Day: November 17, 2023

By White Mountain

The domestic political situation in Ukraine is becoming increasingly unfavorable for Volodymyr Zelenskyy.

The Ukrainian Verkhovna Rada representative Oleksandr Dubinsky had his residence raided by the SBU for making derogatory remarks about Zelenskyy and his chief of staff Andriy Yermak. This indicates that Zelenskyy’s standing in the country is highly sensitive. Various political forces may hope that in next year’s Ukrainian elections, Zelenskyy will have an opportunity to step down “normally”, thus opening the door to negotiations with Russia.

The vulnerability and growing unreliability of the European Union are evident. EU official Josep Borrell warns Ukraine that ammunition is limited. Borrell, the EU’s top diplomat, states that the bloc “might not meet the delivery target of one million shells for Ukraine”. The EU has already provided Ukraine with over 300,000 shells. In contrast, Russia has just acquired one million shells from North Korea.

Due to the EU’s fragile performance, it is now almost certain that Ukraine will lose all its “dependencies” – the EU, NATO, and Poland – unless the United States shows impressive leadership. In this situation, it is worrisome to consider whether Ukraine might resort to some “out-of-the-box” actions, such as causing a massive nuclear leak in Europe, leading to a collective disaster for all.

By Frank Shostak

Many economists, including Milton Friedman, have claimed that reality is elusive and that one cannot know its true nature. Most mainstream economists also believe that data gives us the state of the economy. By inspecting numbers such as gross domestic product (GDP) or the consumer price index, only then can an economist accurately assess the state of economic conditions.

Ludwig von Mises and the Austrian School of Economics have had a different view. According to Mises, the data is a historical display and, by itself, cannot provide the facts regarding the real world. To make sense of the data, one needs to have a theory beforehand that will allow one to interpret the data, and the theory must originate from something real that cannot be refuted. A theory resting on the foundation that human beings act consciously and purposefully fulfills this requirement.

One cannot refute that foundation since anyone trying to do so does it consciously and purposefully and thus contradicts himself, according to Hans-Hermann Hoppe. The knowledge that human actions are conscious and purposeful allows one to make sense of historical data, writes Murray N. Rothbard in the preface to Theory and History by Mises.

The Importance of Defining the Subject of Investigation

The key to examining data is establishing the subject and definition of what one is analyzing. To establish a definition, one should go back as far as one can to the point of time when that particular thing emerged.

For instance, when analyzing money supply, we would go back to when a particular commodity started to assume the role of money. In this case, one would establish that individuals began to use money to promote the trading of goods. A commodity that was selected as money enabled the most efficient exchange. Note that, through the general medium of the exchange, we establish that individuals are paying for one good with another good with the help of money.

We can also establish that increases in the quantity of money cause a decline in the purchasing power of money, all other things being equal. This is because the expansion of the money supply results in a greater amount of money per unit of a good than in the previous situation, all other things being equal. Note that the price of a good is the amount of money per unit of a good. Hence, by observing an increase in money supply, one could infer that more money will be spent per good, bringing a decline in the money’s purchasing power.

The definition that money is the general medium of exchange enables the understanding that once money is injected, there will always be early and late recipients of money. This in turn enables us to infer that a change in the money supply is likely to have a lagged effect on the prices of goods.

Without a theoretical framework, the data by itself cannot tell us the conditions of the economy. It cannot tell us whether the strong GDP data is because of a wealth expansion or because of the erosion in the wealth-generation process.

For instance, once it is established that the loose monetary policies of the central bank are behind the so-called strong economic conditions, then by means of a theory, we can establish that this is going to weaken the wealth-generation process. In the modern world of the paper money standard, we can establish that an increase in money supply results in an exchange of nothing for something. This leads to a diversion of wealth from wealth generators to non-wealth-generating activities.

To maintain their lives and well-being, individuals are likely to prefer present consumption over future consumption. As an individual’s wealth expands, the premium assigned to present consumption over future consumption likely declines, with the premium of present consumption over future consumption determining interest.

Preferring present consumption to future consumption implies that, to live, people assign a premium to present consumer goods versus future consumer goods. From this, we can also establish that individuals’ time preferences determine interest rates, not central bank policies.

Central bank policies can only distort interest rates, thus setting in motion boom-bust cycles and economic impoverishment. Also, note that preferring present consumption over future consumption implies that interest rates must be positive.

If one observes negative interest rates, this does not contradict the theory but rather forces the analyst to ponder how this could have happened. Most likely, he will discover that the main reason for these rates are the central bank monetary policies that distort the interest rates.

Furthermore, the fact that an individual pursues purposeful actions implies that causes in the world of economics emanate from human beings and not from outside factors. This means that mathematical methods are not going to be of much help here.

For instance, contrary to popular thinking, one’s outlays on goods are not caused by real income as such. In his own unique context, every person decides how much of a given income will be used for consumption and how much for investments.

While it is true that people are likely to respond to changes in their incomes, the response is not automatic. Every individual assesses changes in income against the particular set of goals he wants to achieve. In response to the increase in income, he might decide that it is more beneficial for him to raise his investment in financial assets rather than to raise consumption. However, the important thing to remember is that the decision is made by the person in question, not a mathematical equation.

Conclusion

Reliance on statistical data as a foundation for the formation of a view about the state of the economy is questionable. Data cannot produce information about the facts of reality without a theory that “stands on its own feet” and is not derived from the data itself. Once the theory passes the test of logic, it becomes the means for interpreting the facts of reality through the assessment of the data.

About the author: Frank Shostak‘s consulting firm, Applied Austrian School Economics, provides in-depth assessments of financial markets and global economies. Contact: email.

Source: This article was published by the Mises Institute

When Chinese President Xi Jinping met executives for dinner on Wednesday night in San Francisco, he was greeted with not one, but three standing ovations from the U.S. business community.

It was one of several public relations wins for the Chinese leader on his first trip in six years to the United States, where he and President Joe Biden reached agreements covering fentanyl, military communications and artificial intelligence on the sidelines of the Asia-Pacific Economic Cooperation summit.

All three were outcomes the United States had sought from China rather than the other way around, said two people briefed on the trip.

But Xi appeared to have achieved his own aims: earning U.S. policy concessions in exchange for promises of cooperation, an easing of bilateral tensions that will allow more focus on economic growth, and a chance to appeal to foreign investors who increasingly shun China.

China’s economy is slowing and earlier this month it reported its first quarterly deficit in foreign direct investment. And the ruling Communist Party has battled political intrigues that have raised questions about Xi’s decision-making, including the sudden and unexplained removals of his foreign minister and defense minister.

“If the U.S. and China can manage their differences … it will mean that Xi Jinping doesn’t have to divert all of his attention to that (bilateral relations),” said Alexander Neill, an adjunct fellow at Hawaii’s Pacific Forum think-tank.

“He needs to focus on his domestic agenda which is incredibly pressing.”

Securing Xi’s promise of Chinese cooperation on stemming the flow of fentanyl to the United States was high on Biden’s to-do list for the summit. A senior U.S. official said the agreement under which China would go after specific companies that produce fentanyl precursors was made on a “trust but verify” basis.

In return, the U.S. government on Thursday removed a Chinese public security forensic institute from a Commerce Department trade sanction list, where it was placed in 2020 over alleged abuses against Uyghurs, a long-sought diplomatic aim for China.

Critics warned removing sanctions against the institute signals to Beijing that U.S. entity listings are negotiable, and have questioned the Biden administration’s commitment to pressuring China over what it says is the Chinese government’s genocide of Uyghurs.

“This undermines the credibility of our entity list and our moral authority,” said a spokesperson for the Republican-led House of Representative’s select committee on China.

On top of that, Biden’s Republican opponents argue the U.S. is missing an opportunity by not leveraging China’s flagging economic momentum for more diplomatic gains.

Biden also touted as a success an agreement to resume military dialogues cut by China following then-U.S. House Speaker Nancy Pelosi’s 2022 trip to Chinese-claimed Taiwan.

But while Beijing would welcome lower tensions, this is unlikely to change Chinese military behavior the U.S. sees as dangerous, such as intercepts of U.S. ships and aircraft in international waters that have led to a number of near-misses.

“China fears hotlines could be used as a potential pretext for a U.S. presence in areas it claims as its own,” said Craig Singleton, a China expert at the Foundation for Defense of Democracies in Washington.

Biden administration officials have acknowledged that creating functional military relations won’t be as easy as semi-regular meetings between defense officials.

“This is a long, hard, slow slog and the Chinese have to see value in that mil-mil before they’ll do it. That’s not going to be a favor to us,” one senior Biden administration told Reuters in October in the run-up to the Xi-Biden meeting.

In his public remarks to Biden, Xi suggested China sought peaceful coexistence with the United States, and he told business leaders China was ready to be a “partner and friend” to the U.S., words partially aimed at a business community alarmed by China’s crackdown on various industries and the use of exit bans and detentions against some executives.

Similarly, Xi’s televised garden walk with Biden, and the largely respectful reception given to Xi by his American hosts, was highlighted in China’s tightly controlled media to show a domestic audience that their president is managing the country’s most important economic and political relationship.

“Xi Jinping may have made the calculation that overhyping the American threat does China and his standing in the party and the party itself more harm than good,” said Drew Thompson, a former Pentagon official who is now a scholar at the National University of Singapore.

“The fact that we are debating whether China is investible is a real problem for China.”

At the same time, Xi reiterated to Biden points that he made earlier this year to Russian President Vladimir Putin, urging the U.S. president to view U.S.-China relations through “accelerating global transformations unseen in a century.”

Analysts say that is code for the belief that China – and Russia – are remolding the U.S.-led international system.

Still, this time pragmatism may have outweighed ideology.

China recognizes it’s still necessary for its economic progress to have somewhat normal relations with the U.S. and Western countries, said Li Mingjiang, a professor at the Rajaratnam School of International Studies in Singapore.

“It’s the fundamental driving force behind the meeting.”