Power & Market
Profiting on Chaos
These hot, lazy days of summer have investors lulled to a comfortable slumber with a foot firmly on the gas pedal. The July 25th Almost Daily Grant’s reported that BofA strategists, going all the way back to 2008, determined that “it has never cost less to protect against an S&P 500 drawdown of 5% or more over the next 12 months, as higher rates and low implied volatility and correlations have presented ‘a historic entry point for hedges.’” The folks at BofA also emphasized that market doomsday insurance is even cheaper than in 2017, when “several records for complacency, including the lowest VIX in history,” were established.
Mark Spitznagel and his crew of traders at Universa Investments are likely buying this cheap insurance with both hands, with the intent to cash in with the stock market’s next cratering. Spitznagel and his collaborator, the much more public Nassim Nicholas Taleb are the subjects of Scott Patterson’s Chaos Kings: How Wall Street Traders Make Billions In The New Age Of Crisis.
Spitznagel is well known in Austrian economics circles as a fan of the free market school and critic of central bank intervention. His 2009 piece in the Wall Street Journal, began “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.” Also, his book The Dao of Capital contained plenty of what Patterson calls “Austrian diversions.”
Taleb is a best selling author of books such as The Black Swan and AntiFragile. He recently appeared on CNBC’s Squawk Box predicting a crash. Although he did say and never claims he knows exactly when the crash is coming. He did recommend avoiding real estate and AI-related stocks.
Patterson weaves together a very readable story of how Taleb and Spitznagel met and the frustrations of selling tail-risk hedging to a Wall Street that held the collective belief of Modern Portfolio Theory, diversification of high and low risk investments in a portfolio provides protection from an unknown market calamity. Buying deep out-of-the-money puts (right to sell at a certain price before a certain date) on exchanges is frustration drawn out for years in most cases. The puts expire worthless and Spitznagel must have the fortitude to continue implementing what is the vast majority of the time a money-losing strategy. But, when the crashes come, the returns are enormous. Meanwhile, “Universa traders found the job hard and often tedious. Coming in every day–and losing money–for years.” (emphasis original)
There are exciting episodes in the book chronicling Spitznagel’s group trading in a frenzy to cash on, for instance the 2010 Flash Crash. Universa booked a $1 billion gain on the crash which lasted a half an hour. The story of pension behemoth CalPERS terminating Universa’s tail-risk hedge in January 2020, just prior to the COVID market meltdown in March, which would have provided the California pension fund a 4,144 percent return will make CalPERS members pull their hair out.
But while the theme of the book is the future is unknowable and becoming more so, Patterson’s story wanders into Taleb’s pandemic, environmental and future of democracy predictions for a good share of the book. For Taleb fans, Patterson provides plenty of the iconclast’s views. An epidemic is the greatest risk to mankind according to Taleb. And forecasting the future is the biggest mistake people make in managing risk. Exposure and sensitivity to extreme events are what matters.
Taleb points out that the human brain craves order and “so we impose patterns, structures, fragile frameworks onto a world constantly roiled in chaos,” writes Patterson. Taleb wrote in The Black Swan, “The more you summarize the more order you put in, the less randomness. Hence the same condition that makes us simplify pushes us to think that the world is less random than it actually is.” (emphasis original)
Sure to annoy some liberty-loving readers is a quote of Taleb’s from twitter about the government’s response to COVID. “Libertarians’ are…incoherent,” Taleb wrote in May 2020, “they deny stores the right to require masks & constrain their freedom yet ask for freedom… Nothing to do with libertarianism: rather a collection of marshmallowbrained psychopaths and misfits taking their hatred of humanity too far.” Whoa.
Near the conclusion Patterson writes that by late 2022 Universa was providing crash protection for $20 billion in assets. The highest in its history. With the markets screaming higher this year more protection is needed, but there are those like the gentleman running CalPERS in 2020 who must learn the hard way.
"Desertion" Is a Non-Crime Made Up by Governments
A federal judge this week vacated the desertion conviction of former US Army soldier Bowe Bergdahl, who was convicted in 2017 of desertion for leaving his post in Afghanistan. Bergdahl was then captured by Taliban forces, tortured, and imprisoned for four years before being freed by a prisoner exchange in 2014.
Since his release, Bergdahl has become something of a figure of hate among some conservative activists and politicians. Donald Trump repeatedly attacked Bergdahl, calling him a traitor and deserter. Some of the rightwing ire over Bergdahl's case stems from the fact at least three soldiers were seriously injured attempting to recover Bergdahl from his captors. This, however, has nothing at all to do with whether or not Bergdahl is a traitor or a deserter. If Bergdahl's carelessness led to his capture in a hostile environment, he can be required under civil law to make restitution to those who funded his rescue, or were injured attempting to carry it out. (This all ignores the issue of whether or not the US military had any business being in Afghanistan at all.)
This sort of restitution is common in other circumstances. For example: when careless hikers get lost in the woods and trigger expensive search-and-rescue operations. These people often are expected to pay back at least some of the cost of their rescues.
The larger issue here is over issues like treason and desertion.
First of all, it's obvious that Bergdahl isn't even a traitor by the standards of the US constitution. That would have required him taking up arms against the US government or helping the Taliban. He certainly has not been convicted of any such thing.
On top of this, of course, is the fact that treason isn't a real offense. If someone engages in violent acts against agents of the US government, then the perpetrator is guilty of those violent acts against specific persons, and nothing more. He's not guilty of the added "crime" of treason which is based on the fantasy that people owe some kind of loyalty to the governments under which people just happen to have been born.
And then there is non-crime of "desertion." Unlike any other line of work, employment contracts in the military are not like normal contracts that can be bought out or renegotiated at any time. The requirement that soldiers must sign over their natural right to leave their job is, as Murray Rothbard notes, a type of slavery.
Rothbard goes on to explain the reality of the non-crime known as "desertion" in more detail:
Conscription is quite obviously the most blatant example of slavery in American life, and happily many voices from both Left and Right are now being raised to call for abolition of this unmitigated despoiler of liberty. But there are other critical and pervasive examples of slavery on the American scene that have, for some reason, gone unnoticed even among dedicated libertarians.
One vital example is the armed forces itself. For even a volunteer army practices slavery on a grand scale! It is true that a volunteer army draws its recruits by free choice of the men who enlist. But what happens after they enlist? Suppose that a man enlists in the army for five years. Suppose that after two years he becomes fed up with the regimentation of military life and decides to quit for a better job? Can he do so? Certainly not! In every other occupation in society, a man may quit his job whenever he wants to, and either take another job or quit working altogether. Surely this right is fundamental to a free society; without the right to quit, a man is a slave, even if he originally took the job purely voluntarily. But an enlistee in the armed forces is not allowed to quit before his term expires. If he tries to, he is court-martialed and jailed under harsh military law. This is forced labor and involuntary servitude, however one looks at it.
There are other occupations, too, where a man may sign a contract to work for a term of years; he may, for example, sign on for five years as a geologist to work in Arabia. But he is allowed to quit; he may be considered a moral leper if he thus breaks his contract, he may be blacklisted by other firms hiring geologists, but he is not incarcerated for doing so.
Contrast, then, the armed forces with a very similar kind of occupation: the local police force. A man is free to quit the police force any time he wishes; why then should he not be free to quit the army as well? The armed forces will be centers of slavery not only so long as the draft exists, but even further, so long as a man is forced to stay in the army for any length of time after he decides he would rather call it a day.
No man is free if he does not have the right to quit his job. No one denies this right in every occupation — but one: in the armed forces, where this quitting is called “desertion” and met with imprisonment or even the firing squad.
If we would call ourselves a free country, this system must be abolished.
There Is No Right to a Religious Accommodation
Overshadowed by the Supreme Court decision in the case of Students for Fair Admissions v. President and Fellows of Harvard College that struck down affirmative action programs at Harvard University and the University of North Carolina — which was decided on the same day — was the court’s ruling in the case of Groff v. DeJoy.
Gerald Groff was employed by the United Stated Postal Service (USPS) as a rural carrier associate, and Louis DeJoy is the postmaster general. Groff is an evangelical Christian who in 2012 accepted a position with the USPS. He believes that because Sunday should be devoted to worship and rest, he should not perform “secular labor” on that day. When the USPS made an agreement with Amazon to begin facilitating Sunday deliveries, Groff refused to comply, and the USPS redistributed his Sunday assignments to other carriers. During this time, Groff received “progressive discipline” for failing to work on Sundays. He resigned in 2019 — “in light of expected termination” — and then sued the USPS under Title VII of the Civil Rights Act of 1964, alleging that USPS could have accommodated him “without undue hardship.”
Title VII of the Civil Rights Act states that it shall be an unlawful employment practice for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”
Congress amended Title VII in 1972 to explain that the term religion “includes all aspects of religious observance and practice, as well as belief, unless an employer demonstrates that he is unable to reasonably accommodate to an employee’s or prospective employee’s religious observance or practice without undue hardship on the conduct of the employer’s business.”
A Pennsylvania federal district court sided with the USPS, as did the U.S. Court of Appeals for the Third Circuit in Philadelphia, which, based on the case of Trans World Airlines Inc. v. Hardison (1977), believed “that requiring an employer ‘to bear more than a de minimis cost’ to provide a religious accommodation is an undue hardship.”
But in a unanimous decision authored by Justice Samuel Alito, the Supreme Court vacated the judgment of the Court of Appeals and remanded the case after repudiating a single line in the Hardison decision. Religious accommodation requests should be granted unless they impose a “hardship” on the employer that “would be substantial in the context of an employer’s business.” The de minimis interpretation of Hardison is “erroneous.”
Kelly Shackelford, President, CEO, and Chief Counsel for First Liberty — the public interest law firm that represented Groff — stated about the decision:
This is a landmark victory, not only for Gerald, but for every American. No American should be forced to choose between their faith and their job. The Court’s decision today restores religious freedom to every American in the workplace. This decision will positively help millions and millions of Americans — those who work now and their children and grandchildren.
Cardinal Timothy Dolan, chairman of the Committee for Religious Liberty of the U.S. Conference of Catholic Bishops (USCCB) commented:
In so many ways today we see people of faith being told that they can only follow their religious beliefs in private or within the four walls of a church. Religious freedom means nothing if it does not extend to the public square. And the public square is better off when religion is welcome there.
The Groff decision basically strengthens legal protections for employees seeking religious accommodations. It will affect all employees of the federal government, as well as state and local governments and private employers with 15 or more employees.
Some observations on the decision are in order.
One, the decision will undoubtedly lead to a number of lawsuits by employees to test in the courts the extent of the new rule. As progressive journalist Ian Millhiser recognized:
This new rule is likely to inspire some plaintiffs to test whether the courts will take their side in cultural disputes with their employer or a co-worker. As the Groff opinion itself does not say how such cases should be decided, beyond announcing the vague new “whether a hardship would be substantial” test, many employers might face a rough road in the short term, as courts try to figure out how to apply the new rule.
Two, the decision may backfire on the religious conservatives who are cheering the as-yet-untested new standard on religious accommodations in the workplace; for example, what if Muslim employees want religious accommodations to pray five times a day, wear religious head coverings, keep the Koran at their desks, and have Fridays off for Friday prayers? Would conservatives favor those accommodations?
Three, for 45 years, we have had the Hardison rule to follow. Now we will have the Groff rule, and a future Supreme Court may give us some other standard to follow. These arbitrary rules are based on the whims of the Supreme Court and not grounded in natural law, individual liberty, and property rights.
Four, it will still be up to the government to determine what qualifies as a religious practice and what constitutes an undue hardship.
And five, the decision is not technically about religious liberty. Consider the response of Gerald Groff himself to the decision:
I am grateful to have had my case heard by the U.S. Supreme Court and that they have decided to uphold religious liberty. I hope this decision allows others to be able to maintain their convictions without living in fear of losing their jobs because of what they believe.
Mr. Groff had, and has, the liberty to hold certain religious convictions and beliefs and speak about them to others. He had, and has, the liberty to attend religious services and possess religious books. Requiring him to work on Sundays along with all the other employees was not infringing his religious liberty.
Although I am a religious person and would like to see businesses provide religious accommodations to their employees, such accommodations must be voluntary. There is no right to a religious accommodation. I vehemently object to government religious accommodation mandates just like I vehemently object to other government mandates on businesses, for example, those regarding E-verify, health insurance, the minimum wage, occupational licensing, hours of operation, family leave, and overtime pay. You can’t just pick the government mandates that you like and rail against the rest.
Whether the federal government via the USPS should grant religious accommodations to its employees is a question that has no simple answer. But one thing is for certain: The government telling private employers when and to what extent they should be giving employees accommodations of any kind is anathema to the free market.
There is no reason to believe that businesses of their own accord without government mandates would not grant their employees certain religious accommodations. After all, there are no government mandates stating that employers must provide their employees vacation time and sick leave. Yet, the vast majority of employers provide both.
It’s important to also state the obvious: In a free society, there would be no Civil Rights Act, no Equal Employment Opportunity Commission (EEOC), no anti-discrimination laws, and no religious accommodation mandates. There would also be no USPS, as all mail delivery would be private.
The Feds Sue Texas Over Border Control. De-Federalize the Border
The US Justice Department on Monday sued the State of Texas over floating barriers installed by the state government in the Rio Grande river. The state government had installed the barrier to block migrants crossing from Mexico. The measure also accompanies other efforts by the state to control border access, such as laying razor wire along many areas of the border. Reuters reports:
Texas authorities began installing the string of buoys in the middle of the river near Eagle Pass, Texas, last week, part of Texas Republican Governor Greg Abbott's initiative dubbed Operation Lone Star to deter migrants.
"We allege that Texas has flouted federal law by installing a barrier in the Rio Grande without obtaining the required federal authorization," Associate Attorney General Vanita Gupta said in a statement. "This floating barrier poses threats to navigation and public safety and presents humanitarian concerns."
The lawsuit, filed in the U.S. District Court in the Western District of Texas, seeks "to remove all structures and obstructions, including a floating barrier and all infrastructure related to the floating barrier, in the Rio Grande," according to the court filing.
This latest suit highlights the ongoing intervention of federal technocrats who seek to override the policies of border states that actually have to deal with the realities of border crossings and large migrant populations.
In Washington, where most elected officials spend nearly all the year living in the Washington metropolitan area, the US-Mexico border is a distant place. Moreover, the ordinary people who actually live near the border are not something that is of much concern for millionaire members of Congress and the federal lifers working in the bureaucracy. Meanwhile, the central government in Washington continues to assert that it gets the final say on immigration matters, although the federal government has no true legal authorization to do so. This creates a typical example of how policymakers work when they have no skin in the game. When the federal government is in charge, those who do have actual skin in the game in regions near the border don't get to make the rules. Instead, the people who make the rules are the Washington elites, thousands of miles away.
It wasn't always this way, of course. As we've shown here at mises.org, the idea that immigration control is a federal matter dates only from the 1880s, and became commonplace only in the twentieth century. Prior to that time, it was recognized that the US Constitution means what it said: the federal government handles naturalization while immigration control is not among the enumerated federal powers. Thus, constitutionally, immigration is a matter for state and local governments.
This doesn't mean, of course, that state and local governments can know the "correct" number of immigrants. The government in Austin can't know this any better than the government in Washington. Decentralized policy, however, is more likely to reflect the diversity of conditions that exist in different economies across the country while providing more options to the taxpaying public overall. After all, to centralize policy in Washington generally results in imposing a single bad (and costly) policy uniformly across the entire nation.
(It is worth noting, by the way, that more localized control does not necessarily mean less immigration. Historically, different regions of the country have been quite varied in their responses to migrants. Political realities being what they are, parts of the country with labor shortages have historically been more in favor of immigration than other areas.)
Read More:
- Immigration, Wages, and the Global Marketplace by Murray Rothbard
- "Only the Private Sector Can Determine the "Correct" Number of Immigrants" by Ryan McMaken
- Why the Quota System Is One of the Worst Ways of Regulating Immigration by Ryan McMaken
Should the U.S. Invade Belarus?
A couple of days ago, the New York Times published a story about the brutal authoritarian regime of Aleksandr Lukashenko, the leader of Belarus. The article points out that after winning a “widely disputed” election three years ago, Lukashenko has crushed dissent and “ushered in a chilling era of repression.” According to the article, “even the smallest sign of protest can land a person in jail.” Security forces are rounding up critics, journalists, lawyers, and dissidents. People are even being arrested for wearing red and white, which are considered to be symbols of the protest movement against Lukashenko.
This raises an obvious question: Should the U.S. government invade Belarus to free the Belarusian people?
I suspect that most Americans, including even a large percentage of interventionists, would answer no. While we certainly can sympathize with the people of Belarus, we would not want the U.S. military to invade, attack, and bomb the country in an attempt to save the Belarusians from tyranny, especially since a large number of them would be killed or maimed in the process and have their homes and businesses destroyed.
However, an interesting aspect of this is that if the U.S. national-security establishment decided to invade Belarus to free the Belarusian people, a large percentage of Americans, especially the interventionists, would have a completely different mindset. In that event, they would immediately rally to the support of the Pentagon and the CIA and come up with all sorts of arguing points as to why it was necessary and beneficial for the U.S. to intervene on behalf of the Belarusian people.
In other words, a certain percentage of American citizens, especially the interventionist segment, automatically looks to the Pentagon and the CIA for their cue as to what they should believe, and they meld their mindsets to the sentiments of these two agencies.
Consider Eastern Europe during the Cold War. Countries like Poland, Czechoslovakia, Hungary, and East Germany were under the iron grip of the Soviet Union, which was ruled by a brutal communist regime. For some 45 years, the people of those countries had to live their lives in that way.
At no time did the U.S. government ever invade any of those countries to free them from communist tyranny. Moreover, the overwhelming sentiment of the American people, including the interventionists, was not to invade and free them.
But then consider Iraq in 2003. The people of Iraq had been suffering under the brutal dictatorship of Saddam Hussein, who ironically had been a partner and ally of the U.S. government. The U.S. government could have taken the same attitude toward that situation that it had taken with those Eastern European countries during the Cold War.
Instead, the Pentagon and the CIA initiated their invasion of Iraq. Immediately, a large number of Americans, especially the interventionists, melded their mindsets to those of the Pentagon and the CIA and came up with all sorts of reasons why it was necessary and beneficial to invade Iraq, including the need to “free” the Iraqi people from the tyranny of Saddam Hussein.
Consider Hong Kong. Ever since the British relinquished control over Hong Kong, China has relentlessly established ruthless totalitarian control over the people of Hong Kong. Yet, the U.S. government has never come to the defense of Hong Kong by invading. Moreover, notice that there is no widespread sentiment among the American people, including the interventionists, to do so.
But then compare that to Taiwan. There, the U.S. national-security establishment has made it clear that the Taiwanese will be treated differently than the people of Hong Kong. If China attacks Taiwan, U.S. forces are likely to come to their defense. A large number of Americans, especially the interventionists, have come up with all sorts of reasons why the U.S. should do so.
Consider Ukraine. When Russia invaded Ukraine, the national-security establishment could have stayed out of the conflict, just as they did with Eastern Europe during the Cold War and have done with Belarus and Hong Kong. Instead, the Pentagon and the CIA decided to come to the active assistance of Ukraine, which caused a large number of Americans, especially the interventionists, to immediately meld their mindsets to those of the Pentagon and the CIA and, in the process, come up with all sorts of reasons why the U.S. should intervene in Ukraine.
Our nation’s Founding Fathers came up with the ideal foreign policy, which was expressed in John Quincy Adam’s famous Fourth of July address in 1821 entitled “In Search of Monsters to Destroy.” Adams pointed out that there are lots of bad things — monstrous things — that happen in the world — tyrannies, dictatorships, famines, wars, invasions, revolutions, and the like. But the U.S. government, Adams pointed out, should never send its armed forces into foreign lands to slay these monsters, in part because inevitably the United States would end up becoming like the monsters it was slaying.
In other words, Adams was saying that the founding U.S. foreign policy of non-interventionism, which was applied to those Eastern European countries during the Cold War and that is being applied to Hong Kong and Belarus today should be the U.S. foreign policy across the board for all the monstrous things that happen in the world.
Given the dark-side totalitarian-like powers (e.g., assassination, torture, indefinite detention, and mass secret surveillance) that have come with America’s conversion to a national-security state, one that wields the omnipotent power of foreign interventionism, who can deny that Adams has been proven correct, especially given that the U.S. government, in the immortal words of Martin Luther King, long ago became the greatest purveyor of violence in the world, even greater than the monsters it slays?
Medicare in a Pickle, But Pickleball Will Not Put it Under
That annoying clicking sound you hear from your nearby pickleball courts is not just the paddles hitting the plastic balls. It’s twisting knees and cracking hips. A report from UBS, reported in the Financial Times, estimates medical costs of $250 million to $500 million “directly attributable to pickleball and see potential for greater medical costs indirectly linked to pickleball.”
UBS believes 85% of this cost accrues to Medicare. UnitedHealth’s CFO, speaking at a Goldman Sachs conference, said outpatient care to Medicare patients is increasing. Procedures such as work on hips, knees, and cardio.
The CFO pointed out “We have insight into other areas, for example, our ambulatory surgery practices that we own and operate, [we’re] seeing very strong volumes . . . So that has continued to be quite strong actually in terms of the care — at the levels of care activity that seniors are getting.”
UBS continued, “... we estimate that pickleball contributes 3-6 bps [basis points] of annual Medicare medical costs. By care setting, we see about 6 bps of medical costs in the outpatient setting and 2 bps of medical costs in the inpatient setting. While this may seem trivial, it’s plausible that pickleball medical costs are driving 5-10 percent of the unexpected medical cost trend this year.”
Pickleball is no longer just an elitist sport. But, according to Axios, it’s popular in the Hamptons and “all the rage in Hollywood.”
Craig Coyne writes in Vanity Fair, "Leonardo DiCaprio plays every day ... George Clooney says his wife, Amal, routinely torches him on their home court in L.A. ... 'Survivor' winner Tyson Apostol has parlayed his reality-TV fame into a career as a pickleball influencer ... [2021's] Sun Valley Conference, also known as the 'summer camp for billionaires,' featured pickleball."
Coyne lets the sport have it in his 2021 piece, “remember that pickleball is just a goofy-sounding game featuring (usually yellow) plastic balls and (usually ugly) composite paddles on a hard surface roughly a third the size of a tennis court.“
Despite the goofiness, “The boom appears surprisingly democratic, as pickleball gains popularity across the socioeconomic spectrum, “Coyne wrote. “You can find courts at Carmel Valley Ranch outside Big Sur, California, and at La Casa mobile home park in North Port, Florida. How, at a time when America’s rich and poor experience increasingly distinct realities, can anything hover above the political fray?”
Meanwhile, Medicare, despite the threat of more Pickleballers, recently had its go-broke date pushed back to 2031. Healthcaredive.com reports, “That could be in part because some of the sickest Americans died due to the [COVID-19] virus, trustees said. In addition, pricey hip and knee replacements are increasingly taking place in less expensive outpatient settings.”
Medicare is in a pickle, but pickleball is the least of its problems.
Oppenheimer: Historical Drama, Subversive Horror
On the eve of its opening, I had the pleasure of viewing Christopher Nolan’s new film Oppenheimer with the Mises Summer Fellows. Despite what the trailers may lead one to believe, this movie is about much more than the bomb. It is about minds, wits, power, and politics. Oppenheimer is the focus of a much larger story unfolding in front of viewers, involving the role of ethics in scientific discovery, Presidential cabinet struggles, the Cold War, and of course, the story of the development of the atomic bomb.
I have quarrels with the performance of Robert Downey Jr., who seemingly does not know how to act as anyone other than himself. Cillian Murphy gave a decent performance of the promiscuous scientist and alleged communist J. Robert Oppenheimer. Oppenheimer confronts viewers with two significant issues: the importance of a normative vision in a positive scientific quest and the horror of the atomic bomb.
The central theme of the movie is Oppenheimer’s struggle with the morality of his involvement in the development of the bomb. As Austrians, we must ask ourselves why we engage in value-free economic science. Doing value-free economics is a way of describing the created order. There is nothing necessarily wrong in doing value-free economics. Scientific law is morally neutral.
However, what we do with positive economics has moral implications. For example, a purely positive, means-ends analysis for Stalin on the most effective way to deport Kulaks to Siberia is possible, however one cannot claim to be morally neutral in doing this. The value-free analysis is used in a way which has drastic moral implications, namely, the mass murder of innocent souls. This same principle applies to Oppenheimer.
1st Corinthians 13:2 states, “If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but do not have love, I am nothing.” We cannot merely pursue science on its own, as science does not tell us what is morally upstanding. This is not to say that economics is immoral, but that we must recognize that knowledge must be directed toward the pursuit of the good, the true, and the beautiful. Simply doing science for its own sake is dead.
Of course, what would Oppenheimer be without an atomic bomb? Throughout the movie, scenes are interrupted by cuts of an atomic blast. Despite what the trailer may lead people to think, Oppenheimer’s atomic explosion is portrayed much more like a horror film than a typical Hollywood action movie. One member of our party stated that he covered his ears, expecting the climatic drop of the bomb to be deafeningly loud. However, it was not. During the test, all that is heard is breathing coming from a previous scene in the movie. The blast was virtually silent. I think of no better way to portray the absolute destruction of a nuclear weapon than this. The silence is indeed deafening.
Despite some historical inaccuracies and seemingly leftist sympathies, Oppenheimer is worth the price of admission. Even if you do not particularly enjoy Christopher Nolan’s work (which this film is unlike any other he has made), Oppenheimer makes viewers grapple with important questions that any intelligent person could appreciate. The movie ends with Oppenheimer seeing a future of nuclear destruction. We should pray that Oppenheimer's vision is not prophetic.
Artificial Intelligence: The New Scapegoat
Earlier this week, CNBC expressed concerns regarding artificial intelligence:
Fed banking regulator warns A.I. could lead to illegal lending practices like excluding minorities
The 21st century is fast approaching the quarter mark. With the emergence of accessible, increasingly popular A.I. tools, it wouldn’t be the worst wager that the growth, development, and eventual ubiquitousness of A.I. is all but inevitable. It will be fascinating to witness how A.I. affects change in various industries, especially the financial sector and Hollywood.
CNBC’s warning came from a speech given the same day by Vice chair for Supervision at the Fed, Michael S. Barr, titled Furthering the Vision of the Fair Housing Act:
The digital economy has produced alternative data sources, some of which can provide a window into the creditworthiness of an individual who does not have a standard credit history.
So far so good. With a relatively low cost, machine learning may find new ways to assist those struggling to find credit. However, he goes on to say:
While these technologies have enormous potential, they also carry risks of violating fair lending laws and perpetuating the very disparities that they have the potential to address.
Bad input leading to poor outputs is of concern. Worst yet, fundamental problems can exist in the system itself:
Use of machine learning or other artificial intelligence may perpetuate or even amplify bias or inaccuracies inherent in the data used to train the system or make incorrect predictions if that data set is incomplete or nonrepresentative.
He provided an example:
For instance, digital redlining in marketing—the use of criteria to exclude majority-minority communities or minority applications—is one risk…
That is certainly possible. One would expect that in a credit report, past and current employment and financial history would factor into one’s assessment, not one’s race.
Ultimately, the use of A.I. should be embraced for its potential to save both time and money. While it may be employed to assist loan officers in credit applications, it could lead to redlining practices. Defining these practices and proving their occurrence could prove a costly challenge to federal regulators who likely don’t understand the technology themselves. We’re not yet at the stage where a nefarious A.I. can take blame for our problems. Should that day ever come we’ll have much larger issues at hand!
Nonetheless, in a freer world without a Federal Reserve system responsible for the economic booms and busts, there would be fewer impoverished communities and much less economic disparity. As A.I advances, with no taxpayer funded regulator, A.I.’s potential would help entrepreneurs across the socio-economic spectrum bring valuable products to market.
The Yield Curve Is Now in the Deepest Inversion Since 1981
In today's episode of Radio Rothbard, Mark Thornton and I both mentioned the yield curve's inversion as an alarming indicator of a significant recession in the not-too-distant future.
For more on why an inversion of the yield curve predicts recession can be found here and here.
Thornton mentioned that the most recent inversion of the yield curve is no small or minor inversion, but is an inversion deep into negative territory. This, Thornton notes, gives us good reason to expect a serious economic event, whether a recession or even a full-blown economic crisis.
How big is big when it comes to the latest inversion? To measure the magnitude of the inversion, a time series of the gap between the yields on a long-term and a short-term is calculated. The most common-used measure of this is the gap between the 10-year Treasury and the 3-month Treasury. If we graph this difference between the 10-year and the 3-month, we can see that we're now experiencing the largest inversion in more than 40 years:
In June, the average gap was -1.67. That's far deeper into negative territory than anything we've seen since 1981, 42 years ago. As we noted on the podcast, these sorts of inversions have reliably preceded recessions for several decades. As we can see in this graph that takes a longer time frame going back 50 years, the recession of the 1970s and the 1980 recession and the severe 1981-1982 recession were all preceded by a yield curve inversion. Moreover, to find an inversion deeper as the current one, we have to go back to 1980.
The only period showing a larger inversion that what we saw during the 1970s was in the lead up to the Great Depression in 1928 and 1929.
In response to this, some people might say "if the yield curve is so inverted, where is the mass unemployment and recession?" Well, there is a generally a sizable lag between the yield curve inverting and the onset of recession. For example, the yield curve inverted in 1989, but the 1990 recession did not begin until 13 months later. Similarly, the yield curve inverted in August 2006, but the Great Recession did not begin until December 2007, 16 months later. The yield curve again inverted in May 2019, and it is extremely likely there would have been a recession in late 2020 had the Federal Reserve not engaged in massive amounts of monetary pumping throughout the year to blow a series of bubbles designed to cover up the economic effects of forced lockdowns on the economy.
Now, the yield curve has been inverted since November 2022, but only seven months have passed since then. Experience suggests we could be looking at at least another six months before the effects are clear.
Why Are Kickers Paid More Than Running Backs? Economic Logic Provides an Answer
Think of the best football players of all time. One of my immediate thoughts is running back LaDainian Tomlinson. However, as you think about your list, ask yourself this: where do kickers like Justin Tucker (or my favorite college kickers like Jaden Oberkrom or Griffin Kell) rank? No matter who you are, odds are you thought of several running backs before even considering a kicker. Sure, you probably have a few favorite moments where a kicker saved the day with one second left on the clock, but several more moments where an RB broke through the defensive line and ran away as you stood up and screamed.
Despite this reality, Dez Bryant recently brought attention to the fact that the average salary for an NFL running back is $1.81 million, significantly shy of the $2.26 million that an average kicker makes. How does one square this circle?
The most likely answer comes down to the number of running backs in the league compared to the number of kickers in the league. One running back simply cannot possibly play the entire game play after play after play in the trenches. As such, each team needs multiple running backs. In addition to that reality, running back is a much more dangerous position than kicker, far more likely to get injured, and for that reason the team has even more pressure to need more running backs on the roster.
However, as we Austrians know, there is a diminishing return on each player you add to your team. While your first choice may be worth millions to you, your second will be less, your third will be even less, and so on and so forth. The average number means that the lowest paid running backs will be included. Such backs are incredibly talented; however, it is still a reality that they sit on the bench for much of the game. On the flip side, most teams have only one kicker. As a result, there are almost 4 times as many running backs as there are kickers (with 32 kickers compared to between 100 and 125 running backs).
With this knowledge in mind, if we were to look at only the top thirty two running backs, we would find an average salary more in the range of $5.64 million, more than twice that of an average kicker. One could expect that if the NFL went out and hired almost one hundred more kickers, we would find a sharp decrease in their average pay.
Having squared that circle, it is important to answer one more dangerous question being posed in relation to this. Every time the talk of pay comes up, the talk of unions comes up. This has been a debate ranging for years and one can see even back in 2014, arguments were claiming: “That position needs its own union. We treat our equipment people better than we treat our running backs.”
This is simply untrue. Even if we accepted half of the original $1.81 million number, it is still difficult to imagine any struggle worth unionizing over. But that’s also ignoring the value outside of salary in this discussion. If we are really treating our equipment people better than our running backs, I’d like to ask how much our equipment people are making in sponsorships? I’m prepared to bet it is somewhere in the ballpark of $0.00, significantly less than running backs.
This does not even include the fact that it is very rare that equipment managers – and even kickers – find themselves with stadiums full of fans cheering their names, which is a form of psychic profit that cannot be accounted for. Furthermore, if a running back’s talent is really that desirable, then go out there, put up some yards, and get another team to offer you a better deal or go out and levy that into a sponsorship offer. Whenever talk of unionization arises, we must remember the full context that is easy to miss in the not so nuanced world of sports.