Power & Market
In the words of Ronald Reagan, here we go again. The unbelievable hatred that Democrats, liberals, progressives, and the mainstream press have toward President Trump continues to consume them, with the latest manifestation being a second impeachment of President Trump, just a few days before he leaves office.
Isn’t the purpose of an impeachment to remove a public official from power? Trump is out of power on January 20. The impeachment trial won’t even be held until after January 20. What’s the point?
I’ll tell you the point: hatred — deep, unfathomable, all-consuming hatred for Donald Trump.
After all, if Trump committed a criminal offense by “inciting” an insurrection, a rebellion, a revolution, or a Reichstag Fire, as his detractors are claiming, there is a remedy for that: a criminal prosecution. The Justice Department under President Biden could secure a criminal indictment against Trump the day he leaves office or afterward.
So, why go the impeachment route?
One big reason is the hope that if they can convict Trump, they can then go one critically important step further by voting to disqualify him from ever running for public office again, especially for the presidency.
Trump, of course, has suggested that he might run again in 2024. He already has many millions of dollars in the bank to finance another run. The last thing the Democrats and the mainstream press want is to have Trump back on the campaign trail spouting “End the steal by electing me again.” Given their obvious aim to forever bury any reference to the possibility of fraud in the 2020 election, including by censoring people or simply labeling them as traitors, to have Trump running again spouting off about a fraudulent election would be their worst nightmare. An impeachment conviction followed by a disqualification vote would end that threat.
What is it about Trump that has engendered so much deep hatred and rage among the left?
After all, from a libertarian standpoint, Trump’s term has been an absolutely disaster. His Berlin Wall along the border which he promised would be paid for by Mexico but that was actually financed illegally through the use of a Pentagon slush fund. His destructive trade war with China. HIs continuation of the Pentagon’s and CIA’s forever wars that he promised to end. His deadly and destructive sanctions against Iran. His stoking of a crisis with North Korea, only to fall in love with a communist dictator. And much more that go against the principles of libertarianism.
Yet, despite all of Trump’s anti-libertarian actions, there is no deep visceral hatred among libertarians for the man, as there is among people of the left. In fact, some libertarians even like or respect the guy.
Why is it so different for those on the left?
After all, it’s not as though there are philosophical differences. Both the left and the right, including Trump, favor things like Social Security, Medicare, Medicaid, welfare, the welfare state, farm subsidies, trade restrictions, the Federal Reserve, income taxation, the Pentagon, the CIA, the NSA, the FBI, foreign bases, foreign interventionism, coups, alliances with dictators, foreign aid, the drug wars, and much more socialism, interventionism, regulation, militarism, and empire.
And it’s not like the hatred began with the recent Capitol melee. It actually stretches all the way back to the very beginning of Trump’s administration, when the hatred so consumed the left and the mainstream press that they spent the first two years convincing themselves, falsely, that Trump was a covert Russian agent, one whose assignment was to deliver America into the clutches of the nation’s Cold War rival. When that investigation went nowhere, it was followed by Impeachment I, which also went nowhere.
Consider Impeachment II. It provides another good example of the deep hatred that absolutely consumes these people. How much time and deliberation went into that vote? Answer: None. It was done immediately without the careful consideration that should always go into such an important decision.
Blinded by their deep hatred of Trump, the left and the mainstream press would respond, “What is there to deliberate? It’s clear that Trump is guilty of inciting an insurrection.”
Moreover, it’s not at all clear that what happened at the Capitol was an “insurrection” or “rebellion” or a “revolution” or a “coup” or a “Reichstag Fire.” It might actually have been nothing more than a peaceful protest gone awry, as protests and demonstrations sometimes do.
Regardless, if Trump himself didn’t do anything illegal, then why should he be impeached? Is the impeachment process to be used to remove a president simply because he is hated by the opposing party or because they disagree with his words or policies?
Indeed, as a libertarian I’d ask why mere words should ever be used to convict a person for “inciting” another person to act. Don’t people have free will? Those Capitol protestors were not automatons or even military personnel. They were perfectly able to say “No” to anyone who “incited” them to engage in illegal conduct. Why should a person who “incites” illegal conduct with mere words but doesn’t actually participate in the illegal conduct be liable for criminal behavior willingly committed by others?
But here’s the point: Why shouldn’t these issues have been carefully discussed and deliberated prior to the impeachment vote? Why weren’t there constitutional and legal scholars summoned to testify as part of the impeachment decision to give their legal opinions on whether Trump has done anything to merit removal from office?
Answer: Because deep hatred causes people to act in impulsive and irrational ways.
Would you like to know the real reason for the deep, unfathomable, uncontrollable hatred and rage that these people have for Donald Trump?
I’ll tell you what it is.
It is acceptable practice for any politician and bureaucrat to criticize things that happen within the Washington, D.C., sandbox in which these people play. But woe to the politician or bureaucrat who challenges the sandbox itself. He is toast.
No president since John Kennedy has dared to do that. Kennedy did it, especially in his famous Peace Speech at American University five months before he was assassinated. He said that the Cold War was a crock and that he was calling an end to it, which, needless to say, constituted a grave threat to the sandbox in which the national-security establishment had been playing and hoped to continue playing for the indefinite future.
We all know what happened to Kennedy, or at least those of us who are not afraid to examine and challenge the dark inner workings of the national-security state sandbox. No president since Kennedy has dared to do that … until Donald Trump came along.
No matter his faults and failures and poor policy decisions, there is one indisputable fact about Donald Trump: He is not like the rest of the Republican and Democrat politicians or their followers and supporters in the mainstream press. During his campaign, he called them out all. He challenged their sandbox or, if you will, their swamp. He appeared to be willing to take on the military and its forever wars as well as the intelligence community and its nefarious, dark-side activities. He garnered lots of support and votes for that stance.
That’s why they hate him. No politician or bureaucrat is supposed to do that. And certainly no president is supposed to do that. Trump was a threat to their established order. He had to be smashed. He has to be terminated. That’s why they are trying desperately to ensure that he departs the political scene and is never permitted to return.
Oh sure, it’s true that for some unknown reason Trump ended up caving to the national-security establishment. Early on, he surrounded himself with generals and warmongers and decided to continue their forever wars. He also surrendered to the CIA’s demands to keep its 50-year-old JFK assassination records secret on the false claim that their disclosure would threaten “national security.”
Nonetheless, the die had been cast. Trump had committed the mortal sin of any national-security state — he had questioned the system itself. He had to go. They have to send a message that this type of thing will never be permitted again.
The action axiom can be stated as follows (Cf. Rothbard [1962, 1970] 2004, pp. 1–2, 7–8, 19–20; Rothbard, 2011, pp. 113, 290; Mises,  1998, pp. 14–16): “Human beings engage in purposive behavior—i.e., they choose which scarce means are to be more fruitfully (or economically, or rationally) employed in order to satisfy their most preferred ends. This behavior—stemming from human free will—is what we call action. As long as means are scarce and wants are not fully satisfied, human beings will keep on intentionally (or purposefully) acting.”
Why is this an axiom? Because you cannot disprove it without either conceding its truth or incurring a self-contradiction (Cf. Rothbard 2011, pp. 6, 10; Rothbard  2002, p. 32 and 32n6). In fact, anyone trying to disprove the action axiom would indeed engage in purposive behavior—i.e., he would be employing scarce means (his time, his intellectual labor, etc.) in order to achieve a preferred end (trying to disprove the action axiom instead of, say, watching TV or reading Rothbard). Therefore, the action axiom denier would either contradict himself—claiming the untruth of a statement he is instead performatively proving to be true—or be forced to concede the truth of the axiom itself—because otherwise he could not maintain to be acting in the sense we defined above.
The Action Axiom and “Microeconomics”
Generally, microeconomics textbooks frame the main tenets of consumer (and, analogously, producer) theory as follows: “Consumers are supposed to be rational—i.e., they employ scarce means to attain desired ends. Moreover, consumers’ preferences are assumed to feature (at least) the following properties: completeness, transitivity, and non-satiation.”
As I will briefly explain, it is very easy to derive these properties from the action axiom itself. There are many other properties of human behavior that we could derive from this axiom—such as, e.g., time preferences, the law of diminishing marginal utility, and the law of optimum returns—but those will not be examined here.
First, consider “completeness”—i.e., human beings’ capability of always ranking alternative ends. Since action requires having preferred ends, it also entails that human beings will act if and only if they indeed have ends they want to achieve—i.e., they are willing to act in order to substitute a state of the world with a more desired one. In other words, were human beings not always capable of deciding between at least two possible ends and ranking them (e.g., B is preferred to A, or vice versa), they simply could not act (Cf. Rothbard 2011, pp. 305–07). But, as we saw above, action is an axiomatic truth of human nature—we cannot conceive of nonacting human beings. Therefore, action itself implies complete preferences—i.e., human beings need to be always capable of ranking the various potential states of the world (A, B, C, etc.) they can attain while engaging in action.
Second, consider “transitivity”—i.e., if I prefer A over B and B over C, then I must also prefer A over C. Again, it is straightforward that absent transitivity human beings would not be capable of conclusively ranking preferences—hence, they would not have precisely definable desired ends to struggle for. Consider, for instance, the simplest possible case: Fabrizio is faced with the possibility of employing some means (say, one hour of his labor) in order to attain one among three alternative ends—A, B, and C. However, suppose also that he prefers A to B, B to C, and then C to A; the question now arises: How could he act? In fact, it is obvious that he would face a paradox—not being able to decide which end is to be pursued and which ones are to be foregone. Again, this proves that transitivity is directly—and easily—derived from the action axiom: men with nontransitive preferences would not be able to act—but this would contradict their nature as human beings!
Third, consider nonsatiation. Here, suffice it to say that “a man perfectly content with the state of his affairs [i.e., satiated] would have…neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care” (Mises  1998, p. 13). Again, denying nonsatiation of preferences would be tantamount to denying the acting nature of human beings. Thus, we proved again (via reductio ad absurdum) that nonsatiation is consistently derived from a true axiom—and must thus be itself true.
There are two other properties that conventional microeconomics textbooks ascribe to economic agents’ preferences—namely, continuity and convexity (i.e., consumers are assumed to love goods’ variety). Suffice it to say that while convexity can be postulated (but need not be, since it is not directly derived from the action axiom), the assumption of continuity is simply wrong—because human action does always involve choices among discrete, noncontinuous units (pounds of bread, gallons of milk, haircuts per year, etc.) (Cf. Rothbard [1962, 1970] 2004, pp. 130n27, 305–07).
The Action Axiom and Ethics
If the fundamental feature of human nature is that human beings act, then what does this (a priori) truth imply for other branches of human sciences? Take, for instance, the task of building a rational (i.e., a priori true) ethics of human liberty.
Starting from the action axiom, we can, for instance, build a rational and cogent argument for human beings’ natural and absolute self-ownership—i.e., any human being shall be the sole owner of his body, his labor, and his mind (namely, his choices, his values, his free will, etc.). In fact, let’s assume the simplest possible case: there are two persons—A and B. Now, there are three possible arrangements (Cf. Rothbard 2011, pp. 353–54).
First, we can assume that A is the owner of B (or vice versa). However, if A is the owner of B, then B is A’s slave—and slaves, by definition, are not free to act as they will. But if B is no longer capable of free-willed action, then he would no longer be a human being as we defined this concept (i.e., acting man) above. But this would imply a paradox—B being a human being in our hypothesis but no longer being one in our conclusion. Hence, this first arrangement is to be discarded as self-contradictory.
Second, we can assume that A owns a share of himself and a share of B (and vice versa). However, this would entail that A cannot act without B’s approval (and vice versa). But, for B to approve A’s action, B is required to purposefully cast a vote approving such an action (and vice versa). But then we reach again a paradox: A cannot act without B’s consent, but B’s consent is itself an action requiring A’s approval, but A’s approval is itself an action requiring B’s consent, et cetera—an infinite regress. But if both A and B’s action is stalled, then neither A nor B can act—and, if they cannot act, they are at odds with their nature as human beings (i.e., acting men). Hence, again, this second arrangement is to be discarded as paradoxical.
Lastly, we are left with the third option, the only consistent—i.e., noncontradictory—solution to our problem of human beings’ ownership: both A and B are to be self-owners. No other arrangement is compatible with human nature—i.e., action as deliberate choices employing scarce means in order to achieve preferred ends.
Economics has conspicuously departed from its Mengerian-Misesian-Rothbardian framework as a purely deductive science. By doing so, mainstream economists have forgotten the epistemological groundwork of economics, abandoning proper praxeological analysis, neglecting the apodictical (a priori) truths of praxeology, and imitating empirical (a posteriori) sciences. In the end, this departure from the Mengerian-Misesian-Rothbardian framework has proved detrimental for (at least) two reasons.
First, it prompted mainstream economists to justify their assumptions as “operational” (or “heuristic”) hypotheses—like empirical scientists do—instead of acknowledging the a priori truth of praxeological tenets. Second, it undermined sound and rational analysis even in other branches of human sciences—such as ethics—thus leaving intellectual room for moral relativism, postmodernism, and collectivistic ideologies.
A fifth of all US dollars ever created are just under one year old. In about the same time, bitcoin has quadrupled in value. Currency competition is here, but the blessing for consumers is seen as a serious threat by the oligarchical elite.
Just as our country is reaching a cultural and political crossroads, so too is there an economic rubicon to be crossed. Beyond any other social issue, however, Americans must take a greater interest in their money.
The reason is simply that fiat money systems have always ended up in the dustbin of history. Too often, it’s the same result for a civilization’s freedom and prosperity, even its claim to self-determination. What’s truly frightening is that the whole global economy is now under such a system of fiat, with the US dollar as the world’s reserve currency.
Central banks and other behemoths of government and business have an interest in making any monetary transition as smooth as possible for themselves while also maintaining or increasing their current influence on markets. The solution is likely to be a central bank digital currency, known as a CBDC, portending a cashless future.
Thankfully, there are more free market-oriented innovations that serve the average American consumer’s best interests. Those would hedge against inflation, keep their purchasing power and storage of value long term, and also allow at least some privacy protection against traceability.
The most obvious recent example of the latter is bitcoin, which is not a fiat currency, meaning it is not decreed into existence by government or central bank officials. The cryptocurrency broke a new value record of $42,000 on January 8. Its rise over the last decade reflects deep concerns for the US dollar’s fate.
“Bitcoin definitely created a revolution,” said Daniela Cambone, editor at large and anchor with Stansberry Research, on a recent episode of the Ron Paul Liberty Report. “It is a protest against the US dollar and other currencies.”
“It is giving power back to the people,” Cambone added before noting that the covid-19 lockdowns have “caused a lot of people to have more time to reflect about their money.”
Now, Cambone is no bitcoin booster. She is unsure of its long-term value. However, the undeniable point is that bitcoin is becoming a perceived safe haven for value storage, at least in the short term.
That’s not thanks to any monetary dictator or board of expert economists. It’s a result of free and voluntary exchanges. That process should not only be allowed to continue, but should be further expanded into a truly unhampered market for currency competition.
When he was a congressman, Dr. Ron Paul introduced legislation to legalize currency competition. Paul sought the repeal of legal tender laws, which codify powers not authorized by the Constitution in the first place. His bill also called for a repeal of prohibitions on private mints and laws imposing capital gains and sales taxes on coins.
The last such law proposed was the Free Competition in Currency Act of 2013, introduced by former Representative Paul Broun (R-GA). Hopefully another version of this bill emerges soon; the new Sound Money Caucus, led by Representative Warren Davidson (R-OH), was announced this past summer.
How urgent is this issue for Americans? Well, how stable does the country feel at the moment? In times of uncertainty or even great crisis, money alternatives are essential for many kinds of transactions, especially for politically marginal or oppressed groups.
Take a moment to review human rights activist Alex Gladstein’s Twitter thread documenting more than a dozen situations worldwide where Bitcoin is used to get around arbitrary government obstacles.
Americans are increasingly aware of the control over free speech online, and soon they may also learn of widespread denial of services such as payment processing for anyone deemed too politically incorrect. To protect against that, currency competition should be encouraged.
The takeaway here is not that bitcoin or silver or gold are destined to replace the dollar. They may or may not. No matter what, it should never be illegal to do honest business in America, even if that means a transaction isn’t denominated in US dollars.
For all the hullabaloo that surrounds the “Defund the Police” movement, we forget that our fellow citizens have legitimate concerns that must be openly and honestly discussed. Although the defund the police movement is surrounded by controversy, libertarians, conservatives, and liberals alike can find common ground in the sort of law enforcement that is required for a safe and secure neighborhood.
Those who embrace individual freedom and liberty should take the defund the police movement seriously. The driving force behind defunding the police is the thirst to govern our communities, and ourselves, without government coercion. If we defund the police, it must follow that communities are empowered to “police” their own neighborhoods as they see fit. Without government-sponsored police, law enforcement is privatized. And this is a good thing!
Libertarians hold the political philosophy that an individual needs to be recognized as such. Rights can only be applied to the individual, not to a group of individuals. The most supreme right of them all is the guarantee that personal property and individual freedom are never violated, without exception. This means that the rights to life, liberty, and the pursuit of happiness are not just ideals we strive for but actual rights that each individual person has been born with. These rights are not granted, given, or awarded to anyone by anyone. Instead, these rights are inherent in man’s existence and cannot be infringed upon by anyone or anything. The government is not exempt from this truth. No government, or individual, can violate the inherent right each person has to life, liberty, and the pursuit of happiness. Policing our communities is no different.
It is widely accepted that law enforcement is the responsibility of government. However, we must recognize that each community requires a different approach to policing. When considering population size, community diversity, resources available, etc., we can see that the law enforcement needs of places like New York City will necessitate a different approach from the one for Coeur d’Alene, Idaho—no matter how small the nuance. It is hard to deny that each specific community requires a unique approach.
Although the general theory of American individual liberty is recognized as good—life, liberty, and the pursuit of happiness—it is difficult to apply this theory to real-world circumstance. This is why the defund the police movement mistakenly conjoins two contradictory goals: (1) the freedom to police for communities to police themselves as they see fit, and (2) a heavy-handed government to make sure that happens.
The freedom to do what is best for your individual circumstance and a strong authority figure to enforce compliance cannot coexist. Unavoidably, the right to police the community you live in as you see fit will clash with some strong authority figure who wants to decide for you what they think the right way to police is. The ideal of people choosing what’s best for themselves becomes others deciding what’s best for them.
There are as many different opinions about what good policing looks like as there are politicians who lie—we couldn’t begin to count that high, even if we tried! The premise is correct—we must overhaul what policing looks like in practice—but the conclusion is wrong. Replacing one authority figure with another in order to rectify policing issues will not solve the problem.
Surely, the most ardent propolice individual must admit that a community where people feel safe is the prime goal, whether that is achieved through traditional policing or not. If we can offer people a safe community, is it important if that safety is achieved through a private company? Are we to believe that a community would reject a safe neighborhood merely because that safety was provided by a private company, rather than the government? I think not!
The defund the police movement makes a poignant case against the current system of policing and community involvement by the government. By uniting behind the cause of privatizing the police, we will make strides toward a safer and more respectful community.
History has shown that government will prioritize revenue and power over the safety of citizens. Enforcing arbitrary laws (like parking tickets) to generate revenue from fines, government funds bloated pensions and expands union control—and the safety and well-being of citizens takes a back seat. We can see this reality playing out in cities like Chicago, Baltimore, and Detroit. In Baltimore, government spending on police is more than half a billion dollars per year. Such a massive amount of money expended in the name of safety has produced one of the most dangerous cities in the United States.
There is a real, undeniable problem in minority neighborhoods—drugs, violence, and theft—and we must face that problem. The belief that the system (i.e., the police, government, capitalism, etc.) unfairly treats minorities (skin color, sexual preference, sexual identity, etc.) is a mainstay in modern culture and cannot be ignored. There is a prevailing belief that systemic racism has forced minority groups into a life of crime. Because government has a monopoly on law enforcement, there can be no solution that does not include cartel-like control without tearing down the entire system. This is why groups like Black Lives Matter believe that defunding the police is not a mere catchphrase—it is a call to reimagine the “system” in its entirety.
Although some state and local governments have agreed to “cut” law enforcement spending, calls for defunding the police have persisted. Appeals for compromise will go unheard. And this is a good thing!
Defunding the police and revamping law enforcement are legitimate goals that need to be addressed. Libertarians, conservatives, Republicans, and all other members of society should strive to recognize this ubiquitous issue.
The message of “defunding” the police is correct, even if the conclusion on how to fix bad community policing is not. It is true that government-sponsored policing has been, and is, destructive to some communities. We see this destruction nightly on our news channels. Elected officials have used law enforcement for their own protection, rather than for the protection of their constituents. Chicago mayor Lori Lightfoot used police as a personal protection service for her home as buildings burned and protestors looted stores nearby. Politicians claim gun laws are our way to salvation as they are escorted by an armed cadre of bodyguards. The police have been enlisted as a political tool rather than for public safety. It is hypocrisy at its finest!
Without government monopoly on law enforcement, no such abuse by politicians can exist. Why? Because paying customers are given preference, regardless of political standing.
The premise that a community has the right to decide how best to protect their neighborhood is a by-product of individual freedom. The defund the police movement is right: the government should have no say about how to police a neighborhood if that neighborhood doesn’t want the protection the government is offering. Forcing a community to accept whatever solution the government proposes has resulted in distrust of law enforcement personnel, runaway government spending, and the militarization of the police.
The conclusion the defund the police movement has come to—replace one government-controlled police force with another—is unfitting. The answer to creating a safer, more inclusive community is not through more government oversight and political heavy handedness. No! The answer is for the people to establish what works best for them in their individual circumstance. This is accomplished by privatizing law enforcement.
It is amazing to me that President Trump has pardoned some people whom he considered heroic while continuing to leave Julian Assange and Edward Snowden, two genuine heroes, in the lurch. Assange, of course, is getting the worst of it, given the brutal conditions under which US and British officials have incarcerated him in England. But it still can’t be a bundle of joy for Snowden to be living in Russia, given the societal jail-like environment that comes with living under the Russian regime.
Consider Trump’s pardons of two former Border Patrol agents, Ignacio Ramos and José Compeán. They were chasing an undocumented immigrant who was fleeing back to Mexico. The best account of what happened was detailed in a Texas Monthly article entitled “Badges of Dishonor.”
When the immigrant, Osvaldo Aldrete Dávila, held his hands up and tried to surrender, Compeán swung at him with the butt of his gun. Aldrete Dávila then ran and both agents began firing at him. A bullet hit him in the buttock but he was able to make it back to Mexico.
The two agents then did their best to cover up their actions. They retrieved their shell casings and threw them into a ditch. When later investigated, they said that they had seen a shiny object in the victim’s hand and thought it was a gun. In their later criminal prosecution for assault, a federal jury concluded they were lying and convicted them.
One of the first things I learned as a kid from watching westerns on television was that you never shoot someone in the back. Doing that is about as cowardly and shameful as you can get.
But not according to Trump as well as a coterie of his conservative cohorts, They consider Ramos and Compeán to be real heroes for “defending our border.” They point out that Aldrete Dávila’s vehicle contained seven hundred pounds of marijuana, as if furnishing pot to Americans who wish to smoke it is some sort of horrible offense. Never mind, also, that at the time they were firing their guns at Aldrete Dávila’s back they didn’t know about the pot.
Trump also pardoned another former Border Patrol agent, a man named Gary Brugman. He got convicted for brutally assaulting undocumented immigrants after they were already in captivity and behaving peacefully.
Trump also pardoned Joe Arpaio, the anti-immigrant, crusading former Arizona sheriff who was convicted of contempt for refusing to comply with a court order to cease racial profiling.
He also pardoned Blackwater personnel who were convicted of killing innocent Iraqis.
Now compare those people to Assange and Snowden, two men who have risked their lives, liberty, and well-being to disclose the truth about evil and immoral actions of the US national security establishment. That’s why the Pentagon, the CIA, and the NSA are going after them with vengeance—because they told the truth about the US government.
Will Trump pardon these two genuine heroes? He might yet surprise me, but I doubt it because we can see from the people he has already pardoned that his values are warped and perverted. But he still has two weeks in which to do one right thing before he exits the White House.
Given covid, the mutation, lockdowns, BLM protests and riots, the storming of the Capitol, impeachment and the first Biden stimulus bill on the horizon, it’s easy to miss headlines from the Federal Reserve. On Monday, the Fed released Reserve Bank income and expense data transfers to the Treasury for 2020. This is the central bank’s preliminary income statement and remittance figures for 2020, the headline number starting at:
$88.5 billion of their estimated 2020 net income to the U.S. Treasury.
Meaning, the Fed is to send $88.5 billion to “the people” via the US Treasury. However, more context and figures are required to reach a better understanding as to what this means.
Net income for 2020 was derived primarily from $100 billion in interest income on securities acquired through open market operations…
The Fed’s income primarily comes from owning US Treasurys and mortgage-backed securities (MBS), which makes sense because the Fed now owns $4.7 trillion and $2.0 trillion of these securities, respectively. This means $6.7 trillion was created and lent to the world. They can now receive over $100 billion a year in return (interest revenue) as compensation for their lending service.
Interest income on US Treasurys and MBS is hardly new. But this line item is:
The Federal Reserve Banks realized net income of $405 million from facilities established in response to the COVID-19 pandemic.
This might sound like a lot of money to most people, but is a relative drop in the bucket given the aforementioned $100 billion the Fed made off buying the nation’s debt.
As for the expenses, the largest cost to the Fed is the interest it pays to depository institutions (banks). This is interest paid to banks in order to compensate them for holding money at the Fed.
The Federal Reserve Banks had interest expense of $7.9 billion primarily associated with reserve balances held by depository institutions.
If this wasn’t confusing enough, it gets better:
We find operating expenses (mostly salaries and benefits) for $4.5 billion, plus $831 million for “producing, issuing, and retiring currency,” and $947 million for “Board expenditures.”
In what may come as surprise to most, the US Treasury is not the only entity the Fed is beholden to; this year the Fed paid:
$517 million to fund the operations of the Consumer Financial Protection Bureau.
And the payout to banks:
Statutory dividends totaled $386 million in 2020.
Numerous questions should come from this:
These numbers are preliminary. We won’t have the finalized figures until March. But so far, the $88.5 billion remitted to the Treasury seems to be “pretty good” given the low interest environment and when compared to the last decade of remittances.
Of course, something doesn’t seem quite right. In order for the Treasury to get a remittance from the Fed, the Fed must expand the balance sheet and money supply, therefore buying interest-bearing assets. The interest income earned by the Fed pays for expenses such as billions of dollars in salaries and interest payments to banks. This gets reduced even more after payouts to another government agency and dividends to banks. What’s left gets sent to the Treasury. Keep in mind the US Treasury does the actual “money printing.” In effect, a significant cost associated with the Fed is paying for their knowledge, allowing them to manage the money supply.
It’s a system implemented well over a century ago, a system in dire need of repair if not abolishment. An entity which can legally create money runs the risk of eventually owning the assets of an entire nation, being insensitive to prices and immune to bankruptcy. This, as well as other pernicious effects such as causing the boom-and-bust cycle, increasing malinvestment, price distortions, and asset bubbles all make it strange to think that society pays billions of dollars for this knowledge-based service. Central banking is a service so slanted toward the banks and government, and against society, that it’s no wonder the general public isn’t meant to understand its inner workings.
The latest data from the Bureau of Labor Statistics shows twelve-month food prices climbing at a 3.9 percent annualized rate for 2020.
Overall price inflation for the same period, as measured by the government's Consumer Price Index, rose 1.4 percent.
Bottom line: the goods people are buying during this lockdown period such as food are soaring.
The advance in food prices was pretty much across the board.All subcategories from cereals to fruit showed gains far in excess of the Federal Reserve's "target" inflation of 2 percent. But, hey, if you don't eat, price inflation is not as high.
In the EPJ Daily Alert, I am warning that as the lockdowns ease, price inflation across the board will rise to meet the advance in prices we are seeing in food prices.
Hug your gold coins.
Reprinted from EconomicPolicyJournal.com.
Despite economist Thomas Sowell’s laconically phrased observation that the real minimum wage is zero, progressive elements within the Democratic coalition are likely to push for increasing the federal minimum wage once Biden takes office. While whether or not to raise the minimum wage is therefore ultimately a political question, a school of thought has gained purchase within mainstream economic circles in recent decades that contravenes long-held classical assumptions about supply and demand. If the cost of a commodity increases, demand should fall if the price rises beyond the point at which the marginal utility of acquiring another unit of that commodity is less than the cost of another unit of that commodity (Sowell 2011). Not so with labor, argue these economists (Harris and Kearney 2016; Tcherneva 2020; Stiglitz 2012, 2020; Pollin and Luce 2000; Reich 2017). Because pay to labor constitutes a large part of aggregate demand, higher wages translate into more purchasing and hence an approximately equivalent increase in the sales of businesses to offset the higher cost of labor.
Such demand-side economics trace their origins to Keynes, but interest was rekindled by the publication of Card and Krueger’s empirical study of fast food workers in New Jersey and Pennsylvania (Card and Krueger 1993). Widely cited following its publication, the next decade saw a strong shift in opinion among economists. A survey by the American Economics Association found that well over half of its members now disagree or doubt that minimum wages by themselves cause unemployment or underemployment (The Economist, August 2020).
Such cautious inquiry has translated in the world of the post-2008 k-shaped recovery to demands for almost doubling the federal minimum wage. A host of academics have voiced their support for the Seattle minimum wage coalition, with even the formerly skeptical Paul Krugman making an about-face, writing in the New York Times that wages were so low that significantly raising the minimum wage would do no harm to the economy (Krugman 1998, 2015).
According to the literature, however, the real picture is more nuanced.
Based on the large body of research being compiled, we find evidence that raising the minimum wage affects different sectors of the economy differently, and that it is not clear what would happen in the event that the minimum wage is significantly increased (Neumark and Wascher 2007; Jardim et al. 2017).
Because of this, even left progressive economists like Thomas Picketty are skeptical of broadly raising minimum wages in an effort to offset wealth and income inequality. He is likely correct, as most of the economic inequality in the United States is structural in origin, the result of technological displacement, skills hierarchies, geographic concentration, and trade, fiscal, and monetary policies (Moore 2014).
Given the potential dangers and inability of the government to successfully execute such microeconomic tinkering during the 1960s and 1970s, a time of much more functional governance than now, it seems unlikely and unwise to grant the federal government the power to set wages in this way in an attempt to optimize economic growth.
Research indicates average take home income since 2014 has increased slightly in some sectors, while going down in others, but with no noticeable uptick in the cost of basic consumer items (Vigdor et al. 2016, 2017). This may be unique to Seattle, a diverse and competitive economic zone. More local experimentation in the coming years is likely and will provide us with a better understanding of the impact of raising the minimum wage on various sectors of the labor market. While nationally it may be that the Biden administration, which so far has boxed out the more progressive elements of the Democratic coalition, will not prioritize the fight over federal minimum wages, in any event, the public should not be misled into believing that the data unequivocally supports the fight for a fifteen-dollar-an-hour federal minimum wage.
Resources and Works Cited:
Card, D., & Krueger, A. (1993). Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania. doi:10.3386/w4509.
Harris, B., & Kearney, M. (2016, July 29). The "Ripple Effect" of a Minimum Wage Increase on American Workers. Retrieved October 06, 2020, from https://www.brookings.edu/blog/up-front/2014/01/10/the-ripple-effect-of-a-minimum-wage-increase-on-american-workers/
Jardim, E., et al. (2017, June 26). Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle. Retrieved January 05, 2021, from https://www.nber.org/papers/w23532
Krugman, P. (1998, September). The Living Wage. Retrieved October 06, 2020, from http://www.pkarchive.org/cranks/LivingWage.html.
Krugman, P. (2015, July 17). Liberals and Wages. Retrieved October 06, 2020, from https://www.nytimes.com/2015/07/17/opinion/paul-krugman-liberals-and-wages.html
Moore, H. (2014, June 03). Seattle Misreads Thomas Piketty as its Minimum Wage Mascot. Retrieved January 05, 2021, from https://www.theguardian.com/money/us-money-blog/2014/jun/03/thomas-piketty-seattle-minimum-wage-risks-jobs
Neumark, D., Wascher, W. (2007). Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research: Cambridge.
Pollin, R., & Luce, S. (2000). The Living Wage: Building a Fair Economy. New York: New Press.
Reich, R. B. (2017). Saving Capitalism: For the Many, not the Few. London: Icon Books.
Rolf, D., & Bryant, C. W. (2016). The Fight for Fifteen: The Right Wage for a Working America. New York: The New Press.
Sowell, T. (2011). Basic Economics: A Common Sense Guide to the Economy. Fourth Edition. New York: Basic Books.
Stiglitz, J. (2012). The Price of Inequality. New York: W.W. Norton Company.
Stiglitz, J. E. (2020). People, Power, and Profits: Progressive Capitalism for an age of Discontent. UK: Penguin Books.
Tcherneva, P. R. (2020). The Case for a Job Guarantee. Cambridge: Polity Press.
Vigdor, Jacob, et al. (2017). The Seattle Minimum Wage Ordinance October 2017 Update: Report on Employer Adjustments, Worker Experiences, and Price Changes. Seattle. University of Washington, Daniel J. Evans School of Public Policy.
Vigdor, Jacob, et al. (2016). Report on the Impact of Seattle’s Minimum Wage Ordinance on Wages, Workers, Jobs, and Establishments through 2015. Seattle. University of Washington, Daniel J. Evans School of Public Policy.
What Harm do Minimum Wages do? (2020, August 13). The Economist. Retrieved October 6, 2020, from https://www.economist.com/schools-brief/2020/08/13/what-harm-do-minimum-wages-do
There is a famous routine by the late, great American comedian George Carlin in which he talks about why he refuses to vote. In less than four minutes, he brilliantly captures the deep flaws of the US political process, and the futility of a system that has become irredeemably corrupt (“I’m sure as soon as the election’s over your country will improve immediately….This country was bought, sold, and paid for a long time ago”).
Italian-American lecturer and writer Piero Scaruffi opines that “a comedian is someone who tells the truth. Truth is the set of all jokes, told by all comedians in the world.” There is certainly more than an ounce of veracity in Carlin’s bit. But while that may be the case, the idea of abstaining from voting is seen by many as nothing less than the ultimate mark of disrespect to all those people who fought for “freedom” in the statist wars of the twentieth century.
Which prompts the question: What is freedom? Merriam-Webster defines it as “the quality or state of being free, such as…the absence of necessity, coercion, or constraint in choice or action.” If we agree on this definition (and—assuming the individual rights of another aren’t being violated by one’s actions—how could we not?) can we say that the tragic, bloodiest wars in history succeeded in delivering freedom to the citizens of the West?
Invisible force and The Freedom Delusion
Ask most people strolling down a London street, along a New York sidewalk, on the cobblestones of Dublin’s city center, or any other Western nation if they are free, and they will likely reply “yes, of course.” In the New Yorker’s case, he may even snap incredulously that this is the land of the free.
And looking at their surroundings, it may appear that these people are correct. When not in the middle of a pandemic (and the accompanying draconian government measures) they would usually walk around relatively free of physical force from police unless they’re breaking—or suspected of breaking—the law. (And when physical force is used, it is rarely seen as an assault on freedom.) But the apparent absence of physicality does not equate to a lack of coercion or constraint; like the invisible hand that guides the free market, there is an invisible hand of government which quells liberty.
In most if not all Western democracies, this semblance of a free society is in fact a mirage borne of sheer ignorance, effective indoctrination, or a mere misunderstanding of what it means to be free. A nation of denizens who believe they are free without knowing the true meaning of freedom is a nation enrapt in a collective hallucination (or a Bernaysian propagandist trap). This widespread phenomenon can be referred to as the Freedom Delusion.
The “Inviolability” of Democracy
Some argue that the act of voting renders the system “voluntary,” but this is not the case.
To channel Mr. Carlin, those who vote in modern democracies are merely party to a transfer of power from one corrupt or misguided cabal to another (“garbage in, garbage out”). And the vote which people in the West cast every few years is, flagrantly, a vote to empower the winning coalition to attack the individual rights of citizens.
Yet the legitimacy of democracy is almost universally (in the West at least) considered unquestionable, and any criticism of it taboo.
Yet, in practice, Western democracies in their current form amount to the tyranny of the majority, the continual assault on individuals, and the restriction of liberty.
What Genuine Freedom Means
A truly free society allows for some to purchase land and voluntarily attempt a socialist utopia, and for others to purchase land and live in a stateless, free-market, private-law society.
Be it anarcho-capitalism or minarchism, socialism or social democracy, communism or anarcho-syndicalism, or any other social system, genuine freedom in essence means the freedom to choose, so long as no one is compelled to join in. Some may freely choose to enter a “socialist” community and thus voluntarily give up much of their fundamental freedoms, subjugating themselves to the collective; others may freely choose to enter a communal agreement for an anarcho-capitalist society. The Freedom Delusion prevalent in the West today, however, essentially means that these ideas and questions surrounding what it means to be free are rarely—if ever—raised in mainstream debates over what freedom means.
The Wall Street Journal asked a valid question on Tuesday in an article titled: “How Much Debt Is Too Much? It Depends on Your View of Inflation.” Spoiler alert: for those who love liberty and freedom, this doesn’t end well.
The tone is quickly set when the author notes how Western nations have the highest debt-to-GDP ratio since World War II, citing “the pandemic” as the cause, not socialist governments nor their anti-capitalist central banks. Considering that long before covid, the world was already reaching exponential increases in debt and money supply, it seems unfair to absolve those responsible by putting the blame on the pandemic.
Per the article, we are told fears of high debt-to-GDP ratios have been repeatedly proven wrong. Despite this, some, like the UK Treasury chief who called public finances “unsustainable,” are now trying to set the nation’s debt limit. To combat the rising debt level, the author presents two choices for fiscal policy in one very vague either/or fallacy:
Should they aim to stave off “bond vigilantes,” or simply not stoke inflation?
The author tries to explain that the answer lies in our understanding of “how inflation works”:
If governments keep borrowing too much, the theory goes, interest rates will rise. At some point, printing money will be the only alternative to a default, creating inflation. By contrast, MMT [modern monetary theory] advocates see inflation as a result of too much spending, regardless of whether it is financed by money or debt.
The first view point is named the “traditionalist” school, though the name of the school or theory is never stated. According to this school, price inflation after money printing is the only solution to a default, and this only after governments borrow “too much” money causing interest rates to rise.
As for the MMT idea, it seems to say price inflation is a result of “too much” spending…
Generally, as a rule of thumb, anytime an economic idea cites “too much” of anything, whether it’s too much borrowing or too much spending, a red flag should go up. For anything to be too much would mean there exists a “too little” amount, or worse, an “ideal amount.” It’s ironic because the importance of data dependency is often touted, however, we’re only given vague notions which cannot be quantified. To say (price) inflation is the result of too much borrowing or spending doesn’t offer anything we can discern, while overlooking other crucial ideas such changes to money supply.
Beyond these ideas exists the problem with the “inflation” calculation, such as the consumer price index (CPI). This idea is somewhat touched upon:
What indicators should policy makers follow then? Inflation itself is a good bet, though consumer-price baskets are crude—they often obfuscate specific supply shortages, as happened this year.
While not taking the CPI as gospel is good, the article concludes with the solution that:
Governments will need to monitor and control consumer spending and industry bottlenecks, as well as automatically link stimulus programs to persistent increases in unemployment, rather than leaving them to officials’ discretion. Outside of the U.S., much more attention should be devoted to the exchange rate, since depreciation can create inflationary spirals.
In other words, governments should intervene further in the market, and in this instance literally control consumer spending and industry supply chains while stimulating the economy through programs to fight unemployment. The recommendation also mentions to pay more attention to the exchange rate. How this can be done is not offered, nor can an adequate solution exist unless one is to come up with the ideal exchange rate for the US dollar which the government defends at all costs.
So, how much debt is too much? We are never told. But as long as the Federal Reserve is in charge of our financial system, we’ll never be able to get out of debt. While the USA is unlikely to ever explicitly default, it will nonetheless continue to debase its currency to lessen the debt bill in real terms. Economics shouldn’t be about finding a view of monetary inflation that allows us to justify inflationary policies; yet, unfortunately, it seems we’ve come to that.