Power & Market
The Media's Jihad against Sweden's No-Lockdown Policy Ignores Key Facts
As soon as it became clear that the Swedish state had no plans to implement harsh lockdowns, global media organizations like the New York Times have implemented what can only be described as an ideological jihad against Sweden.
For many weeks, there has been an incessant drumbeat of articles with titles touting the "the failure of the country's no-lockdown coronavirus strategy," that "Sweden Has Become the World's Cautionary Tale," and "How Sweden Screwed Up."
It is common to read articles stating that Sweden has one of the world's worst death rates for COVID-19.
This, however, remains a matter of perspective.
Sweden's total deaths per million in population as of July 14 is 549. That's considerably lower than the deaths per million rate in the UK, which is 662, and in Spain, which is 608. In Belgium, the death rate is 884.
Moreover, the Sweden deaths per million is many times better than the rates found in New Jersey and New York: 1,763 and 1,669.
An astute reader, however, will quickly notice that articles condemning Sweden's "failure" rarely if ever mention these comparisons. Instead, anti-Sweden articles are careful to only mention countries with far lower deaths per million, usually Denmark and Norway. A nonspecific stock phrase is generally inserted which repeats that Sweden has: "a far higher mortality rate than its neighbours."
Articles about countries with far more deaths per million than Sweden often make excuses for those governments. In May, for example, the BBC repeated the Belgian government's talking points, which attempted to explain that things aren't as bad as they seem in Belgium. In places where harsh lockdowns were implemented—such as New York or the UK— the explanation is that these countries implemented their lockdowns too late.
But no matter what the data shows, it is always assumed that lockdowns work well, and the fact that nonlockdown Sweden has a death rate similar to harsh-lockdown France can only be explained by claiming France didn't lock down harshly enough or long enough.
Meanwhile, the evidence that lockdowns actually work remains spotty at best. The results we get from lockdown countries vary wildly, yet commentators ignore this and stick to a dogmatic refrain: lockdowns always work, and Sweden "screwed up."
Now, global "experts," such as those at the World Health Organization (WHO), are claiming that Sweden is among the countries most likely to have a resurgence in COVID-19.
So far, these is no evidence of this at all. Two weeks after the WHO's prediction, both cases and deaths in Sweden continue to trend downward.
Indeed, looking at this, one might conclude that thanks to Sweden we know what both lockdown and nonlockdown countries look like: they look remarkably similar in some cases.
Similarly, in the US we have some states that had relatively short and less-harsh lockdowns, which we can compare to states with very strict lockdowns. In many cases, the states with the mild lockdowns continue to have total deaths that are small fractions of those in areas with far more harsh measures.
Advocates of lockdowns insist that we must only "wait two week" and matters in Texas will look just like those in New York. Anything's possible, but it's pretty clear any sort of equivalence between the two areas is going to require more than "two weeks" to come about. After all, after failing to implement a lockdown for months, Sweden is still nowhere near matching the death rates reported in New York.
Using Sweden's standard we're still too early in the game to declare victory for one method or the other. Sweden's authorities have always maintained that their strategy was much more of a long-term strategy. They are looking a year down the line and suggesting that both lockdown and nonlockdown countries will become more similar over time. In some countries, that certainly looks to be the case, although there is yet no indication of this in others.
Unelected Technocrats Have Seized Control of the Global Economy
There are way more people on Main Street than members of Congress or the Fed, yet for inexplicable reasons these few have control, power, and decision-making ability over the lives of the many. Congress can legally tax and spend. The Fed can legally create US dollars and buy real assets at virtually no cost. These powers allow this very small group of individuals to affect the lives of hundreds of millions of Americans, if not the entire planet, by engaging in activity that if done by anyone else would be called counterfeiting.
For example, the Wall Street Journal noted that Secretary Mnuchin is hopeful that between July 20 and the end of the month a new economic stimulus package will be unveiled:
Mr. Mnuchin said the administration supports a second round of so-called economic impact payments to households, an extension of enhanced unemployment benefits for furloughed workers, and a “much, much more targeted” version of the Paycheck Protection Program of forgivable loans for small businesses.
Mnuchin, a man who may still be unrecognizable to most who don’t follow the political theater, is estimated to have a net worth of around $400 million. His role as head of the Treasury and Trump’s top economic advisor seems to require that he “plan” for those on Main Street.
As for the next iteration of the Paycheck Protection Program, how much more “targeted” will it be? Well, that is up to those deciding our future without our consent. But like all of government’s best-laid plans, the program will only get larger in scope. Mnuchin mentioned just last month:
Before we rush back and spend more money, whether that’s a trillion dollars or whether that’s more, we want to make sure we’re careful in knowing how much more we need to spend.
It's incredible that we live in a world where an unelected official has the power to decide where trillions of dollars are spent, with credit supplied by well-revered central banks and using economic calculations known only to the privileged few. While it’s easy to point to US central planners and their lack of proficiency in economics, this predicament is not restricted to the United States.
According to Forbes, the European Central Bank (ECB) is headed by the second most powerful woman in the world. Similar to Mnuchin, Christine Lagarde was not elected by the people, but she is charged with monetary policy over the entire continent. CNBC recently shared an interview in which Lagarde proclaimed:
“I want to explore every avenue available in order to combat climate change….This is something that I hold very strongly.”
Lagarde added that the bank “has to look at all the business lines and the operations in which we are engaged in order to tackle climate change, because at the end of the day, money talks.”
This same ECB is currently embarking on a €1.35 trillion asset program on top of its €20 billion per month bond-buying program!
If it's any consolation, Mnuchin is not using his central bank to tackle climate change. Distressingly, if he wanted to, and the Treasury or Fed made a mandate, nothing could stop them.
When the rich and powerful seek to plan for those in a much lower socioeconomic standing than their own, as far as monetary policy is concerned, whether their intentions are to genuinely help those in need or purely to control the masses is actually irrelevant. We know the outcome. It starts with a crisis, involves government intervention, and ends with the Fed owning real assets. To no one’s surprise, the people meant to benefit most from intervention find that they benefit the least.
For those who recall, the Great Recession was the harbinger of Fed ownership of our mortgages. Now they own our bonds. In Europe central bankers are charged with fighting climate change. We’ve predicted this several times already and it bears repeating: one day, with this progression, they will officially own our very stock exchange. Some call it policy; we’ll call it what it is…theft!
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Why Kanye (and a Bunch of Billionaires) Got Those PPP Loans
It was only a matter of time until the Treasury released the list of recipients of the Paycheck Protection Program (PPP). The nearly $700 billion taxpayer-funded program was designed to keep workers on payroll, whereby recipients could pay their employees even for instances where the employee does not actually work. In the weeks ahead, we will undoubtedly continue to see more articles, such as this one in Forbes:
Billionaire Kanye West's Yeezy Received A Multimillion-Dollar PPP Loan
It sounds scandalous! Beginning with:
Kanye West’s fashion company Yeezy received more than $2 million through the Paycheck Protection Program (PPP) — he owns 100% of the company which Forbes estimates brought in close to $1.3 billion in 2019.
The absurdity of the money recipients is also noted by The Hill:
A luxury restaurant chain co-founded by actor Robert De Niro received as much as $27.7 million through 14 taxpayer-backed loans from the Paycheck Protection Program (PPP).
CNBC joined the analysis, providing a list of billionaires and country clubs which received small business loans from government:
Soho House, the exclusive membership club controlled by billionaire Ron Burkle, received loans totaling $9 million to $23 million by applying for seven loans.
The article reports that over four hundred country clubs and golf resorts received loans. After reading various news headlines, a pattern emerges whereby we are told about wealthy beneficiaries of taxpayer dollars but little else. It’s understandable to scoff at “the rich” when they're taking advantage of “the poor,” but the media remains misguided as to where they should point the finger.
We must remember that Congress created the forgivable loan program in the first place, funded by taxpayer money, supported by the Fed, to provide a direct incentive for small businesses to retain workers. It seems misplaced to be upset with the entrepreneur for receiving a “forgivable loan” for which they were eligible.
The PPP gives us an excellent opportunity to study problems with government social programs, as they almost always invoke a near-primal jealousy. Many take issue with something not considered “fair” according to their value judgement. Assuming Kanye’s company received $2 million and kept forty people on payroll, the program could be considered successful, since the objective was to keep workers employed. In fact, under socialism, compared to a hypothetical local pizzeria, which may only employ ten people, we can argue that Kanye is four times more deserving.
Kanye’s forgivable loan didn’t take away from other struggling businesses, as illustrated in the PPP June 30 report. There is still $131 billion left in the program. Surely, anyone who “needs” the money would have applied to the program by now.
The last wrinkle (which won’t be mentioned on any news outlet) is the $521 billion in approved loans, only $68 billion of which has made its way to the Fed’s balance sheet. Certainly, it’s possible everyone will voluntarily pay this money back. But what happens if they don’t?
Around $450 billion more dollars will be added to the Fed’s balance sheet, as no lending institution wants to keep a forgivable loan on its books. Either the loans will stay on the Fed’s book indefinitely, or more likely, the Small Business Administration (SBA, funded by the Treasury) will pay off the loan balances, possibly with money directly borrowed from the Fed through US Treasurys.
The media will point the finger at greedy billionaires to show how they took advantage of the weak and poor. We know better! The problem is not that the money went to the wrong people, but, rather, that the PPP exists in the first place. It shouldn’t matter whether one is rich or poor. Bad things tend to happen when central planners decide it’s best to pay people to do nothing, as allowed under the PPP. The effects will be both numerous and immeasurable, ranging from loss of purchasing power of the dollar, increase in asset prices and consumer goods, increase in national debt levels and an increase in disparity between the rich and poor…to name a few.
Ultimately, no matter how the hundreds of billions of dollars could have been allocated, and even if no billionaires had received this money, it is the poorest members of society paying for this program caused by nonsensical inflationary monetary policies seemingly understood only by a few.
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Total "Excess" Mortality in the US Rapidly Declined in May 2020
Due partly to big increases in deaths attributed to COVID-19 in the northeastern United States, total mortality increased to more than 34 percent above the 2017–19 average in the US during April. According to CDC data, For week 14 (ending April 4) through week 18 (ending May 2) total mortality was 366,592. That was up 34.9 from the average for the same weeks from 2017–19 (274,096). For the weeks of May, on the other hand, we found that from week 19 (ending May 9) to week 22 (ending May 30) total mortality was up by 15 percent in 2020 (totaling 241,095) compared to the average for the same weeks during 2017–19 (213,358).
We are now five weeks out from the end of May, so it is likely totals will still be adjusted up somewhat, perhaps resulting in an increase of around 20 percent above the 2017–19 average.
This percentage increase is likely to be even smaller for the weeks of June once those numbers are compiled more completely. As we see in the first graph, total mortality was sizable during April, coming in above even 2018's fairly severe mortality attributed to a particularly deadly flu season.
Since May 2, no weekly total has matched 2018's high of 67,495.
Looking at total mortality is important in gauging the full impact of COVID-19. In a typical week in the United States, 50,000–60,000 Americans die. It is important to examine total deaths attributed to COVID-19 in this context. That there has been "excess" death is clear at this point. Total deaths were up by around 40 percent during mid-April in the US. Not all of this could be attributed to COVID-19, but much of it could be, or at least to diseases with similar symptoms.
Nonetheless, the US never reached true crisis-level strains on its medical infrastructure, as noted by physician John Ioannidis in a recent interview:
Greek Reporter: We had been told that we needed to “flatten the curve” — and we did so in the US, did we not? No health system was completely overwhelmed, not even in NYC, where they did not completely run out of ventilators.
Dr. Ioannidis: The predictions of most mathematical models in terms of how many beds and how many ICU beds would be required were astronomically wrong. Indeed, the health system was not overrun in any location in the USA, although several hospitals were stressed. Conversely, the health care system was severely damaged in many places because of the measures taken.
Greek Reporter: Finally, you had stated in March that, regarding lockdowns, they may be “bearable for a time, but how can policymakers tell if they are doing more good than harm?” if they are protracted. “School closures,” you stated, ”may reduce transmission rates” but may also “diminish the chances of developing herd immunity.” Even more important, perhaps, is this point you made — “One of the bottom lines is that we don’t know how long social distancing measures and lockdowns can be maintained without major consequences to the economy, society and mental health.
“Unpredictable evolutions may ensue, including financial crisis, unrest, civil strife, war and a meltdown of the social fabric.” Your thoughts, please, on how many of these things have indeed come to pass in this country as you had feared.
Dr. Ioannidis: I feel extremely sad that my predictions were verified. “Major consequences on the economy, society and mental health” have already occurred. I hope they are reversible, and this depends to a large extent on whether we can avoid prolonging the draconian lockdowns and manage to deal with COVID-19 in a smart, precision-risk targeted approach, rather than blindly shutting down everything. Similarly, we have already started to see the consequences of “financial crisis, unrest, and civil strife.” I hope it is not followed by “war and meltdown of the social fabric.”
Indeed, many deaths factored into total mortality during April and May can be attributed not to COVID-19 itself, but to the closures and shutdowns mandated by governments. We still have yet to see the full effects reflected in any government statistics, but we know severe child abuse, domestic abuse, suicides, drug overdoses, and cancer deaths all increased due to government-imposed stay-at-home orders and the government-forced deferment of necessary medical procedures for non-COVID conditions. Many of these medical procedures were arbitrarily labeled as "elective" procedures, and many Americans were unable to receive important diagnostic tests or medical procedures.
The government officials who caused their deaths and injuries continue to ignore these impacts, and are again hinting at enforcing new stay-at-home orders.
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Hyperinflation in Civil War China
I have recently been reading Helen Zia’s Last Boat out of Shanghai, which presents a narrative history of a handful of refugees who fled Shanghai as the Communist Party took control of China in the late 1940s. In framing this flight from the city, Zia details the experiences of the refugees during the Japanese occupation during the Sino-Japanese War, as well as just after the Chinese Civil War. Naturally, there is a lot of heart-wrenching suffering documented in these pages, from people of various backgrounds, but I found the experience of hyperinflation during the late 1940s to be particularly interesting as something I had not heard of before.
Zia first describes the experience of that hyperinflation from the view of the people trying to pay for what they need:
Everyone in Shanghai had had the unsettling experience of looking in a shopwindow as a clerk reached in to cross out one price and scrawl a new, much higher price, often x-ing out prices several times in a single day. Not even the belt-tightening inflation during the war had prepared them for costs that seemed to multiply by the minute. In June 1948, a sack of rice had cost 6.7 million yuan; within a few weeks the price had reached 63 million.
In response to the out-of-control inflation, the Nationalist government of Chiang Kai-shek did what most governments in history have done. Chiang Kai-shek appointed his son, Chiang Ching-kuo, finance minister and had him go after “hoarders” and “speculators.” Most egregiously, the younger Chiang ordered Chinese citizens to hand over all gold, silver, and foreign currency to the government, as well as outstanding yuan, for a new version of the yuan supposedly backed by gold. Zia quotes Chiang Ching-kuo as threatening, “Those who damage the new gold-based currency will have their heads chopped off!”
This policy did not last long, however. Chiang Ching-kuo made the mistake of arresting the wrong person for “speculation”:
Chiang Ching-kuo also arrested David Kung, the nephew of his stepmother, Madame Chiang. Upon learning that her favorite nephew was in jail, Madame Chiang stormed into her stepson’s office and slapped his face. Then she wired her husband, the generalissimo…
This severe loss of face put an end to Chiang Ching-kuo’s attempted currency reform process. Forced to abandon it, he released the “hoarders” and “speculators” from prison. The new version of the yuan failed spectacularly:
The newly issued currency collapsed, becoming instantly worth less than the paper it was printed on. Everyone who had obeyed the government’s orders to use the new currency lost everything; their assets of gold, silver, and foreign currency were now locked in Chiang Kai-shek’s treasury.
It is important to note that Zia is not an economist, and takes essentially for granted that the inflation was due to hoarding and speculation rather than the printing of money by the Nationalist government to fund their war efforts (though she does not explain why, if that is the case, foreign currency was still “better than gold against the collapsing new Chinese yuan”). There is, however, still a lot of value to be gleaned from this narrative history and it is worth examining in detail. I highly encourage the reader to consider purchasing this book for that alone.
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Another 1.3 Million Americans File for Unemployment Insurance as White-Collar Layoffs Loom
The labor department released new data today on initial unemployment claims, and the claims total remains stubbornly high at 1.3 million for the week ending July 4.
This was down slightly from the previous week's total of 1.4 million new unemployment claims.
Total new claims are way down from the peak of 6.8 million for the week ending March 28. This may seem like a big improvement, but at the peak of the Great Recession, initial claims reached "only" 660,000. In other words, current total unemployment claims are still far, far above what we would call "normal" even in a recessionary period.
If initial claims continue to hover around 1 million to 1.5 million, as they did through all of July, the promise of a V-shaped recovery will grow all the more distant:
Meanwhile, continuing claims, as of the week ending June 27, remain above 18 million.
None of this should be surprising given that state governments are now forcing business closures again and business owners are functioning in an environment of extreme uncertainty. As USAToday reports today:
"Initial state claims have barely budged over the past month, and are only 16% lower than on June 6,'' Andrew Stettner, senior fellow at The Century Foundation, said in a statement. "Equally concerning, initial state claims increased in 23 states last week, including those with major virus spikes, such as Texas and Louisiana."
Now, more layoffs loom. United Airlines warned this week that it may lay off 36,000 employees in the U.S., including flight attendants and customer service agents, if travel doesn't rebound. Retailers could also shed even more jobs if stores like Bed, Bath & Beyond continue to shutter locations.
And it looks like other layoffs are coming as well. The Observer reports:
On Thursday, Bloomberg Law reported that Wells Fargo, the largest employer in the U.S. banking industry, is mulling a plan to cut thousands of jobs from its 263,000 people workforce starting later this year. A management order to dramatically reduce costs is coming to a top executive inside the bank, according to people with knowledge of the confidential discussion.
What’s worse, if the layoff is materialized, it will likely have a seismic effect on the entire banking industry and could prematurely end other large banks’ pledges to provide job security for employees through at least the end of 2020.
Last month, a number of observers suggested that white-collar layoffs would soon materialize.
And as Jack Kelly at Forbes concluded in mid-June, white-collar hiring has declined substantially year over year. Naturally, this will lead to more unemployment in those sectors over time:
According to Jed Kolko, chief economist at the Indeed Hiring Lab (which is part of Indeed.com, the large job aggregation site), his study concluded that the current trend in job postings was 34% lower than in 2019. This was an improvement compared to when new listings turned down about 45% from the same time last year. White-collar roles, such as software development postings, are 36.3% below last year’s trend. Banking and financing job postings are down 51.3%.
Regime uncertainty continues to be a significant problem for employers. Under current conditions, with many consumers reducing consumption over COVID-19-related concerns, businesses already must scramble to deal with the changing landscape. But the situation is made far worse as policymakers (specifically state governors and big-city mayors) continue to hint that they could impose forced closures on countless businesses yet again. Under these conditions, employers are far less likely to expand their businesses, and with them total employment.
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Will Economics Fall to Politics?
The intense pressure to politicize every aspect of academia will not spare economics, and why would it? A society willing to topple statues is hardly one to worry about pulling down a body of knowledge, especially one skillfully characterized by the Left as a political program rather than an actual social science.
Keep in mind that the English literary canon and "Western civ" generally are under fire on campuses across America. What we think of as important and seminal works in classics, literature, philosophy, and history increasingly are questioned and discarded. Even hard-science STEM curricula are not immune—and not simply for the lack of diversity among those working and teaching in STEM fields, but because the knowledge itself is deemed too Western and Anglocentric. Even physical sciences are not considered objective in our grim political world.
2+2=4, says who?
We cannot imagine economics is immune from this gross politicization. The dismal science is similarly full of dead white men: names like Adam Smith, Karl Marx, John Maynard Keynes, Alfred Marshall, Paul Samuelson, along with Austrians like Hayek and Mises, come to mind when naming seminal works. Do we think this edifice will not be attacked on identitarian grounds, even apart from the general belief that economics is mostly a fake discipline designed to provide phony intellectual cover for business interests?
Academic economists supposedly have skewed, and still skew, more "conservative" than their deeply left-wing colleagues in social science departments—at least according to this perishable 2010 study by the New York Fed. But this is not really true today, and is less so every year. According to Forbes, 70 percent of economists supported Hillary Clinton over Donald Trump in 2016 and most are Democrats.
So while university economists might be less left-leaning than academia generally, they may well be further left than the general population. This is readily apparent if you spend much time consuming fintwit, shorthand "financial Twitter," where economists and finance types who are active on the platform gather. In the fintwit universe, old horses like Paul Krugman find themselves elbowed aside by deeply progressive younger voices like Noah Smith at Bloomberg, Marshall Steinbaum at the University of Utah, and modern monetary theory proponent Stephanie Kelton at SUNY Stony Brook. These writers focus with particular zeal on "remaking" economics, questioning whether any past knowledge, however painstakingly developed, fits the modern world. We need a "new economics," always one that serves "people over profits"—which is another way of saying serves their preferred political program of democratic socialism.
Increasingly, economics is understood not as a discipline with principles, axioms, and laws, but rather a malleable tool run by legislative or central bank fiat. Economies can be commanded. After all, Congress just appropriated more than $2 trillion in the CARES Act, with no new taxes, and the Trump administration has plans for another round of trillion-dollar stimulus. If the $600 weekly federal add-on to unemployment benefits is extended into August and beyond, are we not approaching a form of universal basic income? The Fed, for its part, has already created more than $3 trillion in "liquidity" just since February of this year, and appears willing to increase its balance sheet to $10 trillion as needed to soothe corporate bond markets.
Any casual observer is hard pressed not to wonder whether government cannot simply create money and credit indefinitely. Why can't this "new normal" system keep us all housed and fed even after the coronavirus crisis fades? Why can't we substitute politics for economics, and in fact redefine the latter as a state program?
Those of us who believe in markets and property better wake up. Send everyone you know this link, for starters, and equip yourself with the intellectual ammunition to fight the reality deniers. Economics cannot be faked, ignored, or legislated away any more than physics or chemistry. Economics, as Mises understood, is the study of social cooperation. When economics falls to politics, peace and prosperity fall to poverty and violence.
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How the Austrians Teach Economics
Owen Holzbach recently wrote in Power and Market "How Public Schools Teach Economics." I had a similar experience in my high school macroeconomics class. As taught, Keynesian economics provides a "toolkit" for wannabe central planners.
After high school I attended Grove City College, where I am learning real economics. What my Austrian school professors do differently from their mainstream cousins is demonstrate the truth of their conclusions from the first principles of human action and the empirical reality of the world.
Every economics student, and many other GCC students, take Dr. Shawn Ritenour's class Foundations of Economics. This is the class that got me interested in economics. Following Mises, the class covers basic epistemology before starting with the action axiom, that is, purposeful behavior, and proceeding to carefully derive economics.
With a firm understanding of economic method, subjective preferences, cooperative vs. aggressive interaction, division of labor, the emergence of money, time preference, and entrepreneurship students receive a firm foundation in economic law.
Sprinkled in the class is discussion of ethics, consequences of policy, and the view of man. Students, for example, are introduced to (and shown the error in) the ideas of Gustav Schmoller on historicism, Milton Friedman on positivism, Marx on labor exploitation, and Malthus on population.
Some of my favorite advanced classes thus far are intermediate micro and intermediate macroeconomics. In both classes differing views are presented on their own terms. Students appreciate this level of intellectual honesty.
In intermediate macro, for example, Dr. Ritenour explains the capital structure and derives Austrian business cycle theory. But we also learn the Keynesian simple system, the IS-LM (investment-savings, liquidity preference–money supply) model, Friedman's plucking model, Real business cycle theory, and more.
In intermediate microeconomics, Dr. Caleb Fuller teaches the mainstream calculus-based approach to utility and welfare analysis. We learn and critique the perfect competition model as well as neoclassical consumer theory and cost-based producer theory.
Understanding the roots of ideas provides a grounding that many economists lack. This past spring, I took History of Economic Thought since 1870, where we concentrate on the Marginal Revolution as well as the economic thought of Keynes, Marshall, Friedman, Hayek, Mises, Böhm-Bawerk, Veblen, and much more. Both of the History of Economic Thought courses are now required for economics majors at the college.
For example, it is easy to take the Marginal Revolution for granted. However, there is a lot more to the story than three economists independently discovering the same idea. It turns out that the marginalism of Carl Menger is a bit different from that of William Stanley Jevons and that of Léon Walras.
For Walras, marginal utility is the key to complete his model for general equilibrium. Rather than moving from first principles, he starts with an idea of perfect competition and climbs down to marginal utility. This model is rigorously static and devoid of action. Instead, a timeless Walrasian auctioneer equilibrizes markets.
Jevons bases his marginal utility analysis on Jeremy Bentham's utilitarian calculus of pain and pleasure. This use of cardinal utility functions and assumption of infinitely divisible goods, as opposed to ordinal demonstrated preference, has led to neglect of qualitative aspects of human choice that are irreducible to a mathematical function.
Menger also takes the subjective value approach, but it is embedded in the structure of means and ends rather than a calculus of pain and pleasure. In his book Principles of Economics, Menger emphasizes the real-world process of action, as opposed to an equilibrium model that abstracts from action.
These differences, minor at the time, have borne out over the last 150 years to where mainstream economists, fixated on their perfect competition models, have advocated for government intervention in markets in to ensure competition. The reality is the opposite, that antitrust action to break up large firms harms consumers. It is not the number of firms itself, but the threat of both actual and potential competition that incentivizes firms to act competitively.
This is a microcosm of what I have learned from my "heterodox" Austrian school professors. The Austrians bring a lot more to the table in terms of intellectual honesty and curiosity, real-world relevance, depth of understanding, and solid first principles. I am graduating this December, and in spite of everything going on in the world right now, I must consider my education in causal-realist Austrian economics a success.
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Three Weeks Later: The Fed Minutes
Somewhere there exists a list of ostentatious, unapologetic behavior exhibited by the Federal Reserve. On that list there must be a spot for the three-week delay on publishing the board minutes, as seen by the June 9–10 Federal Open Market Committee (FOMC) meeting minutes. We can only wonder if the minutes have been significantly edited or instances of great dissent among central bankers omitted entirely. Among the many issues with the Fed is a lack of accountability. We only know whatever information they provide.
Chair Powell began with a mention of the current civil unrest facing the country. In an attempt to address inequality, or at least appear to, he added:
Everyone deserves the opportunity to participate fully in our society and in our economy.
The hypocrisy, of course, is in how this can be achieved when the Fed takes action such as buying bonds from billion- (to trillion-) dollar corporations or focuses on managing price increases in consumer goods while neglecting the rise in asset prices. The Fed’s own actions harm the most vulnerable members of society first while claiming to serve the entire nation!
They quickly move on to financial modeling, noting:
The simulations suggested that the Committee would have to maintain highly accommodative financial conditions for many years to quicken meaningfully the recovery from the current severe downturn.
We could argue the Fed has been “highly accommodative” to financial markets since the Great Recession, keeping rates at historic lows, and only shrinking the balance sheet briefly from 2008 to mid-2019 until finally capitulating after the stock market neared the verge of collapse. Perhaps, we shouldn’t fear low rates or an end to the stimulus any time soon, if ever.
The yield curve control or target (YCT) was briefly discussed. This seems to remain in the discussion phase, as the Fed noted some pros and cons. While deciphering Fedspeak is not an easy task, it seems they are not completely behind the idea just yet, especially as:
the staff also highlighted the potential for YCT policies to require the central bank to purchase very sizable amounts of government debt under certain circumstances.
Wouldn’t it be grand if making sizable government debts in order to control interest rates was something the Fed wanted to shy away from?
They continued with favorable views on large-scale asset purchases, since they were “effective” during the Great Recession and are now “key parts of the monetary policy toolkit”:
as a result, they have important roles to play in supporting the attainment of the Committee’s maximum-employment and price-stability goals.
It would be interesting to see them try to justify how central bank asset purchases lead to “maximum employment” and “price stability.” Price “inflation” also received an honorable mention:
Prices fell in March and April in many categories that were affected the most by social-distancing measures, such as the prices for air travel and hotel accommodations.
Surely economists calculated the inflation numbers correctly and accounted for the decrease in prices while considering the change in relative importance of each item used to arrive at their inflation number. Can anyone imagine what would happen if the actual “inflation rate” was much higher, such as 5 percent? What would that mean for the stock market, bond market, risk ratings, Treasury prices, pension plans, long-dated contracts, and a whole host of other calculations that factor in inflation?
There was much deliberation and many economic projections made, each piece of data used to help plan our future, ensuring the Fed gets closer to reaching its mandate of maximum employment and stable prices, ostensibly to the benefit of society. Ultimately, for all the pomp and circumstance surrounding the Fed, there really isn’t much to be revealed. Congress granted them a monopoly on the US dollar allowing them to create and destroy money (credit) as they see fit, all while manipulating interest rates. Tragically, they won’t even deny this. It’s policy and all explained on their website.
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June Jobs Numbers Showed Big Growth. But Recent Weekly Unemployment Claims Data Is Worrisome.
According to new jobs data released today by the US Labor Department, total nonfarm employment grew by 4.8 million in June (seasonally adjusted). The gain was even larger (5.1 million) in non–seasonally adjusted totals.
June's unemployment rate was 11.1 percent, a drop of 2.2 percent.
This means total employment is now "only" 14.6 million below the November peak, meaning the US is now back to where total employment was in 2015.
As we can see in the first graph, so far a "V-shaped recovery" looks possible. In April, employment crashed by the largest amount seen since the Great Depression. The economy recovered more than 3 million jobs in May in addition to June's 4.8 million jobs.
But it remains unclear if the current job recovery will continue at the same rate. In June it looked like government-imposed business closures might be disappearing, but by late June state governors and other policymakers had begun announcing or threatening new business closures and lockdowns. This will no doubt have an effect on employment in July, but the extent of the effect is impossible to predict at this time.
If the recovery continues at its current rate, then total employment could recover within a few months, making the 2020 recession (at least in terms of jobs) considerably shorter than the Great Recession. Here is total employment (by recession and final month in each cycle before job losses began) indexed to peak month, and the number of months that passed before employment returned to peak levels:
In recent weeks, however, unemployment claims have remained stubbornly flat. For the week ending June 27, new unemployment claims increased by 1.43 million. This was only down slightly from the previous week, when there were 1.48 million new claims. Since March, new unemployment claims have totaled over 48 million.
That 1.43 million number for last week remains very large. During the Great Recession, new unemployment claims peaked at around 660,000 in late 2009. So long as unemployment claims continue to number above a million, we're looking at job losses well above what would be considered "normal" even in a recession.
Moreover, continuing unemployment claims actually increased slightly from the week ending June 13 to the week ending June 20, climbing to 17.9 million.
If unemployment claims continue to move sideways, there's good reason to suspect employment in July may do the same.
At the same time, the unemployment rate could continue to fall if workforce participation continues to fall. As people leave the workforce, the unemployment rate could theoretically fall even without any job growth.
And workforce participation is indeed falling. In April of this year, participation (for all ages) fell to about a 43-year low, coming in around where it was in April 1976. Participation climbed again in May and June, but remains near a forty-year low for June.
The weak jobs market appears to be most impactful on young workers and old workers, as workforce participation in prime earnings years has not been as affected. For workers in the 25–54 category, workforce participation is back to where it was in 2015.
Unless we start to see a more rapid drop-off in unemployment claims, it's difficult to see how a V-shaped recovery will continue. Moreover, much will depend on how harsh ongoing business closures and partial "lockdowns" are in the US. Since these policies are set at the state level, employment numbers will likely be very uneven from state to state. As we saw in the state-to-state data for May, many states with particularly harsh lockdowns, such as New York and Michigan, were among the states with the highest unemployment rates.
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