Paul Volcker's New Memoir: A Broadside Against his Successors?

Paul Volcker's New Memoir: A Broadside Against his Successors?

10/30/2018Jeff Deist

Paul Volcker, the cigar smoking former Chairman of the Federal Reserve Bank, literally and figuratively towers over his successors (he is reportedly 6'7"). Mr. Volcker is the the last Chair under whose tenure American savers could earn a decent rate of interest, the last Chair who demonstrated any meaningful political independence (clashing with presidents Carter and Reagan), the last Chair who really hated inflation, and the last Chair who eschewed the technocratic management of monetary policy. He's the last of the old-guard central bankers who saw monetary policy as a regulator and not a stimulus machine. As bad as he was on gold—as an undersecretary in Nixon's Treasury department he advocated the suspension of gold convertibility— Volcker was a gut-level banker who understood complex markets but also the concerns of average people. He was never a policy wonk with his head in the clouds. 

Still active and robust at 91, he's written a new memoir documenting his long tenure at the central bank. If his comments (excerpted from the book) in this recent Bloomberg opinion piece are any indication, it should be a welcome refutation of technocratic monetary policy by his successors—particularly when it comes to the current bizarro-world understanding of inflation and deflation: 

More recently, a remarkable consensus has developed among central bankers that there’s a new “red line” for policy: A 2 percent rate of increase in some carefully designed consumer price index is acceptable, even desirable, and at the same time provides a limit.

I puzzle about the rationale. A 2 percent target, or limit, was not in my textbooks years ago. I know of no theoretical justification. It’s difficult to be both a target and a limit at the same time. And a 2 percent inflation rate, successfully maintained, would mean the price level doubles in little more than a generation.

Who else in the world of central banking even mentions inflation these days, other than to tell us it's not a problem? Do any Fed or ECB economists think doubling prices on consumer goods every couple of decades is a good thing? Why do today's policy makers think prices are rising too slowly, a position totally at odds with the public? Volcker points out the absurdity of their thinking:

Yet, as I write, with economic growth rising and the unemployment rate near historic lows, concerns are being voiced that consumer prices are growing too slowly — just because they’re a quarter percent or so below the 2 percent target! Could that be a signal to “ease” monetary policy, or at least to delay restraint, even with the economy at full employment?

Certainly, that would be nonsense. How did central bankers fall into the trap of assigning such weight to tiny changes in a single statistic, with all of its inherent weakness?

Perhaps an increase to 3 percent to provide a slight stimulus if the economy seems too sluggish? And, if 3 percent isn’t enough, why not 4 percent?

I’m not making this up. I read such ideas voiced occasionally by Fed officials or economists at the International Monetary Fund, and more frequently from economics professors. In Japan, it seems to be the new gospel. I have yet to hear, in the midst of a strong economy, that maybe the inflation target should be reduced!

He also provides some very clear thinking about the bogeyman known as deflation. Systemic crises, in the form of deep recessions, are the danger—not falling prices. Of course deep recessions are deflationary, as banks, businesses, and households shed debt and lower consumption. But loose monetary policy, not Volckerian rate hiking, creates the biggest risk of a future systemic crises: 

The lesson, to me, is crystal clear. Deflation is a threat posed by a critical breakdown of the financial system. Slow growth and recurrent recessions without systemic financial disturbances, even the big recessions of 1975 and 1982, have not posed such a risk.

The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the “easy money,” striving for a “little inflation” as a means of forestalling deflation, could, in the end, be what brings it about. 

Mr. Volcker's memoirs hopefully will serve as a much-needed corrective against the inanity of monetary policy today and a warning against the folly of what Nomi Prins calls "financial alchemy," the false belief that central bankers can conjure up prosperity using technical wizardry. Production, productivity increases, profit, and investment are the only way to create a truly prosperous and sustainable economy, and no amount of policy tinkering can change this. Volcker is not an Austrian, but he is someone who understands the threat to America's economic future posed by disconnected central bank policies. Fed officials, current and former, would be well-served to worry less about Donald Trump's tweets and more about their own reputations. As R. Christopher Whalen reminds us in this excellent analysis, "the greatest threat to the central bank’s existence is the tendency of Fed governors and economists to pursue abstract economic theories that make no sense in real world terms and often do more harm than good."

Let's hope Jay Powell reads Mr. Volcker's book.

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Rothbard Teaches Us Never to Sacrifice the Ethics of Liberty to Make People Comfortable with the Idea

3 hours agoDaniella Bassi

This week is Murray Rothbard’s birthday. It’s an opportunity to marvel at what a remarkable theorist he was, and in my estimation The Ethics of Liberty was his greatest contribution to the world he left behind and to the countless generations that will follow. Just as most people in the world function in distorted markets, so do they live under a tangled mess of legal codes that obstructs justice, to use the US government’s ironic term, prohibiting retribution and restorative arrangements between trespassers and their victims. Never losing sight of the fact of each individual’s sovereignty and inviolability, so holy that a noncriminal must never be harmed, Rothbard revealed humanity’s most basic legal code clearly and in the context of many different scenarios and kinds of crime. In doing so, he left a peal forever ringing in dissonance against every Leviathan’s assertion that its laws, its paid strongmen, and its kept courts alone know right and wrong. He showed how law is sown in every individual—even one who is dedicated to trying to violate others—unfolding from the instinct and the need to protect his own person and appurtenances from encroachment.

Rooted in the fundamental right of property that emanates from each person, Rothbard’s ethical analysis shows what it is that has been violated (or not) and what must therefore be restored in each major type of conflict, but he never fixes or specifies retribution beyond this. He never sets a fee schedule, so to speak, never writes law himself. The result is an exposition of natural law that is so thoroughly consistent that there is no struggle to think of it as universal. Like them or not, all kinds of cultural and religious prescriptions may be layered on top of this thinnest libertarianism without a moral dilemma so long as no force is used or implied, and it’s very clear where different coercive groups curtail people’s defensive capabilities. And all over the world, in all kinds of situations where they have been forced to assume the posture of declawed cats, natural law stirs within people. They are subjected or compelled in some way, they feel it bearing down, and they finally make their escape, against all strictures, retaliating in some way or simply taking back their sovereignty and acting on decisions that they’ve been forbidden from making over their bodies and their fruit.

In consistently hewing to individual sovereignty, Rothbard came to some conclusions for which he has been heartily criticized. This is particularly true in regard to his views on parents and children—that parents cannot be compelled to raise their children because to do so would constitute slavery and that for the same reason children must never be held against their will once they’ve decided to run away. Although some have convincingly argued that parents can’t quite leave a toddler in a park and walk away forever, likening parenthood to the contract between an air pilot and his passengers (it can’t simply be broken midtrip and the passengers “dropped off” with no parachute), Rothbard’s most important insights here are that it’s immoral to force unwilling parents to raise their offspring, iniquitous to compel people to toil for an indefinite period to feed and shelter another no matter who they are, and that a person’s nonaggressive will cannot righteously be restrained, no matter how young he is, once he becomes aware of its existence and decides to wield it.

But both of these things more or less occur under most regimes. It’s very difficult for parents to freely transfer their trusteeships over their children to someone of their choosing, and of course everywhere illegal to sell those rights to someone. Children who exercise their will to freedom find their faces printed in Have You Seen Me? ads, eerily similar to the ads for runaway slaves and indentured servants. The state forces those under an arbitrary age to live, sometimes against their wishes, with the parent it deems most fit in divorce cases, and those who have been taken from their families are also effectively barred from leaving orphanages and assigned homes until an arbitrary age. Concerned efforts to ensure that early life is danger-free, using force to remove children from homes that do not meet certain standards of comfort or exhibit the affection that a group of lawmakers and state-sponsored academics deems necessary, often simply cement unsatisfactory arrangements and limit the avenues that can be taken toward improvement.

Rothbard, with his deft but light touch, gave two marvelously broad possibilities to the problem of unwilling families from the standpoint of parents: simple abandonment and the free sale of guardianship rights in children. This approach to solutions for the world that could be—the free world—is ideal. He leaves readers with a clear sense of right and wrong, gently points toward possible solutions for those who struggle to imagine an unmediated world, and leaves open all the possibilities that the diversity of individuals and collaboration can engender.

It should go without saying that children are not animals, which don’t have natural rights, but we can come closer to understanding that the array of possibilities that could exist in a free market for guardianship rights is vast if we consider the variety of ways that you can get a pet in the United States (for now). You can buy pets or adopt them for free from individual owners in private marketplaces like Craigslist. You can buy them from breeders, either certified by private groups like the American Kennel Club or uncertified, or just from people who have a litter on their hands. You can foster indefinitely for free, adopt at a low cost, or adopt for free from all kinds of charitable organizations—small, large, secular, with a religious feel, politically active in lobbying for intervention, or just trying to help animals find homes, etc. If you get your pet from a shelter, you often pay very little, but the organization places several conditions on how you may keep the pet—indoor, outdoor but tie-outs and the like prohibited, regular vet visits and vaccines required, must be spayed or neutered (and therefore can’t be bred), can’t be sold or given away, etc. You also often have to talk about your lifestyle, reveal where you live and work and with whom you live, and disclose whether you have experience with pets. If you don’t want to go through that, you can go to a pet store, where you will pay more, but won’t necessarily be interrogated. But there’s freedom on the selling side as well, and some pet stores and breeders also choose to ask about your lifestyle and experience. Once you get the pet, there are all kinds of options for “educating” it, from informal training by friends or part-time trainers to full-fledged training academies that charge a pretty penny. Of course, there are many groups out there that have long been agitating for the state to impose various degrees of regulation in order to limit who can breed and sell pets and to force one vision of pet ownership on all, failing to see that the problem of strays comes in large part from all the public roads and parks where pets can be abandoned without protest.

There’s no predicting the variety of arrangements that could form with a market in guardianship rights for children. They could be infinitely more varied than the many options we’ve seen with pets, since children have natural rights and their own wills. The only certainty is that wrong is wrong—that holding parents and children against their will, making their pursuit of more agreeable arrangements difficult, or outright illegal, is amoral. Full self-determination comes with all kinds of risks, foreseeable and not. A child could run away to a life of abject poverty and worse abuse; parents might sell their trusteeships and regret it for personal reasons or because the buyer wasn’t who he said he was (even if the difference doesn’t breach their contract). But even with the significant risks it entails, every minute of freedom, imperfect though it may be, is as a drop of clear water in a desert. States through time have failed spectacularly to extirpate various kinds of risk; the only thing they have made nearly sure, over and over again, is their own domination, which itself has been broken time and again in the end.

Too many thinkers in the Rothbardian tradition try to paint detailed portraits, complete with steps 1, 2, 3 … for how to live in freedom and how to make it “workable.” There’s constant talk of private insurance companies and private defense agencies, but we must be careful. The reality is that individuals act purposefully. Their actions aren’t mechanical reflexes, and they are not predictable. No one can imagine all the things that matter to different people and therefore the full range of solutions that might come to be offered in various markets. Some truths about natural rights might be uncomfortable to acknowledge for the dangers that they leave people open to, but we must not shy away from them by painting a portrait of a manicured freedom with neat options that assuage the unfaithful. To shy away from all the vicissitudes and possibilities that freedom entails, for better or worse, is to risk tripping at the finish line should people feel uncomfortable with what they might find and repeating the cycle of statism. Rothbard didn’t shy away from hard truths, and in this he continues to offer shining insight.

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Two Problems with the Nonaggression Principle

3 hours agoScott Sehon

Libertarians typically favor reducing government to a minimal or night-watchman state, one limited to police, courts, and national defense. (For example, the Libertarian Party platform says that “the protection of individual rights is the only proper purpose of government.”) Some libertarians argue for this minimal state by appealing to the nonaggression principle. This is a mistake.

The nonaggression principle (NAP) prohibits initiatory force. Adapting a formulation by philosopher Roderick Long, it can be cast as follows:

NAP: Any act of forcible interference (or threat thereof) with another individual’s person or property is a violation of rights, unless the act is a response to forcible interference (or threat thereof) by that person.

I will argue that the NAP has unacceptable consequences. We can modify the principle to avoid those consequences, but this comes at a severe cost: the principle will then no longer do any real work in the argument for the minimal state.

First Problem for NAP: Past Injustices

Suppose I steal a priceless painting from you and then give it to Bob, a friend of mine. Even if Bob knows the painting was stolen, he did not use or threaten force. According to the NAP, this means that forcing Bob to give the painting back would be a violation of his rights. Putting this point more generally: the NAP prevents rectification of past crimes or injustices, so long as the original criminal has transferred the proceeds of his iniquity to someone else.

We could avoid this unpalatable consequence by revising the NAP:

NAP: any act of forcible interference (or threat thereof) with another individual’s person or legitimately acquired property is a violation of rights, unless the act is a response to forcible interference (or threat thereof) by that person.

The libertarian could then claim that Bob did not legitimately acquire the painting, since it was stolen; thus we are allowed to use forcible interference to get it back.

However, adding “legitimately acquired” to the NAP opens up a huge can of worms. Which properties count as legitimately acquired? A stringent, Nozick-inspired answer to that question: my property was legitimately acquired if I got it through a sequence of transfers each of which was free and uncoerced, and where this sequence goes back to an original acquisition of property that was just and fair.

Even if we suppose, rather improbably, that there was a just initial acquisition of property, it beggars belief to claim that the current distribution resulted from a sequence of free and uncoerced transfers through the subsequent centuries. To see this, we need merely point out that the distribution of wealth in the United States was hugely affected by the slavery and blatant oppression of black Americans, not to mention the slaughter of Native Americans and theft of the land they occupied in the early days of the republic.

On the stringent view of legitimate acquisition, even a democratic socialist who wants a big welfare state could simply agree with the NAP: the socialist will just add that, since almost no currently owned property was legitimately acquired, and since the NAP only applies to legitimately acquired property, the NAP imposes no real restrictions.

Perhaps libertarians can come up with a less stringent theory of the legitimate acquisition of property. Perhaps, as suggested by David Gordon in a related context, the notion of convention will play a role. Perhaps this theory, when added to the NAP, will imply that most acts of initiatory force are still forbidden; and, finally, perhaps this can in turn be used to argue that only the minimal night-watchman state is justifiable. 

But observe: even with such a theory in place, the dispute between the libertarian and the socialist would then have nothing to do with the revised NAP, which they can both accept. The NAP, which was originally put forward as the basis for the libertarian position, no longer plays any role in the argument. All the real work would be done by the yet-to-be-provided ancillary theory about what counts as legitimately acquired property. (Sandy Ikeda made a related point about the NAP.)

Second Problem for NAP: Taxation

When the government sends me a tax bill, it comes with a threat: they can garnish my wages or even throw me in jail. This threat is not in response to any act of forcible interference on my part; I was just sitting here not paying taxes. But this implies that the tax bill is, according to NAP, a violation of my rights.

However, if taxes themselves are a violation of rights, then even the minimal state is forbidden, insofar as the minimal state funds courts, law enforcement, and national defense by levying taxes.

Some libertarians might accept this and conclude that even the minimal state is too much state. These libertarians, like the 2020 vice presidential candidate Spike Cohen, may become anarchists.

But this goes beyond what most libertarians advocate. The Libertarian Party platform calls for extremely limited government but does not demand the end of compulsory taxation. Similarly, Libertarian presidential candidate Jo Jorgensen advocated eliminating the federal income tax but did not suggest getting rid of all taxes.

Libertarians might try to avoid the anarchist suggestions of NAP by modifying the principle so as to allow just enough taxation to support the minimal state:

NAP: any act of forcible interference (or threat thereof) with another individual’s person or property is a violation of rights, unless either the act is a response to forcible interference (or threat thereof) by that person or the act is an instance of the government collecting taxes for a legitimate purpose.

But the libertarian will now need another ancillary theory explaining which governmental purposes are legitimate and why. After all, the socialist could fully agree with the revised NAP, so long as the socialist also claims that a large welfare state is a legitimate purpose for government taxation. 

The libertarian will no doubt dispute the socialist claim and propose instead that anything beyond the minimal state is not legitimate. However, once again, the dispute between the libertarian and the proponent of big government will have nothing to do with the revised NAP, which both sides can accept. The nonaggression principle, which was supposed to ground the claim that only the minimal state is legitimate, now does no work at all.


When faced with the extreme consequences of NAP, one cannot reply by simply saying, “Well, I don’t want to push it that far.” Principles are not like buses that you can take as far as you want and then get off; they imply what they imply. If you don’t accept the implications of the principle, you don’t really accept the principle; you must reject it or at least qualify it. However, the obvious attempts to qualify or hedge the NAP to avoid such consequences would mean that the principle no longer does any real work in supporting the minimal state.

Of course, none of this implies that libertarians are wrong in advocating only the minimal state; it only means that they would need to support this view on other grounds. Libertarians might, for example, follow Mises in saying that “social utility is the only standard of justice.” In other words, instead of the rights-based talk of NAP, one might try to defend the night-watchman state on broadly utilitarian grounds, claiming that such a state will lead to greater happiness and human flourishing.

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Mises U with Murray

3 hours agoPeter G. Klein

I met Murray in 1988 and I will never forget the experience. The story begins the previous year, as I was completing my bachelor’s degree in economics at the University of North Carolina and considering pursuing a PhD. I was familiar with Murray’s writings as a semicloseted Austrian in a mainstream economics program. I had seen an advertisement for some strange group called the “Mises Institute” which was offering fellowships for graduate study in economics, and I eagerly applied. Sometime later I received a letter—it was all snail mail back in the day—saying that my application had received a favorable initial review, and that the next step was “to have a telephone interview with our Vice President for Academic Affairs.” You guessed it! A phone call with Murray was arranged. You can imagine how nervous I was the day of that interview! But Rothbard was friendly and engaging, his legendary charisma coming across even over the phone, and he quickly put me at ease. (I also applied for admission to New York University’s graduate program in economics, which got me a phone call from Israel Kirzner. Talk about the proverbial kid in the candy store!) I won the Mises fellowship, and eventually enrolled in the economics PhD program at the University of California, Berkeley, which I started in 1988.

Before my first summer of graduate school, I was privileged to attend the “Mises University,” then called the “Advanced Instructional Program in Austrian Economics,” a week-long program of lectures and discussions held that year at Stanford University and led by Rothbard, Hans-Hermann Hoppe, Roger Garrison, and David Gordon. Meeting Murray and his colleagues was a transformational experience. They were brilliant, energetic, enthusiastic, and optimistic. Graduate school was no cake walk—the required core courses in (mathematical) economic theory and statistics drove many students to the brink of despair, and some of them doubtless have nervous twitches to this day—but the knowledge that I was part of a larger movement, a scholarly community devoted to the Austrian approach, kept me going through the darker hours.

That week-long experience in the summer of 1988 was amazing, not just for the instructional content per se, but also for the social and informal aspects. Nearly all reminiscences of Murray note his indefatigable spirit, his incredible energy, and his humor, as well as his penchant for late-night dining, drinking, and discussion. There was plenty of that, and it was a privilege to hang out with Murray and the other faculty (though few could hang in there until the wee hours) and students. In these conversations, while Murray was the center of attention, he didn’t dominate the conversation, but asked questions, listened, and engaged. Along these lines, Murray was what people today call a “lifelong learner.” I remember one session of the conference at which one of the other faculty was presenting. Murray was in the audience and I was sitting right behind him. At one point I leaned forward and was shocked to see that he was taking copious notes. I thought, Doesn’t this guy already know everything? But no, he was paying close attention to the other speakers—themselves younger Rothbardians—hoping to pick up a few nuggets of insight, some new perspective or approach, a new interpretation, or another way of increasing his own understanding. I have tried to model that behavior in my own career.

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A Problem with the Fed's Dual Mandate

9 hours agoRobert Aro

It’s almost as if Federal Reserve governor Lael Brainard read the February 11 Mises article "The Fed and 'Maximum Employment'" and then rebutted with a class lecture at Harvard two weeks later. Whereas the Mises article starts by cautioning that maximum employment is used to justify the state’s interventions in our lives, the governor starts her class saying:

[What] I hope you remember from today is that economics provides powerful tools to enable you to analyze and affect the issues that matter most to you.

The problem begins here because what matters most to the economic planner is the goal of staying both in control and relevant, thereby ensuring perpetual employment income for oneself. As the Upton Sinclair quote goes:

It is difficult to get a man to understand something, when his salary depends on his not understanding it.

Brainard follows with the history of maximum employment and its roots in the Great Depression, leading to the Employment Act of 1946, which allowed government to pursue:

conditions under which there will be afforded useful employment for those able, willing, and seeking work, and to promote maximum employment, production, and purchasing power.

A lofty goal, that the government should find or create jobs for all who want to work. The mechanism as to how this was to be achieved remains unstated, but it was the measurement which was problematic. By 1950 there were discussions of “full employment,” and what this actually meant. Luckily there was an academic at the time, Dr. Palmer, who was able to shed more light on the situation.

Palmer was a professor at Wharton, a fellow of the American Statistical Association, a worldwide expert on manpower and labor mobility, and a consultant with the Office of Statistical Standards.

The Palmer’s contribution argues:

Inherent in the phenomena being measured are so many degrees and kinds of labor force activity that no single definition or classification can adequately summate them.

Thus, when it came to measuring full employment, or maximum employment, no single data point could suffice, instead, it required a wide range of data to “summate” in a manner only the planner can determine is best.

By 1977, the Federal Reserve Act was amended, giving the Fed:

the goals of maximum employment, stable prices, and moderate long-term interest rates, commonly referred to as the dual mandate.

Another present-day familiarity we see emerging from the 1970s was the notion of “full employment” being useful to minorities, as explained by one congressman:

without genuine full employment it would be impossible to eliminate racial discrimination in the provision of job opportunities.

The importance of full employment, we are told, is as pressing today as it was in 1930, 1946, and 1977, yet has lacked a proper definition for nearly one hundred years.

Ultimately, Brainard settles on the narrative of there being no single indicator of full employment and consulting a “variety of indicators that together provide a holistic picture of where we are relative to full employment.”

Ten different charts and a variety of labor market indicators are utilized to explain how they arrive at a conclusion, though each data point is rife with its own set of problems. For example, the “Labor Force Participation Rate” (LFPR) equation is defined as: (Labor Force / Population). Seems reasonable until we’re told the labor force includes people who are “actively seeking work” and population means “the working-age population.” As for what the LFPR should be or how all of the data is utilized in a way discernible to the planner, that is anyone’s guess.

Even if we don’t agree with the data metrics, it’s not the data which is the problem. The problem occurs when the data is used to justify perpetual expansion of the Fed’s balance sheet and artificially low interest rates. It’s not a question of using “better data,” it’s a question of using data to calculate the incalculable as an excuse for government intervention.

At institutions of higher learning across the country, the economics of liberty and freedom are not offered as a part of the curriculum. And why would it be? The entire apparatus of mainstream economics serves the central planner first and foremost. In a free market, they’d be at the bottom rung of society, but under socialism they continue to stay on top.

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Will 2021 Be the Year of the Revolution?

03/03/2021Jeffrey Overall

On the heels of the covid-19 pandemic, unprecedented socioeconomic challenges have emerged on a global scale, including growing resentment toward: government-enforced lockdowns, government corruption, inequality, and climate change. In the United States alone, the economic costs of the pandemic have been estimated at $16 trillion. With international socioeconomic systems in flux, policy makers, economists, and forecasters are left puzzled on what is going to happen next. In this article, I provide three predictions for 2021.

Over the past decade, there has been more social unrest and political uprisings than ever before. In 2019, there were protests in over 110 countries that were tied to: inequality (through the #metoo and black lives matter (BLM) movements), climate change, and the further encroachment of the state into the lives of citizens, which occurred in Hong Kong. In 2020, mass antigovernment protests have emerged throughout North America and Western Europe involving police brutality against racialized communities and government-enforced lockdowns. However, since the increase in government-enforced lockdowns, these movements of discontent have been suppressed, which is worrisome because as Sigmund Freud famously argued, “unexpressed emotions will never die. They are buried alive and they will come forth later in uglier ways.” Indeed, unexpressed emotions fester and as we saw with the storming of Capital Hill, eventually come out, often in more extreme ways.

Prediction #1: 2021 will be the year of the revolution

Heavy-handed covid-19 government-enforced lockdowns will be matched with social unrest of greater magnitude until a G20 government is overthrown. With the greatest fear of any state being social unrest, governments across the globe have strict measures in place to suppress social unrest and protect their authority. In China, for example, the Financial Times reported that the Communist Party of China (CPC) censors the media and polices protests strategically. Similar approaches, to varying degrees, including mass government surveillance, have been and are continuing to be used in other countries. In the United States, the magnitude of the invasion of privacy rights was exemplified by the governmental surveillance that became apparent from the whistle-blowing activities of Edward Snowden, the former National Security Agency (NSA) analyst, in 2013. In the Snowden documentation, the instances of mass surveillance being conducted by the US government was not only localized within the US, but also abroad involving foreign nationals and governments. Consistent with these privacy concerns, governments across the globe are releasing digital contact tracing technologies (in the form of mobile apps) to not only monitor the movements of citizens, but also to extract their mobile phone data. The New York Times has reported that several regimes are taking this opportunity to seize new powers that have little to do with the pandemic and without the likelihood of relinquishing them after it is resolved. To address the possibility of oppression, UN human rights experts have warned governments not to exploit emergency pandemic measures to erode the human rights of their citizens. As a result of these issues, trust in the government is at an all-time low and since the pandemic emerged, almost everyone that you speak with has a theory of what they think is "really going on."

Prediction #2: A high-level government official to reveal additional information about the pandemic leading to a formal accusation against a foreign government

To restore trust, it is expected that a high-level whistle-blower from a G20 government, similar to the Snowden case, will be used to provide "evidence" that a foreign state manufactured the virus in an act of biochemical war.1 Biochemical warfare is not a new phenomenon. It has been used by British colonialists when they gave the indigenous people of Canada blankets infected with smallpox. This act caused many deaths in a localized epidemic.

With the international collusion that occurred during the 2016 US presidential election, the US government is sensitive to foreign entities interfering in its affairs. At the end of 2019, two years after the US-China trade war began, covid-19 emerged out of China and spread throughout the globe causing mass socioeconomic devastation. Although there has been anti-China propaganda for nearly twenty years 0151due, in part, to the transference of manufacturing employment from industrialized nations to China and, now, the active trade war—the US president suggested that China manufactured the virus. In August 2020, Forbes published an interview with Dr. Mark Kortepeter, a physician and biodefense expert for the US Army where he concluded that covid-19 “has some "desirable" properties as a bioweapon, but probably not enough to make it a good choice for military purposes.”

This formal accusation will likely trigger an "us versus them" mentality in the United States, centered on stimulating nationalism and reducing social unrest. This approach has been used by the US government for nearly a century. Specifically, the US government has consistently portrayed an "enemy figure" that citizens need to fear and be protected against. In the twentieth century, enemies were the: Germans, Russians, Communists, Japanese, and Middle Easterners. In the early part of the twenty-first century, citizens were programed to fear Islamic terrorists. In these instances, the government is positioned as the only protector of citizens against foreign enemies.

Although it is expected that China will deny these accusations, there are four possible motivations for using covid-19 as a biochemical weapon:

A. Retaliation for the US-China trade war, which caused the Chinese economy to slow to its lowest level in three decades while industrial output fell to a seventeen-year low. This is of strategic significance to the Chinese regime as it has predicted that a significant economic slowdown could be a potential cause of social unrest. Much to the chagrin of Beijing, there was mass social unrest throughout Hong Kong from 2019 to 2020, causing the regime significant domestic and international challenges that persist today.

B. Retaliation for the support given by the US government to the: Hong Kong protest movement, rights of the Tibetan people, and international rights of Taiwan. All three locations are of strategic importance to Beijing.

C. The pandemic has caused economic devastation and mass social unrest in the US. Depending on the magnitude, this has the potential to cause the US government to redeploy portions of their military from key international areas, like the South China Sea, which is of utmost strategic importance to China, to domestic locations. Consistent with this prediction, to counter the Capital Hill riots of 2021, the US government summoned the support of the National Guard.

D. In recent years, Beijing has focused resources on shifting their economy from manufacturing to service based. With the pandemic forcing service-based employees to work remotely, we are seeing a surge in digital nomads and remote workers. This has created an international labor market whereby organizations are able to hire international employees and allow them to work remotely from anywhere in the world. Like the transference of manufacturing employment from North America and Western Europe to China that began 20 years ago, there are significant cost savings available to organizations that begin recruiting their managerial and staff positions from the international labor market and, in particular, China.

Prediction #3: Universal basic income

As we saw with the Hong Kong protests, people who have nothing to lose are more willing to revolt. With this in mind, to appease the population, curb social unrest, and restore trust in government, a universal basic income will be announced this year. By doing this, citizens would become increasingly reliant on the government for monetary support and, as a result of this dependence, less willing to revolt.

  • 1. It is important to note that questionable evidence was used by the Bush Administration in their determination that Iraq had weapons of mass destruction (WMD). This evidence was the reasoning behind the decision by the US Government to declare war on Iraq in 2003. It was later determined that these weapons were not in the possession of the Iraqi Government.
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In Defense of Savings

03/03/2021Peter G. Klein

I can't recall the last time I heard something on National Public Radio in defense of savings but, there it was, in this morning's Marketplace segment on Karen Petrou's new book Engine of Inequality: The Fed and the Future of Wealth in America. Savings, Petrou asserts, are the "engine of wealth accumulation." Petrou, whose work has been discussed on these pages before, identifies the Fed's massive and unprecedented monetary expansion since 2008 as a prime driver of inequality in the US.  As she explains to host David Brancaccio:

[T]he cost of being middle, even upper-middle, class, and lower- or moderate-income, has gone way up. So all but the top 10% of Americans already have more debt than assets. We don’t need more debt, we need more employment and economic growth. And we critically need savings. That’s the engine of wealth accumulation. And right now, if you put your money into your savings account, you lose money because rates are negative in real terms, and they have been pretty much ever since 2008. Saving is a losing game. Investing is a winner’s game, but most Americans aren’t in the stock market. The top 1% of Americans have over half of our stock.

Of course, the Austrians have been arguing—long before 2008!—that the engine of economic progress, not just simply for individuals but for the economy as a whole, is capital accumulation via savings and investment, not "aggregate demand" fueled by monetary and fiscal stimulus. Petrou is interested in individual and household inequality, not economic growth. Because inequality is the topic de jour among the intelligentsia, her book is getting a fair hearing. It is certainly true that the Fed's policies have exacerbated inequality and, while that is not the most important critique of the Fed or of central banking per se, it seems to be gaining popularity. Even Ben Bernanke felt compelled to respond to the criticism, albeit unconvincingly. 

Austrians including Zoran Balanc, Karl-Friedrich Israel, and Louis Rouanet have written recently about the effects of central banking on inequality. Petrou's book should help to shine more light on this debate. 

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PC 101: What's Woke In English Is Sexist in Spanish

03/02/2021Mark Tovey

Emma Corrin has won the Golden Globe Award for Best Actress in a TV Series for her portrayal of Princess Diana in Netflix’s The Crown.

Confusingly, Miss Corrin rejects the use of the term “actress,” like so many left-wing luvvies.

That didn’t stop her accepting the award, of course.

What’s the rationale for eliminating the word “actress”? Well, UK newspaper The Guardian explained in its 2010 style guide that it is sexist to distinguish between genders when referring to professions, as it harks back to a "time when professions were largely the preserve of one sex (usually men)."

But isn’t it a bit disconcerting to refer to an actor winning the Best Actress award?

What if I told you that it is supposed to be disconcerting, bamboozling, and alienating?

You see, politically correct language doesn’t follow a clear logic. Instead, it is designed to simply be contrary to common practices.

It is a signaling mechanism to separate the “insiders” from the “outsiders.”

I realized this after moving to South America and becoming proficient in Spanish—a long and painful process, as I didn’t start until I was twenty-four, by which point I had lost the brain plasticity of childhood.

I was disappointed to find that the “woke” politics of intersectionality had made the journey from the English-speaking world to South America long before I touched down in January 2018.

However, when it comes to politically correct language, social justice warriors (SJWs) south of the Mexican border have not been able to simply copy the US’s handbook. Clearly, the peculiar mandates of “newspeak” cannot be mapped precisely from English onto Spanish, which is distinct in its vocabulary and grammar.

In fact, on the question of gender-neutral professions, Spanish-speaking SJWs have had to take precisely the opposite stand.

In Argentina, the socialist vice president Cristina Kirchner made headlines in December 2019 when she called an opposition party senator sexist for not using a feminized title. 

In Spanish, most nouns signal male or female by ending in o or a, respectively (a male doctor would be el médico, a female doctor la médica).

However, presidente is one of those rare nouns that does not have a gender, and so—following the logic of politically correct speech in English—you would imagine that followers of “woke” politics in Argentina would be happy about that.

But no. Vice President Cristina Kirchner instead demanded that an a ending be substituted and called her colleague a sexist when he protested at this bastardization of the Spanish language.

He eventually conceded: “Perdón, presidenta.”

Could there be any clearer example that new-fangled, politically correct speech is just an arbitrary signaling mechanism? They want to watch you struggle through the growingly treacherous lexical quagmire.

And if at any moment you should trip and fall, you’ll be revealed for the outsider that they always knew you were. Maybe you’ll even get “canceled” if you’re unlucky enough to work for an organization that has capitulated to these unthinking bullies.

My advice? Learn a foreign language. Bilingual brains are less malleable to “newspeak,” as they see the inevitable inconsistencies created by a system of arbitrary verbal diktats, which cannot be neatly imposed on distinct lexical and grammatical structures.

In addition, psychologists have found that people who learn a second language are less susceptible to emotional manipulation in that language, as they have less of an emotional connection to the words. (This is easily demonstrated by thinking about how swear words in foreign languages do not evoke feelings of offense.) 

So, get on a language-learning app. And let’s all raise a glass to Miss Corrin, a skilled actress and deserving winner of her Golden Globe.

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Happy Birthday, Murray!

03/02/2021David Gordon

Today would have been Murray Rothbard’s ninety-fifth birthday. He was an unforgettable friend whose immense knowledge of many different fields was unsurpassed in my experience. In a lecture on the Austrian theory of the business cycle, he mentioned the common objection that the expansion of bank credit might have no effect if investors anticipated trouble. After the lecture, I asked whether Mises had answered this point. He said, “See his response to Lachmann in Economica 1943.” I often went to used bookstores with him, in both Palo Alto and Manhattan, and listened to him as he commented on nearly every book on the shelves. When he was a student at Columbia, he admired the philosopher Ernest Nagel, who he said would always encourage students to do new work. Murray was like this himself. He constantly encouraged students to work on Austrian and libertarian topics. As I think about him today, another story comes to mind. He would stay up very late and also get up late. Once at a conference, I stayed up until 1:30 in the morning listening to him talk to a group of people. When I told him I had to leave, he said, "The night is still young!" His support for me was never failing, and I owe him everything. If only he were still here now, to guide and instruct us!

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The Fed Sets the Tone for 2021

02/25/2021Robert Aro

The Federal Reserve set the tone for 2021 with the release of the year’s first Federal Open Market Committee (FOMC) meeting minutes last Wednesday. With the national debt approaching $28 trillion and covid still not eradicated, there appears to be no intention of ending accommodative policies any time soon. However, the Fed still has a way of never disappointing when it comes to what is discussed behind closed doors. As the minutes reveal, they found:

The emergence of a narrow Democratic majority in the Senate bolstered investor expectations for additional fiscal stimulus, prompting upward revisions to forecasts for economic growth this year.

This logic naïvely assumes a Republican-controlled Senate wouldn’t have the same or similar “additional fiscal stimulus” as the Democrats. It also assumes fiscal stimulus leads to economic growth. Should we continue along this train of thought, we may conclude that any Senate that favors perpetual fiscal stimulus is best since it creates perpetual growth!

We also see the usual Fedspeak, surprising only in its inventiveness:

The Committee’s employment and inflation objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary…

This is difficult because it falls back to the idea of a tradeoff between inflation and unemployment. Of course, the problem with this “theory” is that sometimes it works and sometimes it doesn’t. How such an inconsistent theory can ever be relied upon, much less used as a planning tool to form the Fed’s primary mandate, remains a mystery.

And for those unaware, the Fed undertakes desk surveys ahead of its FOMC meetings. The surveys are carried out by the New York Fed; they ask a variety of primary dealers, i.e., those firms able to trade directly with the Fed, questions. Then, a survey is conducted with market participants, comprised of institutional investment firms. According to their expert opinion:

The Desk survey results indicated that a majority of market participants anticipated that the pace of net asset purchases would remain stable for the remainder of the year and slow around the first quarter of 2022.

According to plan, the Fed will continue its $120 billion of asset purchases for twelve more months, meaning we can expect at least an extra $1.44 trillion of US Treasurys and mortgage-backed securities added to the balance sheet a year from now. This assumes there will be no more “additional fiscal stimulus” packages or any surprises which warrant the Fed to take on more forceful actions. The only thing more troubling than the best-case scenario of adding another trillion to the balance sheet is the erroneous widespread belief that the Fed will slow down its purchases ever again.

Last, but not least, the issue of inequality as it pertains to the black and Hispanic communities was addressed:

Many participants stressed that sustained support from fiscal policy would help address the hardships faced by these groups and that monetary policy could also help by promoting the economy's return to maximum employment and price stability.

Here they suggest that the solution to poverty and living in an unfair society revolves around asking politicians and central bankers to intervene even more in the lives of those in need. Naturally, this requires the bureaucracy to get paid for its interference. The public is then left to hope that planners will apply the appropriate amount of intervention, calculating the incalculable and doing whatever it takes to make society more prosperous.

Targets like “maximum employment” and “price stability,” are used, because they show that the Fed is goal oriented. The Fed will claim to fight racial inequality through their support, but their support can only amount to increasing the supply of money and credit, and deciding who gets access to this new money first. If these money creation schemes actually work, one would think the Fed’s goals would have been met by now. Can we really trust that by Q2 2022, as the survey says, the expansion will slow once the Fed finally hits its targets?

What the FOMC meeting ultimately fails to recognize is that by the time we get to March 2022 the only things to change will be the size of the Fed’s balance sheet, the money supply, and the increase in hardships faced by the very same groups the Fed is trying to help.

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No, There's No Reason to Feel Sorry for Robinhood

02/24/2021Ryan McMaken

As the dust settles following the GameStop frenzy in late January, it is clear that one of the biggest losers in the controversy in Robinhood. Robinhood is a trading app that markets itself as a platform for ordinary retail investors seeking to buy and sell securities without the cost of an expensive broker. Or, more romantically, Robinhood claims it has "democratized" investing.

But things didn't play out that way for the company. As buying of GameStop shares intensified in January 28, Robinhood (among other brokerages) halted the buying of GameStop (and some other shares, such as AMC) citing an inability to post sufficient collateral at clearinghouses. This is how a recent Forbes article summed it up

With the ability to easily buy more and more stocks using Robinhood’s app, the pile-on became a gold rush, as more speculators flooded to the platform to get “in” on the bounty. News about the booming GameStop and AMC stocks spread far and wide.

That’s where the trouble started.

Robinhood doesn’t directly execute customer trades.

Instead, it directs the transactions through a clearinghouse, which pays for the trades as the information it gleans lets it more effectively direct its own trading decisions.

Buyers and sellers are quickly matched digitally. However, the “settlement” of the trade—the actual transfer of payment and shares between parties—typically takes two days after the transaction. So clearinghouses require brokers, such as Robinhood, to have enough money on deposit to ensure that a trade can clear—even if the broker is waiting for a separate payment from a client to finish processing.

Given high demand for the shorted stocks and the climbing prices, Robinhood’s deposit requirements suddenly jumped ten-fold, according to a company blog post.

So Robinhood “put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.”

The fact that this move also helped billionaire short sellers at hedge funds was not lost on the general public, and the many immediately began to accuse Robinhood of intervening to help Wall Street oligarchs at the expense of ordinary investors. 

Was this the case? 

It doesn't matter all that much. What matters is that Robinhood was unable or unwilling to serve its customers in the way that Robinhood claimed it always would. 

According to Robinhood's narrative, its management had no other choice. And this has led some commentators to defend Robinhood, claiming that it was a victim of circumstance and it wasn't really conspiring against ordinary investors. 

But so what?

Even if Robinhood was being perfectly honest with everyone, the fact that it had to cut off its own customers from promised services reveals to us that Robinhood's management is at the very least incompetent and was unable to plan for future events which would have been anticipated by truly insightful or competent entrepreneurs. 

The company's ineptitude was showcased in a recent discussion between Rob Portnoy and Robinhood CEO Vlad Tenev. Tenev bragged that the company's block on further GameStop purchases meant "we were able to protect the firm." But Portnoy correctly pointed out that if "protecting the firm" means "screwing over" the customers, there's something very wrong going on over at Robinhood. We have a word for "protecting the firm" by harming customers. It's "exploitation," or "ripping people off." In response, Tenev threw out some bromides about how "if the market breaks down" they can't serve their customers. This assumes, of course, that letting investors buy what they want constitutes a "breakdown" in the marketplace. That's a rather bizarre assertion. Ultimately, even if we assume Robinhood was in no way conspiring against anyone, the fact remains that—as pointed out on CNBC—Robinhood put itself in a scenario it should not have put itself in. 

In other words, doing business with Robinhood now is an "enter at your own risk" sort of proposition. It's clear that in spite of all of Robinhood's claims about offering the everyman a way to participate in the markets, investors who do business with Robinhood can't trust that it will actually deliver the services it claims it will deliver.

That's as good a reason as any to forever ditch any company that acts with such ineptitude in giving the customer what he or she wants. 

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