From the “Preface to the English Edition” of “The Theory of Money and Credit” by Ludwig von Mises: “All proposals that aim to do away with the consequences of perverse economic and financial policy, merely by reforming the monetary and banking system, are fundamentally misconceived. Money is nothing but a medium of exchange and it completely fulfills its function when the exchange of goods and services is carried on more easily with its help than would be possible by means of barter. Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit.

Mathematicians of the day.

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A Weekly Dose of Hazlitt: No Need for the OTC

No Need for the OTC” is the title of Henry Hazlitt’s Newsweek column from May 23, 1955. Here, Hazlitt makes the important distinction between real free trade and pseudo free trade under managed trade organizations such as the OTC (Organization for Trade Cooperation).

Senator Byrd, as the event proved, showed good sense
in putting aside the President’s proposal for an international
“Organization for Trade Cooperation” and getting
quick action to extend the Reciprocal Trade Act
on its own merits.

The OTC proposal places a serious question before
Congress. Indeed, it places a serious question before
all those who, like the present writer, earnestly wish
a lowering or removal of international trade barriers,
but doubt whether the creation of one more permanent
international organization is the way to get it.

Does the world need, does any single nation need,
an elaborate multilateral trade agreement, requiring the
consent of 34 nations, and an elaborate bureaucratic
machinery, in order to lower trade barriers? Obviously
not. The world has already had the old General
Agreement on Tariffs and Trade (GATT) since 1947,
and international trade barriers where never more fantastic.
Yet prior to the first world war, and for that matter
prior to the second, the barriers to international
trade were far less serious than they are today. If each
individual national understands that free trade or at
worst only moderate trade barriers are primarily in its
own interest, then each national will follow such a policy
in its own interest and no international agreement
will be necessary. And unless such an understanding
exists within individual nations any international agreement
or organization will be worthless.

The President’s message to Congress of April 14,
advocating U.S. membership in the proposed OTC,
was not convincing. Its reference to our membership in
the International Monetary Fund, for example, mainly
recalls the futility, and worse, of that organization. Mr.
Eisenhower’s argument that OTC could “help establish
conditions favorable to convertibility of currencies”
is depressingly familiar. The IMF was established precisely
to stabilize currencies and make them convertible;
its actual effect has been to prolong for ten years completely
inexcusable policies of internal inflation, external
exchange control, trade discrimination, and state
control of industry. Continue reading

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Police Departments are Over-funded: It’s All About Priorities by Ryan McMaken

Police Departments are Over-funded: It’s All About Priorities” is a good article about the actual concerns that drive police behavior as well as problems due to the lack of market prices and feedback for services rendered. This latter notion is an excellent illustration of Mises’ arguments made in the socialist calculation debate about the inability to rationally allocate scarce resources in the absence of a market.

Based on a reading of reader comments below articles about Ferguson, Missouri, some people seem to be under the impression that the police help people recover stolen property, and that we’ll all appreciate the police if we’re ever a victim of property crime. Everyone who has ever owned a small business or otherwise been burgled, however, knows that when you are a victim of property crime, calling the police is a mere formality in which a police report is filed, and then sent to the insurance company. You will never see your property again, and you know it, but the police report is necessary for insurance purposes. If it weren’t for the insurance side of things, calling the police would be a complete waste of time. (If the thief gets caught (a rare event), it’s generally because someone snitched, and was certainly was not due to the sort of investigative police work we see in fictional TV shows about police. But even if this happens, you’re unlikely to get your property back.)

Actually finding your stolen property is a very low-priority affair for the police. There’s nothing in it for them, since there is no connection between successfully protecting private property and the amount of revenue that the police department “earns.” From a budgetary standpoint, it is far more important for the police to simply assert that they protect property to politicians and, to a lesser extent, to voters. Whether they actually do it is immaterial, since those who are victims of crime have virtually zero say over whether or not the police should be rewarded for their services, or lack thereof.

The situation is further complicated by the fact that police departments receive their funding not through voluntary exchange, but through taxation, which is the coercive redistribution of wealth. Rarely are police budgets ever cut, regardless of the quality of service, and should voters or local government ever suggest that the budget might be cut, the police agencies will immediately respond by threatening to cut enforcement, and it is of course implied that enforcement of laws against violent crime will be cut immediately. Never do the police say “well we’ll just have to cut back on shutting down illegal lemonade stands set up by children, or enforcement of lawn-mowing ordinances and no-knock raids against old ladies.” No, it’s always night time patrols for real criminals that goes under the ax first.

In other words, police respond by cutting the most-demanded services first, and the least-demanded services never seem to get cuts. Naturally, the police would never dream of cutting back on drug enforcement, because that is a major source of revenue for them.

Part of this stems from the error of viewing all police services as more or less equal.  As Rothbard has explained here, there is a big difference between the value of police services which involve the investigation of murders, and police services that involve arresting people for jaywalking.

It is true that everyone pays taxes for a seemingly fixed quantity of protection, but this is a myth. In actual fact, there are almost infinite degrees of all sorts of protection. For any given person or business, [p. 216] the police can provide everything from a policeman on the beat who patrols once a night, to two policemen patrolling constantly on each block, to cruising patrol cars, to one or even several round-the-clock personal bodyguards. Furthermore, there are many other decisions the police must make, the complexity of which becomes evident as soon as we look beneath the veil of the myth of absolute “protection.” How shall the police allocate their funds which are, of course, always limited as are the funds of all other individuals, organizations, and agencies? How much shall the police invest in electronic equipment? fingerprinting equipment? detectives as against uniformed police? patrol cars as against foot police, etc.?

The point is that the government has no rational way to make these allocations. The government only knows that it has a limited budget. Its allocations of funds are then subject to the full play of politics, boondoggling, and bureaucratic inefficiency, with no indication at all as to whether the police department is serving the consumers in a way responsive to their desires or whether it is doing so efficiently. The situation would be different if police services were supplied on a free, competitive market. In that case, consumers would pay for whatever degree of protection they wish to purchase. The consumers who just want to see a policeman once in a while would pay less than those who want continuous patrolling, and far less than those who demand twenty-four-hour bodyguard service. On the free market, protection would be supplied in proportion and in whatever way that the consumers wish to pay for it. A drive for efficiency would be insured, as it always is on the market, by the compulsion to make profits and avoid losses, and thereby to keep costs low and to serve the highest demands of the consumers. Any police firm that suffers from gross inefficiency would soon go bankrupt and disappear.’

The rest of the article can be read here.

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James Bamford Interviews Edward Snowden

James Bamford, a long time critic of the NSA, traveled to Moscow to interview Edward Snowden.

And there’s another prospect that further complicates matters: Some of the revelations attributed to Snowden may not in fact have come from him but from another leaker spilling secrets under Snowden’s name. Snowden himself adamantly refuses to address this possibility on the record. But independent of my visit to Snowden, I was given unrestricted access to his cache of documents in various locations. And going through this archive using a sophisticated digital search tool, I could not find some of the documents that have made their way into public view, leading me to conclude that there must be a second leaker somewhere. I’m not alone in reaching that conclusion. Both Greenwald and security expert Bruce Schneier—who have had extensive access to the cache—have publicly stated that they believe another whistle-blower is releasing secret documents to the media.

Among the discoveries that most shocked him was learning that the agency was regularly passing raw private communications—content as well as metadata—to Israeli intelligence. Usually information like this would be “minimized,” a process where names and personally identifiable data are removed. But in this case, the NSA did virtually nothing to protect even the communications of people in the US. This included the emails and phone calls of millions of Arab and Palestinian Americans whose relatives in Israel-occupied Palestine could become targets based on the communications. “I think that’s amazing,” Snowden says. “It’s one of the biggest abuses we’ve seen.” (The operation was reported last year by The Guardian, which cited the Snowden documents as its source.)

One day an intelligence officer told him that TAO—a division of NSA hackers—had attempted in 2012 to remotely install an exploit in one of the core routers at a major Internet service provider in Syria, which was in the midst of a prolonged civil war. This would have given the NSA access to email and other Internet traffic from much of the country. But something went wrong, and the router was bricked instead—rendered totally inoperable. The failure of this router caused Syria to suddenly lose all connection to the Internet—although the public didn’t know that the US government was responsible. (This is the first time the claim has been revealed.)

Inside the TAO operations center, the panicked government hackers had what Snowden calls an “oh shit” moment. They raced to remotely repair the router, desperate to cover their tracks and prevent the Syrians from discovering the sophisticated infiltration software used to access the network. But because the router was bricked, they were powerless to fix the problem.

Fortunately for the NSA, the Syrians were apparently more focused on restoring the nation’s Internet than on tracking down the cause of the outage. Back at TAO’s operations center, the tension was broken with a joke that contained more than a little truth: “If we get caught, we can always point the finger at Israel.”

… Snowden was even more disturbed to discover a new, Strangelovian cyberwarfare program in the works, codenamed MonsterMind. The program, disclosed here for the first time, would automate the process of hunting for the beginnings of a foreign cyberattack. Software would constantly be on the lookout for traffic patterns indicating known or suspected attacks. When it detected an attack, MonsterMind would automatically block it from entering the country—a “kill” in cyber terminology.

Programs like this had existed for decades, but MonsterMind software would add a unique new capability: Instead of simply detecting and killing the malware at the point of entry, MonsterMind would automatically fire back, with no human involvement. That’s a problem, Snowden says, because the initial attacks are often routed through computers in innocent third countries. “These attacks can be spoofed,” he says. “You could have someone sitting in China, for example, making it appear that one of these attacks is originating in Russia. And then we end up shooting back at a Russian hospital. What happens next?”

In addition to the possibility of accidentally starting a war, Snowden views MonsterMind as the ultimate threat to privacy because, in order for the system to work, the NSA first would have to secretly get access to virtually all private communications coming in from overseas to people in the US. “The argument is that the only way we can identify these malicious traffic flows and respond to them is if we’re analyzing all traffic flows,” he says. “And if we’re analyzing all traffic flows, that means we have to be intercepting all traffic flows. That means violating the Fourth Amendment, seizing private communications without a warrant, without probable cause or even a suspicion of wrongdoing. For everyone, all the time.”

The entire article can be read here.

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Political Economy Quote of the Week for 20140818

“The first lesson of economics is scarcity: there is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” – Thomas Sowell. H/T Rothbardian @Sebastian_JKT

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QE will come to the eurozone – and, like elsewhere, it will be a failure by Detlev Schlichter

The indefatigable Schlichter continues the good fight against monetary cranks.

The data was not really surprising and neither was the response from the commentariat. After a run of weak reports from Germany over recent months, last week’s release of GDP data for the eurozone confirmed that the economy had been flatlining in the second quarter. Predictably, this led to new calls for ECB action. “Europe now needs full-blown QE” diagnosed the leader writer of the Financial Times, and in its main report on page one the paper quoted Richard Barwell, European economist at Royal Bank of Scotland with “It’s time the ECB took control and we got the real deal, instead of the weaker measure unveiled in June.”

I wonder if calls for more ‘stimulus’ are now simply knee-jerk reactions, mere Pavlovian reflexes imbued by five years of near relentless policy easing. Do these economists and leader writers still really think about their suggestions? If so, what do they think Europe’s ills are that easy money and cheap credit are going to cure them? Is pumping ever more freshly printed money into the banking system really the answer to every economic problem? And has QE been a success where it has been pursued?

The fact is that money has hardly been tight in years – at least not at the central bank level, at the core of the system. Granted, banks have not been falling over one another to extend new loans but that is surely not surprising given that they still lick their wounds from 2008. The ongoing “asset quality review” and tighter regulation are doing their bit, too, and if these are needed to make finance safer, as their proponents claim, then abandoning them for the sake of a quick – and ultimately short-lived – GDP rebound doesn’t seem advisable. The simple fact is that lenders are reluctant to lend and borrowers reluctant to borrow, and both may have good reasons for their reluctance.

The entire article can be read here.

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From SciTechDaily: Max Planck Researchers Discover New Weapon of the Immune System

Scientists have identified a previously unknown component of the immune system, discovering that bacterial virulence factors can not only be neutralized by antibodies, but they can also be directly destroyed by them.

Max Planck researchers have discovered a completely new way in which the immune system recognizes pathogens. The aryl hydrocarbon receptor has long been a focus of research for pharma-cologists and toxicologists, as it recognizes environmental toxins. However, it also plays an important role in the immune system. A team of scientists headed by Stefan H. E. Kaufmann at the Max Planck Institute for Infection Biology in Berlin has discovered that virulence factors of bacteria which have invaded the body also bind to the aryl hydrocarbon receptor. As a result, the innate immune response is activated and the factors are immediately broken down. With this finding, the scientists have identified a hitherto unknown component of the immune system: bacterial virulence factors can not only be neutralized by antibodies, but also directly destroyed.

Until now, immune biologists have largely ignored the possibility that the immune system directly destroys bacterial virulence factors. The role of the aryl hydrocarbon receptor, which is expressed in many cells including immune and epithelial cells, is therefore all the more surprising. Thus far the receptor was primarily known as a binding site for environmental toxins, among them the extremely harmful TCDD – a dioxin that causes devastating organ damage even in minute concentrations. “However, it occurs in a wide range of organisms from threadworms to insects through to humans. If it is found in so many living organisms, the reason is certainly not just to recognize environmental toxins, but also to defend against infections,” says Pedro Moura-Alves from the Max Planck Institute for Infection Biology.

The rest of the article can be read here.

Below is the abstract of the paper, “AhR sensing of bacterial pigments regulates antibacterial defence“:

The aryl hydrocarbon receptor (AhR) is a highly conserved ligand-dependent transcription factor that senses environmental toxins and endogenous ligands, thereby inducing detoxifying enzymes and modulating immune cell differentiation and responses. We hypothesized that AhR evolved to sense not only environmental pollutants but also microbial insults. We characterized bacterial pigmented virulence factors, namely the phenazines from Pseudomonas aeruginosa and the naphthoquinone phthiocol from Mycobacterium tuberculosis, as ligands of AhR. Upon ligand binding, AhR activation leads to virulence factor degradation and regulated cytokine and chemokine production. The relevance of AhR to host defence is underlined by heightened susceptibility of AhR-deficient mice to both P. aeruginosa and M. tuberculosis. Thus, we demonstrate that AhR senses distinct bacterial virulence factors and controls antibacterial responses, supporting a previously unidentified role for AhR as an intracellular pattern recognition receptor, and identify bacterial pigments as a new class of pathogen-associated molecular patterns.

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From Aristocracy to Monarchy to Democracy – A Lecture by Hans-Hermann Hoppe

“From Aristocracy to Monarchy to Democracy” is the title of a lecture given by Hoppe last summer. I recently listened to it again and was struck by the nature of the argument that Hoppe made regarding the absurdity that is government.

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