The government never grows tired of making people’s lives harder than they otherwise need to be, and if the every day struggles of paying the bills and putting food on the table weren’t hard enough, the government, through the wisdom of our enlightened bureaucrats decides that life must be harder on all of us. You would think people would get tired of this, eventually. You would think that workers would eventually rise up in revolution against these malicious attacks, but they cheer it on.
What is this latest assault on workers that I speak of? I’m speaking of course with regards to the government’s recent crackdown on companies hiring illegal immigrants. According to the Wall Street Journal (9/13/13) under the heading, “New Hunt for Illegal Workers”:
“The U.S. government has launched a fresh crackdown on employers suspected of hiring illegal immigrants by notifying about 1,000 business across the country in recent weeks they must submit documents for audits. The so-called “silent raids” are the largest since July 2009, according to immigration attorneys, and weren’t publically disclosed by Immigration and Customs Enforcement, the agency that conducts such inspections.”
In other words, the government is going to force no less than 1,000 different businesses across the country, businesses that are working peaceably and are producing goods/services of value, to go through the pain (and expense) of preparing special documents for audits, in order to target a given group of workers who are doing absolutely nothing wrong.
Those who are more emotional are quick to scream in response, “THEY’RE ILLEGAL!!”, illegal by what standard? “They didn’t go through the immigration process!!” Good for them. The immigration process is, in fact, nothing more than useless paperwork. It proves nothing, it contributes to nothing. It is nothing more than an added cost that the public must pay for, and the cost comes in more than just the cost of paying bureaucrats to process all the paperwork. As Ludwig von Mises keenly pointed out, “There cannot be the slightest doubt that migration barriers diminish the productivity of human labor.”
The reason this is so is obvious; migration barriers hamper the division of labor by diminishing the capacity for labor to go from one area to another.
Thanks to our campaign of Nationalism, so-called “illegal” immigrants are denounced as lazy asshats with a bloated sense of self-entitlement, who pollute our communities with drugs, and rob/kill the otherwise natural citizens. This characterization of undocumented workers is entirely unjustified, and has no factual basis for it in the least, but that won’t stop the die-hard Nationalists from believing in it. Many people denounce this as racist, but this isn’t racist in the least; denouncing all Mexicans as the above would be racist, but you can plainly see that isn’t what’s happening here.
To make matters worse, the die-hard Nationalists consistently try to use economics to justify this nonsense. They try to saw for instance that “illegal” immigrants are taking our jobs. A quick glance at the immigration and job situation thoroughly discredits this idea.
They try to say that “illegal” immigrants are expensive to the tax payer because the tax payer has to bear the costs of healthcare, education, and other benefits that I… just don’t feel like listing. This statement on its own is fair enough, but in reality they are no more expensive that the other people being covered. If the government wasn’t offering these free services in the first place, would the undocumented still be expensive to the tax payer? Of course not, because then the individual would then be paying for his own healthcare, education, etc.. If anything, the undocumented are really doing you a favor; they are highlighting the absurdity of offering these free programs in the first place.
They try to say that “illegals” are bringing in diseases that we had previously wiped out or just weren’t here to begin with. They say that this is so because “illegal” immigrants don’t go through the health screening that “legal” immigrants go through. To thoroughly discredit this idea, you need only ask yourself, “How do you collect evidence for this claim when “illegals” rarely go to hospitals and are rarely caught by the government?” For more information on this, click here to be taken to a page hopelessly destroying the Nationalist (or Nativist if you prefer) myths on immigration.
I just can’t help but wonder when the people at large are going to get sick and tired of the constant lying, the slandering, the pandering to emotions, etc., etc.. For what immigration is supposed to look like, I refer you to some of the finer work that Milton Friedman has done.
I am afraid that I must warn you from the outset that this post is going to be both very involved, and very lengthy. Consider yourselves warned.
Milton Friedman has done some very good work, to be sure, but unfortunately, Milton Friedman and what is today called “Monetarism” has many short comings. Before I start, however, it is important that you watch this entire video before reading on, as nearly all of my critiques of Friedman will be drawn from this video. The video is part of a television series that Milton Friedman did in order to combat the rising tide of Socialism, called “Free to Choose”. The program would feature a short film by Milton Friedman, then he and several other intellectuals would discuss the film in a round-table format in the Harper Library at the University of Chicago. Here is the video itself.
If you couldn’t tell from the video, Milton Friedman is talking about inflation and the disastrous consequences it has. This film however is a mixed bag. At the start of the film, Milton Friedman is in a ghost town, talking about the gold rush in the Old West. And it is here where we encounter our first big mistake that Friedman makes.
Quote at 2:40) “But a few struck it rich. For them, gold was real wealth, but was it for the world as a whole? They couldn’t eat the gold, they couldn’t wear the gold, they couldn’t live in houses made of gold.”
I don’t think that it’s necessary to point out the fact that people wear gold all the time, but Milton Friedman’s distain for commodity-based moneys is readily apparent. He (rightly) points out that as more gold came into circulation, overall prices in terms of gold went up, and then he goes on to say this.
Quote at 3:00) “At tremendous cost, at sacrifice of lives, people dug gold out of the bowels of the earth. What happened to that gold? Eventually, at long last it was transported to distant places only to be buried again under the ground. This time in the vaults of banks throughout the world.”
Milton Friedman doesn’t explicitly say it, but it is apparent from the emotional emphasis that he puts on the cost of mining that gold that he considers this entire process to be one big waste. He goes on to cite another example of a commodity money; tobacco. He talks for a moment about the history of tobacco’s use as money in the United States (very interesting stuff, and I say that with no sarcasm), but then he proceeds to make the same case that he makes with gold.
Quote from 4:35) “Now you know how money is; there is a tendency for it to grow, for more and more of it to be produced and that’s what happened with this tobacco. As more tobacco was produced, there was more money, and as always when there’s more money, prices went up. Inflation. Indeed at the very end of the process, prices were forty times as high in terms of tobacco as they had been at the beginning of the process.”
In this one quote, we have Milton Friedman’s implicit case against private money; people will rush to produce money in order to enrich themselves, and in the process, so much money will be created that it will cause a massive inflation. Milton Friedman, right from the start, paints private commodity-based money as inherently inflationary, but of course, this logic can be turned on him.
In 1895, it was possible to buy a five pound bag of flour for twelve cents. In the year 2011, you would’ve paid roughly $2.75 for that same bag of flour. That is roughly twenty-three times the price of what you would’ve paid in 1895. In 1890, you could get a ten pound bag of potatoes for sixteen cents. In 2011, you would’ve paid roughly $7.35 for that same ten pound bag of potatoes. That is nearly forty-six times the price typically paid in 1890. In 1905, you could get a round steak (one pound) for fourteen cents. In 2011, you would’ve paid roughly $4.69 for the same steak. That is nearly thirty-six times the price of 1905. Therefore, it is an empirical fact that a non-commodity money like fiat money that is controlled by a central authority of bankers and bureaucrats is inherently inflationary.
Now, Milton Friedman, right about here, starts to actually make some good points. He points out that government bureaucrats can’t stop the bad effects of inflation from taking place.
Quote from 4:57) “And as always when inflation occurs, people complain, and as always a legislator tried to do something, and as always to very little avail. They prohibited certain classes of people from growing tobacco, they tried to reduce the total amount of tobacco grown, they required people to destroy part of their tobacco, but it did no good. Finally, many people took it into their own hands and they went around destroying other people’s tobacco fields. That was too much, and they passed a law making it a capital offense, punishable by death, to destroy other people’s tobacco. Gresham’s Law, one of the oldest laws in economics, was well illustrated. That law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay of course tried to pay it in the worst quality of tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money.”
Milton Friedman makes a very important point about the devastating effects that inflation has on the psyche of society in general. As he points out, when inflation occurs, people complain about the increases in the cost of living, and where there are rising complaints about the increase in the cost of living, there is always a legislator trying to write a new law into existence that will somehow solve the problem, but it never does. Wage and price controls only make the effects of inflation even worse, as Friedman goes on to point out in the film.
But, Milton Friedman’s illustration of Gresham’s Law is rather puzzling. It is true that Gresham’s Law has come to simply be understood as, “Bad money drives out good money”, but this is a simplification that doesn’t accurately describe Gresham’s Law. A much better illustration of Gresham’s Law runs as follows:
Suppose you have country in which gold and silver are the legal tender. The government decides to decree one day that any debt equal to 20 ounces of Silver can be paid with 1 ounce of Gold. The problem however is that the actual market rate of exchange between Gold and Silver is 15 ounces of Silver = 1 ounce. of Gold. In response, the debtor will buy an ounce of Gold for 15 ounces of Silver and use the Gold to pay off his debt quoted in Silver. As a result, over time the Gold will disappear and the Silver will stay in circulation.
To really sum this up, it is impossible for two different moneys to circulate together if their conversion ratio is fixed by the state. But, is that what happened with tobacco? Not from what we can derive from Friedman’s account of it. According to Milton Friedman’s account;
Quote from 3:47) “That beleaguered minority of the population that still smokes may recognize this stuff as the raw material from which their cigarettes are made, but in the early days of the Colonies, long before the United States was established, this was money. It was a common money of Virginia, Maryland, and the Carolinas. It was used for all sorts of things; the legislator voted that it could be used legally to pay taxes, it was used to buy food, clothing, and housing. Indeed one of the most interesting sights was to see the husky young fellas at that time lug a hundred pounds of it, down to the docks to pay the cost of the passage of the beauteous young ladies who would come over from England to be their brides.”
Simply voting to make a given commodity legal tender doesn’t set off Gresham’s Law. Now it would make sense if the government had set a fixed exchange ratio between Tobacco and some other commodity, like Tea for instance. If the government had set a ratio such as 24 lbs. Tobacco = 12 lbs. Tea, then we could’ve seen Gresham’s Law. Milton Friedman’s account however states that those with Tobacco would pay their debts with the poorest quality of Tobacco that they had, and that they would save their good Tobacco to buy hard moneys from overseas. According to this account of Gresham’s Law, however, any society that has had a commodity money, be it Gold, Silver, Salt, or Tobacco, would live in a practically never-ending state of Gresham’s Law.
Since the quality of the final product is not uniform among the various producers, for example the coins created by two different Gold-Smiths will not be identical in quality, this, according to Milton Friedman, will cause Gresham’s Law since the lower quality coins would be circulated while the higher quality coins would be exchanged abroad.
What has happened here is fairly simple; Milton Friedman completely misinterpreted a given phenomena as an example of something that it wasn’t. While it true that people would want to pay their various debts in the cheapest quality of Tobacco possible, this doesn’t explain why it is that people would save their good Tobacco to sell overseas. The answer is simple; high quality Tobacco was in much higher demand abroad than at home. Because of the high demand for Tobacco abroad, it was much more profitable to exchange the good Tobacco abroad than it was to exchange it domestically. A person with one hundred bushels of high quality Tobacco can get more for it abroad than he can in an area where Tobacco is plentiful. In other words, market forces made it so it is worth it to him to pay his debts in the poor quality Tobacco while saving his high quality Tobacco to exchange abroad.
Now in all of this, let me say that if indeed there was a fixed exchange ratio regarding Tobacco put in place by the government that wasn’t mentioned here (highly possible), then I admit to being wrong, but if there wasn’t, and I suspect that there wasn’t because of the way that Milton Friedman worded his account of Tobacco, then there is no way around it; Milton Friedman was wrong. This is not an illustration of Gresham’s Law.
Later in the film, Milton Friedman makes a very good point.
Quote from 8:18) “Before every election, our representatives would like to make us think that we’re getting a tax break, and they’re able to do it while at the same time actually raising our taxes, because of a bit of magic they have in their kit-bag. That magic is inflation; they reduce the tax-rates, but the taxes we have to pay go up because we are automatically shoved into higher brackets by the effect of inflation. A neat trick; taxation without representation.”
Milton Friedman is describing a phenomenon called “Bracket Creep”, and it goes like this. Suppose you have a worker making $30,000 per year gross salary, and pays an income tax of 15%. A little bit of arithmetic shows us that this person, assuming no deductions of any sort, makes a net salary of $25,500 per year. The government then slashes the tax rate to 10%, and they start printing money. The problem is that while they lowered the tax rate, inflation shoves you into a higher tax bracket. Returning to our worker about 6 years later, we see that he now makes $45,000 per year gross salary, but since he’s in a higher tax bracket, he now has to pay a higher tax rate (we’ll say 20% for the sake of the example). Arithmetic shows us that he now makes a net salary of $36,000, but because of inflation, the cost of living has gone up as well so that now he in effect has even less money than he had at the start.
This is called “Bracket Creep”, and it is an incredibly insidious tool by which the government cons us out of our money.
Milton Friedman does us yet another good service, as he then goes on to prove that Unions aren’t creating inflation as higher wages are mostly a result of inflation and not the cause. He also destroys the myth that inflation is imported; that higher world prices drives up domestic prices. And he does us possibly the greatest service that he, given all of his faculties, could do us. He pointed out that inflation is created in one place and one place only; the Federal Reserve Bank of America (or the Fed as it is sometimes called today).
After a history lesson, as well as some examples of what societies with high inflation look like, he then describes to us the reason we have inflation in the United States (or anywhere else for that matter).
Quote from 22:55) “The reason we have inflation in the United States, or for that matter anywhere in the world, is because these pieces of paper and the accompanying book entrees, or their counterparts in other nations, are growing more rapidly than the quantity of goods and services produced.“
Milton Friedman has made this mistake repeatedly, and this is by no means unique to him, but he is using the term inflation to mean an overall increase in prices, when in fact it means an increase in the supply of money. To say that an increase in the supply of money causes inflation is to confuse cause for effect; are you running a fever because you’re sick, or are you sick because you’re running a fever?
Today however, many economist (quite wrongly) use two different terms to describe inflation; monetary inflation means an increase in the supply of money, while price inflation means an overall increase in prices. Make no mistake about it, this change in language is far more dangerous than it appears; if you define inflation as an overall increase in prices, then it is easy to get away with increasing the supply of money because the government can hide the price increases in their official measurements (things such as CPI, etc.).
Even if you don’t initially plan on circulating the new currency, even if you stash all of the new money in reserves as a means to boost confidence, that doesn’t mean that there is no inflation, it simply means that you won’t feel the effects of inflation for the time being. When (not if, but when) those reserves begin to circulate, overall prices will go up.
With all of that laid out, Milton Friedman then sets out to explain the “cure” for inflation, and it is here that all of his past theoretical mistakes come back to bite him.
Quote from 25:06) “In 1973, Japanese housewives going to market were faced with an unpleasant fact; the cash in their purse seemed to be losing its value. Prices were starting to soar as the awful story of inflation began to unfold once again. The Japanese government knew what to do; once more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971, the quantity of money started to grow more rapidly. As always happens, inflation wasn’t effected for a time, but in late 1972 it started to respond. In early 73, the government reacted; it started to cut monetary growth, but inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated determination to keep monetary growth in check. It took five years to squeeze inflation out of the system.”
Milton Friedman is correct when he says that the way to stop inflation is to stop monetary growth (albeit for the wrong reasons), but his own plan of slow monetary growth has its own set of problems. In the first place, how much would be the optimum amount to increase the supply of money by? And by asking this question, we’ve found the answer to our problem; there is no way to know the optimum amount to increase the supply of money by. The formulae and equations that are used assume away the very answer that you’re trying to find, and what’s worse, the complex equations and formulae gives the intellectuals the appearance of a mathematical precision that they just don’t have. To make matters even worse, to say that we need to control the production of money (slow growth or otherwise) is to effectively say that we need to control the demand for money, which is undeniably impossible.
The monetary economists who are saying that we need to increase/decrease the supply of money by X amount are, in reality, planning in the dark, and while it is true that it is possible to have high inflation with a commodity-based money, it is far easier to have high inflation with a money that can be created at will.
Milton Friedman’s distain for tangible, commodity-based money is easily seen throughout the film. He doesn’t say it explicitly, but he paints private commodity-based money as inherently inflationary, and this same distain causes him to make very reckless mistakes, such as saying that people can’t wear gold or misdiagnosing a case of Gresham’s Law.
While there is a lot of good in the above film, I’m afraid there is just as much bad in it as well. The film is, as I said earlier, a mixed-bag.