice but to let the Yuan sink versus the dollar as “Beijing has found itself paralyzed and with zero credibly options how to kickstart the economy,” writes ZH.

“The only thing that's left is for China to admit that this is indeed the case, so sit back, relax and watch as bank after bank on the list above fails and China's financial cancer spreads across the country with the \$40 trillion in assets (which is certainly not bad news for either gold or Bitcoin).”

When Trump talked about winning, he must have been talking about holders of the yellow metal and its crypto cousin.

## McCaffrey in Harvard Business Review

09/03/2019Mises Institute

The Macro Problem of Microtransactions: The Self-regulatory Challenges of Video Game Loot Boxes by Matthew McCaffrey has been published as a case study for Harvard Business Review.

The video game industry has ignited a global controversy surrounding microtransactions in gaming, especially the use of loot boxes: randomized rewards with potential real-world value. Consumers and legislators are calling for the regulation of these revenue models on the grounds that they are unfair, predatory, or could be considered gambling. This article examines the controversy from a management perspective. First, I introduce current regulatory responses to the controversy and what they mean for business practices. Then, I explain ongoing industry-level and firm-level attempts to self-regulate as a way to placate consumers and governments. These tactics highlight a wide range of broader strategies that game developers and other stakeholders can pursue in order to improve customer relations and, more publicly, signal their commitment to self-regulation and avoiding consumer harm. These practices can be applied more broadly to firms that offer controversial products or services that do not yet fit within current regulatory frameworks.

Available for purchase here.

For more from McCaffrey on the topic on the Mises Wire:

Microtransactions and Loot Boxes: Can the Video Game Industry Regulate Itself?

The Looming Threat of Video Game Regulation