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

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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2 Months of QT Down

08/08/2022Robert Aro

The Federal Reserve is shrinking its balance sheet, albeit at a snail’s pace. Let’s see how they’ve done compared to last month. Per latest data release:

  • On July 6 the US Treasury (UST) balance was $5,744,344,000,000. The balance on August 3 now stands at $5,719,119,000,000, for a reduction of roughly $25.2 billion.
  • On July 6 the Mortgage-Backed Security (MBS) balance was $2,709,336,000,000. The balance on August 3 now stands at $2,717,552,000,000 for an increase of roughly $8.2 billion.

Two months after the official start of Quantitative Tightening, the Fed has reduced Treasury holdings by about $50 billion… while Mortgage-Backed Security holdings increased by over $10 billion!

Think about the stock market in this same amount of time, after a net reduction of just $40 billion in June and July, the worst is still ahead, if all goes according to the plan. As it currently stands, after August, the UST reduction limit will increase from $30 billion to $60 billion a month, while MBS goes from $17.5 billion to $35 billion.

This is strange for a variety of reasons, one being the gross lack of the Fed’s credibility. Since they only reduced Treasuries by half of the maximum limit while increasing the MBS holdings, it’s difficult to fathom that they’ll start accelerating QT by next month.

Yet, in Jerome Powell’s world, everything is fine and, by September, we’ll feel the full force of the Fed’s tightening. Just last week, when asked how the balance sheet reduction is going, he responded:

So we think it's working fine… And in September, we'll go to full strength. And the markets seem to have accepted it. By all assessments, the markets should be able to absorb this. And we expect that will be the case. So, I would say the plan is broadly on track. It's a little bit slow to get going because some of these trades don't settle for a bit of time. But it will be picking up steam.

It's unclear what he means by the trades not settling on time, that doesn’t explain why the MBS balance has seen two months of increases. Nonetheless, he claims the tapering will be “picking up steam,” so we’ll be watching and waiting.

It’s important to reiterate that, despite the slow pace of the tapering, we are still in the middle of the bust. The Fed has abandoned easy money policies. So until further notice, we must accept that rates will continue to rise and the balance sheet will continue to shrink. The yield curve on the 10-year minus 3-month reached 0.04 last week, per the Fed’s data, and is destined to go negative any minute now.

This author reminds readers to not be fooled with stock market rallies, Russia’s war, Putin’s price hikes, an invasion of Taiwan, any government promise to reduce inflation, or other media distraction. The days may be slow, but the crash will come fast. With monetary and fiscal policies long since destroying the economy, much of the average person’s attention is forced to focus on stock market speculation and ways to prepare for more dollar destruction; so please remember, without the Fed’s Marvelous Magical Touch due to the return of Quantitative Easing, tread carefully in the market, if at all.

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Is It a Rothbardian Moment? Populists Win in Arizona GOP Primary

08/06/2022Aaron Cummings

The Republicans for National Renewal (RNR) held a promotional event in Phoenix, Arizona for the holiday season last year after an extensive lineup was sponsored on social media. At the time, they had little to no bragging rights as they fought an uphill battle against election integrity.

During the late hours of night in August 2022, it was clear that two themes were stated with confidence: Conservatives were out, and populists were in. The election results proved that the political landscape has been malleable, however there had been a lack of momentum from conservatives.

Like Murray Rothbard, others were estimating what the future ideological divide could be. Sam Francis was infamous for naming names, yet his most academic profile was the philosophical foundation that aligned with Rothbard. He asked:

“Should we be Lockians, Hobbesians, or Burkeans: natural rightsers, or traditionalists, or utilitarians? On political frameworks, should we be monarchists, check-and-balance federalists, or radical decentralists? Hamiltonians or Jeffersonians?”

These were the questions rarely asked outside of Mises conferences, but one man has been making them relevant again. Peter Thiel provides a backstory that only Rothbard seemed interested in years prior. When public gatherings like RNR were organized, a refreshing dialogue had a visible impact on the audience and sounded similar to Francis’s pitch. He said:

The strategy of the Right should be to enhance the polarization of Middle Americans from the incumbent regime, not to build coalitions with the regime's defenders and beneficiaries" (p. 230).

This was the place where the August election started its trajectory. It may have looked like a smaller competitor to the concurring Turning Point USA conference just down the street. In terms of finances, this would certainly be accurate. Another notable presence were the youth groups disaffected by the Republican organizations. Years ago, there were a handful of college opportunities that provided proper networking opportunities. Today, the groups are more distinct beyond the vague patriotism heard in conservative media. If donors like Thiel remain regulars in this populist faction, the financial gap may not be an obstacle moving forward.

As the title suggests, the event was a referendum on the GOP’s direction and not a carbon copy of the party platform. Many of the speakers consisted of Republicans, although not in the conventional sense. Blake Masters, backed by Thiel, delivered a speech on his prominent one income policy reverting to a human centered economy. Two more Arizona regulars, Kari Lake, and Wendy Rodgers shared dissident views on branching away from the party in favor of the Trumpian model over its neoconservative counterpart.

All the Rothbardian staples were present. They argued that the renewal within the GOP started with Pat Buchanan’s presidential campaign in 1992 and succeeded with Donald Trump. A list of the greatest hits were shared from the declining standard of living to unapologetic nationalism. According to Newsweek, this was part of a broader trend among Generation Z seeing where the wind is blowing and seizing the opportunity.

The culture wars were waging once more at the forefront of the event. Economic concerns, championed by the conservative establishment, took a back seat as social topics surfaced above everything else. The usual suspects were under the gun including Big Tech, unregulated capitalism, and feckless Republicans. The alliance binding all these Trumpian senators and influencers contributed to the “working-class realignment.” Based on the guest list, a coalition of grassroots conservatives were underway and anticipating the midterms with revitalized enthusiasm.

It was also a safe haven for the often-neglected paleo libertarians of the Mises Institute. Books from Hans-Hermann Hoppe and others were scattered throughout the greeting tables. Tho Bishop appeared as the main representative, opening one of the first serious speeches of the night. The tone resembles what Murray Rothbard referred to as “Right Wing Populism” and claimed to be the only strategic way to win elections in the long run. After a lengthy celebration in August, many have speculated that this trend isn’t exclusive to the state of Arizona.

For all their flaws, Generation Z is reaching an impasse, and many are hedging their bets on college organizations as the way forward for the GOP. But, if they’re wrong, Rothbard’s prominent words may be palatable among the new generation of populists.

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Rothbard was Right about Water Fluoridation

08/05/2022Joshua Schubert

Water fluoridation was pushed in the United States as a public health policy for interventionist gain. The medical and environmental research has since shown that the alleged dental benefits to water fluoridation are outweighed by negative effects on other systems in the body. This compulsory measure has not only violated the rights of consumers, but it is also antithetical to human health.

Murray Rothbard in his 1992 essay Fluoridation Revisited uses his training as a historian to weave an engaging yet accurate narrative of who did what for who's benefit in the push for water fluoridation in the mid-20th century. 

Of particular interest to me is the role the Mellon Institute, ALCOA's research lab in my home of Pittsburgh, played in bringing about compulsory water fluoridation:

In 1931, the PHS sent a dentist named H. Trendley Dean to the West to study the effect of concentrations of naturally fluoridated water on people’s teeth. Dean found that towns high in natural fluoride seemed to have fewer cavities. This news galvanized various Mellon scientists into action. In particular, the Mellon Institute, ALCOA’s research lab in Pittsburgh, sponsored a study in which biochemist Gerald J. Cox fluoridated some lab rats, decided that cavities in those rats had been reduced, and immediately concluded that “the case [that fluoride reduces cavities] should be regarded as proved.”

The following year, 1939, Cox, the ALCOA scientist working for a company beset by fluoride damage claims, made the first public proposal for mandatory fluoridation of water. Cox proceeded to stump the country urging fluoridation. Meanwhile, other ALCOA-funded scientists trumpeted the alleged safety of fluorides, in particular the Kettering Laboratory of the University of Cincinnati.

During World War II, damage claims for fluoride emissions piled up as expected, in proportion to the great expansion of aluminum production during the war. But attention from these claims was diverted when, just before the end of the war, the PHS began to push hard for compulsory fluoridation of water. Thus the drive for compulsory fluoridation of water accomplished two goals in one shot: It transformed the image of fluoride from a curse to a blessing that will strengthen every kid’s teeth, and it provided a steady and substantial monetary demand for fluorides to dump annually into the nation’s water.

Suspicious Connection

One interesting footnote to this story is that whereas fluorine in naturally fluoridated water comes in the form of calcium fluoride, the substance dumped into every locality is instead sodium fluoride. The Establishment defense that “fluoride is fluoride” becomes unconvincing when we consider two points: (a) calcium is notoriously good for bones and teeth, so the anti-cavity effect in naturally fluoridated water might well be due to the calcium and not the fluorine; and (b) sodium fluoride happens to be the major by-product of the manufacture of aluminum.

30 Years Later


As it turned out, the research has shown that the nondental effects of water fluoridation in humans is harmful, according to health literature. Professor Philippe Grandjean published a 2019 meta-analysis on the subject titled Developmental Fluoride Neurotoxicity: An Updated Review in the Journal of Environmental Health. Multiple large studies have shown that fluoride in early development “can result in IQ deficits that may be considerable.”

As for the prevention of dental cavities, Grandjean and others propose topical use of fluoride for that purpose, rather than systemic ingestion of fluoride.


Calculating the Yearly Population Level IQ Loss in Newborns due to Water Fluoridation in the United States


Here I will attempt to calculate a rough estimate for the net IQ loss in Newborns in 2020 in the United States, using the causal research combined with population figures and data on overall water fluoridation levels in the United States. Perhaps of more interest to curious readers would be a similar calculation for your local municipality that fluoridates its water.


About 3.6 million babies were born in the US year 2020, and 73 percent of the US population "receive water that has the optimum level of fluoride recommended for preventing tooth decay." And that "optimum level" per the CDC is 0.7mg/L which is equal to 0.7 parts per million. And in prenatal urine the benchmark concentration level (BMCL) to cause a 1 IQ point drop for children is 0.2mg/L (at a confidence level of 95 percent). [A big thank you to Professor Philippe Grandjean who pointed me to this article after I read his 2019 meta-analysis on the topic.] And we can assume this relationship is linear above the BMCL, as that best approximates the current data. There is a 1:1 relationship of water concentration to urinary concentration of fluoride. Therefore, pre-natal IQ loss from fluoride is 3.5 points per child whose mother drinks primarily fluoridated water at "optimum levels".

If that 73 percent of the US population's water has the "optimum level" of fluoride, translates to 73 percent of Pregnant women getting the "optimum level" of fluoride. Then 73 percent of newborns each year are experiencing this 3.5-point IQ deficit, with 73 percent of the 3.6 million babies born in the US in 2019 being 2.628 million.

2.628 million newborns with an unrealized IQ potential of 3.5 points each means that: 9.198 million IQ points of newborns were lost due to water fluoridation in one year in the US.

Not only that, but this number also undercounts the total newborn loss of IQ due to water fluoridation because the water fluoridation in some areas is higher than the "optimum amount" of 0.7mg/L. In some areas it is lower than that "optimum amount" yet still higher than the BMCL (benchmark concentration level bound) for 1 point of IQ loss, which is equal to 0.2mg/L. However, we are only counting the 73 percent of the US population that receives water at that “optimum level” per the CDC of 0.7mg/L.


Conclusion

The ongoing newborn population IQ loss due to water fluoridation is a public health disaster. Not only is it harmful, but it also violates the Nuremberg Code of Medical Ethics. It is imperative that local authorities cease the fluoridation of municipal water supplies and leave medical decisions between individuals and doctors that have earned their trust.

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Household Employment Goes Nowhere for Fourth Month

08/05/2022Ryan McMaken

With the release of new employment data from the Bureau of Labor Statistics today, most commentators have focused on the big gains seen in the total number of jobs as reflected in the establishment survey. According to that survey, total nonfarm jobs reached 152 million which—30 months later—finally puts total jobs back at their pre-covid peak during January and February of 2020. This was hailed as an enormously strong jobs report by many observers. 

But the grand employment successes indicated by the establishment survey are not reflected in the household survey which, rather than measuring total nonfarm jobs, measures "total employment" or employed people. In that case, employed persons are about a half a million jobs below the February 2020 peak, but the more worrying trend is in the fact that total employment has been flat for the past four months. total employment was 158 million in March 2022 according to the survey. In July, it was also at 158 million. 

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That's quite a difference between the two employment surveys. The establishment survey shows that since March total jobs have grown by 1.68 million while total employment has fallen by 168,000. That's a difference of 1.8 million. 

This suggests that the total number of jobs is growing, but the total number of employed people is not. In other words, people are taking more second jobs, but more people aren't employed. 

Employment weakness also shows up in the labor force participation rate (for the 25-54 age group, excluding most retirees) which remains below the 2020 peak, and also below where it was for the entirety of the period from the late 1980s to the 2008 financial crisis. 

part

The overall narrative for the most recent employment data, however, was that jobs are "smashing" expectations and that the labor market is red hot. Yet, it's apparently not hot enough to bring the working-age labor force back to where it was before the GFC. Nor is it hot enough to bring total employment back up to 2020 levels. 

Theoretically, this sort of thing could always be explained by the idea that household earnings are so strong that many workers simply don't need to work anymore. That is surely true in some cases, but we also know that the savings rate is falling while debt is mounting. 

For example, after surging to historically high levels in 2020—thanks largely to stimulus checks and people putting off recreation and vacations—the personal savings rate has collapsed since December of last year. As of June, the personal saving rate is at 5.1 percent, which is the lowest since 2009. 

saving

Moreover, household debts are mounting as well. According to the Federal Reserve consumer debt and revolving credit have grown rapidly since March of 2021, and are now at a new high and in July was up more than 17 percent year-over-year. Other data suggests consumers are still doing plenty of spending, but many are apparently doing it using consumer credit and at the expense of savings. 

This is not shocking since wages are not keeping up with the CPI inflation rate

What does all this mean for the economy? It suggests neither collapse nor robustness. The fact that employment data tends to be a lagging indicator, however, means the employment data probably doesn't mean much in terms of telling us where the economy is headed. Many economists and policymakers are busy debating semantics and whether or not the call the current situation a recession. But falling real wages, high inflation, rising debt, and two quarters of negative GDP growth suggest falling standards of living, which is mostly what matters. 

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Innovation TrumpsGovernment Dictates in Reducing Waste as UK Researchers Create “Edible Plastic”

I've always cared for the environment. I was indoctrinated into it, and during my university career wrote all my lecture notes on the back of discarded “misprints” from the library. Why waste?

Nonetheless I cringe and cringe at token efforts to reduce plastic waste by putting mandatory charges on shopping bags while almost everything we pick up from supermarket shelves are coated in plastic wrapping! Listen guys - we all wanna save the world, but we ain't gonna do it by banning plastic straws.

It's transparent to us that these measures are more about making it look like elected officials are doing something while nothing of any substance is being accomplished. Monsanto get away with spraying toxic chemicals that run off into “public land” and rivers every single day the world turns, and while they poison me slowly to death, I've got paper in my mouth from sipping this mojito.

Besides, people aren't as stupid as lawmakers think. They were already recycling their plastic shopping bags by using them as bin-liners and things. Now they need to go out and buy a roll of plastic bin-liners instead.

We will never see the end to environmental degradation until the land has private owners who can sue despoilers. Garbage disposal has to be privitized so that people are charged for their waste in proportion to how difficult it is to dispose of. Suddenly there will be a surge in innovation in sustainability as people rush to minimize the cost of having their trash bags picked up.

Until then, the do-gooders in government will continue to lecture us on carbon emissions while travelling the world in private jets.

I Love Plastic Straws

Whether you happen to be a sceptic of “the green agenda” or you’re worried that your continent is going to be under sixteen feet of water by 2030, recent innovations should put a smile on your face.

A team of researchers, led by Professor Saffa Riffat from the University of Nottingham, are working to introduce a plant-based alternative to food packaging that will not only be eco-friendly, but edible too. It uses starch, konjac flour, cellulose, or proteins to produce. All the materials can be safely eaten and so they don't pose any threat to wildlife or the oceans, and because they are organic, they are also biodegradable as well.

Professor Riffat says:

Plastic materials have been in use for around a century, their poor degradability is now known to cause serious environmental harm…We need to find degradable solutions to tackle plastic pollution, and this is what we are working on... The packaging materials we are working on have low gas permeability, making them more airtight. This feature cuts moisture loss, which slows down spoilage, and seals in the flavour. This is of great importance for the quality, preservation, storage, and safety of foods.

The new materials are tipped to give consumers access to fresher produce by providing better storage, safer usage, and a longer shelf life. With a little luck, they won't turn to mush in my beverage

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D.C.’s Dangerous Consensus: We Hate Iran!

With Republicans and Democrats in Congress having openly expressed their united opposition to the Biden administration reentering the nuclear agreement with Iran (the JCPOA), it should come as no surprise that negotiations have gone nowhere.

The reason?

Beneath all the bluster about nefarious Iranian activities in the Middle East and the back and forth over lifting the sanctions Trump’s team imposed on Tehran after unilaterally ripping up the JCPOA in the first place, Joe Biden is a wimp afraid of facing political backlash for undoing one of Trump’s worst foreign policy decisions.

Afterall, it was Biden’s own current team of Malley, Blinken, and Sullivan who worked out the nuclear deal with Iran while working for Obama.

So even though Biden has admitted Trump pulling out of the deal was a "gigantic mistake," he won’t agree to lift sanctions neocon Trump officials like Elliot Abrams admitted were only put in place to try and prevent Biden from reentering the deal in the first place.

This includes the labeling of the Iranian Revolutionary Guard Corps as a terrorist organization, which though Biden had been using it as an excuse not to get back into the deal Tehran has recently dropped it as a demand in negotiations – this while the Wall Street Journal openly reports the Israeli military and intelligence services are assassinating Iranians left and right, including inside Iran itself.

The truth, unfortunately, is that Biden lacks the courage of his convictions and is no longer serious about getting back into the deal. As a consequence, war with Iran looks increasingly likely – and over nuclear weapons our own CIA director, William Burns, says publicly the Iranians aren’t pursuing making.

Despite the fact that every U.S. intervention in the Middle East over the past twenty years, from Afghanistan, to Iraq, to Syria, to Yemen, has strengthened Iran’s position in the region, the groundwork for the next disastrous war has already been laid – building on the foundation of the Abraham Accords to bring India on board with Israel, Egypt, the UAE, and Saudi Arabia to gird for direct conflict with Iran. Speaking in Israel, Biden has already gone so far as to threaten the use of force to prevent the Iranians from getting the bomb they aren’t pursuing, but which, if they were wise, Tehran would start building as a deterrent immediately.

Apart from the pressure from our “allies” in Riyadh and Jerusalem, the former a regime so despotic Freedom House ranks it lower than China, while the latter simply needs an enemy to keep the billions in annual U.S. aid flowing, the Abraham Accords already have their own caucus in Congress, and the military industrial complex salivates at the prospect of a Middle East NATO to buy even more of their products.

Poor Iran – not so bad as to prevent Ronald Reagan selling them weapons through Israel during the 1980s, as Gareth Porter has convincingly documented, after the first Cold War ended Tehran found itself picked out as one of the new threats that would continue to justify the empire.

So as increasingly delusional screeds by walking disasters like John Bolton populate the opinion pages of the major papers and Republican and Democrats unite to bully a weak President already inclined to serve the interests of our ostensible client states, who benefits from our Iran policy is as obvious as who doesn’t: the American people.

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It’s Not 1970 or 1980

08/04/2022Robert Aro

It’s closer to 2023, yet, we’re constantly reminded how the Fed has learned from the Volcker era, therefore knows how to steer the economy in the right direction. Nothing could be further from the truth.

On Tuesday St. Louis Fed President James Bullard told CNBC that the economy can still avoid a recession and that rates will likely “have to go to 3.75% - 4% by the end of 2022,” in order to fight (price) inflation. He continued by drawing comparisons to over 40 years ago, as reported:

Bullard compared the Fed’s current situation to the problems central banks faced in the 1970s and early ’80s. Inflation is now running at the highest points since 1981.

In the time-honored tradition of throwing one’s predecessors under the bus, claiming this time will be different, Bullard said:

Modern central banks have more credibility than their counterparts in the 1970s.

According to him, it’s this credibility that the Fed and European Central Bank:

…may be able to disinflate in an orderly manner and achieve a relatively soft landing.

He bases his confidence on the Fed’s “credibility,” as if this determines what causes recessions or cures periods of high inflation. The article tries to explain his theory:

But Bullard argued that the ability for the Fed to steer the economy toward a soft landing rests largely on its credibility, specifically whether the financial markets and the public believe the Fed has the will to stop inflation. He differentiated that from the 1970s era when the Fed enacted rate hikes when faced with inflation but quickly backed off.

It's quite the explanation! However, it offers little confidence that anyone at the Fed knows what they’re doing, appealing to the passage of time and hope for a better future, more than anything.

Bullard makes a final plea to this fabled credibility as the difference maker:

That credibility didn’t exist in the earlier era… We have a lot more credibility than we used to have.

Unfortunately, it will take a lot more than credibility to get the economy out of its current (or upcoming) recession and bust cycle. Displaying little knowledge of the Austrian Business Cycle and how changes to the money supply alter the structure of production causing the boom/bust, it will be difficult for the Fed to “do the right thing,” which would simply be leaving the economy alone.

The on-going comparisons between now versus several decades ago is worrisome. Considering the national debt in 1981 was still under $1 trillion, but now is over $30 trillion, it’s disingenuous to say 2022 is the same as 1981. Still, one might argue that it’s all relative, and GDP has grown since then.

Despite the problems with GDP, looking at the debt to GDP ratio shows something troubling, making the comparison between now and then even more difficult to support:

Between 1970 to 1980, the debt to GDP ratio hovered around 35%. By comparison, today’s ratio is at 123%! Very roughly, if the national debt were closer to 7 to 9 trillion dollars, we could say it has grown consistently with GDP. But we cannot say that. Either the national debt has drastically exploded, GDP has inexplicably shrunk, or a combination of the two.

Beyond that, it's exceedingly difficult to believe that any central banker or government official learned anything from 40 to 50 years ago, since they’ve done nothing except take on more debt and increase the money supply every year in as much time; if they really learned, then inflation would never have gotten this high to begin with. Technology is different. The Geo-Political landscape is also different. The accumulation of all debts, past inflations, price valuations, and malinvestments over time are now all combining to increase the severity of the next bust.

Other than “high inflation” now and “high inflation” then, and the hope to lower the rate of price increases, it’s best to believe that the Fed steers this ship without a rudder. Since little comparison can be made to now versus half a century ago, it makes little sense to cite this period pretending like our new central planners are more advanced, learned, or better than their predecessors.

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Is There an Opportunity for Real Change in Britain?

(Endorsed by Godfrey Bloom, Alasdair Macleod, Simon Hunt, and Claudio Grass)

In a few days the British Conservative Party will select a new prime minister from within its ranks. The new PM will have a short-lived opportunity to select new ministers. But more importantly, due to the inevitable adverse consequences of a decade and a half of unprecedented money printing, little real action to complete the promise of Brexit, and war in Ukraine, the new PM can select ministers pledged to sound money, a rational and pro-growth tax policy, free markets, limited government, and a non-interventionist foreign policy.

Sound Money

In perhaps an apocryphal story, it is held that Ludwig von Mises was once asked what one reform he would select if allowed only one. He quickly answered...return to sound money. By sound money, Mises meant a money not controlled by government but rather by the market. Without a doubt the market would choose a commodity-based money, most likely gold. Sound money would force government to live within its means. Under a sound money regime, it becomes clear that every pound or shilling spent by government comes directly from the people. Government spending reduces private spending pound-for-pound. The so-called "spending multiplier" by which one pound of government spending increases total spending by multiples of that amount is a complete fallacy.

New taxes will always be unpopular and rightly so. Increase in government borrowing can only happen by pre-empting private borrowing, via higher interest rates, which is recessionary by its very nature. It is natural and good that government must overcome the public's reluctance for new taxes and more government debt to increase spending. Government must justify their increased spending plans to the people. By the same token, government spending cuts will mean that the public will have more to spend themselves.

A Rational Tax Policy

Like the need for sound money, the need for a sound taxation policy is one of the most important, yet least understood, aspects of government. Even the current debate between the final two Prime Ministerial contenders, who of all people should be better briefed, reveals a profound confusion that exemplifies Frederic Bastiat’s distinction between what is seen and what is not seen.

Every time one of them declares an intention to cut, say, corporation tax and more recently, even income tax, the predictable counterblast is:

But that will cost the Exchequer ‘£x billion’ per annum and will mortgage our children’s future, creating ‘£y billion’ of additional borrowing that will take ‘z years’ to repay. The nation can’t live on credit-card economics! I will first address the problem of inflation, and only then cut taxes – that’s the responsible approach!

These emotive responses perfectly illustrate Bastiat’s “what is seen” – but it completely misses the vast potential increase in tax revenues that might flow from a lower rate. What is not seen is the effect of international tax competitiveness on the number of businesses that will register their residence in the UK because it has a comparatively low rate of corporation tax – witness Ireland, which has a corporate tax rate of only 12.5%, compared with the USA rate of 21%.

Consequently, what is not seen is the gain to the exchequer of welcoming thriving, profitable companies into the UK, rather than the converse - losing UK businesses to jurisdictions with lower tax rates.

Also “not seen” is the economic benefit that will flow from the presence in this country of thousands of employees and their families. Because it is not seen, it is also unquantifiable – but what is certain is that we shall see supply-side net economic growth. The “tone” will have been established – and the direction of travel is bound to be positive. It will result in a bigger pie – not a bigger slice of a diminishing pie.

What is seen is always limited – such as revenue from new tariffs on imports – while ignoring the harmful market distortions and negative price impacts that impinge directly and indirectly on the cost of living. There are important lessons here.

Free Markets

The examples of the failure of government run programs is there for anyone who is not an ideologue to see. Just this past week, the Financial Times reported that the government may halt all increases in new housing in the London area due to the lack of adequate capacity in the power grid. In other words, Britain's publicly owned and operated power system is not producing enough electricity. A top to bottom privatization of not only power generation but fuel sources is required.

Scrap regulations on all sources of energy including nuclear and fossil fuels. Nuclear power is one of the safest and lowest cost sources of power available. Its higher costs are completely the result of unnecessary regulation that, frankly, seems intended to end nuclear power completely. Britain has been a leader in nuclear power technology for over half a century. All its important warships and submarines run on nuclear power, and hardly anyone thinks a thing about it.

Britain has been a fossil fuel giant since the eighteenth century. Coal made the industrial revolution possible. North Sea oil has never met its full potential. There is no reason that Britain needs import fuel, unless it can be purchased more cheaply elsewhere, such as the Middle East or even, dare we say the word, Russia.

Limited Government

Limited government means two things--limited government involvement in the economy and limited spending. The two go hand-in-hand. An additional benefit is that limited spending can be funded out of lower taxes. The British legal system, based upon the common law, is all that is required for the smooth regulation of economic matters. For example, fraud and contract law are well defined in the British legal system for the smooth regulation of commercial life. Tort law regulates harms inflicted, making product liability laws, for example, unnecessary. Just as a better mousetrap drives fewer effective ones from the market, better and cheaper products drive less effective and more expensive ones from the market, making product regulation completely unnecessary.

A better template than the unitary state is the Swiss principle of subsidiarity. Switzerland is a multi-ethnic land, making a one-size-fits-all government impractical. Therefore, government is pushed down to the lowest governmental level possible wherever practical, and it turns out that much of day-to-day practical government can be handled at local levels where the people really do have a voice. Britain should try this approach

The National Health Service is a disgrace on almost any objective basis of functional and cost-effective analysis, and it's getting worse rather than better. End taxpayer support and put a fee-for-service price on its operation, forcing it to compete with private healthcare providers.

There is no room for EU regulations, quotas, etc. in a sovereign country ruled by common law with limited government. Only Brexit supporters should be considered for ministerial jobs.

A Non-interventionist Foreign Policy

The war in Ukraine has illustrated how nations can be dragged into war when their own national interest has not been threatened. NATO expanded eastward after the fall of the Berlin wall three decades ago, until it ran into real opposition in the form of Russia. There was no need for this expansion and there is no need for Britain to be involved in Ukraine in any way.

The war there has taken on a life of its own and only a strong leader with a dedicated cabinet of peace minded ministers will be able to dislodge Britain from this conflict and prevent Britain from being dragged into similar conflicts, such as the new dispute between Serbia and Kosovo. Instead of taking sides in purely local conflicts, Britain should do all it can to create a new Concert of Europe. This will require real statesmanship. Britain can and should lead the way.

A truly sovereign Britain can defend itself when its real interests are threatened. Armed neutrality requires a strong national defense and a non-interventionist foreign policy. The emphasis is on "defense" and "non-intervention.” A good maxim to follow is "Mind your own business and set a good example."

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The Misery Index Is at Recession Levels

08/02/2022Ryan McMaken

In spite of the fact that real wages are going down, the cost of living is soaring, and new jobless claims are heading up at a rapid pace, and the savings rate has collapsed, what really matters to the White House, it seems, is the "technical definition" of recession. 

Never mind the fact that the US economy has contracted for the past two quarters, according to the federal government's own numbers. Apparently, as long as the NBER has not yet issued its opinion on whether or not the US economy is in recession, the White House is going to double down on the assertion that the economy is in fine shape and people should really stop complaining. After all, as one White House spokesman put it, it's not like there's a famine or anything. So quiet down, rubes. 

 

Although the White House seems to believe that things are pretty OK, the US's misery index suggests they're not. 

June's misery index (a composite of unemployment and CPI inflation) has risen to 12.5. That's the highest since September 2011 when the US economy was experiencing a time of very weak job growth and economic growth following the Great Recession. At the time, the yield curve almost inverted, and there were fears of a new recession. 

June's misery index is also above the index from the 2007-2009 recession when the index peaked at 11.4 percent. The index is also about equal to where it was in the run-up the 1990-91 recession:

mis

So while the NBER may not have yet opined on whether to apply the word "recession" to the current economy, the economy is clearly not in good shape. Call it a recession, or don't. 

While the White House may be trying to convince the voters that all is well, consumer sentiment suggests ordinary people aren't buying it. Moreover, if we're looking for an indication as to whether or not unemployment and inflation affect consumer sentiment, we need look no further than the fact the misery index tracks rather closely with consumer sentiment. If we invert the Michigan Consumer Sentiment trend and match it up with the misery index, we get this: 

con sent

Consumer sentiment has plummeted alongside the increasing misery index, and this has often been the case in recent decades. Of course, economists and White House spokesmen could always just come back and claim that consumer sentiment is "wrong" and that people don't understand how good things are. It's worth noting that politicians, central bankers, and economists have done exactly that during months preceding previous recession. Ben Bernanke, for example, repeatedly noted in 2008 that the Federal Reserve was not predicting recession at all—this was after the recession had already begun (according to the NBER.) Of course, as Bernanke was insisting "all is well," both consumer sentiment and the misery index were trending in recessionary directions. 

Now we may be in a similar situation with Fed chair Jerome Powell talking up the economy's alleged strengths while consumer sentiment goes into a nosedive, and the misery index repeatedly rises. 

Yet, the bad news continues to pile up. The Fed has long clung to the job openings data in the JOLTS report, claiming that the economy must be find because employment (a lagging indicator) suggests strength. Well, this morning's JOLTS report shows a clear downward turn from its upward thrust with job openings falling month-over-month by the most since the 2020 recession. Job openings have fallen 9.8 percent from the March peak. 

But hey, at least there's no famine! 

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RIP Ronald Sider: The Man Who Was Ground Zero for Modern Politicized Evangelical Christianity

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.

I continued:

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.

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