Power & Market
When the term “evangelical” is tossed into the modern public square, it usually is accompanied by words like “Trump,” “January 6,” “right-wing,” “Christian nationalist,” “racist,” and the like. Like others who have spent their entire lives in the American evangelical subculture, I cannot say I have welcomed this step into the political arena in which arguments that should be nuanced suddenly are labeled black and white, and that all too often, we are told that the entire fate of Christendom depends upon the election of Candidate X.
This situation was not part of the American scene for most of the nation’s existence. In my formative years, no evangelical (or even fundamentalist) pastor would have openly endorsed a candidate from the pulpit (although some Protestant pastors did wonder aloud what would happen if the Roman Catholic candidate John F. Kennedy were to be elected).
All of that changed in 1972 when the Democrats nominated George McGovern for president. McGovern campaigned far to the left not only in his anti-war views (which many libertarians, including Murray Rothbard, gladly endorsed) but also in his opinions about economics or, to be more specific, the role of the state in a nation’s economy. While evangelical pastors and laypersons certainly had opinions about both men, preaching a gospel of Nixon or McGovern would not have been popular in the congregations.
However, a professor at an evangelical college Ronald Sider, who passed away recently, formed a group called Evangelicals for McGovern in which he claimed that McGovern’s platform could be considered Biblical in its social outlook. Christianity Today, in an obituary for Sider, noted:
Sider also became more politically active. He campaigned for George McGovern, founding Evangelicals for McGovern to rally support for the anti-war senator from South Dakota who was maligned by his many opponents as the candidate for acid, amnesty, and abortion.
According to historian David Swartz, Evangelicals for McGovern was the first evangelical group after 1945 to support a presidential candidate. Religious Right groups such as the Moral Majority and Christian Coalition had not yet organized, and though many prominent leaders such as Billy Graham supported President Richard Nixon, evangelical politics at that moment seemed “up for grabs.” Sider, along with people like Tom Skinner, Jim Wallis, and Richard Mouw, wanted to grab it. They believed Christians who loved Jesus and hated sin should exert their political will to oppose the war in Vietnam, law-and-order politics, and economic policies that aggravated poverty.
A year later, Sider and a number of hard-left activists wrote the Chicago Declaration, which condemned private enterprise in the United States, blaming capitalism for most social ills and calling for a vast expansion of the welfare state. In Sider’s view, the only possible Biblical position that a Christian could legitimately own was one of anti-capitalism.
In 1977, Sider wrote the book for which he was most famous, Rich Christians in an Age of Hunger, which I mentioned in a previous article about Christians and economics. I wrote:
Sider’s book looked at poverty in the world at that time and concluded that the only reason that Third World countries were poor was because North America and Europe were relatively wealthy. These countries were gobbling up the world’s resources unjustly and leaving nothing for the starving masses. Capitalism was the culprit, Sider argued, and while he did not agitate for outright socialism, he did call for a central power in the world to oversee massive wealth transfers, a worldwide welfare state.
The book fed well into the evangelical mindset of seeing the world in black-and-white terms. It also provided evangelicals, who were likely to be ridiculed by elites in academe, politics, and the media for their faith, a way to be relevant and to try to earn favor with those same elites for their newfound compassion for the poor. The book itself presented a simple, black-and-white view of wealth and poverty; people who had wealth had stolen from the poor, and there could be no other explanation.
Sider’s central message was that unless Americans, Canadians, and Europeans gave up their wealthy lifestyles and agreed to adhere to a simple life—and stop using so many resources—poverty and starvation would expand throughout the planet and rates of poverty would accelerate. He even prophesied that unless this was done immediately, it would be maybe a decade before Third World countries like India that had nuclear weapons would use them to blackmail the West into giving up their wealth.
In Sider’s world, the economy was purely zero-sum in which any gain by one person meant someone else was to be made worse off. He told a story about himself in which he excoriated his own choice of purchasing a suit for $50 because that sum of money could have kept a child in India alive for a year. Toward the end of the book (ironically, in a footnote) he called for almost total deindustrialization of the West, claiming that without large scale manufacturing and transportation, people would not have to work as many hours and would have much more time for leisure and games, and that such a move would also eliminate hunger in the developing world.
The book was wildly popular among evangelicals, including the Christian college where my father (and later I) taught. Sider had struck a chord with students, encouraging them to embrace socialism and to see that even though the political left despised Christianity, it was the left that held to the True Faith when it came to dealing with people in poverty. At that time, the publisher of the book, InterVarsity Press, was moving leftward, along with its parent organization, InterVarsity Fellowship, which had a strong presence among American college students. (I was involved in our IVF chapter at the University of Tennessee in the early 1970s.)
In the various tributes to Sider, he is universally praised for his social activism and his vision of social justice. Likewise, his political activism in nearly every U.S. presidential election was expressed in his organizing a “Evangelicals for…” with the Democratic Party candidate filling in the blank. (He did make an exception in 2000, voting for George W. Bush, who then promptly launched the nation into ruinous warfare.)
While Rich Christians was wildly popular (the best-ever sales by IVP), Sider never had to pay a price with his peers for being woefully wrong about free-market economics. In his world at Eastern University, which has long been known for its leftism, Sider was a rock star and he never had to confront the fact that his book, as the late Gary North well put it, was an attempt to make American Christians feel guilty for being alive.
By all accounts, Sider was a humble person and someone who surely would have been a good neighbor. I’ve never heard anyone speak ill of him personally. However, by openly politicizing the Christian faith, and more specifically tying the Christian faith to the outcome of upcoming elections, Sider did untold damage that will not go away in our lifetimes.
I got a D the first time I took economics in college. I was right out of high school and directionless. I was content living at home, working at a video store (remember those?), golfing and partying.
Plus, I was obsessed with my instructor’s uneven sideburns and the girls in class. Not the model student.
Obviously, this changed, but it came to mind recently when reading Joseph C. Sternberg’s review of former Federal Reserve Chairman Ben Bernanke’s new book, “21st Century Monetary Policy” in the Wall Street Journal.
Certainly there are longer economics books than this one, which checks in at 480 pages. And I’m sure more reviewers will pick it apart. I myself however, will not be one of them. It would go against one of the basic tenets I teach my students, one that hopefully helps them avoid that same D: keep it simple.
Economics is not that complicated. The world has been worse off since we’ve portrayed the “dismal science” to be so. Tax policy was my first lesson, and the vehicle was former President George W. Bush’s $1.5 trillion dollar tax-cut proposal.
There was Senate minority leader Tom Daschle standing in front of a Lexus saying rich people would be able to buy another one with their “windfall.” At the same time, Republicans were saying it would create jobs.
I felt like someone was being disingenuous, if not outright lying to me. Though my curiosity pushed me into grad school, I didn’t need it to arrive at a couple of initial, basic conclusions.
So what if rich people bought another luxury car? It was their money anyway. And it would after all, help keep a car salesman employed. In that regard, Republicans were correct.
I learned later that they were onto something when stating that the rich would be as likely to invest their recaptured resources. That would in turn create steady, durable employment.
Now, in the realm of monetary issues, we have Nobel Laureate Paul Krugman admitting he was wrong about his inflation prophecies.
It’s true presidents play more of a role in the value of the currency than many realize. However, simple math tells us that when the number of dollar bills in society artificially blasts through the roof, the ones in our pockets subsequently decline in value. Therefore, it takes more of them to buy things.
To add insult to injury, Mr. Krugman’s ilk has been suggesting for years that inflation was too low. They promoted policies they thought would push it higher, we get it, and now they’re saying “sorry”?
This is where bureaucrats and many academics lose me; their attempts to predict policy outcomes.
The predictions of impacts from regulations and ordinances. The predictions of revenue fluctuations resulting from changes in income and property tax rates. The predictions of shifts in poverty from adjusting the minimum wage. The predictions of job flows as a result of trade protectionist measures.
The list goes on and on. The forecasts are often wrong, and always a waste of time and taxpayer money.
When I tell my students to keep it simple, “because real life will muck things up soon enough,” this is a big chunk of the muck I have in mind.
It doesn’t take a brain surgeon to figure out that forcing employers to pay more for labor will cause them to buy less of it. It’s not rocket science to understand that giving people unearned money will make them less likely to look for work.
You don’t need to be a nuclear physicist to know that bossing productive citizens around and taking their earnings will put a dent in prosperity.
Instead, these “dismal scientists” insist that “if we pass legislation A, with complementary component B, C will result and all will be well.” Somewhere along the way they lost their grounding in the real world, and the rest of us pay the price.
Many in my classes are just a few years older than my daughters, half of whom will be high school graduates by this time next year. Their mother and I have always laid out a few basic ground rules: take care of business in school, have one extracurricular activity, and be respectful of others.
After that, they’re generally free to do whatever they want. Hopefully their generations will appreciate that as the simplest, most efficient and effective approach not only for life in general, but public policy as well.
Can a Libertarian Pragmatically Support Pax Americana? The Case of Freedom in Central and Eastern Europe.
The war in Ukraine has brought back the debate on international security among European countries, especially in the countries of the former Soviet bloc in Central and Eastern Europe. Most of these countries, such as Poland, the Czech Republic, Slovakia, Lithuania, Latvia and Estonia, broke free from the communist regime with the end of the Cold War and the collapse of the Soviet Union at the end of the 1980s. These countries began to build democratic structures with a relatively free market economy.
The shift from central planning economy to capitalist enrichment mechanisms and privatization has become a reality. In some countries that transformation unfortunately was done not in peace but in accordance with Jefferson's famous sentence that „the tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.”
A few years ago, before the war was started, Polish organization „Stowarzyszenie Libertariańskie” (Libertarian Association) wrote an optimistic statement about Ukraine:
We are witnessing a repeat from Lithuania, but on a larger scale. In the elections, Volodymyr Zelensky was elected president, whose political staff openly admits to libertarian ideas. (..) it is worth keeping your fingers crossed for the initiative and potential implementation of several libertarian postulates in the beautiful Ukrainian lands.
After February 24, 2022, the discussion on security flared up again, also on the websites of European libertarians and supporters of the Austrian school of economics. In an interview with Dr. Michał Stępień from the Department of International and European Law at the University of Wrocław, published on the website of the Polish Mises Institute we read that:
The scale of armed aggression by Russia with the participation of Belarus against Ukraine since February 24, 2022 and the related scale of crimes against humanity, which is being committed by the Russian army, has meant that the previously used arguments of Russia, assuming that it is a defense of the Russian minority living in Ukraine and Georgia, is completely inconsistent with the actual situation witnessed by the international community. In the event of the occupation of Crimea, the Russian armed forces pretended not to be the armed forces of Russia. What the armed forces were, today is absolutely beyond dispute, so this trick is legally insignificant. In the case of the military operations undertaken on February 24, 2022, the armed forces conducting the military operations against Ukraine have been officially announced by the Russian authorities.
Support for Ukraine and words of encouragement come from libertarians for obvious reasons. However, the fundamental question that arises is whether, in such a situation, the libertarian can compromise using ideological pragmatism. Can we accept the fact, for the needs of the moment, that the domination of the United States within Pax Americana as a hegemon and gendarme of the world was and is necessary in this part of Europe to maintain civil liberties, free market, and to expand these aspects within the self-determination of newly liberated countries?
The European freedom perspective is closely correlated with the analysis of the imperial activity and policy of the United States, to which the former Soviet bloc states owe their freedom. So, does a European libertarian, e.g., a Polish libertarian, can and has to adopt the view that the involvement of the United States can serve to extend freedom? Paradoxically, this thesis is not as obvious as it might seem. After all, as a political movement, libertarianism believing in small government, is opposed to imperialism, unfounded aggression, and the destructive role of violence in human relations. Maybe some societes can take advantage of US hegemony, according to geopolitical rules, to expand their sphere of freedom, democracy and free market? The conflict in Ukraine, despite the obvious reasons on the side of the attacked Ukraine, seems to divide many libertarians. Libertarians, as we read in the principles of Libertarian Party:
...believe that war is justified only in defense. We are opposed to a draft. If a war is just and necessary, Americans of all backgrounds will volunteer to fight it. We believe that a draft enforced by law is no different from slavery.
Much has been written about international relations from a libertarian perspective (including classics of thought like Murray N. Rothbard and H.-H. Hoppe). But the European perspective of the libertarian movement seems to be a little different. This is probably because many European libertarians know historical aspects and realize that without the involvement of the United States, especially in their culminating moment, i.e., the presidency of Ronald Reagan, the countries of Central and Eastern Europe might still be in captivity and Russian dependence, like in Belarus or Chechnya for other example.
Fear of the Russian Federation seems to be a natural determinant of the European libertarians' view of the collective involvement of Western forces in helping Ukraine. By the way of example; Polish libertarians expressed their indignation at the words of the famous psychologist Jordan B. Peterson speaking on the war in Ukraine. Peterson declared that he saw the conflict (war) as a clash of values. As we said libertarians' support for Ukraine seems obvious.
Various supporters of freedom seem to recognize this problem and support Ukraine by sending money and basic necessities. But is it enough? Does the role of commitment end there? Many freedom activists says that the case of Hong Kong should be a warning to the free world. The prospect of a libertarian Ukrainian state that breaks out of the gloomy Kremlin despot seems very tempting and possible. For example, Rainer Zitelmann sees opportunities for Ukraine, which may become an economically liberal state in which political currents of freedom thought can and develop.
This short and provocative reflection maybe open the great debate. The problem outlined here requires a broader attention to this issue throughout the Austro-libertarian community. If we have two or more agressive imperialist Leviathans, should we choose the lesser evil among them? What strategies of freedom should be adopted in the face of that kind of crisis? Are there any alternatives to imperial military alliances? What criteria for collective self-defense of states should be adopted from a libertarian perspective? The answers still remain open and we should not avoid them.
The same people claiming inflation was transitory are the same ones telling you there is no recession. Isn’t that strange?
This Wednesday’s press conference, following the Fed raising rates by 75-bps, shows how critical the act of sticking to script is for the purpose of public policy. Jeff Cox at CNBC pointed out the latest elephant in the room:
They're being told by folks like you and the administration that we're not in a recession, we're not heading for a recession, frankly, coming from the same people that told them inflation was transitory.
Then he asked point blank:
So what would you tell the public to reassure them now that you feel confident in your forecast going forward and the Fed is ready to respond to a potential downturn in the economy?
Powell’s immediate response:
All I've really said is I don't think it's likely that the U.S. economy's in a recession now.
He still claims that bringing inflation down, as well as the so-called “soft landing,” are real possibilities. The potential of a recession came up several times during the session, with Powell committed to staying somewhere between neutral to unsure, or simply not answering the question.
When Steve Liesman, also at CNBC, asked whether Powell shares Biden’s confidence that there is no recession, Powell responded, but not to the question. Liesman was able to ask again, head on:
[INAUDIBLE] the question was whether you see a recession coming and how you might or might not change policy.
Forcing the response:
So, we're going to be-- again, we're going to be focused on getting inflation back down. And we-- as I've said on other occasions, price stability is really the bedrock of the economy. And nothing works in the economy without price stability…
…it continues but he still managed to not answer the question nor use the word recession.
In another reply, Powell moved from a recession being “not likely” to making a more direct statement:
So, I do not think the U.S. is currently in a recession. And the reason is there are just too many areas of the economy that are performing too well.
So, I don't think the U.S. economy's in recession right now.
Time will tell. But remember, the last recession, declared in July 2021, officially ended in April 2020 according to the National Bureau of Economic Research (NBER) press release.
If this is the standard of care the NBER takes before declaring a recession, then sometime near the end of 2023 this issue should be resolved. Most likely, it’s only a matter of time until CNBC will have a similar headline as it did on July 19 of last year:
It’s official: The Covid recession lasted just two months, the shortest in U.S. history
The official name of the next recession is yet to be seen; however, it should be called the Central Bank Crisis since the central bank caused the inevitable crisis. Recession or no recession, housing is still at all-time highs. The cost of living continues skyrocketing. The stock market is still destined to meet its date with price discovery. All manners of the system, whether the Federal Reserve, Office of the President, or politicians plotting the newest (inflationary) spending bill are committed to keeping their precious plans afloat.
At this point, trust and credibility on both sides of the political aisle should be at historic lows. This debate on whether or not a recession has arrived is just the next in a proverbial revolving door of distractions for public consumption. Powell, as a political chess piece, sticks to his script as diligently as ever.
We are in revolutionary times. Given an adequate understanding of economics and behavior, we can learn from the history of past revolutions.
The French Revolution
In France in 1789, the government had long built up debts. The elites resisted reforming themselves.
The people hadn’t been helped by their churches to pursue personal Bible study and personal salvation. The people didn’t effectively press for reforms.
The people accumulated 25,000 complaints before a legislative session, which was rare, was called. Heated rhetoric in a French analog to Common Sense sold well. Following a spring drought, a July hailstorm, and one of the coldest winters in French history, it suddenly became common for bread to require 80 percent of income.
Soon came activists with guillotines.
The American Revolution
In the American Colonies in 1776, the colony governments had not built up debts. Total taxes had long been 1 percent to 2 percent of GDP. The standard of living had steadily improved to where incomes in the colonies exceeded those in Great Britain by 68 percent.
The people had been helped by their churches to pursue personal Bible study and personal salvation. The elites had innovated with colony governments.
Soon came efficient, largely-guerilla revolutionary war.
The Current Revolution
In the USA in 2022, the governments have built up total debts (to 138 percent of GDP), and the people have built up total debts (to 235 percent of GDP). Total government spending is 38 percent of GDP. The elites have started flexing the administrative state in all jurisdictions, and flexing government-crony organizations.
The people helped by their churches to pursue personal Bible study and personal salvation make up a stable, significant minority totaling at least 28 percent of people.
Overall, people’s resistance has been decentralized and slow to gather, but their resistance is increasing. Sporadic local-government resistance is effective—for example from Florida’s governor and Louisiana’s attorney general. The most widespread resistance media is hosted by a Progressive, Joe Rogan.
How bad will various government jurisdictions’ tyranny get? How costly will this revolution be? Why don’t modern people learn from history and respond to tyranny with broken-windows policing like the American revolutionaries did? What made those revolutionaries different?
- Debts matter. When living standards are much higher, debts don’t imminently threaten most lives with starvation, as in times past. But when debts plus cronyism substantial worsen healthcare, debts can still threaten many lives.
- Institutions matter. Institutions that support personal faith change the world for the better. Institutions that undermine personal faith change the world for the worse.
All revolutions are hyperlocal. They’re shaped by individuals’ debt burdens and incomes, and ultimately they mirror individuals’ hearts.
Fed officials like Jerome Powell have long downplayed CPI as a price inflation measure in favor of the PCE index. But, much like CPI, the PCE measure is now also hitting 40-year highs. In new data released today for June, the personal consumption expenditures price index rose 6.8%, the biggest 12-month move since the 6.9% increase in January 1982. Excluding food and energy, the "core PCE" increased 4.8% from a year ago, up one-tenth of a percentage point from May.
The core PCE's month-over-month change was 0.6%, its biggest monthly gain since April 2021.
This number comes in the wake of July 13's release showing 9.1% CPI inflation for June, which was the biggest increase since November 1981, when the price growth measure hit 9.6 percent year over year. For several reasons (explained here) the PCE shows lower price growth than CPI in many cases. Yet, in the case of PCE, as with CPI, the Fed's target policy interest rate remains remarkably low for today's 40-year highs in price inflation:
In recent months, the FOMC has repeatedly raised the target rate, with the rate now reaching 2.5% as of the July meeting. Wednesday's 75 basis point hike puts the target rate at the highest since 2008, and equal to the rate reached in 2019 before the Fed reversed course as began to push easy money again as the economy softened late that year.
The overall story here is that there is still no sign that "peak inflation" has been reached, as wages continue to fall behind price inflation.
PCE remains "the Federal Reserve’s preferred measure of inflation." According to the Bureau of Economic Analysis,
The Personal Consumption Expenditures Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The change in the PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior. For example, if the price of beef rises, shoppers may buy less beef and more chicken. The PCE Price Index is produced by the Bureau of Economic Analysis (BEA), which revises previously published PCE data to reflect updated information or new methodology, providing consistency across decades of data that's valuable for researchers. They also offer the series as a Chain-Type index, as above. The PCE price index is used primarily for macroeconomic analysis and forecasting. The PCE Price index is the Federal Reserve’s preferred measure of inflation. The PCE Price Index is similar to the Bureau of Labor Statistics' consumer price index for urban consumers. The two indexes, which have their own purposes and uses, are constructed differently, resulting in different inflation rates.
Here's an interesting bit of new legislation coming from Congressional Democrats. Georgia Democrat Rep. Hank Johnson has introduced the "Supreme Court TERM Act." This legislation would:
- Establish terms of 18 years in regular active service for Supreme Court justices, after which justices who retain the office will assume senior status;
- Establish regular appointments of Supreme Court justices in the first and third years following a presidential election as the sole means of Supreme Court appointments;
- Require current justices to assume senior status in order of length of service on the Court as regularly appointed justices receive their commissions;
- Preserve life tenure by ensuring that senior justices retired from regular active service continue to hold the office of Supreme Court justice, including official duties and compensation; and
- Require the Supreme Court justice who most recently assumed senior status to fill in on the Court if the number of justices in regular active service falls below nine.
It's a both a court-packing bill and a term limits bill. It's unclear that the bill would pass constitutional muster under federal judges' current interpretations of Article III of the US Constitution. But, that probably doesn't matter since such legislation is unlikely to get through the Senate, given that Sen. Manchin of West Virginia has already said he would not support any court-packing legislation.
The idea of Congress erecting term limits for the Supreme Court while doing nothing to create term limits for Congress is an impressive display of chutzpah for current members of Congress. After all, term limits for Congress have long been very popular, with the idea often commanding around 75 percent support from those polled. That's even more than the support for limiting the tenures of SCOTUS justices, which is apparently around two-thirds in support.
Legislation limiting Congressional terms is also of unclear constitutionality, at least as far as current interpretations offered by federal judges go. But there's no reason why Congress couldn't put the wheels in motion for enacting Congressional term limits. The reason this hasn't happened, of course, is obvious. Those in Congressional leadership positions—the ones who determine what gets voted on—would be the most impacted were such measures adopted.
But how much would term limits affect the average member of Congress? 62 members of the Congress over the years have served more than 40 years in Congress overall. 10 members of the Senate have served more than 40 years in the Senate alone. 32 members of the House of Representatives have served 40 years in the House alone.
It's a fairly safe bet that most members of the public would support term limits set at well below 40 years. But how much lower? Not all members are in there for these long multi-decade periods. What is the average tenure for a member of Congress?
Well, according to a July 2022 report by the Congressional Research Service,
The average length of service for Representatives at the beginning of the 117th Congress was 8.9 years (4.5 House terms); for Senators, 11.0 years (1.8 Senate terms).
So, setting the term limit for members of the House at, say, 12 years of the House of Representatives and 18 years for the Senate, would not impact the "average member." But it would definitely eliminate those members of congress who serve decades in Congress. People like Mitch McConnell or Chuck Schumer or Nancy Pelosi would be long gone. Even if these 3 people had served 12 full years in the House and then moved to serve 18 years in the Senate, they still would have used up their full terms years ago.
Do Members Stay in Congress Longer in the 21st Century?
Of course, we haven't approached the question of whether or not term limits are a good thing. It's not at all obvious that term limits would make Congress more laissez-faire, less corrupt, or less warmongerish. It could be that term limits would just bring in a larger number of people who are pretty much like the current sorts of people who inhabit Congress. Moreover, maybe in the good ol' days people actually served longer in Congress than they do now. Maybe longer Congressional tenures would actually improve things?
Well, it turns out that the average length of tenure of members of Congress has gone up considerably over the past 150 years. As noted above, the average tenure for the current crop is 8.9 years in the House and 11 years in the Senate, but those averages were much lower in the nineteenth century. As we can see, the average for Senators never exceeded 6 years until the late nineteenth century. It never exceeded 4 years in the House until around 1900. The overall trend has been steadily upward since then:
In other words, for the first 100 years of the Republic, the average length of so-called "service" in the Senate was one term, while it was less than two terms in the House.
[Read More: "Repealing the 17th Amendment Won't Fix the Senate" by Ryan McMaken.]
Those could be due to many different factors. It could be due to the structure of political parties which was much different in the nineteenth century. Senators, of course, were generally chosen by state legislatures, and many senators came and went based on deals struck with state politicians. In any case, we do know that greatly reducing the average tenure of members of Congress would simply return average tenure lengths to what was common in the past.
That's unlikely to "fix" Washington, DC. But holding Senators to a single term or a House member to 2 terms would not necessarily be a radical departure from the Congresses of the past either.
Those who don’t learn from the past, as the old adage goes, are doomed to repeat it. Even in the realm of something as seemingly abstract and technical as economic policy, this saying holds true. Prices are soaring in all areas of consumption, from the grocery store aisle to the pump, with the United States experiencing its highest rate of inflation since 1981.
Yet this, in turn, brings up the question of what caused inflation to be even higher over forty years ago. The reason why inflation was so high back then is the same reason behind why we’re experiencing similar levels of it today. That is, an incredibly loose monetary policy employed by the Fed, often as the result of political pressures from the White House.
As we’ll see, however, history also provides a solution to the problem of inflation, but it will require a sense of bravery and resilience particularly in Fed Chairman Jay Powell in a manner that has not been seen in forty years, under then-Fed Chairman Paul Volcker.
Paul Volcker and The Great Inflation
If today’s inflation seems bad, consider the years between 1965 and 1982, a period when inflation averaged 6.7% a year and became so unbearable that the era became known as “The Great Inflation.” This nearly two-decade long spell of soaring prices was certainly the product of many factors, yet the first and most prominent undoubtedly being an excessively loose, and misguided, monetary policy.
Consider the graph below, taken from the Federal Reserve Economic Database:
The blue line shows percent growth in the money supply while the red line shows the rate of inflation, measured every half-year. Clearly, there’s a general correlation where changes in inflation follow changes in the money supply. The correlation may not be very tight at times, but keep in mind that economists believe that it takes up to six months for inflation to reflect changes in the money supply.
Given this information, it’s clear that the Great Inflation was largely motivated by monetary policy, reflecting both the incompetence and flawed incentives of central banking. Take the beginning of the crisis for example; future Fed Chair Alan Greenspan writes:
In 1964, (President Lyndon B. Johnson) bullied the Federal Reserve into keeping interest rates as low as possible at the same time as delivering a powerful fiscal stimulus by signing tax cuts into law… the combination of tax cuts and low interest rates began to produce inflationary pressure.
Indeed, inflation grew from 4.77 percent annually between 1960 and 1963 to 7.82 percent from 1964 to the end of the decade, yet the outlook only worsened. The large spike in money supply growth starting around 1970 was largely due to President Richard Nixon’s similar tactics of pressuring the Fed into cutting interest rates, especially in the buildup to his re-election in 1972.
The Nixon tapes record several conversations of the President with then-Fed Chair Arthur Burns. These recordings include the President laughing about Burns’ claim that the Fed is independent and exclaiming that “(many elections) have been lost on the issue of unemployment. None has been lost on the issue of inflation.”
Matters were made worse when Nixon readied a series of anonymous leaks about the Fed, including plans to increase White House control over the central bank and even a false story that Burns wanted a pay raise when he actually suggested a pay cut.
Burns caved into this pressure. Interest rates fell from 9 percent at the start of 1970 to 3.8 percent by the first Presidential primary in March 1972, and the money supply grew at an average of 9.7 percent per year. Of course, while Nixon and Burns neglected it, inflation grew from 7.13 percent in 1970 to 10.6 percent in 1973.
As the 1970’s progressed, inflation worsened as it continued to mirror high money supply growth, as the graph confirms, with its height towards the end of the decade reflecting nervous incompetence at the Fed. By 1978, the Fed Chair was G. William Miller, widely regarded to be the worst Fed Chair in history, who barely moved interest rates and allowed money supply growth to continue around 8 percent annually while inflation reached around a staggering 11.5 percent during his tenure.
By the turn of the 1980’s, it had become evident that soaring inflation was both caused and continued by a loose monetary policy, and that something had to have been done to address the situation. Against this backdrop came the revolutionary Fed Chair Paul Volcker, who would provide the ultimate solution to the inflationary problem.
The solution, of course, was rather simple; raise interest rates and decrease the money supply. This piece of Econ 101 logic was certainly known to Volcker’s predecessors at the Fed, but they simply couldn’t go through with it because of sheer political pressure to keep interest rates low.
The previous Fed Chairs, fearing for their jobs and the future of their agency, were essentially forced into neglecting inflation. Soaring prices, of course, is a huge problem to the average voter, but as Nixon reminded Burns, many elections “have been lost on the issue of unemployment. None has been lost on the issue of inflation.”
Volcker resisted, however, and even as President Jimmy Carter publicly criticized his tight policy and President Ronald Raegan’s Chief of Staff James Baker privately pressured Volcker into giving up, the Fed Chair tightened interest rates from 10.94 percent at his arrival in August 1979 to an unprecedented 19 percent by the turn of 1981.
Volcker demonstrated a sense of bravery and commitment never before seen at the Fed, resisting political pressures and nerves to address rampant inflation. Consequently, inflation began its gradual decline, by some estimates reaching healthy levels of around 3 percent by 1983.
Jay Powell and Inflation Today
In the words of famed economist Milton Friedman, “Inflation is always and everywhere a monetary phenomenon.” What the brief history lesson of the US’s last encounter with high inflation shows is that the primary culprit behind soaring prices is the Fed itself, and not necessarily because Fed officials don’t care about inflation or don’t know how to fix it, but because they fear the political repercussions of addressing it.
All it took was one brave Fed Chairman, Paul Volcker, to finally put an end to the dilemma, but since then inflation has obviously reappeared. The Fed’s response to the brief recession triggered by government lockdowns saw the injection of over $4 trillion in additional money into the economy, and an almost 20 percent increase in the money supply in 2020 alone. High levels of inflation have, of course, followed this.
Now, it’s up to Fed Chair Jay Powell to right the wrongs of his leadership two years ago. Although the logic is simple, raising interest rates and choking inflation is no easy task, and Powell will certainly be on the receiving end of pressure both from Biden and Congress.
This makes the present moment all the more critical as the US faces the possibility of an inflation-induced recession. Jay Powell will need to replicate the bravery found in Paul Volcker forty years ago.
There’s a saying on Wall Street referring to the stock market that “all correlations go to one in a crisis.” Perhaps more accurately, all correlations go to one when a single governing body determines interest rates for the entire economy.
Interest rates are the price of money. Virtually all public companies utilize debt to some degree. When the cost of this debt increases, the stock price of each company must decrease.
The Federal Open Market Committee (FOMC) is a board made up of twelve economists who decide how to adjust the interbank lending rate called the federal funds rate (FFR). For roughly forty years, this rate has been on a secular decline, cheapening the cost of money. All major indices have experienced exceptional growth during this same period (with occasional hiccups due to attempted tightenings). Now, as the FOMC has begun its most recent tightening, it’s no surprise that markets have declined precipitously since from their 2021 highs.
The stock market is not the only victim of rising interest rates. As our economy, small and large and public and private businesses, have become accustomed to cheap debt, the rapid rise of rates is taking its toll. Unemployment claims are beginning to rise, mortgage applications have fallen off a cliff, and many public companies are announcing layoffs. The FOMC is intentionally inflicting pain on the economy to combat inflation many would argue it caused in the first place.
When inflation turned out to not be transitory, millions of working class people suffered the consequences at the grocery store and gas pump. Now, the same economists who were mistaken on inflation are rapidly increasing the cost of operating a business and reassuring us it will not spark recession.
It begs the question, do we need central banks? Do these institutions do more harm than good? And if we do need them, how can we better structure them so as not to create such volatile economic conditions?
In a debate on Wealthion, two economists face off on this very issue. One advocates for a more interventionist Keynesian policy while the other a more laissez-faire Austrian policy, yet both vehemently agree that the current model is broken.
Michael Green, portfolio manager at Simplify Asset Management, argues that the establishment of the Fourteenth Amendment and corporate personhood created a need for the State to socialize individual losses. While Yaron Brook, chairman of the Ayn Rand Institute, pushes back emphasizing that bankruptcy and default are ample mechanisms to achieve this function.
Green would limit central Bank powers to being “the lender of last resort” and the underwriter of government expenditures. Brooke would do away with the institution entirely, leaving free market forces to remedy liquidity crises. For a riveting and thoughtful discussion into the matter, listen to the full debate below:
Proto-Progressives didn’t stand back and let a porous border emancipate slaves into rising prosperity. Instead, proto-Progressives used the new industrialization, railroads, and telegraphs to power industrial-scale conscription, killing, maiming, and destruction.
Progressives didn’t stand back and let European governments wage a first total war against Europe’s people. Instead, Progressives used their new income tax and new chemical technology to also send our own men into trenches to their deaths, and to also kill other men using poison gas.
Progressives didn’t stand back and let customers and businesses work together in the 1920s and 1930s. Instead, Progressives used their new Fed to print money, creating an artificial bubble and crash, and then kept prices high for both labor and products, stopping customers and businesses from adjusting prices themselves and working out the optimum path to recovery on their own. This greatly weakened the nation, incentivizing the Axis governments to attack and drag the nation’s people into WWII.
Progressives engineered a virus to be more transmissible by humans and deadly to humans. They locked down workplaces. They blocked and greatly-delayed fast home tests, punished doctors who used generic antivirals, and threatened businesspeople who sold the clot-reducing supplement NAC.
They mandated vaccines that cause new variants to evolve, lessen natural immunity, and produce clots potentially across the lifespan. If nonlethal strokes increase, dramatically decreasing the quality of life for many people, Progressives will be there to bury this problem they created by assisting their victims in committing suicide.
Once you know what you’re looking for, the extent of the misery that has been blamed on businesspeople or on acts of God but that has actually been caused by Progressives will take your breath away.
Progressives have limited awareness of their roles in all these harms, thanks to certain tricks that people’s minds play on them.
One particularly-powerful trick gets played by a Progressives’ mind on itself: denial.
Denial is greatly facilitated by focusing away from horrific consequences and focusing instead on other people’s supposed evil motives, on being the first in history to prevent a depression, on alleged weakening of eggshells, on temporary liberty for women, on being first in history to save people from a deadly scourge, and on and on.
Another powerful trick works almost the same way: urgency.
To a Progressive, a crisis screams deafeningly for his most-powerful savior to take action, immediately.
The more stressful the perceived urgency, the harder it is for anyone to think clearly. Stress produces “cognitive rigidity.”
The result is that only a very-few limited possibilities even surface in Progressives’ awareness. To not take some centralized action, any centralized action, is completely out of the question. Lives would most definitely be lost. (And the people to blame would be the people who knew better—the Progressives, of course.)
Tragic, isn’t it? A mere belief that government people are moral and capable, while customers and businesspeople are naïve or immoral (so their capabilities don’t matter), is enough, in a crisis, to seemingly compel action that’s disastrous.
So then, interestingly, Progressives don’t even have to think that they must not let a crisis go to waste.
And yet, conveniently, the actions they would take without thinking just happen to be exactly the same actions they would take if they consciously determined to not let a crisis go to waste. Which in fact is what Progressives determine to do.
Progressives act, and people die. Doesn’t rhyme, but is actually true.
As Ronald Reagan said, “The nine most-terrifying words in the English language are ‘I’m from the government and I’m here to help.’” True that.
Remember that in every crisis.