Kevin Duffy on Phil Duffy's new book 'A Tale of Four Cities'

To economic historians, the “hockey stick of human prosperity” is that irresistible bright shiny object. Up until 1800, the human population and living standards grew at a snail’s pace, but then a strange thing happened: both took off.

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In A Tale of Four Cities, Phil Duffy asks an intriguing question: “What if the real inflection point took place 100 years or so earlier?”  Have economic archeologists been unearthing evidence in all the wrong places?  Have they drawn false conclusions?

Challenging simple narratives often leads to valuable, contrarian insights.  By shifting the timeline of the starting gun on human progress back a century, Duffy unlocks a treasure trove.  First, he asserts that the actual dawning was the Agricultural Revolution, which laid the foundation for the Industrial Revolution.  Second, he discovers Richard Cantillon, the first economist to recognize the critical role of the entrepreneur in creating wealth.  Cantillon’s Essay on the Nature of Trade in General was written in 1730, long before Adam Smith’s seminal work, The Wealth of Nations.  Third, he makes a compelling case that Smith suppressed Cantillon’s work and removed the role of the entrepreneur, paving the way for misguided theories which treated entrepreneurship as vulgar and exploitative.

This would largely explain why many people in America, far from appreciating their good fortune, are openly hostile towards ultra-rich entrepreneurs like Amazon’s Jeff Bezos.  It also explains why those same billionaires give openly to anti-capitalistic charities.  It explains why so many countries have destroyed themselves by ingesting toxic theories on wealth creation, from sub-Saharan Africa, to the former Soviet Union, to Cuba and Venezuela.  It explains why governments in the West have grown to oppressive levels, threatening to strangle their productive hosts. 

If Duffy is correct, much of the world today enjoys a level of wealth unimagined by our ancestors despite worshipping false idols like Adam Smith, paper money and democracy.  Future economic progress is not a guarantee.  In fact, the human experiment appears to be at a crossroads.  Choosing the right path may just require getting the timeline right on that bright shiny object.

~ Kevin Duffy, Forward to A Tale of Four Cities, April 8, 2023

Kevin Duffy compares laissez faire to social democracy

Quora question: Why does free market economy win against centrally planned & controlled economy?

Pascal Morimacil: The laissez-faire ideology is to let the totalitarian power structures created by private owners have full reign over the planet without having any democracy hinder them.

Kevin Duffy: This is Orwellian: freedom = control. 

There is a critical difference between Jeff Bezos and modern day social democracies. Bezos can’t force anyone to do anything. He can persuade investors to invest in his money-losing scheme in the late 1990s, with the promise that they’ll someday be rewarded. He can hire people to work for him, often enticing them with stock options which would be worthless if the company failed. He can persuade customers to buy his company’s products. Of course the only way he’ll succeed is to give them better value, either with service, quality or lower price. He also has to make his suppliers happy. 

All of these transactions are uncoerced and, as a result, mutually beneficial. They also involve a certain amount of risk from both parties, but if they’re not satisfied (or if a better deal comes along), they can leave. E.g., a customer can return an order or employee can quit and go work for a competitor. And, yes, it also means Bezos can, and does, fire employees. I’m sure he’s also terminated suppliers as well, and replaced them with others. 

How do social democracies pass the coercion test? Not well. Everything the government does involves force. K-12 public schooling is a good example. The entire system is based on compulsory funding, curriculum and attendance. If, as a parent, you object to what the school teaches (which is increasingly pro-government propaganda, especially regarding history), you can’t get a tax refund and decide how your child spends his formative years. The closest you can come is homeschooling, but you are still under the thumb of the state. 

But what about “democracy?” Doesn’t this give people choice? It gives a majority the ability to choose between two candidates who may or may not represent their views. In fact, it’s statistically impossible for ANY candidate to represent one’s views and choices fully. 

The Founders were fearful of democracy and tried (unsuccessfully) to limit its abuses. Madison warned, “Democracy was the right of the people to choose their own tyrants.” Jefferson was just as harsh: “A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine.” 

The evidence that government-run schools are a danger is that these lessons have been lost.

~ Kevin Duffy, Quora answer, October 26, 2020

Kevin Duffy on amateur hour at the casino (2021)

Christoph Gisiger: What's your general advice for investors who want to invest their money in a reasonable and prudent way in this challenging environment? 

Kevin Duffy: If you want to live off the grid and live off of fruits, berries or coconuts, that’s one thing. But if you want to accumulate wealth or protect it, you’re in the investment game. You don’t have a choice. So you have to ask yourself: Who are your competitors out there? First of all, I don’t want to compete in the short-term trading arena with high frequency traders like Ken Griffin, the CEO of Citadel. That’s like competing against Tiger Woods on the golf course. The reason why guys like Griffin are doing so well is because you have a bunch of amateurs trying to compete with them.

~ Kevin Duffy, "The Next Bear Market Has Already Started," The Market/NZZ, July 1, 2021

Phil and Kevin Duffy on speculation

False prophets lead to true losses.

~ Philip Duffy and Kevin Duffy (joint effort), October 6, 2008

Tom Glass and Kevin Duffy discuss climate change computer models

Glass: As one trained in the sciences and one who worked in IT as a career, I know the difference between science and a computer model.

Before a computer model can be relied upon to take drastic action, denying people liberty and destroying their prosperity, good sense would demand that we check the model to see if it predicts reality well. (That is called science. You know, checking your hypothesis embodied in the computer model against reality to see if it matches observed results.)

To date, I am unaware of any climate computer model that has accurately predicted climate. Until we get one that does, I will oppose the destruction of our liberty and prosperity that ALWAYS seems to be the proposed "solution" to the hypothetical problem.

Duffy: Well said, Tom, but I'll go even further. Let's imagine some day the computer models prove accurate and that there's a serious problem. Are you ready to destroy liberty and prosperity to solve it? Or might that complex adaptive system called the free market have a better chance?

Glass: I agree!

~ Tom Glass and Kevin Duffy, Facebook exchange, February 5, 2020

Kevin Duffy and Jeremy Hammond on participatory democracy, i.e. voting

Duffy: A key pillar of the statist belief system is participatory democracy.  Everyone gets a say (or vote), no matter how ignorant they are of the inner workings of the system.  This way critics like us are more easily dismissed.  Normally, 10,000 hours of study would qualify us as "experts," but not in this case.  There are no valued experts on the system itself.  It's simply assumed to be the greatest system of societal organization ever conceived by mankind.  To suggest otherwise is to be dismissed as a heretic. 

Hammond: Ah, yes, a huge part of the problem is the compulsion to vote—or as I prefer to describe it, to act to legitimize the criminal organization in Washington. I don't want to bicker over which head of the beast should devour us; I want to slay the beast.

~ Kevin Duffy and Jeremy Hammond, email exchange, April 29, 2026

 

Kevin Duffy on the selfishness and irrationality of capitalism

Q: Why is libertarianism not generally called pro-capitalism?  Is it just a way of saying you support a more extreme version of free market capitalism?

A (partial): What I fundamentally dislike about libertarianism is how selfish it is.  I also resent how many of them assume their positions are preeminently “logical,” and that their own superior reasoning “proves” the superiority of their myopic worldview.  Human beings are not rational machines.  They are not fundamentally logical.  We are far more nuanced than that.

Duffy comment: You have a point. Individuals act in their own self interest.  They also can act irrationally at times, especially when in crowds. 

Fair enough, but shouldn’t we apply the same principle to government officials?  What puts them above these human foibles? 

The difference is that individuals trading with others must use persuasion, i.e. they have to make each other better off.  Call it selfish all you want, but free markets are mutually beneficial, win-win.  This doesn’t mean people don’t make mistakes or have regrets after the fact, but going into the trade, they only do so if they expect to benefit.  And when things don’t work out, that failure imparts information.  People learn. 

Government officials, on the other hand, use coercion.  THEY decide what is best for society and tell everyone what to do.  Resist and you end up in jail or worse.  The political class (the government and its cronies) lives at the expense of the populace, win-lose.  These people are far from selfless.  In fact, they lie, cheat and steal all the time. 

This is not to say the people have no say in the matter, but it is the majority who count, not the minority dissenters.  Government officials know this, which is why they constantly play to the crowd.  Their stock in trade is propaganda which works by simplifying the complex to a political slogan, playing on peoples’ fears and pitting one group against another. 

The defenders of such a system can only do so with semantics, calling mutually beneficial trade “exploitation” and government coercion “selfless.”  Sorry, but your system is built on brute force.  No amount of spin can give it moral superiority over a system of freedom.

~ Kevin Duffy, Quora, May 13, 2022

Bill Laggner and Kevin Duffy on the coming political backlash

Barron's: Speaking of a backlash, we now have Goldman managers toting guns to protect themselves from populist rage. At what point will society demand some sort of change from the government?

Laggner: A client sent me an e-mail the other day in which the tea-party demonstrators are getting a higher approval rating than the Democrats or Republicans. There is a backlash building, and that's a very good thing. But it's a process. As the arrogance level of central bankers or the money-center banks continues to grow, 2010 and the mid-term elections will be very exciting.

Duffy: Last year, 70% of the people were opposed to the bailout. And so far, through these massive interventions, government has been able to stabilize the financial system. But you have this divergence between the real economy and the political economy. People are still hurting. Consumer confidence has not rebounded like investor confidence has. If we are right, and we are heading for the next leg down, that's when I think all bets are off. If the political economy and some of those who got bailed out are back asking for another bailout, that's when the backlash really starts to heat up.

~ Bill Laggner and Kevin Duffy, "Shorting the Economic Recovery," Barron's, December 28, 2009, by Robin Blumenthal

Kevin Duffy on exploitation

Quora: How do libertarians address the issue of exploitation?

Duffy: Libertarians differ from most when addressing the issue of exploitation in two fundamental ways. First, they view exchange at the individual level vs. the abstract level. E.g., the “U.S.” doesn’t trade with “China.” Apple engages in various exchanges with Chinese employees, suppliers, consumers and shareholders. Second, they focus on the nature of the exchange. Is it coerced or voluntary? If coerced, exploitation exists; one party benefits at the expense of the other. If voluntary, both parties enter into the exchange because they expect to benefit. The operative word, of course, is “expect.” There are no guarantees and people often look back at decisions with regret. All part of the learning process. The future is uncertain and always will be.

Through the libertarian lens, what are some examples of exploitation? At the individual level, the answer is clear: rape, murder, robbery, fraud.

Greedy capitalists

What about at the abstract level? Do "greedy capitalists" exploit "helpless workers?" As long as no one is putting a gun to anyone’s head, no. If an employer and employee agree to an exchange, both parties expect to benefit. The employer prefers the labor services of the employee over the wage he’s willing to pay. The employee prefers the money he receives above the time spent doing the work. Win-win. If either party feels they are no longer benefiting, they are free to walk away (unless there is a contract that commits both to a certain amount of time).

Trade deficit with China

Is China exploiting the U.S. because they run a large trade surplus? Again, no. Since the exchanges involved are all voluntary, they must be mutually beneficial. Apple sells iPhones to Chinese consumers. Apple receives money (they have a money surplus and goods deficit) while the buyer receives an iPhone (they have a money deficit and goods surplus). Walmart buys products from Chinese suppliers. Even though they run a money deficit, they do so willingly… because they benefit. Walmart's Chinese suppliers run money deficits with their employees. Again, both parties benefit. Trade surpluses and deficits are an accounting fiction. Do you worry about running a chronic trade deficit with your local grocery store?

Sweatshops

Does a multinational firm setting up a factory in a poor country exploit its workers? If entered into freely and peacefully, the exchange only takes place if both parties benefit. E.g., if Nike builds a sneaker factory in Bangladesh, they must make the wages and work environment enticing enough to attract workers from their current jobs. They have to give them a better deal. They have to improve their lives. Some call this “unfair.” Libertarians call it heroic.

Taxation

How does a libertarian judge taxation? Is this a voluntary, mutually beneficial exchange or is it coercive and exploitative? The question answers itself.

~ Kevin Duffy, Quora answer, February 9, 2020

Kevin Duffy: Did the Fed force Main Street to play at the casino?

Q: Did the Fed with its monetary policy force Main Street to play at the casino? 

Duffy: While I understand the damage the Fed has done, no one is forcing these people into the casino. In fact, when Robinhood temporarily shut the casino doors on sure losers like GME and AMC last week, people like AOC, Ted Cruz and Donald Trump, Jr. cried foul. 

No, these people are taking out their anger - at financial bailouts, at billionaires, at a "rigged system" - by turning themselves into compulsive gamblers.  Ok, they won a round of high stakes poker with an audacious and reckless bluff. It worked, congratulations.  Now what?  This will not end well.  It's tragic.  The last thing people should do is cheer them on based on their own distorted worldview.

~ Kevin Duffy, comment on Mises.org article, "The GameStop Rebels vs. 'Too Big to Fail'," Mises.org, February 2, 2021

Kevin Duffy on gurus as contrary indicators

Gurus seem to appear at major turning points. Let’s not forget Harry Dent (who is wildly bullish and still employed). In fact, nearly all of the gurus who were bullish in 2000 still command an audience (Jim Cramer and Larry Kudlow even got a raise) and remain unapologetically bullish. Jim Glassman and Kevin Hassett (Dow 36,000) still have jobs; I believe both are still bullish (“we were right, just early”). Technology pied pipers like Alberto Vilar (Amerindo), George Gilder, and Garrett van Wagoner still draw large crowds to conferences.

So the guru indicator is clearly bearish. Btw, remember Ravi Batra, popular author of The Great Depression of 1990? Talk about a buy signal! It was #1 New York Times bestseller 26 weeks running at the time. In 1999 he published a book called The Crash of the Millennium: Surviving the Coming Inflationary Depression. Anyone remember? I didn’t think so. Not a bad call, though no one cared to buy his book. Prechter is super-bearish and largely dismissed as a crackpot. Perfect. Can we script the coming bear market any better?

~ Kevin Duffy, Bearing Asset Management, December 7, 2004

Kevin Duffy on the bull case for gold

Gold can be seen as an insurance policy against macro risks: inflation, hyperinflation, recession, depression, taxation and confiscation.  It competes with other perceived safe haven assets: fiat currencies, government bonds, consumer staples stocks and, some might argue, bitcoin.  The bull case is straightforward: black swans are lurking, gold’s competitors are lacking and sentiment is bearish.

~ Kevin Duffy, The Coffee Can Portfolio, p. 21, January 24, 2023

Kevin Duffy on the causes of the credit bubble

The bubble has been created by two forces. First, you have the central bank baiting the hook by driving interest rates through the floor and making credit irresistible. Then you have the bankers and borrowers taking the bait, creating the cheap money that fuels the bubble.

~ Kevin Duffy, Bearing Asset Management, "Setting a Course With Bearing Asset Management," Motley Fool, April 11, 2007, by Matt Koppenheffer

Kevin Duffy on the left-right political spectrum

The left and right are ideological twins separated at birth.

~ Kevin Duffy

Kevin Duffy on the coming recession

The reason I expect the worst recession of this generation is that the excesses of the previous boom, fed by a decade of ZIRP (zero interest rate policy), must be cleansed.  The magnitude of the bust is proportional to the boom that preceded it, and this one broke all records.  A one-year, garden variety bear market won’t do the trick.  If ultra-low rates encouraged too much debt, borrowing more money, at significantly higher rates no less, can only dig the hole deeper.

~ Kevin Duffy, The Coffee Can Portfolio, p. 18, January 24, 2023

Kevin Duffy on the problem with artificial stimulus

The problem with artificial stimulus is 1) it distorts the economy and 2) eventually it wears off. Just as government coffers were artificially stuffed with capital gains tax receipts from the tech boom (especially in CA), how much is the current level of consumption propped up by artificially cheap and available credit, whether it be provided by the Fed, Fannie Mae, public pension funds reaching for yield, the banks plying the carry trade, or Japan's and China's central banks? People have a twisted sense of reality, that they're entitled to perpetually rising home values, eternally low interest rates, and the kindness of strangers. Four years ago the same people thought they were entitled to a perpetually expanding economy and ever-rising tech portfolios. That people haven't learned the simple lesson that there is no free lunch with regards to Fed-engineered low rates, means the bear hasn't done its job… and isn't finished.

~ Kevin Duffy, Bearing Asset Management, April 7, 2004

Kevin Duffy on Love Canal, a "Big Lie in plain sight"

Here is an example of official narrative: Love Canal. For the official version, go to the EPA's website: https://archive.epa.gov/epa/aboutepa/love-canal-tragedy.html. Notice that the lead-up to the crisis is short, while the crisis part is in horrific detail. 

Now go the the Wikipedia page, a relatively neutral site:
https://en.wikipedia.org/wiki/Love_Canal. If you read the section "Sale of the site," you'll notice some important details were left out by the EPA.

Curious to know what really happened from an investigative journalist? Check this out: https://reason.com/1981/02/01/love-canal.

The real story is almost 180 degrees from the EPA version. Yet this Big Lie in plain sight continues to be perpetuated by documentarians to this day.

~ Kevin Duffy

Kevin Duffy on the trouble with credit expansion

This new money [inflation] is never evenly distributed, but instead gets funneled into whatever narrow area happens to capture the public’s fascination. As prices and valuations soar, greater doses of credit are required to keep the game going. Either more marginal borrowers are drawn in at ever more precarious levels or greater leverage must be applied to existing borrowers. This is what ultimately doomed the housing bubble. In the end, nearly anyone who could fog a mirror was getting an invitation to join the party.

The trouble with pyramid schemes is that they’re not designed to go in reverse. Eventually, the number of willing dupes is exhausted. The same people who panicked late to get into the game are just as likely to panic when the music stops. The longer the music plays, the more leveraged and unstable the inverted credit pyramid becomes. As the late economist Hyman Minsky observed, "stability is unstable."

~ Kevin Duffy, Bearing Asset Management, "It's a Mad, Mad, Mad, Mad World," May 22, 2007

Kevin Duffy on what ails the economy and stock market

The economy suffers from sclerosis, central bankers from psychosis, speculators from hypnosis and the stock market from halitosis...

~ Kevin Duffy, tweet, July 20, 2021