Power & Market
A good definition of the tragedy of the commons is that "resources that are unowned and/or unownable will be plundered to extinction." Consider the fish in the seas, especially those that migrate, such as whales, or may be found beyond any nation's territorial waters. No one owns them and it may be impossible to own them. Therefore, fishermen are incentivized to take them before other fishermen take them. Overfishing results. Catches shrink. The size of the fish shrinks. Treaties among fishing nations may mitigate the problem, as long as all sign the treaty and poachers are controlled.
It has been estimated that in nineteenth-century America hunters killed 40 million buffalo and trappers took 200 million beaver. The buffalo were hunted almost to extinction, and some scientists claim that the water shortage and erosion problems of the American West are a result of the overtrapping of beaver, nature's premier water conservationist.
Privately Owned Resources Are Capitalized, Ending Their Plunder
A solution to the problem lies in private ownership of the resource. Private owners manage natural resources to maintain their capital value. Scientists and economists have pointed out that the annual and apparently never-ending forest fires of the American West are partly due to the fact that they occur on government-owned land. But government ownership is not the same as private ownership. Government has little incentive to protect the trees in order to harvest them over long periods of time. Governments' main objective seems to be simply fighting forest fires once they have begun, a policy that doesn't seem to have worked very well. Radical environmentalists would not tolerate selling the land and forests to private companies. A pity, because that is exactly what would stop their destruction.
Notice that the main problem that results from the tragedy of the commons is resource depletion. It is true that the first to grab the resource benefits, but this is a one-time grab. Privately owned forests, fisheries, oil wells, copper mines, fertile farmland, etc. will yield their bounty to perpetuity, whereas a plunderer leaves nothing for the future. In other words, plunderers eat the seed corn.
This describes the state of government today. Through its money-printing monopoly, government has the ability to plunder resources without limit, leaving nothing for future growth. Austrian economists call this high time preference, as opposed to low time preference. Those with high time preference prefer the satisfaction of short-term wants at the expense of long-term wants. The ant versus the grasshopper fable is the perfect illustration of the principle. The ant works hard to save for the future, while the grasshopper plays in the summer sun. But the ant has food and shelter through the coming winter, while the grasshopper freezes and starves. Politicians have high time preference, because they occupy their positions of power for a limited time. They have constituents and supporters to placate. They want action and they want it now. They want free fill in the blank.
The Soviet Union was the poster child of this syndrome. Prior to the Russian Revolution of 1917, Russia was a highly industrialized nation that was a worthy competitor in world markets. After the revolution, it embarked on a one-time grab of all the nation's resources as it attempted to impose a completely socialist, state-directed economic model. Within a few years the Russian people were starving. Only Western aid, the sale of its vast natural resources, and the plunder of Eastern European nations after the Second World War allowed the Soviet Union to survive as long as it did. When asked if the US would help restore the Russian economy after the fall of communism, President George H. W. Bush insightfully said that there was not enough capital in the entire world to do that.
The Solution Is Private Money, but the Temptation for Plunder Is Too Great
Under a gold standard, government cannot spend more than it taxes and borrows honestly in the bond market. Gold is a finite medium of exchange, perfectly suited for trading finite goods and services. But government can manufacture fiat money in unlimited amounts. So we have finite resources exchanged by fiat money with no limit. The temptation for government to use this power to accomplish its high–time preference goals is too great for the politician/grasshoppers to ignore. Thus, all economies are being plundered by the ultimate expression of the tragedy of the commons—fiat money in the hands of profligate governments. There seems to be nothing that can prevent the disaster, since every citizen benefits in some way from government spending and no one is willing to give up his handout. In fact, the demand for handouts keeps increasing.
Conclusion: Consumer Spending Consumes Capital
In conclusion, we may say that the real tragedy of the commons is not that the plundered resources are claimed by a minority, but that the resources can never be capitalized to provide benefits into perpetuity. Government may plunder an economy only once. Western economies have a lot of accumulated capital resources, so it may seem that multitrillion-dollar budgets and deficits are sustainable. But they are not. What Keynesians call a postcovid boom, due primarily to pent-up consumer spending fueled by helicopter money, probably is capital decumulation. We are eating our seed corn. Fun, fun, fun … while it lasts.
President Joe Biden has ordered the Financial Stability Oversight Council to prepare a report on how the financial system can mitigate the risks related to climate change. The Financial Stability Oversight Council was created through the Dodd-Frank financial regulatory reform act and is supposed to identify and monitor excessive risk to the financial system. The council is composed of the heads of the major federal financial regulatory agencies, including the Federal Reserve.
Federal Reserve Chair Jerome Powell is no doubt pleased with Biden’s order. Powell has been pushing for the Fed to join other central banks in fighting climate change. Among the ways the Fed could try to mitigate the risks related to climate change is by using its regulatory authority to “encourage” banks to lend to “green” businesses and deny capital to “polluters.” The Fed could also use “quantitative easing” to give green industries an advantage over their non-green competitors. Another way the Fed could “fight climate change” is by committing to monetizing all federal debt created by legislation implementing the Green New Deal.
Climate change is not the only area where the Fed is embracing the agenda of the “woke.” Some Federal Reserve Banks have taken the lead in a series of events called “Racism and the Economy” that are concerned with dismantling “systemic racism.” The Fed’s commitment to ending systemic racism could lead the central bank to requiring that banks and other financial institutions further relax their lending standards for minorities. The role the Community Reinvestment Act played in the 2008 housing meltdown shows that when government forces financial institutions to give loans to otherwise unqualified applicants, the recipients of those loans often are unable to make their payments, lending to foreclosures and bankruptcies.
Racial justice arguments could also justify an easy money, low interest rate policy on the grounds that curtailing money creation slows economic growth, disproportionately harming minorities.
The Fed may court favor with the Biden administration and its congressional allies by going woke. However, it will face a backlash from those who oppose expanding government power to address nonexistent threats of climate change and to promote the lie that free markets are causing systemic racism. This backlash will be fueled by rising anger over widespread price increases. This will increase the already strong public support for the Audit the Fed legislation. A complete
Federal Reserve audit will provide to Congress and the American people the truth about the Fed’s conduct of monetary policy, including how politics affects the Fed’s actions.
The use of the woke agenda as an excuse to further politicize the allocation of capital and continue to expand the Fed’s easy money, low interest rate policy will hasten and deepen the next economic crisis. This crisis will either be precipitated by or result in the rejection of the dollar’s world reserve currency status. It will also likely result in the collapse of the entire Keynesian welfare-warfare system. Unfortunately, there is a likelihood that the current system will be replaced with a government even more authoritarian than the current one. But, if those of us who know the truth can educate enough people about liberty, we can make sure the next economic crisis leads to a rebirth of limited government, free markets, and individual liberty.
The Fed has embarked on a massive expansionary quest in recent years. In 2020, total Reserve Bank assets rose from $4.2 trillion to $7.4 trillion amidst the pandemic and related government lockdown and fiscal “stimulus” policies. That was roughly three times the extraordinary growth in the consolidated balance sheet for the Reserve Banks in the 2008-2009 financial crisis. And in the latest weekly “H.4.1” release, total assets were up to $7.8 trillion – rising about a hundred billions dollars a month so far this year.
In banking, rapid growth isn’t hard to achieve, if you are willing to assume risk. In fact, rapid growth should always be questioned as a sign of possible undue risk taking. How about the Federal Reserve Banks? How much risk are they taking, and on whose dime?
To answer these questions, we first have to identify the accounting principles on which the Fed’s balance sheet is based.
In the United States, there are “Generally Accepted Accounting Principles” (GAAP) – but there are different strokes for different folks. Private sector companies follow accounting standards set by the FASB – the Financial Accounting Standards Board. State and local governments follow a different set of “generally accepted” rules that are set by the GASB – the Governmental Accounting Standards Board. The federal government of the United States follows yet another set of “generally accepted” principles, set by the FASAB – the Federal Accounting Standards Advisory Board.
Put aside for now the question whether “generally accepted accounting principles” can even exist in a world where there are more than three sets of them, including international accounting standards. Who sets the accounting standards for the Federal Reserve?
There are two main parts of the “Federal Reserve.” The Federal Reserve Board of Governors is an independent regulatory commission, a government agency, and it follows the standards for the federal government set by the FASAB. But the Federal Reserve Banks are another story: they follow accounting standards set by the Federal Reserve Board of Governors! Those standards are not GAAP.
One way the Fed’s principles for the Reserve Banks differ from GAAP matters for understanding material risks facing the Reserve Banks, and in turn, the U.S. Treasury.
The Reserve Banks’ assets include trillions of dollars of bonds, most of them government or government-backed bonds. Like any bond portfolio, those investments are subject to interest rate risk. When interest rates go up, bond prices go down (and vice versa).
Under the Board of Governors’ accounting standards for the Reserve Banks, “unrealized” losses in bond investment value do not immediately find their way into the financial statements. Only when losses are “realized” (for example, when the bonds are sold) does loss enter the financial statements.
Today, short and long-term interest rates on government bonds rest near historic lows, important in part because the Fed massively expanded its purchases of government bonds. But low interest rates can’t be taken for granted, particularly if we get significantly higher inflationary expectations -- which appear to have begun to sprout in recent weeks.
If we get significantly higher interest rates for that reason, the Reserve Bank balance sheet impact from losses on securities assets would arrive if the losses become “realized” – a realistic prospect if the Federal Reserve reverses course and starts selling off securities as a means of conducting monetary policy amidst higher inflationary expectations.
This impact, and risk, is higher for entities with significant financial leverage. And the Reserve Banks are some of the highest-leveraged banks on the planet. On the 2020 balance sheet, which reported $7.4 trillion in assets, Reserve Banks reported “only” $40 billion in total capital – a capital/asset ratio of one-half of one-percent.
For a given percentage change in the value of assets, highly leveraged entities will see a greater percentage decline in the value of capital. In this case, Reserve Banks would begin reporting negative capital after losses amounting to just one-half of one percent of their total assets.
That is, if they were required to post the losses. Under current standards set by the Board of Governors, they won’t begin to do that until the losses are realized in sales on the open market. And even then, the Reserve Banks won’t show a negative capital amount because the Fed sets its own accounting standards, a least for the Reserve Banks, and changes them as it sees fit.
Back in 2011, after the first spike upward in Reserve Banks’ balance sheet with the financial crisis, the Federal Reserve Board of Governors changed the accounting standards for the Federal Reserve Banks. These changes limited the possibility that the Reserve Banks’ capital account could ever turn negative. And more recently, some have argued that the Fed’s control over its own accounting principles could allow for even more creative ways of cushioning the blow from any investment losses.
But a free lunch for the Fed isn’t necessarily a free lunch for the rest of us.
The problem (and risk) facing the Treasury (and the rest of us) is compounded by the Fed’s legally dubious new practice of paying interest on reserves that banks maintain with the Reserve Banks. If short-term interest rates rise amidst heightened concern about inflation, under current policy, the Fed would pay higher interest on the massive multi-trillion dollars worth of reserve balances currently at the Reserve Banks.
Introducing its own balance sheet, a balance sheet with about $6 trillion in assets against nearly $33 trillion in (understated) liabilities, the federal government gives us the following comforting words:
There are, however, other significant resources available to the government that extend beyond the assets presented in these Balance Sheets. Those resources include stewardship PP&E in addition to the government’s sovereign powers to tax and set monetary policy.
In other words, we should be comforted that our government will be able to take our money away, or inflate the value of the dollar away, to pay off its debts.
Maybe we shouldn’t be comforted by these assertions, especially because they arrive in a document theoretically providing accountability of the government to the real sovereign in the United States – the people.
The Federal Reserve has returned earnings regularly to the Treasury for decades. And the government appears to see the Fed and monetary policy as its ace in the hole. But this is not necessarily an ace in the hole for the people.
When justifying the fact that the Fed sets its own accounting standards, Fed leaders regularly assert that the value of central bank independence warrants this state of affairs. But how independent is the Fed, really, under current law and policy?
Back in 2010, the opinion of the Government Accountability Office (GAO) on the financial statements of the U.S. Government began including a cautionary note about the risks of the Fed’s ballooning balance sheet to the Treasury. The GAO opinion letters stopped including these notes in 2015. Now that the Fed’s balance sheet is ballooning again, these issues deserve greater scrutiny.
I am sorry to have to report that Bob Wenzel has passed away. He was the editor and publisher of the popular websites Economic Policy Journal and Target Liberty and also published an investment newsletter. I met Bob many years ago at a Mises Institute conference and was immediately impressed by his enthusiasm for Austrian economics and libertarian theory. He would throw himself into things with unmatched tenacity; he always wanted to find the inside story on events and usually succeeded in doing so. In my many conversations with him, his quick intelligence was apparent. His interests ranged from the fine points of the Non-aggression Principle to the fallacies of Modern Monetary Theory. He was one of the leading opponents of Covid-19 masks and of compulsory vaccinations. In my last conversation with him, he mentioned a story he was pursuing about a well-known libertarian activist. His final words, “Wow, wow, wow!” echo in my ears. I will miss him.
In a 30 minute lecture for the Research Platform on Economic Thought, Dr. Per Bylund looks at the history of the Austrian School and its future prospects in academia and beyond.
Part 1 of this article raised issues with the “Great Inflation” narrative as recalled by several experts. Various problems exist with trying to understand just how bad the price increases were 50 years ago, whether statistical or anecdotal evidence are used. Despite several issues, the point of contention is the idea of the Fed being responsible for resolving (price) inflation of the 70’s.
The first chart is the Consumer Price Index (CPI), not seasonally adjusted since 1913. Over a hundred years later the index has increased by nearly 3,000%.
Save for a few minor blips, the CPI has never decreased and the 1970’s looks little different than all the decades following.
To be certain, observe the same seasonally adjusted data again but from 1960 to 1990:
The victory over inflation can hardly be celebrated because prices only increased after the 70’s.
Perhaps that’s why the annual percentage change in the CPI from the prior year, instead of the CPI level itself, stands as the best argument in support of a Fed victory:
The CPI percentage change had an upward trajectory throughout the 70’s until it topped in 1980, after which a downward trajectory ensued ever since. In 1980 the annual percentage change was 14%, then in 1981 it was “only” 10%, then “only” 6%, followed by 3% in 1983. Even though the percentages decreased, the compounding effect fell by the wayside on our central planners, and is seldom, if ever noted. This “compounding inflation,” is the reason the CPI only ever increases.
The only way inflation could be defeated would be if periods of “negative inflation” existed. Unfortunately, this rare occurrence has only been for negligible amounts. It’s fair to say anyone alive today has only experienced perpetual price increases their entire lives.
The last chart brings together the CPI percentage change from the prior year (green) as well as the effective federal funds rate (blue):
The idea that Fed rate hikes should take credit for the changes to CPI is revealed as an untenable position to hold. If we looked at the correlation coefficient between the two sets of data (+0.76) and concluded interest rates dictate inflation, this would be faulty as we could also conclude inflation dictates interest rates, having the same minimal level of proof to substantiate our claim. In either case, causation between the two cannot be found; so the Fed’s credit remains undeserved.
To negate this, insisting the Fed dictated the CPI leads to an absurdity, especially when observing long-term trends. It was the Fed who raised rates from the 50’s until the start of the 80's. The CPI percentage change was also upward trending, so we’d have to conclude it was this raising of rates for three decades which caused inflation to increase! Conversely, CPI’s percentage change began its downward trajectory once rates peaked. We’d also have to conclude it was the Fed who continually fought inflation since the 80’s through low rates…
Contrary to the narrative, the Great Inflation of the 70’s was never won. There has never been a “great deflation,” nor any deflation for that matter. Prices in 1982 were higher than prices in 1981, which were higher than 1980, and so forth. How it can be said the Fed fought price increases (when prices have only increased while the dollar’s purchasing power only decreased throughout the 80’s just like they have since inception of the Fed) is anyone’s guess. To claim a victory against 1970’s inflation sounds foolish at best, deceptive at worst.
Understanding the Fed never really solved a price inflation problem from the 70’s allows us to reconsider economic history, as well as allows us to anticipate what might be in store for our future. Time will tell. But if large price increases are on the horizon, whether sooner or years down the road, be prepared. Our central planners might look to raise interest rates until the CPI becomes manageable, according to them. The proof would be that everyone knows the Fed has tools to control inflation and it worked in the 70’s. But we know this to be false. When we’re talking about the Federal Reserve, the proof is in the platitude.
Of course, any significant rate hike seems unfathomable given current debt levels. But that’s a story for another day...
In the field of economics, any narrative overly vague, poorly defined, or which cannot be substantiated is probably untrue. The current narrative garnering ever increasing media attention goes something like this:
“Inflation was extremely high in the 1970’s so the Fed raised rates and controlled inflation.”
Specifically, they credit the Fed with taking action which supposedly reigned in or defeated (price) inflation. Like all urban legends, the story changes depending on who tells it. According to Federal Reserve Chair Jerome Powell, in a letter to a US Senator, he wrote:
We understand well the lessons of the high inflation experience in the 1960s and 1970s, and the burdens that experience created for all Americans. We do not anticipate inflation pressures of that type, but we have the tools to address such pressures if they do arise.
Powell, who was 17 years old in 1970, includes the 1960’s in the high inflation experience, noting (price) inflation was both high and burdensome. The lessons learned are not specified, but he’s referring to Fed intervention, which, as the story goes, includes raising interest rates.
Nobel Prize winning economist Paul Krugman of the New York Times also has a take. Just last week he said:
This doesn’t look at all like 1970s stagflation redux; it looks like a temporary blip, reflecting transitory disruptions…
Unfortunately, he too refers to an entire decade, while also managing to include the word “transitory,” or the notion that price surges are acceptable if they occur over a short period of time. Of course, this forgets that without an offsetting transitory “deflation,” all increases to prices remain permanent.
Financial services firm Charles Schwab also recently weighed in:
With commodity prices soaring, money supply growth exploding, and government spending surging, there is a palpable fear of a return to 1970s-style inflation.
The author goes on to say that it was in the late 60’s and into the 70’s the Fed “let” inflation rise, until 1979 when newly appointed Fed Chair Paul Volcker made the “move to squash inflation.” According to legend, the Fed increased rates until the effective federal funds rate hit an all-time high of over 19% in 1981, and this is what helped to put inflation back into the bottle.
When asked if we should be nervous over the prospects of inflation, Federal Reserve Bank President, Neel Kashkari told CBS:
Right now, I'm not concerned about a repeat of the 1970s.
It’s not only America who remembers how bad things were 50 years ago. The Government of Canada’s wholly owned news channel, the CBC suggests to:
find someone, maybe a grandparent, who witnessed the onset of serious inflation in the 1970s and 1980s…
Should someone be lucky enough to have a 71 year-old grandparent who can remember the price of a View-Master, a typewriter or what they called a “Wall Telephone,” in short order it will be clear prices on goods and services of that era are difficult to discern. Technological changes, wages, and shifts in consumer preferences are just some of the problems encountered when trying to compare life then versus now.
Even if the price of more relatable items like tuition or automobiles can be recalled, it would require some calculation, like the purchasing power of the dollar, to understand the experience of the 70’s; that doesn’t take into consideration inherent problems such as bias and data gathering. Unless grandpa lived an “average” life, which adequately represented the nation’s experience as a whole, conveying the difficulties of the decade will prove to be an onerous, if not impossible task, whether anecdotal or statistical methods are applied.
The exact time frame of the inflation also remains elusive and dependent on one’s perception of the experience. Yet, despite pointing out the difficulties in trying to conceptualize how unbearable the inflation era was, that is not what is in dispute. We can accept the narrative that throughout the 70’s, most prices increased year over year in unimaginable ways, caused by countless factors, including an oil crisis. The topic of dispute is the Fed’s response to said crisis. We’ve been told it was the Fed’s diligent action of raising rates to all-time highs which alleviated the burden of inflation. Herein lies the problem.
Fortunately, we can use the Fed’s own data to see how they fought inflation, right? Surely they should be able to substantiate this claim. Now more than ever this becomes of paramount importance as more experts allude to a possible repeat of 70’s inflation; they will undoubtedly look to repeat the supposed solution. This is problematic because few seem to know how the Fed actually solved the crisis.
With the recent lack of availability in gasoline, Joe Biden came out with a clear message against price gouging stating:
I also want to say something to the gas stations: do not, I repeat, do not try to take advantage of consumers during this time. I’m going to work with governors of the effected states to put a stop to price gouging wherever it arises. And I’m asking our federal agencies to stand ready to provide assistance to state level efforts to monitor and any price gouging at the pump. Nobody should be using this situation for financial gain.
In Human Action, Ludwig von Mises left us with the perfect response to this:
Economics does not say that isolated government interference with the prices of only one commodity or a few commodities is unfair, bad, or unfeasible. It says that such interference produces results contrary to its purpose, that it makes conditions worse, not better, from the point of view of the government and those backing its interference.
This has been explained by some of the most simple and well known economics that have been explored in the link above by Mises, as well as by almost all other economists. The price system operates largely in response to supply and demand. As supply and/or demand shifts, the price shifts in response. In a natural market this current gas crisis would be resolved by allowing the price to the market forces at play. A pizza delivery guy may be willing to pay more to access gas as his particular conditions lead him to more highly value it immediately and will chose to take the hit in exchange for continued payment at his job. A job that has nothing to do with driving, however, will give that individual the option to potentially wait to get gas for a week or so while the supply builds up because that individual would find the cost of walking to work for a few days less in their own subjective value than the price of gas for the moment. As well, this would deter panic buying as the heightened price would ward off those buying more gas than they deem they need. Lastly, a free flowing price would lead to higher prices in states where it is needed most, encouraging suppliers to sell gas their more urgently, thus resolving the problem faster. However, in a world where we prevent price gouging, we see the results that we are seeing now: shortages.
The economics of this are fairly simple, however, the politics of price gouging get a little more murky. Even among those who agree with all of what I’ve set out already, it is not uncommon to see proponents of anti-price gouging laws. This is because the majority of instances in which price gouging enters into the conversation are in response to some kind of emergency. It is very rare that someone is concerned about the newest pair of shoes on the market being price gouged because they aren’t considered necessities. Whereas when hurricane season starts - or even more urgent, when a hurricane is actively detected on its way in – and prices start to rise sharply for water and batteries, the average individual is much more concerned that people will find themselves without necessities during an emergency. While the economics still hold and that option is still preferable to shortages, there is some political capital in convincing the people that you’re advocating for their ability to have low priced goods when they need them most. In addition to the economic principles listed above, this argument can be easily dismantled by taking it to its logical conclusion: if lower priced goods during an emergency are both preferable and possible, why stop at a dollar per water bottle or batteries? Why not drop to 50 cents? A quarter? Free? And if free is possible – why stop during an emergency? Why not provide that same thing all the time? Inevitably the logic of price controls has to break.
However, this particular situation leaves free market economists with a window of opportunity on which we should capitalize: this is not an emergency. Don’t get me wrong, this is in fact a very serious problem. However, houses are not collapsing, people are not starving en masse, rioting is not taking over. While it is the result of nonnormal circumstances, the effect on a day to day citizens is not much different from just a failure in supply chain. As a result now would be the perfect opportunity to finally demonstrate the benefits of the price system without the risk that would be inherent in an emergency situation. While I’d advocate for freedom in the price system under all circumstances, the standard claims against it are completely absent during this event. There has never been a better time to normalize so called price gouging.
This past March, Dr. Anthony Fauci sparred with Dr. Rand Paul over any public health benefit that came from wearing a mask if one had developed immunity to the virus. In dealing with both a democratically elected senator and a medical doctor, Dr. Fauci was dismissive and condescending. He demonstrated the degree to which he held himself higher than the Senate.
Dr. Fauci was also wrong.
A medical expert in Dr. Fauci’s position losing a debate on the science to an ophthalmologist—even one of Dr. Paul’s great reputation—would itself be enough to declare them a fraud.
But Dr. Fauci is much worse than a fraud; he is a technocrat. He doesn’t see himself as simply someone to explain “the science” of the virus but appointed himself a covid czar. He leveraged the corporate press’s personality cult and used it to manipulate the public to behave the way he wanted them to behave.
He prioritized control over presenting the science.
He also has no shame in doing this. He has repeatedly boasted about it to his devoted followers in the media.
For example, this morning, Fauci explained on ABC that his wearing masks indoors was about optics—not science.
I didn’t want to look like I was giving mixed signals but being a fully vaccinated person, the chances of my getting infected in an indoor setting is extremely low.
This is not the first time Fauci has given himself the authority to act beyond "the science." Last December, Fauci started changing his claims about the necessary rates of vaccination to achieve a state of postcovid normality. The original aim of 70 percent was moved as high as 90 percent. As Fauci explained to the New York Times:
When polls said only about half of all Americans would take a vaccine, I was saying herd immunity would take 70 to 75 percent…. Then, when newer surveys said 60 percent or more would take it, I thought, "I can nudge this up a bit," so I went to 80, 85. We need to have some humility here…. We really don’t know what the real number is. I think the real range is somewhere between 70 to 90 percent. But, I'm not going to say 90 percent.
America has subjected itself to a lost year of economically devastating, mentally abusive policies—all based on the authoritarian impulses of a learned ignoramus.
This has also become the norm for Washington’s imperial federal government.
While Fauci’s thirst for the camera has made him an easy target for ridicule, most of the true power of the federal government rests in the hands of similar unelected “experts.” For all the arguments that can be made against democracy, it is in these unelected institutions of power that we have seen the most aggressive expansions of state power in pursuit of the most radical policies.
Take the institution most challenged now by the success of Fauci-ism: the Federal Reserve.
Though he doesn’t make enough television appearances to earn his own progressive prayer candle, Jay Powell has received his own fawning praise from the slice of the corporate press that follows the Fed. Senate Democrats have even begun to push for Biden to keep Powell on board when his term comes up next year.
Outside the Beltway, however, Americans are feeling the impact of inflation. Google searches for “inflation” hit record highs in March, long before the 4.2 percent reported increase in the Consumer Price Index (CPI). Perhaps an American consumer seeing their paycheck buy less and less would be comforted by the fact that inflation is precisely what the Fed has been explicitly calling for.
Of course, the consequences of the Federal Reserve’s unprecedented monetary policy go beyond simply the devaluation of money. The Fed’s low interest rate policy has massively increased risk in the financial system by depriving investors—both large and small—of safe, conservative investment options. Doing so has been great for large corporations, which have seen stock prices soar since 2008, both richly rewarding CEOs and subsidizing attempts to purchase smaller potential competitors. Those Americans who just wanted to simply save money, avoid debt, and avoid the volatility of the stock market have been less lucky.
At least they can look forward to funding the bailouts when the collapse of a stock market bubble ends up designating Facebook a systemically important company.
Even better, the Federal Reserve continues to give itself greater and greater authority to expand its mission far beyond monetary policy, with policy aims such as “greening the financial system.”
These bold and aggressive power grabs come in spite of the fact that the Fed’s own actions have repeatedly demonstrated that it has no idea what it is doing. Examples include not only the inability to identify the financial crisis in 2008 but its failure to reverse quantitative easing (QE)—as it repeatedly claimed it could do—and its repeated inability to forecast economic growth. The Fed has gone from one crisis to another, expanding its power, creating new tools for itself, and without any clear or coherent vision or economic theory.
Just like Fauci and the other parts of America’s technocratic class.
As the Trump era showed, the problem of these unelected policy czars is not solved simply by a presidential election. They are embedded deep within the structure of the federal government. To reign them in, we either need systemic change or pressure from the states.
Ultimately, what forced the Centers for Disease Control and Prevention (CDC) to break itself from the propaganda of Dr. Fauci were the counterexamples offered by Florida and other open states, which were grounded in science rather than a personality cult. While it is easier for a state to nullify public health guidelines than it is to separate a state from America’s central bank, we have seen states like Wyoming and Texas take legislative action to promote alternatives to the Fed.
Hopefully, the example of Dr. Fauci will help kill some of the faith in “policy experts” that government schools spend so much time instilling in the public.
April’s 4.2 percent past year increase in the Consumer Price Index is not likely to dissuade the Federal Reserve from continuing its policy of near-zero interest rates. Fed Chairman Jerome Powell believes the rising prices are just a temporary phenomenon caused by the ending of lockdowns releasing pent-up consumer demand.
Powell may be right that the ending of lockdowns would inevitably be accompanied by a rise in prices. However, this is just the latest reason the Fed has given for putting off increasing interest rates. Powell does not want to admit that the real reason the Fed will continue to keep rates low is that increasing rates will cause the federal government's interest payments to rise to unsustainable levels.
One way the Fed increases the money supply — and thus lowers interest rates — is by purchasing US Treasury securities. These purchases increase demand for US government debt, keeping government’s borrowing costs low. An expansionary monetary policy thus enables increased federal spending and deficits. Since the lockdowns, the Fed has worked overtime to monetize federal debt, doubling its holdings of Treasury securities.
A Truth in Accounting report from April concluded the real federal debt is 123 trillion dollars — over four times larger than the 28 trillion dollars “official” debt. The higher debt calculation includes the federal government’s unfunded liabilities. The biggest unfunded liabilities are the 55 trillion dollars in promised but unfunded Medicare benefits and the 41 trillion dollars in promised but unfunded Social Security benefits.
Congress could transition away from entitlement and welfare programs without harming current or soon-to-be beneficiaries by cutting spending on militarism and corporate welfare. Part of the savings from these cuts could be used to pay down the debt, and part could be used to provide payments for current and soon-to-be beneficiaries of government programs while we transition to a free market.
Unfortunately, there is not much appetite in Congress for spending cuts. The main Democratic criticisms of President Biden’s 1.52 trillion dollars budget, which increases spending by 8.4 percent, are that Biden is not proposing bigger increases in spending and debt, or in taxes on “the rich.” Biden’s budget increases are in addition to the trillions in other spending Biden is pursuing, including related to Covid, infrastructure, and his “American Families Plan.”
Republicans are making obligatory attacks on Biden’s spending, while also attacking Biden for increasing military spending to “only” 753 billion dollars. Republican complaints about Biden's big spending ring hollow given their support for Presidents Donald Trump and George W. Bush’s spending increases and Republicans' proposals to spend billions on infrastructure.
Some conservatives have even embraced the madness of Modern Monetary Theory. These conservatives are urging people to stop worrying about spending and debt and instead figure out how to use Fed-financed government spending to advance conservative ends.
The refusal of Congress to cut spending means the Fed will keep increasing its balance sheet in an effort to monetize skyrocketing debt. Eventually, the increasing debt and inflation will lead to a major economic meltdown. The meltdown will likely include a rejection of the dollar’s world reserve currency status.
The only way to avoid the crash is to spread the truth among enough people to force Congress to reverse course. Early steps in reversing course are blocking Biden’s big spending plans and passing Audit the Fed so the American people can finally know the truth about the Federal Reserve’s actions.