Is The ‘Mother of all Bubbles’ About to Pop?

Is The ‘Mother of all Bubbles’ About to Pop?

11/14/2019Ron Paul

When the New York Federal Reserve began pumping billions of dollars a day into the repurchasing (repo) markets (the market banks use to make short-term loans to each other) in September, they said this would only be necessary for a few weeks. Yet, last Wednesday, almost two months after the Fed’s initial intervention, the New York Federal Reserve pumped 62.5 billion dollars into the repo market.

The New York Fed continues these emergency interventions to ensure “cash shortages” among banks don’t ever again cause interest rates for overnight loans to rise to over 10 percent, well above the Fed’s target rate.

The Federal Reserve’s bailout operations have increased its balance sheet by over 200 billion dollars since September. Investment advisor Michael Pento describes the Fed’s recent actions as Quantitative Easing (QE) “on steroids.”  

One cause of the repo market’s sudden cash shortage was the large amount of debt instruments issued by the Treasury Department in late summer and early fall. Banks used resources they would normally devote to private sector lending and overnight loans to purchase these Treasury securities. This scenario will likely keep recurring as the Treasury Department will have to continue issuing new debt instruments to finance continuing increases in in government spending.

Even though the federal deficit is already over one trillion dollars (and growing), President Trump and Congress have no interest in cutting spending, especially in an election year. Should he win reelection, President Trump is unlikely to reverse course and champion fiscal restraint. Instead, he will likely take his victory as a sign that the people support big federal budgets and huge deficits. None of the leading Democratic candidates are even pretending to care about the deficit. Instead they are proposing increasing spending by trillions on new government programs.

Joseph Zidle, a strategist with the Blackstone investment firm, has called the government — or “sovereign” — debt bubble the “mother of all bubbles.” When the sovereign debt bubble inevitably busts, it will cause a meltdown bigger than the 2008 crash.

US consumer debt — which includes credit cards, student loans, auto loans, and mortgages — now totals over 14 trillion dollars. This massive government and private debts put tremendous pressure on the Federal Reserve to keep interest rates low or even to “experiment” with negative rates. But, the Fed can only keep interest rates, which are the price of money, artificially low for so long without serious economic consequences.

According to Michael Pento, the Fed is panicking in an effort to prevent economic trouble much worse than occurred in 2008. “It’s not just QE,” says Pento, “it’s QE on steroids because everybody knows that this QE is permanent just like any banana republic would do, or has done in the past.”

Congress will not cut spending until either a critical mass of Americans demand they do so, or there is a major economic crisis. In the event of a crisis, Congress will try to avoid directly cutting spending, instead letting the Federal Reserve do its dirty work via currency depreciation. This will deepen the crisis and increase support for authoritarian demagogues. The only way to avoid this is for those of us who know the truth to spread the message of, and grow the movement for, peace, free markets, limited government, and sound money.

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The Fed Plans to "Overshoot" the Target for Max Employment

09/22/2020Robert Aro

Fed Chair Jerome Powell laid out our targets for our future at the September 16 Federal Open Market Committee meeting. “Accommodative stance” on monetary policy, up to 0.25 percent interest rates until maximum employment, plus a moderate overshoot of the 2 percent inflation target all must be met. Clearly, there is no plan to ever stop monetary stimulus.

He didn’t explicitly say this, nor would he. But, per his guidance and Q&A, conclusions can be made. Maximum employment for example:

We are assigned maximum employment. Now what does that mean? As I mentioned earlier, it doesn't mean a particular headline unemployment number. What it means is maximum employment.

Unemployment rate? Not much substance offered there:

I can't be precise about a particular number, but let me just say there was a lot to like about 3.5 percent unemployment. It's not a magic number. No one would say that number is the touchstone or that is, you know, maximum employment.

Touchstone? Curious what number that would be. Upon further questioning, he clarified that maximum employment is “not something which could be reduced to a number.” Apparently, the Fed will determine when that goal is reached. However, support does not end once employment is met.

Regarding that inflation target, Powell informs us:

Even after -- if we do lift off, we will keep policy accommodative until we actually have a moderate overshoot of inflation for some time.

Interesting to note the consensus in the Fed’s statement of economic projects: inflation won’t reach 2 percent until 2023; even then the highest projection made is 2.4 percent, hardly an overshoot. However, Powell remained steadfast:

In terms of inflation, you know, this is a Committee that is both confident and committed and determined to reach our goals. And the idea that we would look for the quickest way out is just not who we are….Okay, so just understand that, you know, we're strongly committed to achieving our goals and the overshoot.

How much more could be done to keep policy “accommodative?” Aren’t they out of ammunition? The Chair gives a definitive NO.

I certainly would not say that we're out of ammo, not at all. So first of all, we do have lots of tools. We've got the lending tools. We've got the balance sheet, and we've got forward guidance…

Translation: new Fed/Treasury bailouts, more bond buying, eventually equity purchases, and, of course, more statements extolling the virtues of maximum employment and inflation. But, it could also mean negative interest rates in the future.

Again, he will never outright say this, but accommodative monetary policy inevitability takes over nations. We are already seeing this across the globe. Why should the Fed be any different? These policies and goal settings carried out by central banks go by many names: interventionism, socialism, anticapitalism. They create asset bubbles and boom/bust cycles, but the Fed tells us their work is necessary to “provide relief” and “support recovery” as long as needed.

They have explicitly stated that interest rates will stay low for the next several years and this “accommodative stance” will continue at least until maximum employment is met with a consistent overshoot of inflation. Looking back on the last ten years, if price inflation was only around 1 percent, we could hardly imagine a decade of inflation being around two to five, seemingly the ballpark for which they are striving. As for maximum employment, it’s a target that cannot be measured nor particularly articulated. It appears nothing more than a carrot on a stick, intended to continue on a path which has a nearly unattainable end goal. But which is worse, the Fed somehow meeting their goals or continually falling short?

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The War on Assange Is a War on Truth

09/22/2020Ron Paul

It is dangerous to reveal the truth about the illegal and immoral things our government does with our money and in our name, and the war on journalists who dare reveal such truths is very much a bipartisan affair. Just ask Wikileaks founder Julian Assange, who was relentlessly pursued first by the Obama administration and now by the Trump administration for the “crime” of reporting on the crimes perpetrated by the United States government.

Assange is now literally fighting for his life as he tries to avoid being extradited to the United States, where he faces 175 years in prison for violating the “Espionage Act.” While it makes no sense to be prosecuted as a traitor to a country of which you are not a citizen, the idea that journalists who do their job and expose criminality in high places are treated like traitors is deeply dangerous in a free society.

To get around the First Amendment’s guarantee of freedom of the press, Assange’s tormentors simply claim that he is not a journalist. Then CIA director Mike Pompeo declared that Wikileaks was a “hostile intelligence service” aided by Russia. Ironically, that’s pretty much what the Democrats say about Assange.

Earlier this month, a US federal appeals court judge ruled that the NSA’s bulk collection of Americans’ telephone records was illegal. That bulk collection program, born out of the anti-American PATRIOT Act, was first revealed to us by whistleblower Edward Snowden just over seven years ago.

That is why whistleblowers and those who publish their information are so important. Were it not for Snowden and Assange, we would never know about this government criminality. And if we never know about government malfeasance, it can never be found to be criminal in the first place. That is convenient for governments, but it is also a recipe for tyranny.

While we might expect the US media to aggressively come to the aid of a fellow journalist being persecuted by the government for doing his job, the opposite is happening. As journalist Glen Greenwald wrote last week, the US mainstream media is completely ignoring the Assange extradition trial.

Why would they do such a thing? Partisan politics. Journalists—with a few important exceptions like Greenwald himself—are no longer interested in digging and reporting the truth. These days they believe they have a “higher calling.”

As Greenwald puts it, “If you start from the premise that Trump is a fascist dictator who has brought Nazi tyranny to the US, then it isn’t that irrational to believe that anyone who helped empower Trump (which is how they see Assange) deserves to be imprisoned, hence the lack of concern about it.”

That may seem like a good idea to these journalists in the short term, but for journalism itself to become an extension of government power rather than a check on that power would be deeply harmful.

We cannot have a self-governing society as was intended for our Republic if the government, with the complicity of the mainstream media, decides that there are things we are not allowed to know about it. President Trump should end the US government’s war on Assange…and on all whistleblowers and their publishers.

Reprinted with permission.

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What Consumers Say Is Not as Important as What They Do in the Marketplace

09/21/2020Raushan Gross

It is preposterous to assume what customers say is more important than where they place their feet and the price they pay for products or services. The customer's mind is still elusive and challenging for entrepreneurs. If understanding the mind of the customer were easy, everyone would do it!

The insights of the Austrian school of economics tell us that people act purposefully toward future betterment. That is, customers and entrepreneurs both act to attain better future situations than their current situations compared to if they had not acted at all. Customers operate on a value scale, an important insight developed by Carl Menger, elucidating that value is in customers' minds. In this regard, Menger urged entrepreneurs to "reduce the complex phenomena of human economic activity to the simplest elements."1

I echo the sentiments of Menger, but some do not. For example, a recent article titled "2 Simple Steps for Testing If Your First Customers Like Your Product" recommends surveys and the search for "moments of truth" and "tipping points." The only simple way of ascertaining customers' product sentiment is through the market itself.

The market process provides excellent insights into customers' unspoken motives and whether they like your products and services. The best way to figure out if your customer likes your products is to turn to market phenomena. That is, the market price, as reflected by customers' subjective valuation and competitors' offerings. Different opinions about the value of a product or service are drawn out through this process. The real test, the market signals, shows how much and to what extent customers are willing to sacrifice to attain your product or service offering.

The customer wants the product with high use value, intended for whatever purposes to help them reach their end. The value of any product is in the customer's eye, the same way that beauty is in the beholder's eye! We never truly know to what extent a customer chooses your product over a competitor's. That is to say, the only reliable data on customer sentiments is that customers have purchased your products—the more, the merrier. Ludwig von Mises in Human Action expressed that "It is ultimately always the subjective value judgments of individuals that determine the formation of prices.”2

Market prices and exchanges alert the entrepreneur whether the product is more or less valuable to the customer than the forgone opportunity to withhold their cash holdings. Money measures prices, and prices measure value. Buying and selling or market abstention determine prices. As such, prices are what customers are willing to pay for a product based on their subjective valuation, keeping in mind their future benefit from that product.

In his salient book Economics for Real People, Gene Callahan agreed that "only real market prices convey information on the freely chosen values of acting man."3

Therefore, it is sensible to observe market price signals as a means of analyzing customer sentiments. Customer dissatisfaction and loyalty occur when product or service incongruities exist. Market incongruities also exist between the entrepreneurs' perceptions of changing market realities. The entrepreneur's function is to address any market incongruities in which the customer, because of market changes, is better off than they were before. The market is in constant movement, which means customer preferences are in perpetual motion.

Retention of customers is a less complicated phenomenon which an entrepreneur might observe. Only individuals act in concert with one another in a spontaneous way to reach their goals in any given market. As the author of the cited article proposes, the concept of customer retention is somewhat misguided, because retention relates to competitors' actions and their substitutable products. The question should be, how many substitutable products exist in my ecosystem? Are other entrepreneurs doing something that I am not doing?

First, the customer is the holder of the perception of value. Secondly, the customer making future choices is the cornerstone of the basic axiom of action. While taste preferences change over time, so do the market actions of your customers and your competitors. The first axiom of praxeology is that people act; they act to pursue a better situation based on the choices they are presented with. Mises reminds us of this in his work Human Action. What the customer says and the action the customer takes are two different things, because it is the customer's action that provides market signals to the entrepreneur. As long as you satisfy the customer's needs and wants, profits will ensue, and losses decrease.

You strive to get rewarded for the risks involved with bringing new products to the market. Your competitors are seeking the same market reward.

Some do not understand that competition works as a signal of incongruities, leading to profits or losses. Indeed, competition exists so long as customers have market choices and can exercise them. The reality is that customers vote with their dollars and feet. They may voice their liking of your products, but at the same time be enthralled with a competitor's quality, service, and prices. Competition, therefore, acts as the entrepreneur's light post, guiding them toward market opportunities that may go unrealized or deterring them from those that are unfit.

Competition, in the Austrian view, is aimed at who can serve the customer best. Providing the best quality and product to the customer is the leading role of entrepreneurial competition. Competition is not and should not be insidious—rather, it should be productive and dynamic. If entrepreneur A wants to enter a market with capital to prove he or she can do things better than entrepreneur B, that should be his or her choice. Entrepreneur B will come to realize they missed many market opportunities only because that knowledge appears as a result of the competitiveness of entrepreneur A. For example, customers may choose the products of entrepreneur A one day and B the next.

It is not what customers say, but what they do. Entrepreneurial insight about the market and the changes that will occur should be the guiding light for entrepreneurs. Entrepreneurs have to ascertain how people will respond to changes. Customer purchases, retention, a likeness of products or services, and loyalty are results of entrepreneurial market observation, and not causes.

  • 1. Carl Menger, Principles of Economics, trans. James Dingwall and Bert F. Hoselitz (Auburn, AL: Ludwig von Mises Institute, 2007)
  • 2. Ludwig von Mises, Human Action: A Treatise on Economics, scholar’s ed. (Auburn, AL: Ludwig von Mises Institute, 1998).
  • 3. Gene Callahan, Economics for Real People: An Introduction to the Austrian School, 2d ed. (Auburn, AL: Ludwig von Mises Institute, 2004).
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Will Kirkpatrick Sale's Collapse of 2020 Come True?

09/17/2020Doug French

America is about growth and getting big, supersized, or bigly, as the president would say. There’s no debate, growth is good, in fact essential; bigger is better.

One man who believes the end of all this bigness is nigh is Kirkpatrick Sale, a prolific author, most notably of Human Scale and Human Scale Revisited, and a notable proponent of secession. Simply put, Sale believes the world is destroying itself. In a piece for LewRockwell.com Sale wrote, “the government we have in this country is too incompetent, inept, corrupt, wasteful, and inefficient, too centralized, undemocratic, unjust, and invasive, and too unresponsive to the needs of individual citizens and small communities, and all because it is too big.”

For readers wanting a warm-up before launching into the meaty Human Scale, Sale’s latest book is The Collapse of 2020, which started with a $1,000 bet Sale made in 1995 with Wired magazine editor Kevin Kelly that civilization would collapse by, well, 2020. At the time, that year sounded a long way off and Sale, who in those days had little more than a thousand bucks to his name, figured $1,000 would be inflated away to virtually nothing by 2020.

Not quite, of course, and civilization hasn’t completely collapsed, but Sale believes we are close and now puts the doomsday year at 2030. He has produced a pithy little book (44 pages) to give us a status report. The author tells us the earth has experienced five previous extinctions: a meteor strike which changed the climate and four others caused by greenhouse gases. The sixth is underway.

“Industrial civilization,” Sale writes, “in other words, is an inherently self-destructive system with limits beyond which it cannot survive, and utterly consumes itself like the self-burning tree of Gambia discovered by Mungo Park.”

Political collapse is underway in 43 percent of all nations on earth, without including “a dozen smaller nations that are locked into autocracy and poverty.” There are plenty of examples in the political collapse category for Mr. Sale to cite: Brexit, the Trump election “(and the subsequent attempt to overturn it),” and protracted protests in Poland and Hong Kong. Sale mentions the work of two political scientists who claim that “the state system seems to be failing all over the world” and believe work must be done to study “how to grow, maintain, and fund states so as to avert their collapse.” Anarchists would cheer “let them fail!”

Political collapse stems, Sale believes, from the world’s population, which, like everything else, has grown too big. There will be wars and competition, because “there will be no diminution in overpopulation--it has grown steadily and irredeemably by 83 million people a year since 1975.” Sale describes the United Nations as a waste of time and money; “in short,” he writes, “[the U.N.] is an example of the collapse of politics at the global level.”

Also collapsing on a global scale are capitalism, which Sale says “has everywhere turned into a disputative autocracy or a failed anarchy,” and the Catholic Church, which “has proven itself incapable of self-reform or doctrinal coherence.”

These examples of political collapse have led to increasing rates of addiction, suicide, and mental illness around the globe, while rates of marriage and religious affiliation have declined.

Individual contempt and distrust of government are increasing, with terms like “deep state” and “the swamp” being common pejoratives.

The author sees the economy as “the Sophoclean and Shakespearean heroes who go into disasters unable to change.” The problem in a word is debt—government, corporate, and individual combine to unsustainable levels. The weight of all that debt will collapse the dollar. Sale quotes a Swiss banker as saying that “The long-term trend of the dollar is clear: it will go into oblivion faster than anyone can imagine.” China and Russia are of the same opinion and have added to their gold holdings at an increasing pace while unloading the dollar.

In the end, Sale believes the collapse will be due to “Heedless technological advances pushing heedless exponential growth beyond human capacity to control…, just as I predicted.”

Although he wrote before the covid-19 outbreak, Sale predicted that new deadly infections would spread to all continents. Perhaps this is the canary in the coal mine.

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Judy Shelton Won't Toe the Fed's Party Line. So She Can't Get the Votes for Confirmation.

09/17/2020Robert Aro

On Tuesday Reuters reported comments made by Republican senator John Thune:

Judy Shelton, U.S. President Donald Trump’s controversial pick to serve on the Federal Reserve’s interest-rate-setting panel, does not currently have the votes to win confirmation in the U.S. Senate.

Hope still remains as Senator Thune’s role as majority whip requires him to track votes made by Republicans; the official vote has not yet happened. In the senator’s words:

She’s a priority for the White House. It’s the Federal Reserve. It’s important. So, obviously, we want to get it done. But we’re not going to bring it up until we have the votes to confirm her.

The story is troubling because Republican’s have a 53–47 senate majority, but still not enough votes to approve the nomination. This raises questions for the Grand Old Party; mainly, what is the hesitation?

The Wall Street Journal echoed the “controversial selection” narrative:

Ms. Shelton has been a longtime proponent of a return to the gold standard, which would limit the Fed’s ability to influence inflation and employment, and concedes that her views are outside the mainstream of economics.

Of course, limiting the Fed’s ability to influence the free market, including inflation and employment is the purpose of the gold standard. The controversy centers around members of Congress and the Fed who may not want to concede the power to influence the market. It’s dangerous to those at upper levels of government and the Fed, as their control rests in the ability to manipulate interest rates and create US dollars in order to buy assets and run perpetual budget deficits.

A month ago a group known as “Fed Alumni,” comprised of various former Federal Reserve employees, as well as several presidents, published an open letter to the Senate with thirty-eight signatures asking them to reject the nomination. The number now stands at seventy-seven signatures.

Upon reading the letter, the problem with mainstream economics is revealed:

She has advocated for a return to the gold standard; she has questioned the need for federal deposit insurance; she has even questioned the need for a central bank at all.

The dogma is followed by hubris:

The Fed has serious work ahead of it. While we applaud the Board having a diversity of viewpoints represented at its table, Ms. Shelton’s views are so extreme and ill-considered as to be an unnecessary distraction from the tasks at hand.

If there is a controversy, it should be about the “serious work” the Fed has ahead of it. With the new goal of aiming to “achieve inflation moderately above 2 percent for some time,” it appears very few are asking the purpose behind this. Especially since the Fed is moving away from the belief in there being a tradeoff between inflation and unemployment, there seems little reason to push for higher price inflation any longer.

Contrast this sentiment with those in science, math, or physics, where questions and the ability to refute or prove theories allows these fields to advance. Yet economics is devoid of this advancement; as we can see, when someone offers ideas such as a return to the gold standard, the result is contempt. But it’s one thing to petition congress claiming lack of qualifications, yet quite another to offer coherent arguments, articulating where exactly the problem lies. So far, we’re still looking for a critique which goes beyond being discredited for brainstorming economic solutions.

This somewhat explains why economics is divided into “orthodoxy” and “heterodoxy,” which normally refer to religious doctrine—heterodoxy for beliefs falling outside the mainstream. Perhaps it’s time for the Fed to stop treating economics like a religion and start searching for the truth, where someone like Judy Shelton is praised instead of punished for questioning economic tradition.

Much uncertainty remains as we wait for 51 democratically elected senators to give their blessing, allowing Ms. Shelton to ascend to the hallowed halls of the Eccles Building, where she can join the ranks of those select few who have the almost godlike ability to decree paper (or its electronic equivalent) legal tender. Maybe long-standing beliefs like money creation leading to prosperity should be widely questioned: If it holds up to scrutiny then great; if not, then why should we adhere to it?

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The Fed's Inflation Obsession

09/17/2020Robert Aro

If one needs convincing the Fed and mainstream economists are divorced from reality, read detailed economic explanations from those so called “experts.” A few sentences in reveals no economic theory employed, as exemplified by Fed head, Jerome Powell, addressing the world on the Fed’s new inflation objectives as part of the updated monetary policy strategy at the August 27 Jackson Hole symposium.

The persistent undershoot of inflation from our 2 percent longer-run objective is a cause for concern.

This notion of a “2% inflation” target may seem as though it has been in effect forever, but it was only officially made a goal by the Fed in 2012. Unofficially, it began in countries around the world in the late 80’s to early 90’s. Contrary to what we’ve been conditioned to believe, economic policy was not always this way. An article on the origins of the inflation target was shared this week, where it was noted by the New York Times how the 2% goal was literally “plucked out of the air” with no empirical evidence ever presented to support the target.

After suggesting inflation below 2% would be cause for concern, Powell follows up with:

Many find it counterintuitive that the Fed would want to push up inflation. After all, low and stable inflation is essential for a well-functioning economy. And we are certainly mindful that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes.

Here's the tricky part; for the last decade, we’ve been told by the Fed, the media, and popular economists consumer price inflation has been low. While technically true that it has been low according to their measurement, the problem lies in the measurement itself. It’s not a matter of getting the “correct” inflation number; it’s that no such number exists. These calculations rely on so called experts to arbitrarily choose a basket of goods and assign a relative weight of importance to each item. Yes, it amounts to data, but no, it’s not credible since it cannot factor in the countless reasons which cause price fluctuations, nor can it calculate the sheer number of inputs required to arrive at a figure that can be adequately applied to an entire nation. Anecdotally for the average American, who is not a central banker, the cost of goods and services has increased at a rate much greater than 2% per annum for a very long time.

Unfortunately, even though Powell acknowledges the burden inflation places on families, he dismisses the gravity by saying:

Inflation that is persistently too low can pose serious risks to the economy. Inflation that runs below its desired level can lead to an unwelcome fall in longer-term inflation expectations, which, in turn, can pull actual inflation even lower, resulting in an adverse cycle of ever-lower inflation and inflation expectations.

Fortunately, the train of thought is revealed: if low “inflation expectations” materialize into pulling “actual inflation” lower, higher inflation expectations should push actual inflation higher. In this regard, we see the Fed rely on unproven theories more than anything else. Consider, if inflation expectations influenced actual inflation, why does the Fed continually struggle with “the persistent undershoot” of inflation? Despite never providing empirical evidence to support inflation expectations, it remains paramount to the Fed, especially since:

Expected inflation feeds directly into the general level of interest rates….

By taking a little time reading a speech from a central banker, it becomes apparent something just doesn’t add up. For an organization which claimed “monetary policy is data dependent,” they have failed to justify the 2% inflation target or proven that inflation expectations actually work. One would be hard pressed to see any data to support their assertions, which is probably why it’s best they maintain an air of mystique around them ignoring Austrian economics entirely.

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The Origins of the 2 Percent Inflation Target

09/16/2020Robert Aro

Inflation targets are part and parcel of central banking policy, the Fed’s mandate centering around the 2 percent inflation target. But when was the last time anyone asked why a 2 percent inflation target?

To address this while avoiding potential "bias," we can look at history through the lens of one of the largest mainstream newspapers in the world, the New York Times. The following article takes us back to 2014 when the paper published "Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel."

It all started in 1989, when Don Brash, managing director of the New Zealand Kiwifruit Authority accepted the position of head of the Central Bank of New Zealand. Appearing to have no understanding of Austrian economics, he and his finance minister devised a plan to combat the surging price inflation of the '70s and '80s.

As fate would have it, Mr. Brash remembered the former finance minister telling the media he was “aiming for inflation of around zero to 1 percent.” Brash recalls that “it was almost a chance remark,” yet it sparked one of the most destructive policy decisions of all time, which has only worsened since. He admitted:

The figure was plucked out of the air to influence the public’s expectations.

Ultimately the bank settled on an "inflation target" between 0 and 2 percent. The announcement was considered a "radical idea" at the time, but lo and behold:

It created a kind of magic of its own. Merely by announcing its goals for inflation…New Zealand made that result a reality.

Of course, no proof has ever been offered of how an "inflation target" can be met simply by stating it as a goal. If it were that easy, the Fed would have met the target decades ago.

Luckily for Brash, inflation in New Zealand was 7.6 percent in 1989 when the target started and only 2 percent by the end of 1991. This bit of providence accelerated the idea as the head of the central bank

did a bit of a global campaigning, describing New Zealand’s success to his fellow central bankers at a conference in Jackson Hole, Wyoming.

Canada, Sweden, and Britain soon followed in New Zealand's footsteps and eventually even the Fed. Our fate was sealed on the whim of policymakers.

It was not without opposition, though, as there were some naysayers who believed that

A dollar today should have the same buying power as a dollar in a decade, or two or three.

However, the "alternate" view was that keeping inflation low could be dangerous. This was championed by an up and coming Fed governor, Janet Yellen, who expressed concern that zero inflation could "paralyze the economy," especially during economic downturns. In a 1996 July Federal Open Market Committee (FOMC) meeting she offered an idea to support targeting:

To my mind the most important argument for some low inflation rate, is the "greasing-the-wheels argument" on the grounds that a little inflation lowers unemployment by facilitating adjustments in relative pay in a world where individuals deeply dislike nominal pay cuts.

Here we see the “Phillips curve” argument that is used to justify inflation by linking it to unemployment. This is move that now, twenty-four years later, the Fed is shying away from by claiming that the “Phillips curve is flat”—in other words, it’s not working as planned. Or, as Fed vice chair Clarida expressed it, models of maximum employment "can be and have been wrong."

Adding to the prophetic quotes, Yellen said in 1996:

A little inflation permits real interest rates to become negative on the rare occasions when required to counter a recession. This could be important.

The rest, as they say, is history. In time, the idea of a 2 percent target became economic orthodoxy—so much so that former Fed vice chair and Princeton economist Alan Blinder declared that

Central bankers have invested a lot and established a great deal of credibility on their 2 percent inflation target, and I think they’re right to be very hesitant to give it up.

By choosing an inflation target of 2 percent, the field of economics spent several decades barely advancing. Instead, academics and planners remained preoccupied with manipulating the data and providing guidance fueled by a narrative that was plucked out of thin air, aided by catchy phrases such as "greasing the wheels," and propagated by outdated economic models like the Phillips curve. Sadly, with 2 percent inflation the conclusion came first, followed by the theory. Economic explanation was only needed to support the theory at all costs.

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Human Action Was Published on This Day in 1949

09/14/2020Mises Institute

Ludwig von Mises's Human Action was published on this date in 1949. From the beginning, the Mises Institute's mission has been to champion this book's importance in the history of economic thought.

In the words of Henry Hazlitt, in his New York Times Review:

Human Action is, in short, at once the most uncompromising and the most rigorously reasoned statement of the case for capitalism that has yet appeared. If any single book can turn the ideological tide that has been running in recent years so heavily toward statism, socialism, and totalitarianism, Human Action is that book.

Thanks to our generous donors, the vital ideas in this book are more widely accessible than ever before. This is true not only due to translations that have birthed entire Austro-libertarian movements around the world, but also in the ways it is available to anyone sincerely interested in the ideas that build a peaceful and prosperous civilization.

The Mises Institute has long made the text of Human Action available for free online as an HTML, PDF, and EPUB, as well as an audiobook. Also available is Robert Murphy's invaluable study guide. Both are also available in physical form at the Mises Bookstore.

In order to make Human Action even more accessible to modern readers, Jeff Deist dedicated his Human Action Podcast to a full series on the book. Each episode pairs a section of the book with an important Austrian scholar, helping to flesh out and explain the most important parts of the book.

"Why You Should Read Human Action in 2020 with Dr. Shawn Ritenour"
"Human Action Part One with Dr. David Gordon"
"Human Action Part Two with Dr. Robert Murphy"
"Human Action Part Three with Dr. Per Bylund"
"Human Action Part Four with Dr. Jeffrey Herbener"
"Human Action Part Four with Dr. Joe Salerno"
"Human Action Part Four with Dr. Mark Thornton"
"Human Action Part Five with Ryan McMaken"
"Human Action Part Six with Dr. Peter Klein"
"Human Action Part Six with Jeff Deist"
"Human Action Part Seven with Dr. Tom Woods"

For those who prefer articles, the Institute also has a number of articles highlighting the book's historical significance, and modern relevance. These include:

"Human Action: A Chapter-by-Chapter Summary" by Martin Stefunko
"Why You Should Read Human Action—Very Carefully" by Joseph T. Salerno
"The Place of Human Action in the Development of Modern Economic Thought" by Joseph T. Salerno
"Covid Lockdowns Crippled the Division of Labor, Setting the Stage for Civil Unrest" by Jonathan Newman
"America's Riots Are Just the Latest Version of Marxist 'Syndicalism'" by Mark Thornton

The Mises Institute is proud to be the only American research organization dedicated to developing new generations of Misesian scholars. Thanks to our donors, the Austrian school of economics is stronger now than ever before, with scholars around the world. Our new graduate program will only further this cause in the future.

The world today needs the ideas of Ludwig von Mises, as articulated in Human Action, as much today as ever before.

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The Covid Crisis Has Shown Police Will Likely Enforce Any Law, No Matter How Unjust

09/14/2020Justin McCarthy

If 2020 has taught us anything, it’s that police throughout the Western world will not hesitate to forcefully impose arbitrary and absurd government regulations.

Consider just a few examples from this month alone. In Australia a pregnant mother was arrested in front of her family for a Facebook post inviting fellow Aussies to an antilockdown protest. In Spain a fourteen-year-old boy who refused to wear a mask was thrown to the ground by an officer who then kneeled on the boy’s back as he screamed in pain. In the US two policemen removed a mother and her year-old child from an airplane, because the infant’s face was not covered.

Incidents such as these are often reported with indignation by pundits in the right-wing media. Conservative commentators rightfully warn us that government is overstepping its bounds and that we may be the next to get an unwanted visit from the police or even a shove to the ground and a knee to the back.

Yet it’s the same right-wing pundits who are the first to defend the most excessive police brutality whenever someone refuses to comply with an officer’s orders. They faithfully “back the blue” with almost blind loyalty and even support arming the police with military-style weapons and equipment.

Do these conservatives fail to see their own contradictions?

Ask yourself: If full-fledged socialism comes to the Western world, who will be on the front line imposing it? It won’t be the beta male bureaucrats forcing you to comply. It will be the “thin blue line” of the police—equipped with their military-grade weaponry—that will physically force you to obey orders. Don’t think they’ll do it? Just look at the cases I cited.

I am not advocating "defunding" the police. Nor am I suggesting that a security force is antithetical to a free society. We need some form of law enforcement personnel. Rather, I’m asking conservatives to reflect for a moment on their contradictory views. In our current system, government and law enforcement are one and the same organization. You cannot be critical of laws that infringe on our liberties while praising the men and women who dutifully enforce those laws—if necessary with violence.

Our freedom depends on a healthy skepticism toward government. That skepticism should be applied to all facets of the state, especially the police.

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Lew Rockwell and I Discuss Commie Cowboys

09/11/2020Ryan McMaken

A reader recently reminded me of this great old podcast from 2013. Lew Rockwell and I talk for half an hour about my little book Commie Cowboys, the politics of the Western genre, and why the anti-Westerns were better than those old John Wayne ones.

We cover lots of stuff about the frontier, war, pop culture, and more. Lew cracks some great jokes in here.

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