Who Is Building the Private, Peer-to-Peer Marketplace? An Interview with Sam Patterson

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Sam Patterson (sam@samuelrpatterson.com) is an author and technology enthusiast from Virginia. He has written about decentralized technologies such as bitcoin and OpenBazaar. Sam recently cofounded a company called OB1 to help build the decentralized marketplace OpenBazaar.

The Freeman: Your project, OpenBazaar, has been awarded $1 million in seed funding so far. Congratulations. What is it, and what does it do?

Patterson: OpenBazaar is an open source project to create a decentralized marketplace online where anyone in the world can buy or sell any goods or services with anyone else in the world, for free, using bitcoin. A few of the core project members (including myself) recently started a company called OB1, which received the funding in order to hire full-time developers and make OpenBazaar a reality.

Online commerce today is mostly centralized; companies own websites where users visit to buy and sell things. Those companies charge fees, monitor their users’ data, and censor their transactions based on their own rules and on behalf of the government.

OpenBazaar is different. Instead of relying on a centralized third party, trades occur directly between buyers and sellers. Users install peer-to-peer software on their computers, similar to bitcoin or BitTorrent, and this connects them to other users running the same software. They transact in bitcoin. Since there’s no middleman, there are no fees, no collection of data, and no censorship of trade.

The Freeman: Some people will object to OpenBazaar by saying it’s not transparent — that it will help criminals thrive. How do you answer such charges?

Patterson: Some have inaccurately labeled us as an evolved Silk Road — an underground drug marketplace. This is absolutely false, for many reasons. The Silk Road was centralized and run by a small group for profit. It catered to a specific group of people who traded in illicit goods.

In contrast, OpenBazaar is a decentralized marketplace, not run for profit. It doesn’t cater to any group, or any type of trade, but is open for all users to buy and sell anything they want with each other. It’s a much bigger vision than these narrow dark markets.

We expect that use of OpenBazaar will reflect markets in society. There will be some users who engage in activity that is morally or legally objectionable, but the vast majority of users will be engaging in positive and constructive trade. We don’t know exactly how people will use OpenBazaar to better their lives, but we believe that it will, and we can’t wait to see it happen.

The Freeman: What are the implications of this kind of technology for the world’s poorest people?

Patterson: Most of the existing centralized market platforms that I mentioned earlier don’t focus on the developing world, or even if they do, the payment methods used aren’t accessible for many of the world’s poor. Bitcoin requires no credit checks to use; an Internet connection and computer are all that’s needed. OpenBazaar is the same as bitcoin in this sense. It costs nothing to join and use, and the trade is direct between buyers and sellers; there are no middlemen to take a cut. We hope that by lowering the barriers to entry for online trade, OpenBazaar and bitcoin will bring millions of new users into the online economy.

The Freeman: What are the implications of this kind of technology for most of our readers — that is, wealthier Westerners?

Patterson: Establishing a protocol, client, and network for people to directly engage in trade with each other allows for more efficient transactions. Sellers on eBay who use PayPal regularly pay up to 10 percent fees on each sale. Those are 0 percent on OpenBazaar.

OpenBazaar is also more private. Instead of the centralized platforms getting all the information about your buying or selling habits, now that information is only available to the parties you directly engage with.

Also, if some of your readers are already bitcoin users, OpenBazaar is the first decentralized platform for them to spend their decentralized money. Many value decentralized technology simply because it takes power away from the gatekeepers in our world.

The Freeman: How do you market OpenBazaar? How do you build culture around it?

Patterson: We haven’t needed to market OpenBazaar so far. The bitcoin community is very excited to see it built. Once we look to go beyond bitcoin users and into the broader e-commerce space, then we’ll need to consider how to market ourselves. Likely, it will be around the lack of fees, which is compelling to retailers who have small margins.

Our culture is one that supports free trade and voluntary interactions in society. The ability to engage in trade directly with someone in person is a great thing, and it’s a shame that hasn’t been possible online — until now.

The Freeman: How flexible, robust, and “anti-fragile” is this system — especially with respect to predatory states who will likely try to foil its development?

Patterson: OpenBazaar is very robust, similar in design to bitcoin or BitTorrent. Because it’s run locally on users’ computers, there’s no central point of failure to attack. We don’t anticipate that OpenBazaar will face opposition from governments any more than other online platforms have; they have the same tools at their disposal to go after individual storeowners. But they cannot take down the whole system at once, unlike the existing platforms.

The Freeman: When will OpenBazaar be ready to use?

Patterson: We plan on publishing the first full release in November this year. The code is open source so developers can view it any time at our Github.

The Freeman: Thank you for speaking with us, Sam.


The Freeman

The Freeman is the flagship publication of the Foundation for Economic Education and one of the oldest and most respected journals of liberty in America. For more than 50 years it has uncompromisingly defended the ideals of the free society.

Stephen Limbaugh Answers the Question: Are Corporations People?

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In Dinesh D’Souza’s the latest video of the “new voices” series, Stephen Limbaugh gives his unique take on the liberal dogma that “corporations are not people.”

EDITORS NOTE: This video initially appeared on DineshDSouza.com. Keep an eye out for more “new voices” videos on DineshDSouza.com in the coming months. In the meantime, watch some more of Stephen’s videos and connect with him on YouTube, Facebook, and Twitter. Dinesh D’Souza’s latest #1 New York Times best selling book is “America,” a rebuttal of the progressive shame narrative of American history, now available in paperback for the first time!

Cities Can’t Win the Olympics — They Can Only Lose by Gary McGath

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A hostile force is trying to take over Boston, and people who agree on little else have united to keep it out. The force is the US Olympic Committee, which wants to occupy the city in 2024.

The Olympics is the unquestioned world leader in sports cronyism. Compliant politicians help it shove people aside, allocate public roads to itself, stifle free speech, and militarize cities.

For the 2012 London Olympics, 17,000 military personnel stood on alert, missile launchers sat on the rooftops of residential buildings, and the Royal Navy’s largest battleship was moored in the Thames. Snipers buzzed around in helicopters. The government enforced censorship of advertising in Olympic “event zones”: ads that used words like “games” or “2012” were subject to heavy fines.

The 2014 Winter Olympics in Sochi showed how well the Games suit an authoritarian state. They cost Russians $51 billion, much of which went toVladimir Putin’s friends. Human rights violations piled up. The aftermath has been a city full of white elephants and a series of financial scandals.

When the US Olympic Committee chose Boston as its candidate city for 2024, certain people were thrilled. The bid offers huge opportunities for those who get the contracts; someone will build an 80,000-seat stadium, a 100-acre Olympic Village, and other major structures.

A lot of Bostonians weren’t impressed, though. They saw what the Olympics had done in other cities, with a consistent pattern of making taxpayers cover cost overruns. A group called No Boston Olympics led a grassroots campaign, making heavy use of social media. Other groups, mostly informal, have popped up to add to the opposition.

WGBH News says, “It’s hard to remember another issue in state politics that’s brought left and right together like Boston’s Olympic bid.” The plan offers something for everyone — except those on the cash pipeline — to hate. For many, it’s the expected costs and the organizers’ uncommunicative arrogance. When the town of Brookline voted to keep the Olympics out of its part of Boston’s urban area, these were the big reasons.

A lot of Bostonians are outraged that the Games would take away favorite local spots. The proposal to turn Boston Common into a garish beach volleyball stadium struck a special nerve. The adjacent Public Garden holds the much-loved “Make Way for Ducklings” statues, but people would have to make way for the Olympic cronies instead, as the statues would be placed off-limits. The bid organizers eventually backed down on using the Common.

Plans to attack civil liberties have contributed to the outrage. A public records request revealed that Mayor Walsh had signed an agreement to prohibit city employees from making comments that “reflect unfavorably upon, denigrate or disparage, or are detrimental to the reputation” of the Games.

On getting caught, Walsh claimed that the language was mere “boilerplate,” though he had in fact signed it, and he was forced to remove it from the agreement.

Walsh’s deal wasn’t the only case of hiding facts. Boston magazine had to file another public records request to get the full bid documents. They included high cost figures that the USOC had removed from the public version and contained information contradicting previous claims that taxpayer money would be used only for security.

The Olympic organizers and their supporters have tried to mock the opposition. Shirley Leung, writing for the Boston Globe, claimed that Bostonians are “difficult people” who “will throw tantrums like 2-year-olds.” Her explanation of the overwhelming public opposition was “PTSD after suffering through more than 100 inches of snow this winter.” The ridicule has only increased the critics’ determination. In polls, opponents of letting the Olympics use Boston have consistently outnumbered supporters.

If Bostonians are “difficult,” maybe it’s because they remember how the city came to a grinding halt for the 2004 Democratic National Convention. The city’s main traffic artery from the north was shut down, along with all trains to North Station. The police attempted to confine protesters to a caged “free speech zone.” Commuters stayed home, and much of the city seemed like a ghost town.

If Boston hosts the Olympics, 55 miles of road lanes, including major highways and local streets, will be handed over to its exclusive use. The Democratic Convention was a mere practice run by comparison.

The organizers are now making vague claims that they’ll obtain insurance which will guarantee that taxpayers won’t get stuck. They haven’t explained how any insurance company can or will insure against overspending. The idea of insurance assumes that the covered party will act responsibly but may encounter unforeseen costs; insurance against acting irresponsibly would be a blank check.

Boston College law professor Patricia A. McCoy said that “almost every Olympics in the recent past has had major cost overruns. Any suggestion that private insurance will pick that up is smoke and mirrors.”

Dave Zirin wrote in The Nation:

I have covered every Summer Olympics since 2004 in Athens, Greece. In other words, every Olympics since 9/11, when security concerns morphed into turning Olympic sites into police states.

At each site I’ve seen debt, displacement and the militarization of space, alongside spikes in police harassment of the most vulnerable citizens.

Boston’s rejection of the Olympic bullies will be a firm lesson that they can’t just walk in and take over.

Gary McGath

Gary McGath is a freelance software engineer living in Nashua, New Hampshire.

Real Hero James U. Blanchard: You Can’t Keep a Good Man Down by Lawrence W. Reed

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Great movements are marked by the dedication and accomplishments of steadfast individuals who make the most of every moment, every opportunity, and every available resource. When those great men and women pass from the scene, they leave behind untold numbers of friends and followers who derive comfort from their memory and inspiration from their deeds.

Such a man was James U. Blanchard III, who died on March 20, 1999, at the age of 56.

The causes to which he devoted ceaseless energy and with which his name will always be associated are liberty and sound money. Jim knew that neither is long safe without the other. Few American entrepreneurs in the second half of the 20th century did as much as he did to promote them both. The opening sentence of his family’s formal notice of his passing summed him up well: “James U. Blanchard III was a man who accomplished much against great odds and changed more people’s lives than he ever knew.”

I was privileged to know Jim Blanchard for the last 15 years of his life. For two years, I served as chief economist for his firm. I spoke at many of his conferences. I traveled with him to Brazil, Nicaragua, and Kenya. Though many others knew him better, it didn’t take much acquaintance with him for anyone to marvel at what a man in a wheelchair can get done if he puts his mind to it.

Jim was nearly killed in a tragic automobile accident at the age of 17 and was unable thereafter to walk. But if anything, his handicap only spurred him on.

Not once did I hear Jim bemoan his physical plight. If he talked about it at all, it was to relate how sitting in a wheelchair gave him time to read. In his 20s, he read voraciously. Introduced to the writings of Ayn Rand by a medical student friend, he became an unabashed defender of laissez-faire capitalism. Rand’s influence on Jim is perhaps best exemplified by the name he gave his oldest son: Anthem. Jim also became a devoted reader of the Freeman and of books by FEE’s founder, Leonard Read.

In 1974, Gerald Ford signed a bill that restored the right of Americans to own gold. The real hero of that moment was Jim Blanchard, who had formed the National Committee to Legalize Gold in 1971 and spearheaded a nationwide grassroots campaign. He knew that governments don’t like gold because they can’t print it. He saw gold ownership as a fundamental human right, a hedge against government mismanagement of money, and a first essential step down the long road to monetary integrity.

True to his spirit, some of Jim’s efforts were dramatic and unconventional. He arranged for a biplane to tow a “Legalize Gold” banner over President Nixon’s 1973 inauguration. He also held press conferences around the country at which he would brandish illegal bars of gold and publicly challenge federal officials to throw him in jail. These and many other stories about Jim’s colorful career can be found in his 1990 autobiography, Confessions of a Gold Bug.

Once gold became legal, Jim held his first annual investment conference in New Orleans. Expecting 250 attendees, he was stunned to see 750 show up. More than 40 years later, Blanchard’s New Orleans Investment Conference carries on and has drawn tens of thousands of individuals from all 50 states and dozens of nations. Investment advice comprised most of the 25 programs Jim assembled, but he always made sure that attendees were provided a hefty dose of sound-money and free-market ideas. His speakers included Milton Friedman, F.A. Hayek, Robert Bleiberg, Walter Williams, and many other great economists. Ayn Rand’s last public appearance was at a Blanchard conference. (In October 2015, I’ll be speaking again at the conference myself.)

In the meantime, Jim’s original $50 investment to begin a coin business in the 1970s grew into a giant within the industry. When he sold the business 15 years later, it was a $115-million-a-year precious-metals and rare-coin company. He cofounded the Industry Council for Tangible Assets to combat unscrupulous business practices in the coin and bullion industry, and he helped to reverse several burdensome laws and regulations that afflicted American investors.

Jim’s adventurous instincts and love of liberty combined to put him on the front lines of important struggles around the world. On my return in 1986 from visiting with activists in the anti-communist underground in Poland, I went to Jim with a request. I advised him that for $5,000, pro-freedom forces in Warsaw could translate Milton Friedman’s Free to Choose into Polish and then print and distribute hundreds of copies throughout the country. He wrote that check on the spot, and many others for similar causes behind the Iron Curtain. Not content only to fund these worthy endeavors, he often transported illicit, pro-freedom literature himself when he visited communist countries.

One of Jim’s favorite foreign projects was assisting anti-communist rebel forces inside war-torn Mozambique in the 1980s and early 1990s. He once sent a colleague and me on a clandestine journey inside the country to live for two weeks with the rebels in the bush and help to spread a pro-freedom message. Once the war was over and Mozambique adopted policies friendly to private property and free markets, Jim pitched in to assist in reconstruction.

“I remember my father as the bravest and most adventurous person that I have ever known to this day,” Anthem recently told me.

He never let anyone tell him no. He was fearless in his belief in the goodness of the human spirit. He understood that the path to personal betterment is best shepherded by free enterprise, and [he understood] the importance of balance between natural rights and property rights protected by a responsible, accountable, made-as-limited-as-possible government.

If Jim were alive today, he would beam with pride in his son, who carries three famous names: Anthem Hayek Blanchard is founder and president of Anthem Vault, a Nevada-based company pioneering a gold-backed cryptocurrency called HayekGold after Nobel laureate and Austrian economist F.A. Hayek. (Browse through the news items on the company’s web page and you’ll learn more about the currency that wouldn’t even be legal today had it not been for the work of Anthem’s father.)

Anthem says his father taught him “above all else” that true freedom can only be achieved once the world experiences a Hayekian choice in currency that technologies like bitcoin, HayekGold, and other virtual assets are wonderfully making a rapidly growing reality. I know Pop would be the most excited person in the world about all of these new technology developments enabling Austrian economics to flourish in a modern digital society.

Jim Blanchard overcame personal tragedy to become a powerful figure for liberty and sound money. His indomitable spirit lives on in all those who know that the noble causes to which he devoted his life require both hard work and eternal vigilance.

Video from FreedomFest: Remembering James U. Blanchard III with Lawrence Reed

RELATED ARTICLES:

Jim Blanchard’s 1990 autobiography, Confessions of a Gold Bug

Jim Blanchard’s 1984 interview of Austrian economist F.A. Hayek

Steve Mariotti’s 2014 interview with Anthem Hayek Blanchard


Lawrence W. Reed

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s.

EDITORS NOTE: Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

New York Orders Fast-Food Workers Replaced With Robots, Kiosks, Mobile Apps by Daniel Bier

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Well, they didn’t quite put it that way — the New York Times‘ headline read “New York panel recommends $15 minimum wage for fast-food workers” — but it amounts to the same thing.

A panel appointed by Gov. Andrew M. Cuomo recommended on Wednesday that the minimum wage be raised for employees of fast ­food chain restaurants throughout the state to $15 an hour over the next few years. Wages would be raised faster in New York City than in the rest of the state to account for the higher cost of living there.

The panel’s recommendations, which are expected to be put into effect by an order of the state’s acting commissioner of labor, represent a major triumph for the advocates who have rallied burger­ flippers and fry cooks to demand pay that covers their basic needs.

They argued that taxpayers were subsidizing the workforces of some multinational corporations, like McDonald’s, that were not paying enough to keep their workers from relying on food stamps and other welfare benefits.

The $15 wage would represent a raise of more than 70 percent for workers earning the state’s current minimum wage of $8.75 an hour. Advocates for low­ wage workers said they believed the mandate would quickly spur raises for employees in other industries across the state, and a jubilant Mr. Cuomo predicted that other states would follow his lead.

In other news, I ordered my lunch yesterday on my computer and picked it up from Panera Bread without ever talking to a person. Last night, I picked up a couple groceries and paid through the self-checkout lane. This morning, I ordered a latte on my Starbucks app, and it was waiting for me when I walked into the store. I’m thinking of going to a burger joint later, where I’ll tap out my order on a kiosk.

Of course, it’s not fair to blame the minimum wage exclusively for the increasingly widespread automation of service jobs. Ordering kiosks and mobile apps are becoming more popular as the technology becomes better, cheaper, and more popular. That will probably happen no matter what the price of labor is.

But the fact that the cost of not using technology — that is, an employee — is about to cost 70% more will give the entire New York fast-food industry a great big shove away from labor and towards machines. And since chain restaurants don’t just operate in New York, the investment in automation will spill into stores everywhere.

Who wins from this?

Unions and more experienced workers, at least in the short-run. Labor unions’ entire purpose is to push up wages for their members, which makes them more expensive and less attractive compared to non-union workers.

But if unions — like, say, the Service Employees International Union — can make all workers more expensive, it makes union labor look relatively better by comparison. They won’t have to compete against cheaper labor anymore (which is to say, less-skilled workers won’t be allowed to compete by underbidding them).

Why arbitrarily single out “fast food” for the hike?

First, it makes the fight politically easier because the unions only have to defeat one industry lobby, instead of every business that uses unskilled labor. Second, the SEIU, in particular, represents a lot of food workers and has for years been pushing to unionize the big fast-food chains.

Who loses?

First, businesses, especially those operating on thin margins. They’ll be staring at a 70% increase in labor costs, already typically one of the biggest expenses for restaurants.

Less experienced workers — especially unskilled immigrants and young people starting out in the job market — will also lose. Businesses will try to offset some of higher cost of labor by cutting hours or jobs, delaying or cancelling expansions, replacing labor with capital where they can, and replacing less skilled with more skilled workers where they can’t.

They’ll also try to raise prices to cover costs, so consumers lose, too — especially those who eat fast-food more often, have tighter budgets, and have food as a bigger share of their budgets: i.e., low and lower-middle income families.

The net effect this will be less employment, less production, and less consumption. The economy and especially less-advantaged people will be worse off for it.

Miscellaneous arguments:

  • CEO pay: The Times awkwardly shoehorns in the fact that McDonald’s chief executive made $7.5 million last year, presumably trying to suggest that he’s the reason its other 420,000 employees are paid so little. In case you’re wondering, redistributing his salary comes out to 5 cents per employee per day. And then McDonald’s has no CEO. Hurray?
  • Corporate Subsidy: The Times also uncritically repeats the incoherent claim that taxpayers are somehow “subsidizing” these “multinational corporations” because they don’t pay “enough to keep their workers from relying on food stamps and other welfare benefits.” This makes no sense at all.
  • No Big Deal: The economists who claim that raising the minimum wage won’t hurt employment that much always couch it with the caveat that the increase be “small” or “moderate.” By no stretch of the imagination is hiking the wage floor to $15 “moderate.” In New York, it’s a 70% increase; in states with the federal minimum of $7.25, it’s 107% increase.

Antony Davies has charted the relationship between the minimum wage as a share of the average wage and the unemployment rates for different workers over time.

There’s no connection between the minimum wage and unemployment for the college-educated, but for those with high school or less, there’s a strong positive correlation:

Notice that the chart axis stops at 45% of the average hourly wage: in more than three decades, the minimum wage has never gone higher. Today, according to BLS data, a $15 minimum wage would be 60% of the average hourly wage — the highest relative minimum wage ever. We are literally going into uncharted territory.

Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

Paul Krugman Is Even Wrong about What Paul Krugman Thought by Steve H. Hanke

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Paul Krugman, “Killing the European Project”, NY Times, July 12, 2015:

The European project — a project I have always praised and supported — has just been dealt a terrible, perhaps fatal blow. And whatever you think of Syriza, or Greece, it wasn’t the Greeks who did it.

Paul Krugman has always praised and supported the European project? Really? Here’s Prof. Krugman in his own words on the centerpiece of the European project, the euro:

  • Paul Krugman, “The Euro: Beware Of What You Wish For”, Fortune, December 1998: “But EMU wasn’t designed to make everyone happy. It was designed to keep Germany happy — to provide the kind of stern anti-inflationary discipline that everyone knew Germany had always wanted and would always want in future.So what if the Germans have changed their mind, and realized that they — along with all the other major governments — are more worried about deflation than inflation, that they would very much like the central bankers to print some more money? Sorry, too late: the system is already on autopilot, and no course changes are permitted.”
  • Paul Krugman, “Can Europe Be Saved?”, NY Times, January 12, 2011: “The tragedy of the Euromess is that the creation of the euro was supposed to be the finest moment in a grand and noble undertaking: the generations-long effort to bring peace, democracy and shared prosperity to a once and frequently war-torn continent.But the architects of the euro, caught up in their project’s sweep and romance, chose to ignore the mundane difficulties a shared currency would predictably encounter — to ignore warnings, which were issued right from the beginning, that Europe lacked the institutions needed to make a common currency workable. Instead, they engaged in magical thinking, acting as if the nobility of their mission transcended such concerns.”
  •  Paul Krugman, “Greece Over The Brink”, NY Times, June 29, 2015: “It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency…”
  • Paul Krugman, “Europe’s Many Economic Disasters”, NY Times, July 3, 2015: “What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket.Finland had a very severe economic crisis at the end of the 1980s — much worse, at the beginning, than what it’s going through now. But it was able to engineer a fairly quick recovery in large part by sharply devaluing its currency, making its exports more competitive. This time, unfortunately, it had no currency to devalue. And the same goes for Europe’s other trouble spots. Does this mean that creating the euro was a mistake? Well, yes.”

When reading Prof. Krugman’s works, it’s prudent to fact check. Prof. Krugman has always been in the Eurosceptic camp. Indeed, the essence of many of his pronouncements can be found in declarations from a wide range of Eurosceptic parties.

This post first appeared at Cato.org.


Steve H. Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore.

Obama’s Attack on the Suburbs is an Attack on the American Dream

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The hypocrisy of government “planners” is astounding. Government planners are experts at planning destruction, distancing themselves from the results, and then recommending additional planning to fix what they have destroyed. They have been rearranging society according to their social engineering agenda, redistributive economic theories, cynical “division politics” strategies, and racial quotas for decades and the more planning they do, the more chaos we get.

I have been closely following the Obama Administration’s recently announced plan to racially diversify upper middle income neighborhoods through their recent HUD directive titled “Affirmatively Furthering Fair Housing” for some time now, and continue to wonder when the media and curious Americans are going to start asking the hard questions about this incessant drive to socially engineer our lives, and the devastating outcomes they have produced.

Sadly, I doubt the media will delve into the complicated but overwhelmingly negative externalities generated by years of adherence to the liberal social planners’ agenda, and their societal reorganization goals. So it’s our turn to bypass them and ask the hard questions ourselves.

Here’s the critical question for the government planners: Who is in charge of the neighborhoods and cities with significant minority populations, and why are many of these areas struggling?

Of course, the answers are extremely inconvenient for the liberal social planners among us because the correlation between liberal governance and their symbiotic “planning” agenda in inner cities, and economic hardship for its citizens, is high. If the government planners who engineered the negative economic outcomes, housing outcomes, and education outcomes in the inner cities they dominate failed to generate even average outcomes for their citizens, then why would middle-class America be remotely open to the idea of these destructive planners engineering outcomes in their neighborhoods?

The planners, in conjunction with the liberal political and activist class, will, of course, blame the inevitable backlash against this attempt to place government sponsored housing in upper middle income neighborhoods on racism, but Americans are tiring of this old trick. Americans of all races, creeds, and countries of origin want to live in neighborhoods of their own choice and choose these neighborhoods for a variety of reasons.  Some choose the convenience of city-living because they dislike long commutes. Others choose the suburbs because they want a yard for their children to play in. And some choose the country because they like the relaxing symphony of the Lord’s sounds of nature at night. Pretending these decisions are the twisted result of a devoutly racist country is an insult to every American who bought their home because it was their piece of the American Dream, not a bullet point in a government master-planning document.

The rank hypocrisy here, which escapes the media spin doctors who are avoiding this story because of its potentially explosive impact on electoral politics, is that it’s the planner’s adherence to the tax-and-spend ideology and zoning regulations which are primary drivers of generational poverty in the very areas many struggling Americans are looking to escape from, and the low income housing crisis in America, respectively. Restrictive zoning and “rent control” policies have long been pointed to as drivers of housing shortages and any Econ 101 student understands that when you restrict the supply of any good or service, the price will rise.

Magnifying the problem is that restrictive zoning requirements add layers of fixed costs to housing construction projects which make the business of building homes profitable and sustainable only if you build high income housing to defray the fixed costs. The Left employs this same hat trick often; first they create a problem, and then they propose more of the poison as an antidote.  They created the low income housing crisis through their adherence to heavy zoning, planning, and housing regulation, then they ruined the many inner cities, where they govern unchallenged, forcing people out of those cities to the suburbs, and now they chase those same people to the suburbs following them with legislative and regulatory threats to impose their big government agenda on them, regardless of how far away they move or how desperate they are to escape their grasp.

I know many of you are overwhelmed right now with the avalanche of bad news emanating from the Obama Administration on both the foreign policy and domestic fronts. It’s a challenge to keep up with it all. But, the Obama Administration’s war on the suburbs is an attack on that portion of the unique American Dream which every American cherishes, a small piece of land which we can look at and call “home.”

Conservatives should fight this HUD rule and defund this attack on their constituents’ front door.

EDITORS NOTE: This column originally appeared in the Conservative Review. The featured image is of an abandoned home in Detroit, MI.

Checkmate, Capitalists! by Jason Brennan

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Look upon this meme, ye capitalists, and weep.

food starve fee

Socialists are people who either 1) are badly misinformed about social scientific matters, or 2) make a common philosophical mistake that I’ve dubbed the “Cohen Fallacy,” in honor of G.A. Cohen.

Regarding 1: Here is a ranking of all countries by how capitalist they are as of 2011. Where are the starving people generally located? Is it in the most capitalist countries?

By the way, here’s the trendline in absolute poverty around the world, thanks to globalization:

Regarding 2: I suspect what most socialists have in mind is an argument like this:

Sure, in realistic cases of socialism, such as the forms of socialism practiced in the 20th century, we had mass famine and forced starvation.

But in ideal socialism, the form of socialism I endorse, people would all love each other, share, and care! And so no one would starve. Idealsocialism is superior from a moral point of view to capitalism as we actually find it.

The problem with this argument, as I explained in Why Not Capitalism?, is that this is a bad argument:

  1. Socialism with perfect, morally flawless people who always do the right thing is better than capitalism with real people, who are imperfect, morally flawed, and often act badly.
  2. Therefore, socialism is better than capitalism.

The problem is that this argument leaves open whether capitalism with perfect, morally flawless people is better than, on par with, or worse than socialism with perfect, morally flawless people. It also leaves open whether capitalism with realistic people is better than socialism with realistic people.

As I argue in Why Not Capitalism?, ideal capitalism is morally superior (from a hard left-wing point of view) to ideal socialism. And I don’t see it even as debatable at this point that realistic capitalism, for all its flaws, is superior to realistic socialism.

Socialists might retort that capitalism makes us worse people while socialism encourages virtue and kindness. However, that’s a testable empirical claim. People like Herbert Gintis and Joseph Henrich, among others, have tested it, and it turns out to be the opposite of the truth.

This first appeared at the Bleeding Heart Libertarians blog.


Jason Brennan

Jason Brennan is Assistant Professor of Strategy, Economics, Ethics, and Public Policy at Georgetown University. He blogs regularly at Bleeding Heart Libertarians.

Why Is Economics “the Dismal Science”? The Reason May Surprise You! by David R. Henderson

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In an otherwise excellent post responding to Noah Smith about economic growth, my Hoover colleague and friend John Cochrane makes a mistake in the history of economic thought.

John writes:

They do not call us the “dismal science” because we think the current world is close to the best of all possible ones, and all there is to do is haggle over technical amendments to rule 134.532 subparagraph a and hope to squeeze out 0.001% more growth.

Usually, the role of economists is to see the great possibilities that every day experience does not reveal. (“Dismal” only refers to the fact that good economics respects budget constraints.)

Actually, that’s not what dismal refers to. David M. Levy and Sandra J. Peart write:

Everyone knows that economics is the dismal science. And almost everyone knows that it was given this description by Thomas Carlyle, who was inspired to coin the phrase by T. R. Malthus’s gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.

While this story is well-known, it is also wrong, so wrong that it is hard to imagine a story that is farther from the truth. At the most trivial level, Carlyle’s target was not Malthus, but economists such as John Stuart Mill, who argued that it was institutions, not race, that explained why some nations were rich and others poor.

Carlyle attacked Mill, not for supporting Malthus’s predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact–that economics assumed that people were basically all the same, and thus all entitled to liberty–that led Carlyle to label economics “the dismal science.”

They go on to write:

Carlyle disagreed with the conclusion that slavery was wrong because he disagreed with the assumption that under the skin, people are all the same. He argued that blacks were subhumans (“two-legged cattle”), who needed the tutelage of whites wielding the “beneficent whip” if they were to contribute to the good of society.

In a speech at Susquehanna University earlier this year, I quoted this and pointed out that it was the classical economists, John Stuart Mill, et al, who believed that black lives matter.

This post first appeared at Econlog, the blog of the Library of Economics and Liberty. © Liberty Fund, Inc., reprinted with permission.


David Henderson

David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at econlib.org.

Loosening of Lending Standards Harms Low Income and Minority Americans

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aei risk center logoThe Spring home buying season continues to show strength, buoyed by strong first-time buyer volume and share. Historically low mortgage rates, an improving labor market, and loose credit standards, combined with a 32-month-long seller’s market for existing homes, continue to drive up home prices faster than income.

The continued loosening of lending standards during a strong seller’s market is moving the goalpost further away for many lower income and minority renters desiring to become homeowners.

  • In June* first-time buyers accounted for 58.8 percent of primary owner-occupied home purchase mortgages with a government guarantee, up from 57.2 percent the prior June.
  • Increasing first-time buyer volume and share is being driven by increasing leverage and a strengthening job market.
  • The number of primary owner-occupied purchase mortgages going to first-time buyers in June totaled an estimated 128,000, up 20 percent from the 107,000 mortgages in June 2014
  • The Agency FBMRI stood at a series record of 15.83 percent, up 0.5 percentage point from the average over the prior three months and up 1.1 percentage points from a year earlier.
  • The Agency FBMRI is 6¾ percentage points higher than the mortgage risk index for repeat home-buyers, and the gap has been widening.
  • Nearly 55 percent of agency first-time buyer loans were high risk (an MRI above 12%) in June, up from 51 percent a year earlier.
  • As demonstrated below, the extremely small sample size of the NAR’s realtor survey generates monthly noise that tends to mask both seasonal and underlying trends in first-time buyer share, trends readily apparent in the AEI combined first-time buyer share index.

The First-Time Buyer Mortgage Share and Mortgage Risk Indexes (FBMSI and FBMRI) are key housing market indicators based on monthly data for nearly all government-guaranteed home purchase loans, which greatly reduces the risk of sample error. By relying on millions of loans, this approach stands in contrast to traditional first-time buyer surveys based on small samples of home-buyers or real estate agents.

In June 2015, first-time buyers accounted for 58.8 percent of primary owner-occupied home purchase mortgages with a government guarantee, according to the Agency First-Time Buyer Mortgage Share Index (FBMSI).  As shown in the chart below, the June share was 0.2 percentage point above the revised share of 58.6 percent for May and 1.6 percentage points above the June 2014 share of 57.2 percent.  Through March of this year, the first-time buyer share had displayed no clear trend apart from seasonal variation. But the increases in April, May, and June pushed the share to successive new highs, supported by improvements in the labor market, riskier mortgage lending, and continuing low mortgage rates.  These factors, combined with a 33-month-long seller’s market for existing homes as reported by the National Association of Realtors (NAR)[1], are driving up home prices faster than income.

“The housing lobby, led by the NAR and the Urban Institute, has successfully pushed for looser lending standards for first-time buyers,” noted Edward Pinto, co-director of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk. “Rather than increasing accessibility, the loosening of lending standards during a strong seller’s market is moving the goalpost further away for many lower income and minority renters desiring to become homeowners.”

The chart below displays the monthly first-time home-buyer percentage by agency.  As shown, the share varies widely across agencies.  FHA is at the high end with a share at or above 80 percent, while Freddie Mac is at the low end with a share of about 40 percent.  Fannie Mae’s share has consistently tracked somewhat above Freddie’s and stood at 46.7 percent in June. Fannie’s share is higher because of its much greater volume of 97 percent LTV loans for first-time buyers relative to Freddie.  These loans carry substantial risk and account for most of the gap between Fannie’s MRI for first-time buyers (8.18 percent in June) and Freddie’s (6.72 percent).

As shown by the blue line in the chart below, the Combined FBMSI (which measures the share of first-time buyers for both government-guaranteed and private-sector mortgages) stood at an estimated 52.9 percent in June 2015.  Consistent with the agency series, the broader combined share moved to successive highs in April, May, and June, after having varied seasonally with no trend over the prior two years.  The first-time buyer share published monthly by the NAR, the dotted red line, also has risen to the highest level over the period shown.  Although the two series are currently sending the same message, the NAR series provides a much noisier signal month to month because of its small sample size.[2]

The first-time buyer share shown by the combined FBMSI is much higher than that estimated by the NAR survey of realtors and the separate NAR survey of homebuyers and sellers.  This gap largely appears to reflect a difference in the definition of first-time buyers.  In the federal agency data that we use, first-time buyers include purchasers who owned a home more than three years ago but not in the past three years.  The NAR surveys ask whether the purchaser is a first-time buyer, without further instruction.  Survey respondents likely apply a literal definition of first-time buyers, which would exclude purchasers who owned a home more than three years ago.[3]  The broader definition in the federal agency data captures the full set of households transitioning from renter to homeowner status and thus provides a more complete measure of changes in demand for owner-occupied housing.  The rising first-time buyer share and the strong increase in first-time buyer sales volume shown by our broad definition help explain the tightening inventory conditions in the long running seller’s market.  The unsold inventory of existing single-family homes stood at 5.2 months in May, down from 5.6 months a year earlier; for new single-family homes, the unsold inventory was 4.5 months in May, down from 5.1 months a year earlier.[4]

The monthly count of agency first-time buyer mortgages (theAgency FTB Loan Count) is presented in the chart below.  The number of primary owner-occupied purchase mortgages going to first-time buyers in June totaled an estimated 128,000, up 20 percent from the level in June 2014.  This increase in the Agency FTB Loan Count outpaced the 15½ percent rise in total agency purchase loan volume over the same period.

The Agency FTB Loan Count and the Agency FBMSI are calculated, as noted above, from a nearly complete dataset of government-guaranteed home purchase loans, which greatly reduces the risk of sample error. Data on the importance of first-time homebuyers for non-agency loans are not available to our knowledge from any source.  The Combined FBMSI is calculated from the agency loan data, along with assumptions for non-agency loans that we believe to be reasonable.

“While the strength of this Spring’s homebuying season is noteworthy, it is being unsustainably fueled by increasing leverage,” said Pinto. “This leaves first-time buyers and neighborhoods vulnerable to excessive defaults.”

“We paint an accurate picture of changes in the first-time buyer share by using a nearly complete census of agency loans,” said Stephen Oliner, co-director of AEI’s International Center on Housing Risk.  “In contrast, the monthly changes in the first-time buyer share from the NAR survey are often just noise.”

AEI’s Agency First-Time Buyer Mortgage Risk Index (FBMRI) estimates the share of first-time buyer mortgages that would default in a stress event comparable to the 2007-08 financial crisis based on the actual performance of loans originated in 2007.  The Agency FBMRI stood at 15.83 percent in June, up 0.5 percentage point from the average over the prior three months and up 1.1 percentage points from a year earlier. As indicated in the chart below, the Agency FBMRI is 6¾ percentage points higher than the mortgage risk index for repeat home-buyers, and the gap between the two series has been growing.

The higher risk for the mortgages taken out by first-time buyers is largely due to risk layering. As shown in the table below, in June 2015, 71 percent of first-time buyer mortgages had a combined loan-to-value ratio (CLTV) of 95 percent or higher, and 97 percent had a 30-year term. Given the combination of little money down and slow amortization, these buyers will have very little home equity for a number of years unless their house appreciates substantially. In addition, more than one-fifth of first-time buyers taking out mortgages had a FICO score below 660, the traditional definition of subprime mortgages, and one-quarter had total debt-to-income ratios above 43 percent, the limit set by the Qualified Mortgage rule.  The mortgages taken out by repeat buyers are less risky along two dimensions in particular: a much smaller share had a CLTV of 95 percent or higher and a smaller share had a FICO score below 660.

Characteristics of Mortgages Taken Out by First-Time and Repeat Home-buyers:

June 2015
CLTV ≥ 95% 30-year Term FICO < 660 DTI > 43%
First-time Buyers 71% 97% 22% 25%
Repeat Buyers 38% 91% 9% 23%
Source.  AEI International Center on Housing Risk, www.HousingRisk.org

This risk profile for first-time buyers implies that the supply of mortgage credit to this group is not tight.  In June 2015, the median first-time buyer with an agency mortgage made a downpayment of only 3 percent, or $6900 in dollar terms.  Moreover, the median FICO score in June for first-time buyers with agency mortgages was 706, slightly below the median of 713 for all individuals in the United States with a score.[5] For first-time buyers with FHA-insured loans, the median FICO score in June was only 674, well below the middle of the distribution for the U.S. as a whole. These data are a strong counterpoint to the frequent claims that first-time buyers face difficulties in obtaining mortgages.

“Our data refute the conventional wisdom that first-time buyers face tight credit,” said Oliner.  “Many first-time buyers with ordinary credit scores are purchasing homes every month with little money down.”

ABOUT THE FBMSI AND FBMRI

The FBMSI and FBMRI are objective and transparent measures of the first-time buyer share and the riskiness of first-time buyer mortgages, respectively, based on the millions of loans contained in the National Mortgage Risk Index (NMRI) database developed by AEI’s International Center on Housing Risk. The FBMSI, FBMRI, and NMRI are updated monthly.  For more information about these indexes and the work of the center, please visit HousingRisk.org or contact Edward.Pinto@AEI.org or Stephen.Oliner@AEI.org.

REFERENCES:

[1] According to the NAR, a seller’s market exists when the inventory of existing homes for sale would be exhausted in six months or less at the current sales pace.http://www.realtor.org/news-releases/2013/04/march-existing-home-sales-slip-due-to-limited-inventory-prices-maintain-uptrend The Census Bureau publishes parallel inventory and sales data for new homes.  Based on the Census data, May 2015 was the 43rd out of the last 44 months of a new home seller’s market using the NAR definition of six months’ supply or less.  The NAR and Census data on months’ supply are posted on the FRED site maintained by the Federal Reserve Bank of St. Louis (https://research.stlouisfed.org/fred2/series/HSFSUPUSM673N for the NAR series and https://research.stlouisfed.org/fred2/series/MSACSR for the Census series).

[2] The NAR’s monthly survey (http://www.realtor.org/reports/realtors-confidence-index) is sent to more than 50,000 realtors (out of a total of 1.1 million members), but has a low response rate; only 3,805 responses were received for the May 2015 survey and of these, only 2,247 realtors provided information based on the last sale they had closed in May.  The NAR’s separate annual survey of homebuyers and sellers also suffers from small sample problems.  For the 2014 survey, responses were received from only 9 percent of those mailed the survey, and these responses constituted only 0.2 percent of all purchase loans originated during the 12-month period covered by the survey.

[3] For details about the estimated effect of this definitional difference on the first-time buyer share, see footnote 2 in the May 2015 first-time buyer data release (http://www.housingrisk.org/first-time-buyer-mortgage-share-and-mortgage-risk-indexes-for-may-2015/#more-1781).

[4] See footnote 2 above for the links to the NAR and Census data.

[5] The national median score is from FICO; the other FICO scores cited here are from AEI’s International Center on Housing Risk.

Integrity Florida Releases Research Report on Minimum Wage

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Integrity Florida, the nonpartisan research institute and government watchdog, released a new report today that examines minimum wage policy in state and local governments and the effect that increases in the wage have on employment.

The research report does not take a position on either side of the ongoing minimum wage debate. Rather, it seeks to add independent and unbiased context to that debate and answer the question “does increasing the minimum wage result in job loss?”

“We wanted to take an objective look at the claim made by some that an increase in the minimum wage means employers will cut jobs,” said Ben Wilcox, Research Director for Integrity Florida. “Our research found no evidence that claim is true.”

The report contains three major components: (1) a review of existing studies on the issue; (2) comparing job growth in states that have raised the minimum wage since January 1, 2014, with states that have not; and (3) comparing the current number of jobs in cities and counties where a minimum wage increase has been in effect at least a year with the number of jobs before the raise went into effect. The research is based on employment numbers provided by the U.S. Department of Labor, Bureau of Labor Statistics.

“We found no evidence of job loss in states, counties and cities where the minimum wage has increased,” said researcher Alan Stonecipher. “Everywhere we looked there were only varying degrees of employment gains.”

Key Findings

  • The preponderance of research finds that raising the minimum wage does not cause job loss.
  • Economists cite several reasons why increases in the minimum wage, which raise employers’ cost, generally do not cost jobs.
  • In the 25 states plus the District of Columbia where the minimum wage has increased since January 1, 2014, through recently in 2015, job growth has been higher than in states where the rate did not go up.
  • Similarly, in all of the five cities and counties where increases in the minimum wage had been in effect for more than a year, the number of jobs has grown.
  • The results of the state and city case studies do not prove that a higher minimum wage results in job growth.  But the results provide no indication that a higher minimum wage is associated with job losses.

ABOUT INTEGRITY FLORIDA:

Integrity Florida is a nonpartisan research institute and government watchdog whose mission is to promote integrity in government and expose public corruption. more information at www.integrityflorida.org.

Paul Krugman Is Clueless about Bitcoin by Max Borders

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In this video clip, Paul Krugman demonstrates once again that prizes don’t make you an expert on everything. Indeed, his poor prognostications happen so frequently that one wonders if Krugman is an expert on anything. I don’t say that to be unpleasant. If you’re going on TV and enjoying a lavish lifestyle by pretending to know what you’re talking about, shouldn’t you be held to a higher standard?

Let’s pass over for a moment how woefully wrong Krugman was about the Internet. What about the internet of money?

Krugman first says: “At this point bitcoin is not looking too good.”

It is true that investment often follows the Gartner hype cycle. So bitcoin has indeed fallen from great heights and is probably just now making its ascent out of the “trough of disillusionment.”

But so what? There is nothing inherently wrong with bitcoin. In fact, some very savvy, patient people are building an unbelievable set of technologies within and around the blockchain. And if you believe Gartner, most really interesting tech goes through this cycle.

Let’s look back at the Internet. When the dotcom bubble and subsequent burst looked like this:

Do we conclude that because in 2002 the Internet wasn’t “looking so good” that TCP/IP was not viable? That would have been a very short-sighted thing to say, particularly about a system that is a robust “dumb network“ like the internet.

Bitcoin is also a dumb network. But don’t let the “dumb” part fool you, says bitcoin expert Andreas Andronopoulos. “So the dumb network becomes a platform for independent innovation, without permission, at the edge. The result is an incredible range of innovations, carried out at an even more incredible pace. People interested in even the tiniest of niche applications can create them on the edge.”

Then Krugman goes on to ask, “Why does a piece of paper with a dead president on it have value?” Answering his own question he says “Because other people think it has value.”

And this is not untrue. But the problem with this line of thinking is — subjective value notwithstanding — the value of money is also contingent. You might say the value of fiat money is too contingent — especially upon political whims, upon the limited knowledge of the folks at the Federal Reserve, and upon the fact that its unit of account is no longer anything scarce, such as gold.

By contrast, bitcoin has standard of scarcity programmed into it. So, bitcoin is in limited supply, thanks to a sophisticated algorithm.

In a fully decentralized monetary system, there is no central authority that regulates the monetary base. Instead, currency is created by the nodes of a peer-to-peer network. The bitcoin generation algorithm defines, in advance, how currency can be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless. (To learn more about this algorithm, visit “Currency with a Finite Supply.”)

Perhaps you don’t trust this algorithm. Certainly Paul Krugman does not. That’s okay, because digital currencies compete, so you can find one you do trust. One crypto currency is backed by gold and funnily enough, it’s called “the Hayek” after the Nobel laureate who wrote about competing private currencies.

Now, what shall we make of the magic of the dollar? Krugman says it is “the fact that you can use it to pay taxes.” That’s sort of like saying that the Internet works because of eFile. Let’s just assume Krugman was kidding.

But Krugman thinks, without irony, that bitcoin “levitates.” That is to say, he’s okay with the idea that the dollar has value because other people value it, but he’s not okay with the idea that bitcoin has value because other people value it, which is a rather curious thing to say in the same two-minute stretch. He goes on to argue that bitcoin is built on libertarian ideology, and that it doesn’t do anything that digitizing the dollar hasn’t done.

And that’s when we realize that Krugman doesn’t have any earthly clue about bitcoin.

But Freeman columnist Andreas Antonopoulos does:

Open-source currencies have another layer that multiplies these underlying effects: the currency itself. Not only is the investment in infrastructure and innovation shared by all, but the shared benefit may also manifest in increased value for the common currency.

Currency is the quintessential shared good, because its value correlates strongly to the economic activity that it enables. In simple terms, a currency is valuable because many people use it, and the more who use it, the more valuable it becomes.

Unlike national currencies, which are generally restricted to use within a country’s borders, digital currencies like bitcoin are global and can therefore be readily adopted and used by almost any user who is part of the networked global society.

What Krugman also fails to appreciate is that bitcoin and the bitcoin network is disintermediated. That’s a fancy way of saying it’s direct and peer-to-peer. This elimination of the mediating institutions — banks, governments, and credit card companies — means bitcoin transactions are far, far cheaper. But that also means these institutions could be far less powerful over time. And that’s precisely why it’s being adopted most quickly by the world’s poorest people and countries with hyperinflation.

Hey, look, I understand. In many ways, Krugman is a twentieth-century mind. Keynesian. Unhealthy obsession with aggregates and dirigisme. He believes in big central solutions to problems that robust, decentralized systems are far better equipped to tackle. And he’s not terribly plugged into tech innovation. In fact, here’s that well-played Internet quote in case you forgot:

The growth of the Internet will slow drastically, as the flaw in “Metcalfe’s law” — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other!

By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.

To grok the power decentralization, you have to have a twenty-first century mind.

Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also co-founder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

Lessons from the Richest Duck in the World by Robert Anthony Peters

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Scrooge is an unlikely name for a hero. Since Dickens’s A Christmas Carol, it has elicited thoughts of disagreeable skinflints. That all changed with Scrooge McDuck.

At first, Donald Duck’s Uncle Scrooge was quite Dickensian in character, but creator Carl Barks knew that a churlish miser would not sustain an audience’s sympathy. To really give this character legs (or wings), he would have to give him the kind of morals that resonate with readers.

It worked. Disney’s Duck universe has been popular for over 60 years. My generation enjoyed Duck Tales on TV. An older generation avidly read Uncle Scrooge comics, the first issue of which has Scrooge explaining how he earned his fortune: “I made it by being tougher than the toughies, and smarter than the smarties! And I made it square!”

Barks created a wealth of economic lessons through fables that are still enjoyed around the globe today.

A Modern-Day Aesop

Barks was born in rural Oregon to a farming family at the turn of the 20th century. Growing up, he had a hardscrabble existence. Due to several moves, living far from schools, and poor hearing from childhood measles, he had minimal education. He worked as a farmer, cowboy, swamper, railroad worker, printer, and more. His first gig as an illustrator was for a men’s humor magazine. In late 1935, he discovered an ad in the newspaper for Disney. Though the job offered only half his current pay, he decided to join the animation department and eventually the comic book publisher. Barks was a man who was willing to work hard, work well, and take a chance on great possibilities. The storytelling in these comics featured Barks’s strongly individualist outlook, his belief in the entrepreneur, and his optimism in markets resulting in human benefit.

Trade, Trade Again

Before Barks created Uncle Scrooge, he was already exploring the beneficial nature of trade in 1947’s “Maharajah Donald,” an issue of the Donald Duck comic book series, which featured Donald and his nephews Huey, Dewey, and Louie. The story begins with the boys cleaning out the garage at Donald’s behest, with the understanding that they could keep whatever he did not want. Predictably, he wanted all the things and was only willing to part with one stub of a pencil that’s “not worth a thing.” Less than thrilled, the boys keep it to trade for something else. They run into Piggy, who offers them a ball of string. Figuring it is not worse, they trade. As luck would have it, they run into a kid whose kite flying is limited by his length of string. Eager to get it really soaring, he trades them his knife for their string. One of the nephews feels a pang of guilt, but in short order, the other two chime in, “Don’t let it bother you” because “he’s happy!”

Eventually, they trade up to a pearl and decide to cash in. There happens to be a man in the jewelry store who was about to sail to India to obtain a pearl much like what they have in their hands. They exchange it for the steamboat ticket, which Donald promptly steals from them. Donald boards, the nephews stow away, and they arrive in India, only for Donald to run afoul of the local magistrate to the point of being fed to the royal tigers. While wracking their brains to find ways to save him, his nephews run over their list of assets: “We don’t know a soul we could ask for help … and we haven’t a cent for bribing the guards … we just can’t do something that is impossible.” But lo and behold, what do they spy next but an old stub of a pencil! To which the nephews declare, “We’re rich!” They then commence trading goods until they have acquired a creative solution to free their uncle from his predicament.

The story presents a cornucopia of economics lessons: subjective value, mutual gains from trade, and entrepreneurship. What better display of subjectivity than to have your life saved by the application of market exchange to a good that you considered worthless? Mutual gains are clear by the voluntary nature and perceived benefit of each party to the trade. (Most poignant is the Kirznerian alertness to the pencil and its use in trade.)

A Land without Greed

“Tralla La” is the tale of an exasperated Uncle Scrooge. Tired of being hounded for his wealth and time by charities, businessmen, and tax collectors, he finally snaps, telling Donald, “I want to go someplace where there is no money and wealth means nothing!” From his physician, he hears of the land of Tralla La, a land without gold, jewels, or money, deep in the Himalayas. Scrooge, Donald, and nephews set forth, and as they fly overhead, they see a land of abundance. The leader explains, “We Tralla Lallians have never known greed! Friendship is the thing we value most!”

All is serene until a farmer discovers a bottle cap that Scrooge had carelessly tossed out of the plane window. The honest peasant attempts to return it to Scrooge, who declines it, considering it worthless. Subjective value makes its appearance here, when the farmer and his fellow villagers invest this item with great desirability, leading to a bidding war that goes from 10 sheep to 20 and finally to a year’s yield of rice. When it is discovered that Scrooge has a case of bottles, all with caps, the Tralla Lallians attempt to purchase it, to no avail. Finally, the mob declares him a “meanie” and wants his taxes raised. The only solution to this problem is to call in an air strike — not of bombs, but bottle caps.

Even a humble bottle cap can spark desire because of its scarcity. Its price will be high if it is the only one around and perceived to have value. The results of “Helicopter Ben’s” strategy are on display here as well. Though the Federal Reserve may believe that it can make people wealthier by increasing the money supply, Uncle Scrooge knows that increasing the number of bottle caps will diminish their worth.

From Riches to Rags to Riches

Finally, and probably the most famous Uncle Scrooge story in economics circles, we have “A Financial Fable.” Beginning as a bucolic idyll, the story opens with  the entire Duck clan working the fields and tending the livestock. The nephews sing the praises of hard work while Donald complains, wanting money for nothing.

Scrooge investigates his new bank, a corn crib, hiding his money in plain sight. This may not have been his brightest idea: a cyclone whips through and takes all of his money, scattering it over the countryside. The nephews are distraught, but Scrooge simply replies, “If I stay here and tend to my beans and pumpkins, I’ll get it all back.”

Donald and the rest of the country quit their jobs and set off to “see the world.” Meanwhile, Scrooge and the boys continue to labor on their farm. With no one else working and nothing being produced, Donald and the rest of the world come straggling back. Scrooge is happy to feed them — at new market prices. Eggs are a million dollars apiece, cabbage is two million, and ham is a bargain at a cool trillion. With each purchase, the money from Scrooge’s corn crib trickles back and he becomes, yet again, the richest duck in the world.

With another “helicopter” scenario, we see the inflationary effects of a massive injection of money. We also get a glimpse into many aspects of wealth — how it is created, how it is maintained, and what happens when we redistribute in ways that are not related to market performance. Barks knew he was creating a morality tale of capitalism, admitting, “I’m sure the lesson I preached in this story of easy riches will get me in a cell in a Siberian gulag someday.”

Economic Tales

Economics is all around us — even in our comic books.

Now cable channel Disney XD has announced plans to relaunch Duck Tales in 2017. As long as the show sticks to the characters and stories inspired by the great Carl Barks, it will offer us plenty to enjoy — and economics lessons that are sure to fit the bill.

Robert Anthony Peters

Robert Anthony Peters is an actor, director, producer, and member of the FEE alumni advisory board.

Could Hillary Really “Restore” the Middle Class? by Donald J. Boudreaux

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Eduardo Porter opens his column today by asking “Could President Hillary Clinton restore the American middle class?” (“Sizing Up Hillary Clinton’s Plans to Help the Middle Class”).

Mr. Porter illegitimately presents as an established fact a proposition that is anything but. It’s true that between 1967 and 2009 the percent of American families with annual incomes between $25,000 and $75,000 (in 2009 dollars) fell from 62 to 39 – a fact that, standing alone, might be interpreted as evidence that the middle class is disappearing.

Yet this fact does not stand alone, for it’s also true that the percent of families with annual incomes lower than $25,000 also fell (from 22 to 18) while the percent of families with annual incomes of $75,000 and higher rose significantly – from 16 to 43.*

So given these Census Bureau data – which are strong evidence that America’s middle class, if disappearing, is doing so by moving into the upper classes – to ask if President Hillary Clinton could restore the American middle class is to ask if she will make the bulk of today’s prosperous families poorer rather than richer.

This post first appeared at CafeHayek.

Donald Boudreaux

Donald Boudreaux is a professor of economics at George Mason University, a former FEE president, and the author of Hypocrites and Half-Wits.

Should We Fear the Era of Driverless Cars or Embrace the Coming Age of Autopilot? by Will Tippens

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Driving kills more than 30,000 Americans every year. Wrecks cause billions of dollars in damages. The average commuter spends nearly 40 hours a year stuck in traffic and almost five years just driving in general.

But there is light at the end of the traffic-jammed tunnel: the driverless car. Thanks to millions of dollars in driverless technology investment by tech giants like Google and Tesla, the era of road rage, drunk driving, and wasted hours behind the wheel could be left in a cloud of dust within the next two decades.

Despite the immense potential of self-driving vehicles, commentators are already dourly warning that such automation will produce undesirable effects. As political blogger Scott Santens warns,

Driverless vehicles are coming, and they are coming fast…. As close as 2025 — that is in a mere 10 years — our advancing state of technology will begin disrupting our economy in ways we can’t even yet imagine. Human labor is increasingly unnecessary and even economically unviable compared to machine labor.

The problem, Santens says, is that there are “over 10 million American workers and their families whose incomes depend entirely or at least partially on the incomes of truck drivers.” These professional drivers will face unemployment within the next two decades due to self-driving vehicles.

Does this argument sound familiar?

These same objections have sprung up at every major stage of technological innovation since the Industrial Revolution, from the textile-working Luddites destroying looming machines in the 1810s to taxi drivers in 2015 smashing Uber cars.

Many assume that any initial job loss accompanying new technology harms the economy and further impoverishes the most vulnerable, whether fast food workers or truck drivers. It’s true that losing a job can be an individual hardship, but are these same pundits ready to denounce the creation of the light bulb as an economic scourge because it put the candle makers out of business?

Just as blacksmithing dwindled with the decline of the horse-drawn buggy, economic demand for certain jobs waxes and wanes. Jobs arise and continue to exist for the sole reason of satisfying consumer demands, and the consumer’s demands are continuously evolving. Once gas heating devices became available, most people decided that indoor fires were dirtier, costlier, and less effective at heating and cooking, so they switched. While the change temporarily disadvantaged those in the chimney-sweeping business, the added value of the gas stove vastly improved the quality of life for everyone, chimney sweeps included.

There were no auto mechanics before the automobile and no web designers before the Internet. It is impossible to predict all the new employment opportunities a technology will create beforehand. Countless jobs exist today that were unthinkable in 1995 — and 20 years from now, people will be employed in ways we cannot yet begin to imagine, with the driverless car as a key catalyst.

The historical perspective doesn’t assuage the naysayers. If some jobs can go extinct, couldn’t all jobs go extinct?

Yes, every job we now know could someday disappear — but so what? Specific jobs may come and go, but that doesn’t mean we will ever see a day when labor is no longer demanded.

Economist David Ricardo demonstrated in 1817 that each person has a comparative advantage due to different opportunity costs. Each person is useful, and no matter how unskilled he or she may be, there will always be something that each person has a special advantage in producing. When this diversity of ability and interest is coupled with the infinite creativity of freely acting individuals, new opportunities will always arise, no matter how far technology advances.

Neither jobs nor labor are ends in themselves — they are mere means to the goal of wealth production. This does not mean that every person is concerned only with getting rich, but as Henry Hazlitt wrote in Economics in One Lesson, real wealth consists in what is produced and consumed: the food we eat, the clothes we wear, the houses we live in. It is railways and roads and motor cars; ships and planes and factories; schools and churches and theaters; pianos, paintings and hooks.

In other words, wealth is the ability to fulfill subjective human desires, whether that means having fresh fruit at your local grocery or being able to easily get from point A to point B. Labor is simply a means to these ends. Technology, in turn, allows labor to become far more efficient, resulting in more wealth diffused throughout society.

Everyone knows that using a bulldozer to dig a ditch in an hour is preferable to having a whole team of workers spend all day digging it by hand. The “surplus” workers are now available to do something else in which they can produce more highly valued goods and services.  Over time, in an increasingly specialized economy, productivity rises and individuals are able to better serve one another through mutually beneficial exchanges in the market. This ongoing process of capital accumulation is the key to all meaningful prosperity and the reason all of humanity has seen an unprecedented rise in wealth, living standards, leisure, and health in the past two centuries.

Technology is always uncertain going forward. Aldous Huxley warned in 1927 that jukeboxes would put live artists out of business. Time magazine predicted the computer would wreak economic chaos in the 1960s.

Today, on the cusp of one of the biggest innovations since the Internet, there is, predictably, similar opposition. But those who wring their hands at the prospect of the driverless car fail to see that its greatest potential lies not in reducing pollution and road deaths, nor in lowering fuel costs and insurance rates, but rather in its ability to liberate billions of hours of human potential that truckers, taxi drivers, and commuters now devote to focusing on the road.

No one can know exactly what the future will look like, but we know where we have been, and we know the principles of human flourishing that have guided us here.

If society is a car, trade is the engine — and technology is the gas. It drives itself. Enjoy the ride.

Will Tippens

Will Tippens is a recent law school graduate living in Memphis.

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