The Entrepreneurial Immigrant

I recently took an Uber driven by a gentleman who informed me that he had recently arrived from Turkey. He said that he had followed his son over, who was attending medical school here in Chicago.  The fellow looked like he was nearing sixty years of age. I thought it quite impressive for a man to migrate to an entirely different country at that stage of life.

My mother had come over from Belfast, Northern Ireland at the tender age of nineteen. I’ve always imagined how overwhelmed she must have felt coming to a strange country at such a young age, but at least she had many years ahead of her if things didn’t work out. That was one advantage my new Turkish acquaintance lacked. But as if merely immigrating to a strange country wasn’t courageous enough, this guy informed me that he was also starting his own business here. His willingness to undertake such a risk in his newly adopted country is truly impressive.

I have to wonder: Do immigrants tend to be more naturally entrepreneurial than the rest of us? And do those of us who are U.S.-born and bred have a prevailing tendency to avoid risk and play it safe?

Did something change over the past generation? Did native-born Americans transform from risk-takers to risk-avoiders as the country got considerably richer during that time?

Anyone who dares to migrate to a new and strange country is certainly a huge risk-taker. That would certainly indicate a personality prone to entrepreneurship. And perhaps the regulatory climate of the countries immigrants come from have a lot to do with that, too. A country whose government imposes all sorts of needlessly intrusive regulations and licensing requirements for every little transaction–state-sanctioned extortion, essentially–is most likely to spur an underground economy of black market business people.

Perhaps I’ll get off my lazy butt and see if there’s been any solid research on this.

Will the Yield Curve Be Inverted?

There has been a bit of buzz of late about the notorious yield curve, that seemingly prophetic differential between the yields of long- and short-term debt instruments of what we are to assume to be of equal credit quality. It looks like it’s flattening–the yields on long-term bonds are lowering relative to those of short-term bonds. One would ordinarily expect the interest rates on long-term debt to be higher than those of short-term debt as they compensate investors for putting their money at risk over a longer time horizon, thus subjecting their investments to the market and economic

antique bills business cash
Here’s the obligatory stock photo of some coins for a blog post about the economy and such. Photo by Pixabay on Pexels.com

conditions of a future too distant to assess at the present time. If long-term yields are falling, it’s because investors are buying up more long-term bonds, thus bidding up the prices of those bonds and decreasing those yields. A big reason why investors would start increasing their purchases of long-term debt would be that they are attempting to lock in today’s rates for the long haul, as they assume that interest rates will soon be falling.

And why would they assume a decrease in interest rates at a time when the Fed has been incrementally raising them? One reason would be that they fear a seismically disruptive downturn in the markets. The times that those long-term yields have dipped below those of the short-term bonds in the past–when the yield curve has inverted–have been followed by severe market downturns and recessions. In fact, the Federal Reserve Bank of San Francisco says that an inverted yield curve has preceded every major recession of the past sixty years.

But now you may be asking why these investors are being so pessimistic, even with all this talk that the economy is going great guns like it hasn’t in over a decade or so. (Which is not to say that there haven’t been any naysayers.)

I’ve already mentioned the reason, about two paragraphs up–the Fed is raising interest rates.

You may recall–or maybe you don’t, it all seems like such a distant lifetime ago already–when everything melted down in September of 2008, what I like to call the Great Financial Sh*t-Show of 2008. There was this steep sell-off in the markets that folded companies and financial institutions like houses of cards, the sell-off being largely of debt securities creatively collateralized by mortgage obligations. The U.S. Congress passed a major bail-out package, the “Emergency Economic Stabilization Act of 2008,” which President George W. Bush signed within hours of its passage. The legislation had already been in the works for several months prior to the September ’08 crash, largely under the direction of then Treasury Secretary Henry Paulson, a former chairman and CEO of Goldman Sachs. Both major party presidential nominees at the time–then Senators Barack Obama and John McCain–bolted from the campaign trail and pretty much raced each other back to D.C. to vote for the bill, which created the $700 billion Troubled Assets Relief Program (TARP) to purchase the newly devalued assets clogging up Wall Street’s balance sheets. Of that $700 billion, $250 billion was spent on purchases of the preferred stock of financial institutions through what was called the Capital Purchase Program (CPP). But even before the passage of the bail-out bill, the Fed was already pumping liquidity into the markets through low-interest loans made through its discount window, and had put out more than $7.5 trillion by the spring of 2009.

To put it more succinctly, the Congress and the Fed created just about the greatest corporate welfare program in U.S. history. The American people were told that if they were not compelled to compensate for Wall Street’s losses, the Great Depression 2.0 would overcome the land, followed by a plague of locusts and a thousand years of darkness, turning us all into beggars thrust into tent cities on the streets for the rest of our lives.

What preceded that crash was a raising of interest rates by the Federal Reserve, after a considerable period of time during which they had kept interest rates pushed down. Take a step backwards from the inversion of the yield curve, and you notice this rather curious pattern:

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I lifted this snazzy little infographic from RealForecasts.com

The above charts the growth and reduction in the “True Money Supply” against periods of economic recession. This approach to getting a grip on the actual supply of money was formulated by the economists Joseph Salerno and the late Murray Rothbard, which in turn is largely based on the concept of “money in the broader sense” as it was developed by the Austrian school economist Ludwig von Mises.

It’s positively eerie how the Fed’s expansion and contraction of the money supply coincides with the periodic booms and busts of the economy. It almost makes you wonder if there’s some kind of inherent causal relationship.

America’s central bank has of late been selling off assets that it has been carrying on its balance sheet since the ’08 crisis. In selling off assets, they are therefore reducing the money supply, which is how they effectively implement interest rate hikes. So if the pattern I identified above continues to hold, what does this portend? Another massive sell-off and a crash, perhaps?

So, to sum up: Step 1), The Federal Reserve massively expands the money supply with asset purchases, lowering interest rates, and then, Step 2), eventually sells off those assets to raise interest rates again, which is usually followed by a crash, or a panic, or whatever you want to call it.

And in an attempt to remedy the crash, they then go back to step 1 and repeat the process all over again, leading to the same kinds of results as before.

It almost seems as if the very basis of our entire banking and financial system is inherently flawed, as though it naturally leads to unsustainable booms and busts. Who knows how much real wealth it destroys in such a process?

Nah, that can’t be right.

That’s crazy talk.

The Universe According to Thanos

If you’re a fan of the superhero comic book genre of cinema, then you should run as fast as you can, not merely walk, to the latest installment of the Marvel Comics franchise, The Avengers: Infinity War. If these loud, action-packed movies are not your cup of tea, then you should probably take a pass. But if you don’t care what the film snobs think and you enjoy them immensely, then go for it. You’ll be glad you did. The directing brothers Anthony and Joseph Russo have pulled off no small feat here. While the movie is not without its flaws, they successfully juggled a long parade of characters and intertwining plot lines to pull off one highly entertaining thrill ride of a flick.

But that’s not what I want to talk about.

At the center of this movie–it is in fact, his story, told mostly from his perspective–is its formidable villain, Thanos. Thanos is a “titan,” or he’s from Titan–I forget which. He is a mighty big badass, but he fancies himself a thinking badass. He has reached the conclusion that the universe is out of balance, which is to say it’s becoming much too populous. He’s certain that he sees the future, and that future consists of many worlds becoming so crowded that their inhabitants are on the verge of overconsuming precious scarce resources, causing much famine, suffering, and misery. He seeks out the complete set of magical “infinity stones” that, once collected in full by his big fisted metal gauntlet, will grant him immense power to do whatever the hell he wants–so he wants to  wipe out half the population of the universe in order to avoid all that suffering and death and misery. It’s kind of funny, though–in the peculiar sense, anyways–that he doesn’t think to use those magic rocks to create a superabundance of resources on all the worlds whose populations he seeks to halve, so that the halving wouldn’t be so necessary. Thanos seems a bit too eager to employ genocide as a solution.

Thanos’ zero-sum theory of humanity isn’t just a comic book trope, however. It is widely shared by people who actually have some influence on public policy, as frightening as that sounds.

Thanos’ rather stark and brutal perspective is somewhat reminiscent of the Reverend Thomas Robert Malthus, the 18th century English economist. While the majority of middle-class Europeans rejoiced at the terrific gains being made at the time by the proliferation of new technology that brought on the Industrial Revolution, Malthus preferred to rain all over their prosperity parade with a lot of gloom-and-doom predictions. He claimed that all that newly created wealth was merely subsidizing the increased reproduction of the poor, who would eventually become so numerous that they would be confronted with famine and disease, what has since become known in the popular usage as a “Malthusian trap.” Such crises would inevitably kill off a great many people, thus regressing society back to the preceding economic state.

“It is an evident truth that, whatever may be the rate of increase in the means of subsistence, the increase of population must be limited by it, at least after the food has once been divided into the smallest shares that will support life,” wrote the rather grim and pessimistic Malthus in his Essay on the Principle of Population. “All the children born, beyond what would be required to keep up the population to this level, must necessarily perish, unless room be made for them by the deaths of grown persons.”

Malthus supplied absolutely no evidence for his stark thesis; he simply stated it as a given fact. But his theory was spectacularly wrong. Contrary to what it implied, the food supply at any given time isn’t fixed. The more people come into existence, the more people do continue, thank goodness, to develop methods for increasing the available sustenance as the population grows. The entire population of Europe was approximately 127 million in 1700. It steadily increased to 224 million by 1820 when Malthus was in his mid-fifties, and then eventually reached 498 million by 1913. And yet the massive crises of starvation and want that Malthus predicted never came to pass. Europe’s biggest disasters occurred during the first half of the 20th century, and they were caused not by overpopulation, but by blundering statesmen who condemned the continent to two horrific wars that slaughtered millions.

Indeed, paleoanthropologists estimate that there was all of 10,000-30,000 homo sapiens around 200,000 years ago, and everything we know about human life in that period indicates that it was pretty nasty, brutish, and short. The “Toba catastrophe,” a massive volcanic eruption that occurred in Indonesia about 70,000 years ago, is believed to have caused a “population bottleneck,” that is, a sudden and sharp reduction in the human population to as few as 1,000 -10,000 people. Today, there are billions of people walking the planet. By Malthus’ logic, we should never have become so numerous and prosperous at the same time. Living standards and quality of life today are not worse than they were during the paleolithic era, but far, far better. Malthus had it exactly backwards.

His skewed theory that a growing population inevitably meant greater scarcity of food and resources led him and those who believed in his expertise on the matter to some deeply flawed preferences in public policy. He was intensely supportive of England’s Corn Laws, for example, which imposed steep tariffs on imported grain. His reasoning was that this would incentivize greater self-sufficiency for food in England at a time when other countries taxed their own grain exports whenever they experienced economic hardship. But the increased food prices caused by the Corn Laws simply ended up increasing the wealth of England’s landowners at the expense of everyone else. The higher food prices imposed on the general population reduced their ability to purchase manufactured goods, thus hampering the country’s industry. It doesn’t take a Ph.D. in economics to understand how much the increased prices of food and other goods, along with the reduction in employment opportunities, arrested the living standards of anyone who wasn’t an aristocrat.

But the Malthusian delusion persists–among highly learned scholars, no less–no matter how many times it’s discredited by both logic and experience.

The American biologist Paul Ehrlich provides one example of the stubborn persistence of this thesis. In his 1968 book, The Population Bomb, Ehrlich predicted that due to the growing population, the 1970s would be a decade of mass starvation, misery, and death…hundreds of millions would perish as the result of food shortages, stated Ehrlich.

Obviously, this had not come to pass. (At one point in 1980, Ehrlich even predicted that England would cease to exist by the year 2000.) Some famines had occurred subsequent to Ehrlich’s predictions, such as Ethiopia’s catastrophic famine of the early 1980s, but they were the result of deeply misguided government policies that prevented the populations of those countries from accessing food supplies when they needed them most, not global overpopulation.

Of course, that’s not to say that there’s an eternally guaranteed progression of advancing technology and growing prosperity. If one were to chart the evolution of man’s quality of life throughout the ages on a graph, the line would look like more like a zig-zag, sometimes inclining upwards, at other times declining downwards, and then back up again, down yet again, and so forth.

It’s knowledge and what man does with it that is the real determining factor of progress or regression, not population growth. It’s certainly true that it’s not necessarily a given that human knowledge will always advance to the overall improvement of living conditions indefinitely, but it’s been pretty much on a roll for quite awhile now.

Incredibly, Ehrlich’s erroneous prophecies of mass starvation hasn’t kept academia and policy makers from falling into the Malthusian trap any more than Malthus’ own errors have. The British journalist Brendan O’Neill has been tracking this trend among the world’s intelligentsia for some years now. In this 2012 piece he reports that at that year’s UN Rio+20 Earth summit, over a hundred venerable institutions, including England’s own Royal Society, chillingly urged those in power throughout the world to look past “ethical sensitivities” and “confront rising global population.”

I’m not quite sure what they meant by that, but something tells me that the rest of us should make sure they don’t get their hands on any infinity stones.