Federal Reserve

Donald Trump, Bernie Sanders, many political actors, too many intellectuals, and much of the general public share a false and destructive belief about the nature of exchange: that economic activity is something akin to a battle or a full-fledged war in which the goal is for one group to “defeat” another. We see this mentality across the political spectrum.

Zero-Sum Losers

Think of the ways Trump and others on the political right talk about international trade. The basic framework is to see other countries as enemies in competition with us. The goal of trade policy is somehow to “beat” them, because if they are “winning” by selling us a lot of stuff, we must be losing. The result is mistaken policies such as Trump’s proposed 45 percent tariff on Chinese imports.

Market economies are not zero-sum games.

We see the same us-and-them thinking on the left, where progressives perceive a persistent battle between capital and labor, each trying to defeat the other. For leftists, capital is always the winner and labor is always the loser — unless the government intervenes. The appropriate policy response, from this perspective, is either to limit capital’s gains or, if you’re a bit more radical, to help labor vanquish capital once and for all. One of the related beliefs on the left is that the wealth of capital comes at the expense of labor. That is, capital’s gains come from labor’s losses.

Both arguments share the underlying belief that the winners’ gains must come at the losers’ expense. Economic activity, and specifically wealth creation, is at best seen as what economists would call a “zero-sum game.”

In zero-sum games, the winners’ gains do, in fact, come at the losers’ expense. Think of a poker game where each person buys $100 worth of chips. If there are five players, there is $500 to be apportioned out. If the game ends with me having $250, then the remaining $250 will be sp…

In a December 15 tweet, Senator Bernie Sanders intimated that graduating from college decreases the likelihood that you will go to jail:

Sanders has long supported dubious measures for making college more affordable and hence accessible to all, and this may be why: he believes that “no college” is a path to jail.

Mike Rowe, the former TV host of the Discovery Channel series Dirty Jobs and a longtime opponent of the “college for all” message, responded to Sanders with outrage. Rowe challenged Sanders’s idea that the most viable option without a college degree is jail. He also brought home a favorite point of his, to throw into question whether a cost-benefit analysis of college really shows that college is the best path to a successful career.

I’ve written before against the “academic training for all” mentality that Sanders and so many others seems set in, but Rowe, unfortunately, also gets a few things wrong.

Upcredentialing and Downvaluing

While Sanders is right that college degrees significantly increase one’s job prospects, he’s wrong to think that “college for all” will increase job prospects for everyone. Rowe is right to note that there are viable career options that don’t require college degrees, but he overlooks that they are vanishing by the year.

We all strive to “outcredential” each other, and in short order, the college degree is the new high school diploma. 

As a rece…

The Big Short has captured rave reviews, not just from conventional critics but also from the likes of Paul Krugman. By featuring Hollywood heavyweights Ryan Gosling, Brad Pitt, Christian Bale, and Steve Carell, this exposé of the housing bubble and ensuing financial crisis was sure to gain attention. For his part, director Adam McKay does a great job keeping the plot moving forward while accurately conveying the essentials of the Wall Street and commercial lender shenanigans.

The Big Short leads viewers to believe that shortsighted greed is the ultimate explanation for why the ratings agencies gave their blessing to dangerous products.

The movie was surprisingly entertaining, given the dry subject matter, and I was impressed at the level of detail. Furthermore, fans of free-market economics should cheer any movie that can make short-selling speculators, of all people, look cool.

But the movie blames market forces without looking to the role government intervention played. FEE.org’s Jeffrey Tucker points out, for example, that The Big Short fails to mention the role of the Federal Reserve and the various federal government policies that promoted unsound mortgage practices. I’d like to focus specifically on the role that the ratings agencies played.

Derivatives and the Ratings Agencies

The Big Three credit ratings agencies are Moody’s, Fitch, and Standard & Poor’s, which together account for some 95 percent of the market. They were an essential part of the housing boom and bust. To understand their contribution, we need briefly to review the historical context.

From 2002 th…

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.

Murray Rothbard, the Austrian school economist and student of Ludwig von Mises, regarded Edmund Burke in his youthful days as a libertarian and even a philosophical anarchist. Russell Kirk, the renowned man of letters and author of The Conservative Mind, viewed Burke as the progenitor of the modern conservative movement.

Rothbard and Kirk differed on many things, but on this they agreed: Edmund Burke was one of the greatest political thinkers of the last 300 years, a man to whom lovers of liberty owe a considerable intellectual debt.

“The true danger is when liberty is nibbled away, for expedients, and by parts.” — Edmund Burke

Born in 1729 in Dublin, Ireland, Burke gained a reputation as a promising writer and political commentator by his early 30s. After he moved to England in 1750 to study law, he considered himself at least as much English as he was Irish. He began a long career as a Whig member of the House of Commons in 1766 and the first major issue he addressed was the approaching crisis with the American colonies. Historian Jim Powell writes,

Burke wasn’t a great orator — indeed, his speeches, which were sometimes three hours long, emptied the seats in Parliament. But Burke had acquired deep knowledge of history which gave him valuable perspective, and he developed a passionate pen. He urged religious toleration for Irish Catholics. He su…

A gallon of milk: $7.59.

Outrageous! That was twice what I spent in town the day before. One lousy gallon of milk, and I would have to file for bankruptcy. Whoever was responsible was a rotten price gouger. But I didn’t have a choice; the potatoes were already boiling. I grabbed the milk, sulked up to the counter, and coughed up the money.

You see, my brother was cooking a meal for the family: ham, vegetables, and mashed potatoes. He’d already started. The potatoes were peeled, cut, and boiling on the stove. My job was to get the milk — you can’t properly mash potatoes without milk.

We were in the middle of rural Virginia, where the closest grocery store was a half hour away. I’d secured the milk the day prior, but I accidentally left both gallons in the car, sitting in the sun. Luckily, there was one gas station that stocked necessities, a few miles down the road.

When I arrived, I walked to the back of the store and saw the last gallon of milk remaining. It had a bright orange sticker slapped on it, notifying customers of its new, astronomical price. After purchasing it, I hadn’t even reached my car before the economic lesson dawned on me: I was extremely fortunate the milk was so expensive.

In hindsight, it’s obvious. Why wasn’t the store completely out of milk? Because all the customers before me didn’t purchase that last gallon. They were more revolted by the price than I was. And thank goodness, because otherwise I would have failed my mission. I didn’t have time to travel a half-hour to and from town. Dinner would have already ended, mashed potato-less. Instead, thanks to the price markup from the store manager, I returned home triumphant, with plenty of time to enjoy dinner. The final product was creamy and delicious.

The Bigger Picture

We live in a world of scarce resources. There just isn’t enough milk available to satisfy every human demand. In a perfect world, perhaps…

Standing in a luxury hotel, cultural historian Luc Sante daydreams about the good old days of homeless alcoholics lighting trash fires in the streets of Manhattan’s Skid Row.

“Over there, next to the flophouse hotel,” Sante reminisced to the Guardian, “is where Nan Goldin lived and worked. Forty years ago there were still lots of vacant lofts here that had been burlesque and vaudeville theatres during the era when storefronts were saloons. There were bars solely inhabited by bums, their heads down on the counter. At night they’d be lined up outside the missions and Salvation Army hostels — veterans from World War Two, from the Korean War, from the Vietnam War. At night, trash fires would be lit in oil drums.”

The French have an elegant phrase for what Sante is doing. They call it nostalgie de la boue, “longing for the mud,” which means a romantic yearning for a primitive or degraded behavior or condition.

The phrase, which was coined by a French dramatist in 1855, has been around for a while and usefully describes the very real way in which the wealthier and healthier inhabitants of modernity look back at the past through a misty, romantic haze.

Rather than ignoring the historical “mud,” nostalgie de la boue actively longs for that kind of unpleasantness.

While it annoys historians when we put a soft-focus filter on history, it doesn’t generally do a lot of damage. We don’t need every medieval romance novel to remind us that the heroine’s breath didn’t smell like cool mint Listerine. It’s probably for the best that the historical re-enactors at Colonial Williamsburg don’t actually use authentic colonial medical remedies for their health problems, and visiting tourists are certainly grateful for modern plumbing and street sanitation. Even the BBC’s determinedly authentic <a href="…