Power & Market
Here we go again. A fed official is once again going to the media to repeat the age-old myth that the Fed is totally independent of political influence.
The last time we heard about this from someone at Powell's level what last year, when Steve Mnuchin reminded everyone of the Fed's alleged independence in January:
Responding in writing to questions from Senator Bill Nelson , Steve Mnuchin described the Fed as “organized with sufficient independence to conduct monetary policy and open market operations.” He also praised “the increased transparency we have seen from the Federal Reserve Board over recent years.”
This time, it's Fed chair Jerome Powell himself, who granted an interview to NPR's Marketplace . Most of the interview was devoted to making this point about independence. Here's some of it:
Ryssdal: There is a question that has to be asked — actually a couple of them — about the political environment in which this economy operates right now. Granting that the Fed has always been a source of political frustration for many in the executive branch, it's worth pointing out here that Larry Kudlow, the chairman of the president's National Economic Council, and the president himself have said they are low-interest rate guys. Larry Kudlow encourages the Fed to move very slowly on interest rates on the theory that rising interest rates would be a tricky thing for the president politically. Do you think it's appropriate for the White House to be not telling the Fed what to do, but saying these things in public?
Powell: Let me just say I'm not concerned about it, and I'll tell you why. We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns. We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently, and we don't consider political considerat — we don’t take political considerations into account.
I would add though that no one in the administration has said anything to me that really gives me concern on this front. But this is deep in our DNA. For a long, long time the Fed has felt it important to conduct our business that way. I'm deeply committed to that approach. And so are all of my colleagues here.
Ryssdal: Which I understand, but you're also humans. And when the White House leans on you, you must feel it.
Powell: Again, nothing has been said to me publicly or privately that gives me any concern about our independence.
Ryssdal makes a point that anyone not trained to believe Washington, DC sound bytes would see. Powell, like everyone else involved in the Fed's governance is a human being and brings with him his own biases.
We saw some of this in 2016 when it came to light that Fed employers donated far more money to the Hillary Clinton campaign, than to any other campaign:
Bloomberg had an interesting report this week looking at the political contributions of Federal Reserve employees this election season. Unsurprisingly, Hillary Clinton is dominating the field, receiving $18,747 in contributions — over four times more than all other candidates combined. While most of the donations came from lower level Fed officials, Federal Reserve Governor Lael Brainard came under fire for making several donations to Clinton’s campaign.
When people like Powell say "non-political," though, they don't mean non-ideological or unbiased. They mean they aren't making decisions in a way so as to benefit certain candidates or certain political parties.
Even if this were true — which it's not (see below) — it would be of little comfort. The Fed can still act to benefit certain groups over others. Its policies can be employed to keep interest rates low for governments, so as to keep the cost of the national debt low. The Fed can adopt policies that benefit Wall Street more than Main Street. The Fed can act to benefit spenders rather than savers.
These acts of picking winners and losers, and influencing public policy, would be considered "political" by a normal person — as indeed they are political. They're just not directly connected to any political campaign.
Besides, the fact the Fed behaves as a political institution has been documented for years by political scientists. ( Whole classes are taught on the subject .) Only economists and media talking heads are so naive or so willfully ignorant as to believe a policymaking institution can be "non-political."
But even on the matter of straight-up efforts to influence elections, the Fed is guilty. In 2010, when Fed Chairman Arthur Burns's diary was published, Doug French noted:
Burns's diary is page after page of political dirty dealing, lying, and backstabbing. Nixon went so far as to plant negative press about Burns and threatened to expand the Fed's Board of Governors to dilute the chairman's influence, all to bring Burns in line with the president's economic meddling. None of that seems necessary; Burns's diary would indicate that the president had him at hello.
No doubt a well-worn path still exists between the Eccles Building and the White House. But the myth continues. Economist Mark Zandi told CNBC's Lori Ann LaRocco recently,
I think the worst thing that could happen is if the Fed was politicized. An a-political Federal Reserve is a cornerstone of our financial system and broader economy. So nothing is more important than maintaining the Fed's independence. And the fact that its wrapped in the political process is just disturbing and disconcerting.
Ultimately, though, we need to ask ourselves if "independence" is even something that is desirable. After all, the flipside of "independence" is a lack of accountability. The only way for the Fed to be truly independent would be if it was totally unaccountable. Murray Rothbard wondered if that would be a good thing:
“Independent of politics” has a nice, neat ring to it, and has been a staple of proposals for bureaucratic intervention and power ever since the Progressive Era...But it is one thing to say that private, or market, activities should be free of government control, and “independent of politics” in that sense. But these are government agencies and operations we are talking about, and to say that government should be “independent of politics” conveys very different implications. For government, unlike private industry on the market, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in the legislature; and if government becomes “independent of politics” it can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountable to no one and never subject to the public’s ability to change its personnel or to “throw the rascals out.”
It's easy to find income inequality in the United States when we compared the super-rich with the middle class. But when we compare the middle class to the "poor" there's a surprising amount of income equality.
But how can the middle class have incomes similar to the poor? Isn't that logically impossible?
Well, this sort of income equality is made possible by the existence of government social benefit programs. When we account for income transfers to low-wage workers — or to people who don't work at all — we find that the incomes of middle class people — in spite of often working far longer hours — are similar to the poor.
The political implications of this are significant.
The authors note:
The most surprising finding is the astonishing degree of equality among the bottom 60% of American earners, generated in part by the explosion of social-welfare spending and the economic and wage stagnation during the Obama era. Hardworking middle-income and lower-middle-income families must have recognized that their efforts left them little better off than the growing number of recipients of government transfers. The perceived injustice of this equality helped drive the political shift among blue-collar workers, many of whom supported the pro-growth candidacy of Donald Trump in 2016 despite having voted for Mr. Obama in the two previous presidential elections.
The bottom quintile earned 2.2% of all earned income in 2013, but after adjusting for taxes and transfer payments, its share of spendable income rose to 12.9%—six times its proportion of earnings. The second quintile’s share more than doubled, rising from 7% of earned income to 13.9% of spendable income. For the third quintile, middle-income Americans, the increase was much smaller, from 12.6% to 15.4%.
Not surprisingly, high earners lost a considerable share of their earnings after taxes and transfers are taken into account. The fourth quintile’s share fell from 20.5% to 18.6%, while the top quintile dropped from 57.7% of earnings to 39.3% of consumable income. In other words, the top quintile’s share of earnings was 26 times that of the bottom quintile, but after taxes and transfer payments its share of spendable income was only three times as much.
Even more startling is the near equality among the bottom three quintiles. The bottom quintile, which earned only 2.2% of all earned income, had virtually the same share of spendable income as the second quintile, lower-middle-income Americans. This equality is despite the fact that lower-middle-income workers earned more than three times the share of income and worked 21/2 times as much, measured by comparing each group’s number of full-time workers relative to its working-age population. Middle-income workers earned almost six times the share of income and worked almost four times as much compared with the bottom quintile, but they enjoyed only about 20% more spendable income.
This equality in income endured in spite of the fact that many middle-income families worked far harder for what income they did have:
And even these numbers understate the huge difference in work effort. Compared with the bottom quintile, the lower-middle-income quintile had almost four times as many working-age families whose members worked two or more jobs, and the middle-income quintile had more than seven times as many families with members working two or more jobs.
As Gramm and Ekelund explain, middle class people know that the wealthy make a lot more than the middle class does. But the middle classes can also see they've benefited from the goods and services brought to the market by the wealthy.
Meanwhile, a middle-class worker who has two jobs, or a 55-per hour work week looks around and sees relatives or neighbors who never seem to work, but who also have a similar standard of living. They might know perpetually unemployed acquaintances who rely on CHIP or Medicaid, free school lunches, food stamps, and a myriad of other programs, all available to many. Meanwhile, the middle class worker is putting in long hours to obtain the same amount of food and health care.
The middle class workers then realizes he's working to pay for his own needs, and also those of the neighbor.
It's easy to see why this might breed resentment.
Not surprisingly, Judge Napolitano sees the Kavanaugh appointment for what it is — a nod to the DC establishment. On Fox and Friends this morning, Napolitano said:
“The Washington establishment, sometimes known as the swamp, wanted Judge Kavanaugh,” said Napolitano. “I am disappointed in the president because this is not the type of person he said he would pick. Justice [Neil] Gorsuch was. This person is at the heart and soul of the D.C. establishment against whom the president railed.”
See the video:
.@Judgenap: “I am disappointed in the president because this is not the type of person that he said he would pick… this person is at the heart and soul of the DC establishment.” pic.twitter.com/Dygeg4zywi— Fox News (@FoxNews) July 10, 2018
During research for my book The Skyscraper Curse I started using the phrase "Advanced technology." It means a means of production that is currently beyond the capability of society or at least something that is "cutting edge." I would argue that is also useful in terms of the Austrian Business Cycle Theory (ABCT) because when artificially low interest rates impact an economy's structure of production, it typically induces the production and introduction of new "premature" technology that typically would only occur in the future, if at all.
We might be witnessing one such advanced technology on the campus of Auburn University--a robot bricklayer. The reason for this speculation is that low interest rates have increased the amount of construction and driven up costs so that new technology in the form of the robot bricklayer have been rush in to alleviate the high cost and lack of labor. Two masons and the robot can lay rough four times the number of bricks that two masons can lay.
In May, President Trump pulled the United States out of the Iran nuclear deal despite Iran living up to its obligations and the deal working as planned. While the US kept in place most sanctions against Tehran, China and Russia - along with many European countries - had begun reaping the benefits of trade with an Iran eager to do business with the world.
Now, President Trump is threatening sanctions against any country that continues to do business with Iran. But will his attempt to restore the status quo before the Iran deal really work?
Even if the Europeans cave in to US demands, the world has changed a great deal since the pre-Iran deal era.
President Trump is finding that his threats and heated rhetoric do not always have the effect he wishes. As his Administration warns countries to stop buying Iranian oil by November or risk punishment by the United States, a nervous international oil market is pushing prices ever higher, threatening the economic prosperity he claims credit for. President Trump’s response has been to demand that OPEC boost its oil production by two million barrels per day to calm markets and bring prices down.
Perhaps no one told him that Iran was a founding member of OPEC?
When President Trump Tweeted last week that Saudi Arabia agreed to begin pumping additional oil to make up for the removal of Iran from the international markets, the Saudis very quickly corrected him, saying that while they could increase capacity if needed, no promise to do so had been made.
The truth is, if the rest of the world followed Trump’s demands and returned to sanctions and boycotting Iranian oil, some 2.7 million barrels per day currently supplied by Iran would be very difficult to make up elsewhere. Venezuela, which has enormous reserves but is also suffering under, among other problems, crippling US sanctions, is shrinking out of the world oil market.
Iraq has not recovered its oil production capacity since its “liberation” by the US in 2003 and the al-Qaeda and ISIS insurgencies that followed it.
Last week, Bloomberg reported that “a complete shutdown of Iranian sales could push oil prices above $120 a barrel if Saudi Arabia can’t keep up.” Would that crash the US economy? Perhaps. Is Trump willing to risk it?
President Trump’s demand last week that OPEC “reduce prices now” or US military protection of OPEC countries may not continue almost sounded desperate. But if anything, Trump’s bluntness is refreshing: if, as he suggests, the purpose of the US military – with a yearly total budget of a trillion dollars - is to protect OPEC members in exchange for “cheap oil,” how cheap is that oil?
At the end, China, Russia, and others are not only unlikely to follow Trump’s demands that Iran again be isolated: they in fact stand to benefit from Trump’s bellicosity toward Iran. One Chinese refiner has just announced that it would cancel orders of US crude and instead turn to Iran for supplies. How many others might follow and what might it mean.
Ironically, President Trump’s “get tough” approach to Iran may end up benefiting Washington’s named adversaries Russia and China — perhaps even Iran. The wisest approach is unfortunately the least likely at this point: back off from regime change, back off from war-footing, back off from sanctions. Trump may eventually find that the cost of ignoring this advice may be higher than he imagined.
The District of Columbia Council voted in June to impose a tax increase of almost 500 percent on Uber and Lyft users to help fix the Washington Metro transit system. Anyone who summons a Lyft or Uber ride inside D.C. will now be hit with a 6 percent fee to bankroll a subway that a top Obama administration official aptly labeled an “ongoing dumpster fire” two years ago....
The skewering of Uber and Lyft riders was spurred by the D.C. government’s promise to ante up $178 million a year in “dedicated funding” for the subway system. Virginia and Maryland are also chipping in massively for this “solution” that threw the Washington Post editorial board, which retains boundless faith in the magic of government spending, into ecstasy. Metro managers had long claimed that dedicated funding would sway passengers from comparing the subway to Dante’s Inferno. But as soon as the funding deal was done, Metro stunned riders with plans for a vast array of new service disruptions, including shutting down subway lines south of Reagan National Airport for more than three months.
Much of the prolificacy and inefficiency in local transit systems is the result of federal mandates. As a Heritage Foundation analysis noted, “Federal subsidies decrease incentives…to control costs, optimize service routes, and set proper priorities for maintenance and updates.” Transportation scholar Randal O’Toole observed, “Innovative solutions are bypassed and high costs are guaranteed because of the requirement that transit agencies obtain the approval of their unions to be eligible for federal grants.” And the unions often don’t give a damn about the traveling public. Unions representing DC Metro workers blame riders for the system’s problems and denounced as “diabolical” a plan to contract out custodial jobs. But union campaign contributions make politicians happy, which trumps reducing costs.
If money could solve Metro’s problems, the heavily-subsidized system never would have commenced a death spiral. But neither the feds nor local politicians have the courage to compel radical changes to curb the power of unions, end anti-work rules, and vastly reduce a bureaucracy that makes endless excuses for the system’s other failings. Nor is it likely that Metro employees will even learn the art of non-shiftless shovel leaning.
Read the full article at The American Conservative
Donald Trump has made his second Supreme Court nomination: Judge Brett Kavanaugh of the US Court of Appeals for the District of Columbia.
Relative to the other names that were discussed, Kavanaugh’s selection could be seen as a win for the establishment.
For one, he will uphold the Court’s record of Justices with law degrees from either Harvard or Yale.
Two, he has a very swamp-friendly resume, including a long history of doing legal work for the Republican Party and a particular closeness with the Bush family. Having worked on matters including the Clinton Impeachment, the 2000 Florida Recount, and challenges to Obamacare, he has been described by Senator Dick Durbin as the “Forrest Gump of Republican politics.”
Interestingly, a decision he made regarding the Constitutionality of the Affordable Care Act is what troubles many on the right. Though he dissented to the question of whether the bill was Constitutional under the Commerce Clause, his minority opinion made it clear that it his objection was to the court’s jurisdiction and not the law itself. He viewed the individual mandate as a tax, logic used by Chief Justice John Roberts in upholding the law.
As Christopher Jacobs wrote for The Federalist:
In Kavanaugh’s view, the mandate could fit ‘comfortably’ within Congress’ constitutional powers,” Even as he ‘do[es] not take a position here on whether the statute as currently written is justifiable,’ Kavanaugh concludes that ‘the only potential Taxing Clause shortcoming in the current individual mandate provision appears to be relatively slight.
Attention now will turn to Kavanaugh’s views on Roe vs. Wade and whether his appointment will challenge that decision. On Fox News this morning, Judge Andrew Napolitano thought Kavanaugh’s explicitly pro-life track record as a Justice would make the nomination process more difficult, possibly pushing Trump to nominate someone different. We will now see how moderate Republicans, such as Senator Susanne Collins, react to the decision.
Of course, the fact that the appointment of a single Supreme Court Justice warrants nationwide protests now erupting is simply a reminder of the inherent failures of a system which gives so much power to nine people in black robes.
Hillary Clinton was at it again the other day, complaining about how, if it weren't for that darned electoral college, she'd be president now. The Daily Mail reports on Clinton's remarks in her recent speech in the UK:
"Populists can stay in power by mobilizing a fervent base. Now, there are many other lessons like this," she said, adding that she had "my personal experience with winning three million more votes but still losing."
But there's nothing really novel about this. Clinton has been whining about the Electoral College since 2016.
The real news here, as Ed Morrissey at Hot Air notes, is that Clinton was condemning populism while at the same time condemning the electoral college. In other words, Clinton doesn't realize the electoral college is an anti-populist measure. In her speech
And why did the framers of the Constitution create it? To act as a buffer against populism, at least in form. The Electoral College reflects the popular vote on a state-by-state basis to prevent a handful of the most populous states from controlling the executive through the nationwide popular vote, which creates a buffer against the very impulse Hillary decries in this speech.
In other words, the purpose of the electoral college is to ensure that a successful presidential candidate appeals to a broader base of voters than would be the case under a simple majoritarian popular vote.
This makes it harder to win by doing what Clinton did during the campaign: focus on a thin sliver of rich Hollywood and business elites, coupled with urban ethnics.It's true that those two groups can offer a lot of votes and a lot of campaign dollars. But they also tend to be limited to very specific regions, states, and metro areas. The groups Clinton ignored: the suburban middle class and working class make up a much larger, more geographically diverse coalition. This can be seen in the fact that Trump won such diverse states as Alabama, Pennsylvania, and Wisconsin.
In 2016, the electoral college worked exactly as it's supposed to — it forces candidates to broaden their appeal. Or as a cynic like myself might say: it forces politicians to pander to a broader base.
Clinton complains that a fervent group of voters can take over the machinery of government. But that's harder to do with the electoral college than without it. So, Clinton is making a mockery of her own argument by one minute complaining about populism, and then complaining about the electoral college the next.
But it was the Clinton team that had the more populist strategy. For example, in the US the 4 largest states (California, Texas, New York, and Florida) constitute one-third of the US population. The top-ten largest states total 54 percent of the US population. Hillary thought she could just focus on the larger states and that would be enough. Her strategy was to ignore half the country, call them "deplorables," and just count on the resentments of people in some big cities to carry her to victory. It's hard to see how that's somehow less "populist" than what Trump did.
For Hillary Clinton though, everything is personal, and the fact that the electoral college came between her and the presidency means it must be a bad thing.
The fact that it also guards against Clinton-style demagoguery, however, doesn't make the electoral college "anti-democratic" as is thought my many who so tiresomely chant "we're a republic not a democracy." 50 separate presidential elections (plus DC and the territories) is not somehow less democratic than holding one big national election. It's simply a democratic method designed to ensure more buy in from a larger range of voters, not less. Other similar tactics include "double majorities" as used in Switzerland. And for all these reasons, as I note here, the electoral college should be expanded:
Double-majority and multiple-majority systems mandate more widespread support for a candidate or measure than would be needed under an ordinary majority vote.
Unfortunately, in the United States, it is possible to pass tax increases and other types of sweeping and costly legislation with nothing more than bare majorities from Congress which is itself largely a collection of millionaires with similar educations, backgrounds, and economic status. Even this low standard is not required in cases where the president rules via executive order with " a pen and ... a phone ."
In response to this centralization of political power, the electoral college should be expanded to function as a veto on legislation, executive orders, and Supreme Court rulings.
For example, if Congress seeks to pass a tax increase, their legislation should be null and void without also obtaining a majority of electoral college votes in a manner similar to that of presidential elections. Under such a scheme, the federal government would be forced to submit new legal changes to the voters for approval. The same could be applied to executive orders and treaties. It would be even better to require both a popular-vote majority in addition to the electoral-vote majority. And while we're at it, let's require that at least 25 states approve the measures as well.
Two years ago it was 450 bolivars.
Inflation over the past 3 months has been 482,000%, on an annual basis.
For more, see "How Socialism Ruined Venezuela" by Rafael Acevedo and Luis B. Cirocco:
So, what are the results of socialism in Venezuela? Well, we have experienced hyperinflation. We have people eating garbage, schools that do not teach, hospitals that do not heal, long and humiliating lines to buy flour, bread, and basic medicines. We endure the militarization of practically every aspect of life.
The cost of living has skyrocketed in recent years.
Let’s look at the cost of goods in services in terms of a salary earned by a full college professor. In the 1980s, our “full professor” needed to pay almost 15 minutes of his salary to buy one kilogram of beef. Today, in July 2017, our full professor needs to pay the equivalent of 18 hours to buy the same amount of beef. During the 1980s, our full professor needed to pay almost one year’s salary for a new sedan. Today, he must pay the equivalent of 25 years of his salary. In the 1980s, a full professor with his monthly salary could buy 17 basic baskets of essential goods. Today, he can buy just one-quarter of a basic
And what about the value of our money? Well, in March 2007, the largest denomination of paper money in Venezuela was the 100 bolivar bill. With it, you could buy 28 US dollars, 288 eggs, or 56 kilograms of rice. Today, you can buy .01 dollars, 0.2 eggs, and 0.08 kilograms of rice. In July 2017, you need five 100-bolivar bills to buy just one egg.
RELATED: "Hyperinflation Has Venezuelan Merchants Weighing Cash, and Now It's Breaking Their Scales" by Tho Bishop