In-game theory, the concept of a focal point is a conceptual locus of convergence in the absence of pre-arranged communication. Generally, these mutually agreed-upon center points are culturally contingent. Although, there is one focal point that transcends culture and is arguably the ultimate point of unspoken convergence; that is truth. Some social commentators claim that truth is relative, quickly dispelling the argument that truth is a universal focal point. The facts are the facts. When something is axiomatically true, it is self-evident. To claim that truth is subjective is a puzzling assertion. We cannot simply deny the laws of mathematics, then suddenly, the rules governing the order of operations become invalid. The assumption of truth being subjective confuse methodology with results. Pluralism is valid so long as it reflects the truth. For example, there are multiple ways to solve an equation, but only one correct answer.
When people formulate rules, they must do so in a manner congruent with the immutable laws of the social and natural sciences. Otherwise, we will fall victim to the natural consequences of violating these eternal laws. Truth is such a magnetic focal point that it is inescapable. Sure, it is possible to contrive a convincing delusion, but while delusions may dissolve, the truth remains fixed. Regardless of whether we are truth-orientated immutable facts pull us in like the force of gravity bringing us back down to Earth. We can fight gravity; however, even when interpersonal communication is absent, any semi-rational person already knows that such resistance is inevitably futile.
The game-theoretical concept of a “Prisoner’s Dilemma” applies to situations where no overt defection has occurred. Many readers may be perplexed by this assertion since, by definition, Prisoner’s Dilemmas entail “players” selecting uncooperative strategies. However, there are scenarios where the selection of a specific approach could lead to non-optimal outcomes. But such a strategy would not be considered a direct form of defection. These strategies are analogous to a defecting because the participating economic agents are moving away from a given focal point; rather than converging upon it. Even though the participants are not directly undercutting each other but inadvertently select noncooperative strategies. One salient example of this is any situation in which both parties choose to lie to the other. Both agents believe it is in their self-interest to obscure the truth, but doing so will only engender more problems.
A novel application of this theory would be in job interviews. Why? The hiring manager and the applicant concurrently have incentives to distort the facts. The prospective employee stands to benefit from embellishing their credentials. Likewise, the hiring manager might think it is shrewd to exaggerate or overemphasize the company culture when it is difficult to find a qualified candidate. When used in unison, the consequences are disastrous. The new employee will not be unqualified for the position and will also have unrealistic expectations for the job role. Ultimately, creating more issues for the hiring manager and the jobseeker. Telling a lie may not be a direct form of uncooperative behavior, can often yield similar results.
The Bootlegger and Baptist (1983) theory of regulation present a practical explanation for why these such coalitions are effective vehicles for camouflaging rent-seeking behavior by a firm. Armed with the public appeal of the moral arguments posited by the Baptists, the Bootleggers can quietly lurk in the shadows, funding initiatives that will advance their self-interest. The ethical advocates create a smokescreen that provides cover for the business interests, superficially obscuring the stigma of corporate advocacy. Since few examples of political action invoke the ire of the average citizen than policy campaigns that line the pockets of big business.
The trend of “woke capitalism” is bringing the Bootleggers out of shadows and into plain sight. CEOs are now openly standing in unison with political activists speaking out against topics ranging from police brutality to environmental issues. The Bootleggers can work openly with the Baptists to promote a positive image while still silently providing monetary support in the background. The social justice messaging of “Woke Capitalism” extends beyond corporate activism and is observable in the product market and advertising. Some companies adopt marketing that emphasizes social consciousness to secure the business of Gen-Z. Typically, companies use this tactic to target younger consumers with higher preferences for ethical products and brand authenticity, requiring companies to go beyond philanthropy and mandating community services hours for their employees; their ethics almost be conveyed in their branding.
The most recent alliances forged between business interests and political activists take the form of four main taxonomical categories. Some of the various types of Bootlegger and Baptist coalitions feature collaboration between firms and activists. Other coalition types that form within the technocratic structure of the corporation; are between different departments within the organization. Woke coalitions have several notable classifications of “woke” corporate alliances. The main subcategories include proactive and reactive forms of rent-seeking.
The reactive models for “woke” coalitions include two subtypes of collective action organization, the interaction between external actors and collaboration between internal employees. The first variety of reactive coalitions are rent-seeking alliances formed to restore the company from a sullied reputation caused by criticism. The objective being to mitigate the loss of sales and social currency amid public controversy. Some firms directly attempt to distance themselves from the controversy through their activistic partnerships. The second type of reactive “woke” coalitions are the intracompany factions designed to divert attention from potentially costly internal controversies. In instances of hostile work environment ligation, the legal team, the human resources department, and executive management band together to avoid a publicity nightmare. Human Resources and legal work together to legally distance the company from a harassment incident. Legal working on navigating the statutory and tort concerns while HR works internally to establish an anti-harassment campaign intracompany. All the while shielding executive management from more scrutiny and accountability.
Finally, the last two variants of “woke” coalitions aligning business interests with moral advocates to facilitate proactive forms of rent-seeking. Similarly, the proactive coalitions can be delineated into examples of internal and external collaboration. Proactive partnerships form to capture potential gains and avert the costs of prospective controversies. The most salient example of such external cooperation would be firms standing behind a woke cause, anticipating that such an alliance will obscure the firm attempting to shape current regulation (regulatory capture). However, we cannot forget the proactive inter-department coalitions that are emerging within corporations. For example, several companies are hiring diversity and inclusion “coaches” as a peripheral subset of human resources. The human resources department defends the existence of these staff members by emphasizing the need to educate employees to avoid instances of harassment and discrimination. The diversity coaches preach the virtues of cultural sensitivity and other tenants of the “woke” philosophy.
Superficially these alliances between big business and “woke” activists seem relatively benign. However, there are profound consequences for the integrity of capitalism and the rule of law. This paper will demonstrate how the four types of woke B&B coalitions undermine capitalism and the rule of law. Woke capitalism has made it easier than ever for business interests to create the façade of morality but are unjustly bending the rules-of-the game in their favor. Wokeism provides the veil obscuring corporate America’s hand in the legislative till. In effect, generating more anti-competitive laws that undermine both the rule of law and free trade.
As another variant of anticompetitive market behavior, there are generally moral arguments for supporting the measure. This means that advocacy for maintaining this system is subject to Bootlegger and Baptist’s (1983) dynamics. Concurrently, while some argue that the MLS system from a consumer interest standpoint inevitably NAR realtors are the ones that benefit. Our Bootleggers realtors profit handsomely. Not only does this practice allow the buying brokers from having to negotiate fees, but American realtors are paid “… two to three times higher than in other developed nations..” (p.30). Effectively operating as a transfer of wealth from the consumer to the service provider (p.30). However, some realty companies such as Clever Real Estate assume as a Dual-Role Actor. Such a firm is a beneficiary of the current trade practices; they also argue that the MLS system is more convenient for sellers to expediently sell their homes
Everyone is familiar with the concept of soft power in office politics. An individual lacking any formal authority but has the ear of management. The author of this brief essay has found himself in this peculiar situation. While I may have a relatively meager position at our company, my manager still seriously regards my input. If I have a concern, he is quick to find a remedy. The evidence of my implicit influence became evident when my boss was looking to fill a supervisor spot for our team. After a candid off-hand conversation, I expressed my preferred co-worker for the position. Then was subsequently told, “I like your logic”. Fast forward two weeks later, my preferred candidate was announced to be the new supervisor.
It is possible I misconstrued the events that transpired in the supervisor selection process. My perception of having any influence over my manager’s decision could merely be a delusional illusion. Irrespective of my impact on this decision, this was a clear Bootlegger and Baptist (1983) dynamic. At this point, it should be evident who the Bootlegger and who the Baptist is. My manager possessing the moral advocacy for the favorable candidate for the supervisor makes the Baptist. He seeks to hire an individual with the best potential for success within the position, the most qualified person. I hate to admit it; I was more motivated by self-interest. I am the salient Bootlegger in this coalition. I based my advocacy on wanting a supervisor that would not micromanage me. I had little concern for the candidate’s qualifications.
Following Dr. Block’s supposition that a person can commodify themselves and effectively sell or alienate themselves (p.6), we must address the issue of capital destruction. The economic costs go beyond losses in productivity but also have more subtle ramifications throughout the economy. The act of suicide destroys a person’s body; however, the intangible assets lost are arguably the most detrimental. Most notably, in the form of squandered human capital and social capital. While these forms of social capital are refutably mere constructs, they still seem to possess a priceless qualitative value. In the absence of the knowledge, credentials, and necessary social networks financial success is not possible.
Commodifying these abstract concepts applies them to John Locke’s postulations regarding wasting resources (p.12). But if the value of commodities is subjective, we have to evaluate Locke’s assumptions regarding frivolous resource consumption. Furthermore, if we accept this notion of wasteful consumption, we must apply it to other areas of resource allocation. For example, investing too in production can be considered a wasteful form of resource allocation. Under Locke’s theory, if extrapolated, we should bar entrepreneurs from making overinvestments in their firms. Not only would such a law be unenforceable, but it also suffers from the Hayekian Pretense of Knowledge. Neither the businessman nor the lawmaker has access to perfect information. How would the lawmaker even know if a business owner engaged in malinvestment until the downstream effects have come to full fruition, paralleling the flaws of proactive legal sanctions? Entrepreneurial decision-making is enveloped in uncertainty. To quote the great Frank H.Knight:
It will appear that a measurable uncertainty, or “risk” proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We shall accordingly restrict the term “uncertainty” to cases of the non-quantitative type. It is this “true” uncertainty, and not risk, as has been argued, which forms the basis of a valid theory of profit and accounts for the divergence between actual and theoretical competition. (p.84)
To preemptively declare a form of capital use or manipulation as “…wasteful..” is fallacious. At best, we can attempt to use market signals as a guide for appropriately deploying capital. Whether an investment was prudent or foolish will only be known once the downstream consequences are evident. In this respect suicide is just a form of managing the “… social..” capital structure through the informal destruction (p.21) of such social assets. Allowing people to dispose of capital at their own free will allows for the unfettered restructuring  of productive activities utilizing human and social capital. Allowing the substitution or destruction of “..social..” inputs.
The southeastern region of the United States has a peculiar relationship with alcoholic beverages. Southern states such as Kentucky and Tennessee have a long history of whiskey production. The south is also the home of many conservative Baptists that view alcohol consumption as being immoral. The result of the ethical opposition has been the formation of dry counties and onerous laws governing alcohol production and sales. Presenting more opportunities for interest groups (Bootleggers) to find ways of strategically gaming the system from multiple points of the supply chain (p.386). Often the Bootleggers, operate as a source of backdoor funding for morally justifiable policy campaigns (Regulation Magazine, Vol 44, No.1, p.14-15). The geographic “chessboard” strategy of keeping dry counties adjacent to wet counties dry is far from the only approach deployed by various interest groups (p.397).
Another strategy used by business interests in the south’s beer industry is regulatory capture. A means of leveraging market power to mold regulations to the benefit of corporations; is a typical extension of soft-political power used by corporations throughout the United States. States such as Georgia have long prohibited direct-to-customer sales from breweries, historically referred to as tied-house (p.390). States that have permitted self-distribution by smaller brewers since 1978 have seen more growth in craft breweries (p.392). These restrictions date back to the legally sanctioned distribution arrangement of tiered distribution systems. In this system, beer is distributed to retail outlets via a licensed distributor. Favored by larger breweries such as Pabst and Miller since the market share they lost in the years before the Volstead Act from smaller breweries self-distributing their beer (p.390). The reason why bigger breweries still favor these archaic laws is that they would rather not have to compete with the dizzying array of microbreweries for shelf space (p.395).
However, has the moral argument of limiting direct sales reduced the instances of problematic drinking held up to scrutiny? That would be resounding no. Empirically, restricting direct alcohol sales has had little influence on overall alcohol consumption (p.399). It also should be noted that craft breweries have stronger connections to their communities. As stated by the executive director of the Georgia Craft Beer Guild:
“….I would like to think that craft breweries, because of the community connection, aren’t nearly the threat to intemperance that multi-nationals are, or Wal-Mart…”
The headlines in the news have been animated by the controversial Texas law, SB 8; colloquially known as the Heartbeat Bill. The legislation boasts several stringent limitations on abortions that operate analogously to a de facto ban. However, the most shocking aspect of the bill is that it allows private citizens to sue facilities that have performed abortions for $10,000 or more per procedure. This feature of the law indirectly deputizes the residents of Texas and has the potential to lead to some unforeseen consequences. At its core, the Heartbeat Bill is a legal manifestation of the partisan tug-of-war in the abortion debate. While Pro-Life advocates may believe they have won this round, little do they realize Texas now has a Prisoner’s Dilemma on its hands. The blowback from this contentious  the legislation will impose economic costs on the state of Texas.
It is worth noting that only a minuscule number of the citizenry in Texas has had an abortion. Per the Guttmacher Institute, in 2017, only 55,440 Texas residents had abortions performed. This figure is meager when compared to the total of all adult female Texans. Also, most voters are conservative. How could this move be detrimental to the entire state of Texas? The state only has a few liberal oases (West Texas & Austin); the overall impact of citizens moving to more progressive jurisdictions would only have a marginal effect on tax revenue. Perversely, this might have a disparate effect, leaving left-leaning municipalities such as Austin with a significant loss in local tax revenue.
Texas having lower taxes and an affordable cost of living has resulted in population growth in recent years. Population growth and economic growth are correlated. Most of the Texas transplants are not coming from conservative-leaning states, but liberal high tax states such as California and New York. Arizona is another state currently experiencing a large diaspora of Americans migrating from high-tax states. Epitomized in the slogan “.. Don’t California, My Arizona..”. What happens when the conservative values of a low tax state become too off-putting for prospective residents? Not only hampers the economy through decreased tax revenue, but it hampers economic development in other ways. Left-leaning Tech Companies may enjoy the corporate tax rate of Texas. What happens when companies start choosing to avoid setting up offices in Texas for ethical reasons? More companies may opt to establish a campus in Phoenix instead of Austin. Causing an unfortunate ripple effect through the entire state economy. The Pro-Life camp is not doing themselves any favors by not striking a political middle ground. Progressives are only shooting themselves in the foot by avoiding Texas because of the Heartbeat Bill.
1.) This brief essay is in no way a commentary on the morality of abortion. Any such normative arguments would only detract from a game-theoretical assessment of the situation described.
The process of implicit logrolling (p.101) is a form of indirect vote-trading that heavily relies on the bundling of wedge issues. By way of tying specific groupings of policies and candidates to attract target demographics of voters. Per Buchanan and Tullock (1962), such arrangements encompassing political platforms can be manipulated by “…political entrepreneurs…”. Simultaneously considering the zealous nature of many single-issue voters, it is easy to see why implicit logrolling is such an effective mechanism in shaping the American political landscape. If the American voters continue to support controversial political positions, implicit logrolling will be effective.
Most analysts ignore how voters reconcile selecting programs and political candidates that hold logically inconsistent views. For example, an individual that defends abortion rights on the grounds of a bodily integrity argument concurrently favoring vaccine mandates. Whatever happened to “my body, my choice”? Although, if this individual held both positions on the grounds of an externalities argument, perhaps there might not be any logical discrepancies. However, few voters delve that deep into the logic of their political philosophies. Here lies the Paradox of Implicit Logrolling; political platforms drive voters to support policies they would not otherwise choose. We have most saliently observed this phenomenon in the demographic shifts within the Republican Party. The GOP was once favoring free trade, now advocates for tariffs.
Here is a hypothetical situation that presents us with a challenging conundrum that would drive most legal scholars and moral philosophers mad. There is as a person in a vegetive state who is hooked up to a variety of life-sustaining medical equipment (feeding-tube, ventilator etc.). Let’s say that the individual is married, and their spouse has been their legal guardian since they have become clinically brain dead. Does the parents of the incapacitated person have a say over the end-of-life decision making for their child? Should this heavy burden be left to the spouse and rightful guardian? It should be noted that the moral analysis must be separated from the determination of legality. All because something is legal does not necessarily make it moral. For instance, abortion in the United States is sanctioned around quasi-arbitrary timeframes with little consideration for situational context or biological development of the fetus. The decree of legislative fiat does not automatically make a policy moral. There are many legal protections within American statutory law that prevent individuals from facing criminal penalty or ligation. If crimes against persons and property cannot be subjected to restorative justice then there is no point in calling a legal system just. In other words, we will be reviewing this situation from a philosophical standpoint, specifically from the perspective of individual property rights.
The above scenario is not quite so hypothetical but is a concise description of the Terri Schiavo case. However, one striking difference between the scenario presented above and the Schiavo case is that :
Terri Schiavo breathes on her own. She is not on a ventilator or respirator. Although she swallows, she is sustained through a gastric feeding tube. She is not in distress or imminent danger of death.(P.5).
Despite Schiavo’s lack of cognitive functionality for the most part she was able to “live” in the most basic sense of the term. It should also be note that prior to her cognitive impairment she made no will directing her “wishes” for medical treatment. Also including end-of-life decisions. Therefore, leaving the variable of individual consent obscured by Schiavo’s incapacitated state. There was a rift between Schiavo’s husband/ guardian wanted to remove her feeding tube while her parents staunchly disagreed with this decision. Ultimately, the courts sided with the husband and Terri ended up dying after having her feeding tube removed. This may have been the legally permitted course of events, but was it moral from the paradigm of individual property rights?
The economist and Libertarian Philosopher Walter Block provides a remedy to this quandary squarely from the standpoint of Lockean property rights. A grown adult who has lost their cognitive faculties is analogous to a child and exist in purgatorial grey area when it comes to the prospect of Lockean ownership (p.5).Block takes the Rothbardian approach to addressing a parents required commitment to child rearing, which in fact allows parents to relinquish this right (p. 6). Much like how Lockean homesteading does not preclude an economic agent from taking ownership of an abandoned patch of land, this analogy can be applied to raising children. If an adult within the community is willing to devout the resources to raising a child discarded in dumpster, this should count as a transfer of guardianship (p.7). Based upon the premise of Lockean homesteading the Supreme Court of Florida was morally wrong in assigning the right to end Terri Schiavo’s life to her husband. Through wanting to end her life with no prior record or request of her wanting such measures taken, he effectively relinquished his guardianship. Clearly he did not do so in the modern legal sense, but he did so within the context of Lockean property rights. If her parents were willing to assume guardianship of their daughter then the court’s decision is nothing more than perverse.
And if they are, then whoever is at first control of her must maintain her; if he refuses, her guardianship reverts to the second closest party, her parents. If they will not homestead her, then perhaps her siblings. If not them, then anyone who wishes to take up this burden. Based on the number of protests at the callous way she is being treated ( Block, 2011, p.7)
The COVID-19 Pandemic impacted almost every facet of daily life. The emergence of this unknown pathogen has generated an enormous amount of panic; acting as a pretext for laws and regulation. It is easy to see how the insights of political economist Robert Higgs have been validated by the number of laws and relief bills that have proliferated in the name of the pandemic. Government action hardly ever has a neutral effect on the incentive structures of constituents, business interests, bureaucrats, and politicians. There is always a beneficiary of any implemented policy that exists within every decision-making structure. Even in the context of an apolitical governing institution such as a Home-Owners Association
The most common form of COVID-related laws have been mask mandates, like another policy, there are disparate effects. Since benefits can be conferred through mask mandates they apply to Bootlegger and Baptist’s (1983) coalition building. In almost any scenario the scientists would be our proverbial “Baptists” due to their vocal concern for public safety. This statement does not validate whether masks are effective at curtailing the spread of COVID-19. It most likely connotes a sincere concern for public welfare making it a normative position, therefore a moral argument for mask mandates.
Once we start to address who benefits from mask mandates the conversation starts to get interesting. Similar to the COVID engendered microchip shortage the beneficiaries of mask requirements have changed over time. The most notable “Bootlegger” of the nascent period of the pandemic were Mask producers. Specifically, mask manufactures are based out of China. It would be a mistake to interpret this observation as a tacit critique of free trade, this fact is self-evident. The increase in mask sales does not require any further explanation beyond mask mandates and fear of the virus spreading. The question of why this was more fruitful for Chinese producers than other mask manufactures does need to be elucidated. That was largely a byproduct of the recommendations of the FDA. Per the Brown Political Review:
“…A lack of knowledge and trust in these companies has led hospitals to severely ration their workers’ N95s rather than purchase additional supplies. The private market is no better: Facebook, Amazon, and Google are largely blocking domestic N95 manufacturers from advertising and selling their products. At the same time, most consumers feel obliged to use less-protective cloth or surgical masks due to continuing CDC guidance to reserve N95s for hospitals that will not even accept them. The CDC defends this policy by pointing to the relative efficacy of cloth masks and citing “reasons supported by science, comfort, costs, and practicality,” though these reasons seem increasingly outdated. So, the pandemic continues, millions of Americans live in fear of getting sick, and all the while tens of millions of life-saving products are sitting unused in storage facilities. The N95 shortage is an illusion, and as the virus and its variants continue to spread, more must be done to disseminate the essential products throughout the population…”
Even though domestic producers invested millions into expanding their production capacity, foreign masks were still preferred. It is estimated that “… between March and September 2020…” the shipping containers containing N95 masks imported into the U.S. increased from 6 to 3,000. While “…National Institute for Occupational Safety and Health (NIOSH) approved 19 domestic manufacturers to begin to produce N95s..” the agency neglected to promote the masks and clearly articulate the distribution plan. Even outside of China’s relative comparative advantage for manufacturing other factors funneled production demand in their direction. Several domestic policies made the sale and distribution of domestically produced masks more onerous. Clearing the U.S. market for Chinese producers.
China’s domination of the mask production market has advantages that extend beyond economic benefits. China also garnered some soft political power through possessing a surplus of N95 masks. The Chinese government utilized the distribution of masks as a tool of diplomacy. Whether this decision was a moral one is a firm subject for debate. It is undeniable that China appropriates some “political purchasing power” from their superior efficiency in manufacturing masks. This is true even in the absence of some of the more obtuse regulatory policies implemented by the United States. The Chinese government capitalized on this opportunity to exercise the nation’s political and economic strength. Many of the countries that received the most generously mask donations were nations that had the friendliest relations with China. Fully recognizing the potential for gaining social currency through these “benevolent” humanitarian gestures turned this venture in foreign aid into a publicity campaign.
The Chinese government seized the opportunity to “tell China’s story well” (Jacob 2020) and started donating medical equipment to other countries. While China sought discretion from donors such as the EU (when foreign medical supplies were sent to Hubei province in January 2020), the Chinese state media were quick to portray China’s donations as acts of benevolence (Popescu 2020). Many leaders of recipient countries duly praised China in return. For example, Serbia’s president welcomed a team of Chinese doctors in March 2020 by kissing the flag of the People’s Republic (CGTN 2020).
Many Americans may view the pandemic global aid initiative as a cynical ploy on China’s part. Such evaluations may be relatively inconsequential at least China was willing to help someone. In contrast, China could have opted to just horde all the N95 masks and callously sell what they could share from their domestic demand. However, it would also be naïve to completely ignore the political optics of the situation.
As time has passed and the pandemic continues, we have seen a shift in the beneficiaries of domestic mask mandates. Irrespective of the U.S. mask supply, the mask shortages of the early pandemic period have fallen out of public consciousness. Now the debate over mask mandates has devolved from a civil liberties debate to a diametrical shouting match. This uncivil discourse leaves little to no room for any grey area. Either you are either pro-mask or anti-mask with the underlying implication being that you either favor the mandates or oppose them. Few, if any pundits enrapture in this schoolyard squabble, would ever dare to oppose the mandates, but actively choose to wear a mask in public. Despite the fact, such a position is perfectly rational. Once again, we do live in an age of hyper-political polarization. In a similar manner to how the vaccines would later become politicized, any precautionary measure against COVID has morphed into the rhetorical argument. Where both sides of the debate completely dispense with facts and reason, leading to the assumption that both factions are more concerned with winning the debate than generating effective policy.
From the pro-mask campaign, an insidious and morally objectionable practice has emerged. That is the public shaming of mask and vaccine skeptics that have died of COVID. It is reasonable to argue that these media campaigns from the predominately left-wing media are more morally depraved than China’s mask allocation policies. The media has been joyously publishing headlines highlighting how COVID-skeptical public figures ranging from politicians to radio talk show hosts have succumbed to the virus. This public ridicule goes far deeper than utilizing these narratives as evidence that COVID is truly dangerous. There is a deeply ingrained derisive cruelty implied in it this public displace. In all honesty, is tantamount to dancing on the graves of these vocal opponents of mask mandates. The pro-mask camp unscrupulously benefits through utilizing these individuals as examples of why masks are necessary. In the same breath derive callous amusement out of mocking their “stupidity” with no regard or respect for the person that died.
However, even if the value of the dollar continues to plummet wouldn’t this pattern be more predictable than the oscillations of a gold-pegged dollar? As mentioned previously, the Federal Reserve does not resolutely adhere to its own monetary rules. These deviations tend to be justified if they are done in the name of maintaining lofty “macroeconomic” targets, such as full employment. Thereby creating distortions that can hamper future investment plans and even anticipated returns on savings. The fact that the cadence in the price level has become more sporadic rather than more predictable (p.7) is a firm indictment of the Federal Reserve’s institutional failure. The common myth that the Great Depression was caused by gold rather than the malfeasance of the Fed is a fallacy that needs to be debunked. The common narrative has been the freely fluctuating value of gold drove the United States into one of the darkest eras of our economic history. To directly indicate that the Great Depression was the byproduct of mistakes (p.4) made our central bank is telling. Unfortunately, the economic calamity of the 1930s was brought on by “… Fed ..not constrained in using those reserves to expand base money, and thus the broader money supply..” (p.5). Once again validating the point that it was an issue in exercising fiscal restraint; the Fed capitulating to the impulse to use money as an instrument of political convenience. It is well noted that raising taxes and cutting welfare programs can be highly unpopular among voters. However, utilizing inflation as a circuitous form of taxation disperses the true costs of government spending, effectively hiding these expenditures from the average voter. It may be the rules of the game that have created past economic turmoil that has been erroneously attributed to gold. In all honesty, making the concept of a rules-based approach to monetary policy questionable at best. In most cases, we cannot trust those tasked with the duties to create and enforce the rules to act in the best interest of the economy.
The failure of our banking institutions to establish monetary stability is epitomized in the duration of economic downturns and the frequency of banking panics. Yes, economic downturns were more frequent before the Federal Reserve, however, they were shorter in duration. On average approximately seven months long and were “..no more severe..” (p.21). Based upon these facts it is reasonable to infer that the intervention of central banks may only prolong economic depressions. The introduction of the Federal Reserve did little to reduce the frequency of banking panics between 1914-1930 (p.24). The greatest irony being that between 1830-1914 Canada had relatively few bank failures and no reported bank runs (p.27). Not only did Canadian banks hold gold-backed currency this period also overlapped with Canada’s free-banking period. During the 19th century, Canada did not have a central bank (established in 1935) and banking was relatively free of any regulation. Despite this period of Canadian banking history committing the Cardinal sins of having a gold standard and no central bank, the nation enjoyed relative economic stability. This example only further erodes the critiques of the gold standard and claims that central banks are an absolute necessity.
Even most fiat currency advocates understand this point and attempt to utilize various monetary rules to create some sense of expected steady depreciation of the dollar. The pretense of “stability” is merely an illusion engendered by the rigidity of a rule that limited the amount of inflation allotted per year. The rules-bound approach in the United States permits 2% inflation per year to allow for economic growth. In an attempt to achieve the aims of “full employment” and monetary stability. Few question the fidelity to which the Federal Reserve has adhered to this 2 % annual inflation target. For instance, in 2007 during the nascent period of the economic crisis, the inflation rate was a staggering 4.08%.More than double what is conventionally allotted by the Federal Reserve. Demonstrating that these monetary rules that are meant to maintain the integrity of our money supply are sensitive to exigencies of purported economic calamity. It is well documented that the subprime housing crisis that emerged in 2007 was caused by our governing institutions using the money supply to manipulate interest rates. The prospect of the U.S central bank maintaining the value of our money is marred by the fact they do not consistently abide by these rules. Unfortunately, when it is politically convenient to loosen these parameters of these rules, the Fed does so. Generally, they could not anticipate the emergence of an emergency requiring accommodations in their money management constraints. If the Federal Reserve did unwaveringly adhere to the 2% rule this still is not necessarily the type of stability that should be welcomed. Irrespective of the annual rate of economic growth, this is still at the expense of the purchasing power of the dollar. While the rate of inflation may be predictable, it is a signal that the value of our money will only continue to decrease. The goal of holding any commodity is for the value to increase or remain constant not to wither away to oblivion.
The instability caused by the Federal Reserve failing to rigidity follow its own monetary rules has consequences that reverberate throughout the economy. Prices function as a source of information to consumers and producers, that even includes those that produce and hold various forms of money. If the Federal Reserve has been augmenting the money supply to lower interest rates this distorts the loans markets for lenders and borrowers. The argument that the short-run instability of gold makes it necessary for state intervention in the money markets, does not hold water. As lenders and borrows can enter into contractual agreements setting interest requirements; even adjust for immediate price-level variances (p.32). Any attempt to manipulate the money supply to encourage consumption does nothing more than to manipulate the integrity of the money supply Only serving to encourage economic actors to engage in malinvestment, arguably creating moral hazard. Not only does lowering interest rates alter the money supply, but it also encourages the individual who could not otherwise afford to borrow money to do so. Despite the fact, the natural interest rate of the loan is unproportionate to their income and necessary expenses. Unfortunately leading may make borrowers inclined to take uncalculated risks created by an illusory interest rate. That invariably is unsustainable and eventually will be forced back to natural rates, regardless of any distortions the market will self-correct.
If the Federal Reserve’s management rules are effective at warding off volatility, we would expect there to be wild variances in the value of gold-backed money in the pre-central banking era. After being confronted with the number it becomes quite evident that the facts do not comport with popular opinion. One only needs to review the dramatic increase in the rate of inflation in the post-gold economy to see the full effect. From the period of the period between 1790 and 1913 a $100 basket of consumer goods only experienced an $8 variance ($108 in 1913) (p.5-6). However, that same basket of goods had reached the cost of $2,422 by 2008(p5-6), demonstrating the hasten pace of dollar depreciation. It is calculated that the overall rate of inflation between 1879 and 1913 was a meager 0.01 % on a classical gold standard. It should be noted that similar numbers are reflected in the 93 years Great Britain retained a freely fluctuating gold standard (p.3). How skeptics can deride the notion of gold-backed money without address the long-run stability is perplexing. The political and economic establishment has effectively become short-sighted through praising immediate stability over enduring integrity. There is a deeper underlying question regarding this disjointed preference, what does it say about our society? Has our propensity for instant gratification become so entrenched in our culture that it has bled into our governing institutions? If our purported “experts” exalt the virtues of instantaneous band-aid measures over long-run functionality, then the answer to this question is self-evident.
The third and final argument of this series for reinstating gold is monetary stability. The notion that pegging money to the value of gold helping ensure its stability to most economists and commentators is laughable at best. Among the intelligentsia, the consensus is that value of gold is highly volatile, and having the dollars tied to such a freely fluctuating asset would be disastrous to the economy. Most notable is how gold fails to achieve short-run price level stability; although, it is generally accepted that it does have a high degree of long-run stability(p.2). Unquestionably there is a tradeoff between long-term and short-term stability when choosing between a monetary regime boasting a fixed-gold standard or a rules-based fiat currency. Upon closer examination, it becomes apparent that fiat currency lacks long-term stability in its value. It only is assumed that there are two core fallacies implicit in the arguments against the stability of gold-back money. One, critics are overestimating the ability of government institutions to artificially sustain price stability. The second and most pervasive assumption is the flawed conception of “stability”. A common concern in any field of study is the question of are we measuring what we profess to be measuring? How we operationally define the fortitude of currency is going to impact how we measure stability. After reviewing the longitudinal variation of the gold standard in comparison to the current fiat standard it is clear that gold has the upper hand when it comes to long-term stability. It is reasonable then to question if we as a society are choosing to favor short-run success over sustained value retention.
However, one nagging issue that needs to be addressed is whether money is naturally fluctuating or if the value remains fixed. Money in itself is a commodity regardless of what is the currency is backed by. After all, we do have a market for trading foreign currency in the post-Brentwood world; why not consider money as a commodity. The perception of the money goes deeper than the fact that we hold foreign currencies (like a future or security) with the hopes of making a profit. I look back to the insights of the founder of the Austrian School, Carl Menger, money often had a prior use as an object with practical utility. As detailed in his book Principles of Economics (1871):
The local money character of many other goods, on the other hand, can be traced back to their great and general use-value locally and their resultant marketability. Examples are the money character of dates in the oasis of Siwa, of tea bricks in central Asia and Siberia, of glass beads in Nubia and Sennar, and of ghussub, a kind of millet, in the country of Ahir (Africa). An example in which both factors have been responsible for the money-character of good is provided by cowrieshells, which have, at the same time, been both a commonly desired ornament and an export commodity. (p.271).
Menger’s concept of money having a prior use function was later encapsulated in Ludwig von Mises’s Regression Theorem.
When individuals began to acquire objects, not for consumption, but to be used as media of exchange, they valued them according to the objective exchange-value with which the market already credited them because of their ‘industrial’ usefulness, and only as an additional consideration on account of the possibility of using them as media of exchange. (p.109-110).
Commodities such as bales of tea or bundles of tobacco demonstrate a self-proclaimed intrinsic value. It is evident people like to consume tobacco and tea as luxury goods, otherwise, these products would not sell. Naturally, making them very saleable commodities on the barter market. But because the double coincidence of wantstrade and barter is self-limiting since you may have a commodity that no one else desires, making it necessary for a society to have a uniform medium of exchange. Even fiat currency could arguably have its legitimacy traced back to the days of 100 percent reserve gold warehousing (p.40), a system buried in the sands of history once the United States established a central banking system. The monetized debate we call the U.S. dollar is a distant ancestor to banking receipts for gold redemption.
If money irrespective of its heritage is considered a commodity, then why do we expect the price to not fluctuate? It is understood that economic models are implied to be unwavering and solely for demonstration. When applied, these models are extrapolated rather than assumed to be a direct reflection of economic activity. In theory, if money is a commodity we cannot assume that it will remain stagnantly fixed at the current price level; as with any other commodity, the value of money varies based upon the supply of the good in question. The very concept of a consistently “stable” currency with no variation in the value is flawed at conception. Invariably such an exception of resolute ceteris paribus is nothing more than a fiction.
Below are the blog entries 10-20 of the Bootleggers and Baptists series. Going forward collective volumes of the series will be published for every ten blog posts composing a volume. These volumes include supplemental essays and addendums written within the timeframe of the corresponding blog posts.
Bootlegger and Baptist (1983) coalitions are dynamic alliances that form a juncture between the overlapping interests of two unlikely factions. Whether these oddball partnerships are implicit or explicit, there cannot be enough emphasis placed on the fact they are dynamic. In most scenarios, these normally divergent interest groups tend to part ways once the initiative has been resolved. The aptitude of Conservative Christians and Feminists finding common ground after shared advocacy for legislation regulating pornography is improbable at best. Once the bill is defeated or passed these odd bedfellows part ways until a corresponding initiative is revived due.
Aside from the temporary resolution of a public policy issue, other factors can shake up Bootlegger and Baptist dynamics. A shift in vicissitudes can severely alter the incentives structure of one of the adjoining parties operating within the alliance. Arguably the current microchip shortage afflicting the technology industry best exemplifies this concept. The news regarding the microchip shortage started to break back in early 2021. The supply shortage was mainly spurred by an influx in the demand for consumer electronics during the 2020 pandemic. It was originally speculated that companies involved in the distribution and sale of electronics and technology would be the “Bootleggers” of the microchip shortage. The investment publication Barron’s suggesting that the shortage would be lucrative for IT distributor Avnet. However, such suggestions were somewhat premature, since the microchip shortage has cost the automobile industry billions in revenue. Similar ripple effects are likely to impact other sectors of the economy heavily reliant on microchip components.
Now the role of “Bootlegger” could potentially be assigned to microchip producers in Taiwan and the Taiwanese government. Several democratic mid-western senators came together to write to Taiwan’s Bi-Khim Hsiao for help with navigating the components ravaging the American auto industry. Taiwan has long held a comparative advantage when it comes to microchip production. The Biden administration has also sent over “… 2.5 million COVID-19 vaccine doses..” which is significantly more than what was originally allocated to Taiwan. Some commentators may call this an equitable trade, microchips for vaccines. However, this exchange isn’t quite so linear. The United States is really at the mercy of Taiwan since the product constraints are profoundly stymieing automobile production. The old saying goes “Beggars can’t be choosers”, which encapsulates this situation in a nutshell. The United States simply lacks bargaining power in these negotiations conferring all the leverage to Taiwan. In contrast, Taiwan has one of the world’s superpowers at their backdoor step pleading for help. This does not depict a deal brokered between equals, but rather emergency assistance from one nation to another.
The mid-western senators reaching out to Taiwan are our “Baptists” as they act as our moralizing agents. These individuals fulfill this role by stressing the economic calamity, carnage, and overall harm that the microchip shortage could have inflicted upon the U.S. economy. The Taiwanese government and producers are the clear “Bootleggers”. Since they enjoy the position of being one of the most robust and efficient microchip producers in the world they have an asymmetrical advantage over the United States. Not only from a production standpoint but also in terms of negotiation power. The United States is coming to Taiwan in desperation rather than a firm bargaining vantage point. Frightened by the prospect of the already ailing auto industry taking any more shocks, these senators are looking for a quick solution, with little consideration for optics or downstream consequences. Not to mention the additional vaccine dosages are merely the cherry on top.
USB (Universal Serial Bus) connections and ports have become a ubiquitous item in our daily lives. Whether it temporarily storing documents on USB flash drives and other peripherals (e.g. hardwired keyboards), we all use USB connections in some capacity. The matter of USB connections would hardly be a topic that could be conceivably politicized. However, the European Union has succeeded in turning the USB ports on electronic devices into a public policy debate. Next month the European Commission intends on presenting a “draft law” that would require all electronics producers to have a “common charging interface”. This would effectively prohibit the Lightning connections utilized by iPhones. If passed all other formats other than a USB-C connection would be banned in the European Union.
The question becomes what is a USB-C connection and why is the European Union so adamant about making it the compliance standard for the continent? USB connections and ports have been in existence since 1996. One of the latest innovations in USB connections came in the form of the USB-C (software version 3.1) in 2014. The USB-C connection boasts several technological advantages USB 2.0 and USN 3.0. Some of the benefits include thinner cables, greater capacity for transmitting data, and backward compatibility. Although these are most likely not the reasons why the EU is pushing for all electronics to have the USB-C standard for charging ports. The campaign for the USB-C mandate is arguably not directed towards consumer protection. Rather is more oriented towards environmentalism. One outstanding advantage of the USB-C format is that is more durable, meaning that it will not wear out as quickly as previous models of electronic port connections. The goal of mandating USB-C connections would be to reduce the amount of E-Waste a plank in the platform of the EU’s New Circular Economy Action Plan.
This initiative brought forth by the European Commission cannot escape the potential of a Bootleggers and Baptist (1983) coalition from forming. The moralizing agent in this situation would be the European Union. Yes, there are some political gains for advocating for environmental causes. For instance, you look “progressive” and you earn the right to virtue signal. Above all, you win over the progressive vote, which is presumably sizable in Europe. The EU may be a potential Dual-Role Actor, but for the sake of clarity, let’s assign the role of “Baptist” to the EU. Who are the Bootleggers in this scenario? It is highly unlikely that no one would benefit from the EU placing such compliance requirements on the charging ports for electronic devices. Regardless of whether the regulation is purported to target consumer safety or environmentalism disparate effects are inevitable. This was an observation implicit in Yandle’s theory since the nascent period of its development. Hence why in Yandle’s seminal paper he suggests there is a “demand” for regulation among corporations. The implementation of regulations operates as a backdoor way of reducing competition without violating antitrust laws. Granted, antitrust laws in the EU are different than those in the United States; however, this is still circuitous means of subverting the legal constraints of anti-competitive market behavior among firms.
Most electronics producers are on board and have already adopted all of the purposed EU requirements; except for Apple. While other Apple products have been reformed to include USB-C ports, the iPhone still uses a Lightning connection. Apple has even openly stated that such a requirement would hinder innovation. Yet, the other giants such as Samsung have remained silent on the matter; expressing tacit agreement with the purposed EU measure. It should be noted that Apple is a major competitor in the Smartphone market. The iPhone has approximately a 50% market share of the Smartphone market in the U.S. However, the global market share is primarily held by Samsung and other competitors. Nevertheless, Apple is still a serious competitor for companies such as Samsung in the global market. The silence of other producers most likely is due to rational business interests rather than the normative virtues of environmentalism. Therefore, Apple’s competitors in the Smartphone market are the “Bootleggers” of the EU’s USB-C mandate.
In the political process, many coalitions are symbiotic relationships that require the resources from both groups to successfully achieve results. The classic Bootleggers and Baptist (1983) model best exemplify this very fact. However, there has always been the implication that this political relationship has always been one-sided. The Baptists do all the heavy lifting from a public relations standpoint, meanwhile, the Bootleggers lurk in the shadows as silent beneficiaries. Superficially it almost seems as if the Bootleggers are free riders how to prosper at the expense of those who risk their reputation for controversial positions. But typically in the political landscape of the United States morality isn’t enough. In the absence of adequate funding, a political campaign ends up being dead on arrival. Because money is required for advertising, organizing outreach events, and other means of communicating the campaign’s message. Often for what the Baptists lack in finances, the Bootleggers tend to contribute to the initiative. This is due to the Bootleggers frequently being involved in business and having a serious monetary stake in the issue. It would be a mistake to interpret this previous statement as a value judgment since anyone of us would do what we could to defend our paychecks.
One excellent example of this dynamic was detailed in the Spring 2021 issue of Regulation magazine (Vol 44, No. 1), published by the Cato Institute. Presented in the article Not So Unlikely Coalitions (p.12-15) written by economics professor Jeremy Horpedahl. The article focused on the legalization of alcohol in various counties throughout the state of Arkansas. Since the repeal of prohibition, the re-legalization of alcohol sales has been done incrementally at the county level. By state law, the legal status of alcoholic beverages can be altered by being voted on as a referendum. Similar to how the Marijuana relegalization issue is being handled now, except at lower level governance. For the initiative to appear on the ballot a petition must be signed by 38 % of the “.. jurisdiction’s voters..”. The author also notes that regionally voter turn is approximately less than 50 %, meaning that last-minute campaigns to halt the legalization process tend to be ineffective (p.14).
In Arkansas, the alliance between religious leaders and liquors stores in adjacent “wet counties” in Missouri have been proven to be effective. Both sides of the coalition found that it is better to direct campaigning efforts towards keeping the referendum on the ballot rather than beating it at the ballot box. Generally, once an initiative to re-legalize alcohol reaches the voters in Arkansas it tends to pass. During the 2010s, Craighead, Crawford, Faulkner, Independence, Johnson, Randolph, and Yell counties all successfully prevented alcohol legalization from appearing on the ballot. Bootlegger interest groups easily raising over $100,000 to fund various PACs to defeat the bill before it even reaches the ballot box. Funds are being allotted to press interviews with local religious leaders and various media campaigns (p.14). It should be noted that areas that are landlocked between other dry counties lack any liquor stores to act as the Bootlegger interest group leaving the Baptists on their own for obtaining funds (p.15). However, per Horpedahl there has been a new entrance to the political interest game operating as Bootlegger for the legalization side, Walmart. The titan of retail raised over $700,000.00 in 2014 to support the legalization effort in Saline county dwarfing the contributions of the opposing set of Bootleggers ($157,500.00) (p.15).
It is easy to perceive the role of the Bootlegger as being almost parasitic. The Bootlegger interests idly standby while the Baptist do all the leg work of persuading the public. Upon reviewing Professor Horpedahl’s s article it becomes quite clear that the Bootleggers do assist in supporting political advocacy, they just happen to do so in the shadows. These business interests are forced to conceal their direct involvement in public policy due to the stigma of the intermarrying of business and politics. Demonstrated by the fact terms such as “dark money” have now entered the public consciousness. Leading most to express skepticism of the purported intentions of corporations when they tip their toes into the pool of political advocacy.
One concern regarding fiat currency that is appurtenant to inflation is the occurrence of Cantillon Effects. What are Cantillon Effects? The observation is that introducing new money into the economy has “… distributional consequences that operate through the price system…”. Essentially this means that inflation does not occur all at once and does not evenly flow throughout the market. Individuals that receive the money first avoid experiencing price inflation, validating the previous point. Therefore, dispelling the misconception held by the English philosopher John Locke that the nature of money is neutral. Locke suggesting that introducing more money into the economy merely has a numerical impact on prices. The suggestion being that printing more money has little influence on economic behavior. A 17th-century precursor to the contemporary notion of “inflation doesn’t matter”. From a praxeological standpoint, this assumption is wholly false. If it were true, people would not adjust their behavior to account for the inflationary depreciation of their national currency. People would not be investing in gold, silver, or Cryptocurrencies as an alternative to hedge against government money.
This phenomenon was first observed by Irish-French Political Economist Richard Cantillon, providing its namesake. Cantillon expounds upon the mechanics of such inflationary effects on money through the example of gold mining in his book An Essay on Economic Theory. Cantillon asserts that the point of injection of new currency and the velocity of circulation play a role in its impact. As described below:
If the increase of hard money comes from gold and silver mines within the state, the owner of these mines, the entrepreneurs, the smelters, refiners, and all the other workers will increase their expenses in proportion to their profits. Their households will consume more meat, wine, or beer than before. They will become accustomed to wearing better clothes, having finer linens, and having more ornate houses and other desirable goods. Consequently, they will give employment to several artisans who did not have that much work before and who, for the same reason, will increase their expenditures. All these increased expenditures on meat, wine, wool, etc., 0necessarily reduces the share of the other inhabitants in the state who do not participate at first in the wealth of the mines in question. The bargaining process of the market, with the demand for meat, wine, wool, etc., being stronger than usual, will not fail to increase their prices. These high prices will encourage farmers to employ more land to produce the following year, and these same farmers will profit from the increased prices and will increase their expenditure on their families like the others. Those who will suffer from these higher prices and increased consumption will be, first, the property owners, during the term of their leases, then their domestic servants, and all the workmen or fixed-wage earners who support their families on a salary. They all must diminish their expenditures in proportion to the new consumption, which will compel many of them to emigrate and to seek a living elsewhere. The property owners will dismiss many of them, and the rest will demand a wage increase to live as before. It is in this manner that a considerable increase of money from mines increases consumption and, by diminishing the number of inhabitants, greater expenditures result from those who remain (p.148-149).
It is important to note that Cantillon Effects occur with currencies with a fixed supply. In Cantillon’s example above, he uses the mining of gold ore to describe the disparate impact of inflation on prices. A similar consequence is also observable as a byproduct of Bitcoin mining. However, these examples of Cantillon effects are far less pronounced than those resulting from creating more fiat currency. These disturbances are temporary (p.28) and are not indicative of permanent debasement of either commodity. A continual depreciation of money with no longitudinal guarantee of appreciation makes a currency a poor store of value. Gold, cryptocurrencies, and silver have the possibility of increasing in value. Therefore, neutralizing the short-run inflation generated by a new gold discovery. Fiat currency collective continues to depreciate across time, thereby displaying the validity of the Humean Price-Specie-Flow Mechanism model. Essentially disturbances in the gold supply would naturally adjust and levitate back to equilibrium with no further intervention. Above all demonstrating, that any disparities would be temporary under fixed-money supply standards such as gold. Effectively weakening the validity of the objections that gold is an ineffective policy tool for combating the harmful effects of inflation. Including Cantillon Effects.
The above passage from Cantillon demonstrates how individuals with close geographic or institutional proximity to the point of monetary injection enjoy the benefits. The modern-day equivalent would be working in the financial district of New York City. Financiers on Wall Street may even have connections with staff working at the New York Federal Reserve. Well-connected social networks in the financial sector are advantageous when it comes to acquiring access to money. Even beyond the social networks of well-connected financiers, the privileged position of those benefitting from Cantillon Effects starts with the Central Banks. Upon wielding newly printed money, they possess a profound amount of “.. unearned purchasing power..” (cannot find source) analogous to a counterfeiting operation. The currency flows from the Federal Reserve to the Medium and Large-sized banking institutions that “maintain reserve accounts” at various Fed locations throughout the United States. Smaller banks (e.g. local credit unions) obtain their money supplies from correspondent banks that have accounts with the Federal Reserve. These larger banks supply smaller banks charge the smaller banks a service fee for distributing their allocation of currency. This distribution dynamic illustrates how patrons of neighbor banks are at a clear disadvantage. From a temporal standpoint, the large corporate banks are among the first institutions to receive the newly printed money. Providing access to the new currency to the employees and patrons of these larger well-connected banks. Individuals living in rural regions of the united states are either unbanked or needing travel great distances for banking services. The disparate effect of this geographical allocation of new money is made worse by the higher poverty rates experienced by rural areas of the U.S. The individuals afflicted the most by poverty are the ones who suffer the most from price inflation. Serving to substantiate the consequences of Cantillon Effects as a form of regressive taxation. By the time the rate of inflation has caught up to consumer goods, the government has already funded the programs the politicians wanted to implement. Those with institutional ties closer to point of entry have already invested or spent the money before inflation is reflected in higher nominal costs of consumer goods.