Power & Market

On Thursday, Federal Reserve Chair Powell delivered a speech titled Financial Stability and Economic Developments, in which he drew comparisons between the current economic situation and the last two recessions. His first comparison was to the Great Recession of 2007-09, stating that it required:

… extraordinary interventions by governments around the world … including $700 billion in taxpayer funds to recapitalize banks, a suite of Fed emergency liquidity facilities, as well as government guarantees on bank transaction accounts and money market mutual funds.

He then acknowledged that despite this great intervention, the recession “brought misery to countless millions.”

The 2020 recession was then cited, although specific figures on the level of support provided by the Government or Federal Reserve were not mentioned. However, he did emphasize that:

Ultimately, the authorities had to support financial markets again as part of the extremely forceful monetary and fiscal response to the public health emergency. The banking system, however, was now far more resilient than it had been before the reforms and thus well positioned to absorb the shock.

According to the Washington Post, Congress authorized $4 trillion in spending, highlighting:

The $4 trillion total of government grants and loans exceeded the cost of 18 years of war in Afghanistan.

As for the Fed, its balance sheet grew by nearly $5 trillion during the 2020 "crisis." While this chart may be second nature by now, it is still worth referencing to observe the comparison between the 2007-09 recession and the 2020 recession.

feds_balance_sheet.png

It remains crucial to emphasize that we have yet to see any indication from policy makers, Federal Reserve members, or Chair Powell that suggests a departure from their strategy in response to the next crisis. Whether the response involves another $10 trillion in monetary expansion, give or take $5 trillion, is anyone's guess, but it would be a tough sell to say the Fed will take no action of its own accord after a century of intervention.

Powell concludes by discussing the collapse of Silicon Valley Bank (SVB), two other undisclosed banks, and the failure of Credit Suisse, which was a globally systemic important bank until it collapsed. This is the point where the true nature of the situation is revealed, as we are presented with nothing but excuses and corporate missteps, which facilitated the need for government intervention.

Powell offers some explanations:

… SVB's vulnerability came not from credit risk, but from excessive interest rate risk exposure and a business model that was vulnerable in ways its management did not fully appreciate, including a heavy reliance on uninsured deposits.

And

When SVB failed it was clear that a number of standard assumptions, even though they were informed by hard experience, were wrong.

Even though it’s impossible to predict the future with certainty, what should be clear is the recurring pattern in the Fed's crisis playbook. When something inevitably goes wrong, the Fed avoids taking responsibility and shifts the blame to factors such as corporate greed, oversight, or unforeseen errors. They then argue that the only solution is to implement unprecedented levels of intervention. Policy makers will swear that many lessons were learned, and it won’t happen again, but that’s only to buy them time until the following crisis.

A large bipartisan contingent of Wisconsin legislators seek to end Wisconsin’s controversial practice of levying sales tax on purchases of gold and silver.

Senate Bill 33, primarily sponsored by Sen. Duey Strobel (R - Saukville) and Sen. Rachael Cabral-Guevara (R - Appleton), and cosponsored by Rep. Shae Sortwell, enjoys wide support – and would align Wisconsin with the policies of 42 other U.S. states.

Senate Bill 33 would exempt “precious metals bullion,” defined as coins, bars, rounds, and sheets that contain at least 35% gold, silver, copper, platinum, or palladium.

In 2019, Rep. Shae Sortwell (R - Two Rivers) introduced a similar measure that did not receive a hearing. But upon introduction this year, Senate Bill 33 already has seven Senate sponsors and 16 House sponsors.

Imposing taxes on the exchange of Federal Reserve notes for monetary metals (i.e. gold and silver) has become an unusual and outmoded practice in the United States... only 8 states still engage in it. 

With 42 states now having eliminated sales taxes on purchases of gold and silver, the Badger State may be the next state to do so – although similar bills are moving forward in Mississippi, Kentucky, and Maine.

Passage of SB 33 would remove a major disincentive to holding gold and silver -- a move that has become especially pertinent at a time when inflation is ripping through the economy and wreaking havoc on family budgets.

Article 1, Section 10 of the U.S. Constitution prescribes that gold and silver are money, and imposing a tax on the exchange of one money for another is inherently illogical. But there are other strong public policy reasons why so few states still impose sales tax on precious metals purchases:

• Levying sales taxes on precious metals is inappropriate. Sales taxes are typically levied on final consumer goods. Computers, shirts, and shoes carry sales taxes because the consumer is "consuming" the good. Precious metals are inherently held for resale, not "consumption," making the application of sales taxes on precious metals inappropriate.

• Studies have shown that taxing precious metals is an inefficient form of revenue collection. The results of one study involving Michigan show that any sales tax proceeds a state collects on precious metals are likely surpassed by the state revenue lost from conventions, businesses, and economic activity that are driven out of the state.

The harm is exacerbated when you consider that all of Wisconsin’s neighbors (Minnesota, Iowa, Illinois, and Michigan) have already stopped taxing gold and silver. This harms in-state businesses. Most recently, Tennessee ended this tax in 2022, and Arkansas and Ohio eliminated this tax in 2021.

• Taxing precious metals is unfair to certain savers and investors. Gold and silver are held as forms of savings and investment. Wisconsin does not tax the purchase of stocks, bonds, ETFs, currencies, and other financial instruments. 

• Taxing precious metals is harmful to citizens attempting to protect their assets. Purchasers of precious metals aren't fat-cat investors. Most who buy precious metals do so in small increments as a way of saving money. Precious metals investors are purchasing precious metals as a way to preserve their wealth against the damages of inflation. Inflation harms the poorest among us, including pensioners, Wisconsinites on fixed incomes, wage earners, savers, and more. 

In 2023, other bills to restore sound, constitutional money have already been introduced in Alaska, West Virginia, South Carolina, Missouri, Minnesota, Tennessee, and more.

Currently Wisconsin is tied for 45^th out of 50 in the 2023 Sound Money Index. Passage of SB 33 would significantly improve Wisconsin’s standing.

In a city that looks like Paris meets the Iron Curtain, with nice restaurants, city tours, and where I was even able to shoot an AK-47 at a gun range (after going through training and while under supervision), I attended the 2022 Liberty in our Lifetime event in Prague. Last month the “City of 100 Spires” hosted an international gathering of who’s-who of libertarians, Austrians, and others in the free market crowd. Parallel Structures, referring to the creation or use of a voluntary system instead of or in replacement of an involuntary one, was the conference theme, a concept foreign to most, but not for long.

Cryptocurrencies exemplify this idea. For better or worse, cryptocurrencies are used for exchange when two parties do not want to transact in a national currency. Bitcoin is probably the most well known parallel structure, but this can be applied to any new system which attempts to escape the State’s monopoly of force.

Homeschooling is another parallel structure. Consider that property taxes are typically used to support State sponsored schooling. But schooling for some is socialist indoctrination for others. For those able and willing, homeschooling offers a viable solution; the caveat, like all parallel structures, is that the onus is on the individual for success or failure.

Fortunately, little things have a way of turning into much bigger things. With the emergence of parallel structures, their continual implementation and eventual growth provides solutions the world desperately needs, with the possibility of eventually supplanting the State entirely. One day, we may very well find ourselves living in the world's first Free Private City, as written about by Titus Gebel in his book Free Private Cities, who also presented at the event.

There appears to be two methods these structures can be implemented. I alluded to this a few weeks ago, about how something needs to change or else socialism will consume us all.

Either we change the system from within, or remove ourselves from the system entirely; if not by internal change or external flight, eventually we’ll be consumed by it.

At the conference, there were some groups wanting to create private dwellings in the ocean on moveable pods which could be physically joined to form communities. There were other groups promoting the “digital nomad” lifestyle, for those who have the option of living and working in various countries across the globe. The idea of flight is understandable, and historically a winning strategy under repressive regimes, in which a societal transformation seems all but impossible.

However, there were also those who wanted to stay, essentially fighting the government to better society. One non-profit organization in South Africa called Sakeliga describes itself a “club of businesses, professionals and investors together taking up their constitutional duty to resist state power, help establish a just commercial order, and form thriving trade and financial networks.” I was fortunate enough to meet the Executive Director Russell Lamberti, an Austrian economist, author, and investor who has written several articles for the Mises Institute. In his presentation he made it clear that South Africa is his home, and his organization intends to use litigation and all legal means to thwart government corruption and overreach.

The involuntary nature of government will always make it a force for evil. The real question is whether it’s possible to escape the system through fleeing or fighting it head on. Luckily, the beauty of a parallel structure is that its potency can transcend physical location. Wherever in the globe it is being implemented, it will always act as a force against State power through competition.

No one size fits all approach works best. But if some in the liberty crowd seek greener pastures elsewhere, while others seek to change society from within, the rise of parallel structures, such as work, media, culture, education, finance, and eventually a political or social system itself, will continue to exist as a beacon of hope.

Combine the rise in these new structures against the inevitable failure by the State, there becomes a real opportunity this decade to create a monumental shift towards a voluntary society and to find that “unbridled capitalism” we so long for.

It’s been already two weeks since I began my own fellowship at the very Mises Institute. During this time a lot of things have already happened, both in the local American scene as well as in the rest of the world--my own country, Ecuador, included.

Given my own affinities with ideas from various sources in the political right, from the classical liberalism of Mises and Hayek and the anarcho-capitalism of Rothbard and Hoppe to the traditional conservatism of Burke and Scruton and the novel post-liberalism of Deneen, Vermeule and Ahmari, I was amazed and intrigued to read a fairly recent article by Mises Institute President, Jeff Deist, discussing the rise in the popularity of this last group and of its ideas.

For a person like me, who tries to navigate the muddy waters between libertarianism and conservatism, ideological tags have become meaningless. In Ecuador, where media and academia are dominated by the progressive left and its liquid culture, politics has become synonymous with nepotism, corruption, and inefficiency.

There have been instances where I have tried to combine my libertarian and my conservative leanings into a single philosophy, as some kind of liberal illiberalism; an economic skepticism of the organization of the modern State;  a practical and moral defense, from a socialist and nationalist perspective, of the existence of private property; and even a conservative interpretation of the tenet of the Austrian School of Economics. But none of these attempts seem to get to the point where a viable mix of libertarianism and conservatism is developed.

In a spontaneous coincidence more than a deliberate attempt, Jeff and I have been thinking about the same issues. This is not the first time he has theorized on ways to introduce free market and sound money ideas into the school of conservative thought that seems to be fashionable in the moment.

But Austro-libertarianism paradoxically seems to follow the Burkean way, in which our intellectual development as a doctrine expands with moderation and prudence. Conservatism, or at least, American conservatism, has adopted the old leftist vice of infighting, reducing itself into warring factions against each other, where the least difference in theory (or the popularity of a certain leading figure) is reason enough for the movement to break its fragile peace or for a new faction to arise.

For conservatives and libertarians in the ground, working 8 to 5 jobs while trying to get involved in local and grassroot politics-- and most importantly, struggling to survive with freedom and dignity in a world where the most ridiculous whims of our ruling classes get imposed with legislation and enforced with the state’s monopoly on taxation and violence--petty conflicts within the conservative intellectual and managerial class seem truly unimportant. They not only demonstrate the instability of a movement that lacks power, but also steal our most precious and irreplaceable resource, which is time.

Nonetheless, there seems to be something different about the rise of post-liberalism, even with its internal differences and with career politicians trying to capitalize on its apparent success.

It may be because its leading figures, having learnt from the Donald Trump experience and from his successes and mistakes in the American presidency, have become wiser in the handling the conservative movement.

For instance, the political Catholicism of the likes of Vermeule, Deneen and Ahmari don’t seem to be at odds with the Aristotelian nationalism of the Claremont Institute, and in many senses both end up embraced by institutions like Hillsdale College or the Intercollegiate Studies Institute. They don't shiver to invite people like Jordan Peterson, Michael Rectenwald, or SCOTUS Associate Justice Clarence Thomas (all of them cancel culture victims) speak at its events.

With the notable exception of the neocons, well represented by opportunistic career Republicans like Mitt Romney and Liz Cheney (both of whom seem despised and rejected by all factions of this new American Right), the conservative movement looks to be building bridges, both internally and externally. It is creating platforms like NatCon conferences to allow their ideas to spread indiscriminately, and promoting them in countries with likeminded governments (like Orbán’s Hungary) to get connected to their fellow figures (like Nigel Farage or Marion Maréchal) in Europe.

But the Austro-libertarian movement is missing on the opportunity to participate in the development of this new New Right, even if this could be the right opportunity for a true paleo revival, without the mistakes in economic doctrine that made the first attempt fail. Rothbard pushed for his free-market vision, while Pat Buchanan twisted his view on economic protectionism into an outright state-planned economy.

In two occasions, while hosting my podcast for the Spanish newspaper España - Navarra Confidencial, I had the chance to discuss the possibility of a new libertarian-conservative fusion, the first one with our aforementioned Jeff Deist and Hillsdale professor Brad Birzer. The common ground between the two views were that the state was indeed a danger for freedom and community, and that a neo-fusionist movement could indeed work to recover culture, family values and decentralization.

In here, the term neo-fusionist that both Jeff used and I am now using is a clear reference to the doctrine of Frank Meyer, considered by President Ronald Reagan as his most intellectual influence,  a political philosopher who tried to unite elements of libertarianism and traditionalism into a single philosophical synthesis of the two. This received much criticism from both libertarian and conservative figures like Harry V. Jaffa (the intellectual father-figure of modern Claremonters) Paul Gottfried (a paleoconservative thinker and now the editor of the Chronicles magazine), along with our own Murray Rothbard (who saw in Meyer a rather lost and confused libertarian).

The second time was in another podcast discussion, with our own Mises Wire assistant editor Tho Bishop and his peer at Chronicles, Pedro Gonzalez where the main focus was the political strategy for a paleo revival considering the cultural and demographic changes in the US since the 90s. Both of them agreed with me on most issues, from local political action and the main problems to tackle, to the immediate use of state power to solve those problems, given there was no private alternative, and that, moreover, the private sector was caught itself into the woke madness.

In the US, there is a genuine opportunity to allow for right-libertarians a space into the post-liberal Right. Outside the US,  the libertarian name is getting tarnished by the inoperancy, alienation and cluelessness of beltway libertarian-influenced politicians such as my own country’s president, Guillermo Lasso, and his advisors, whose public policy ideas are as unrelated to the local situation, with its many security and poverty problems, as DC staffers are unrelated to the issues of Common Joe in Middle America.

Quoting from the end words of Jeff’s essay, "Have we lost "liberal" forever? Maybe. If liberalism is dead, then liberals killed it. I'm doubtful we can ever reclaim it. Perhaps we need a new word for organizing society through property, peace, trade, and sound money”, but I also add, have we lost “libertarian” too?

While I am not as pessimist with that, and I still believe there is chance for right-libertarianism to be a force for political action, I wouldn’t call myself as such, not only because there is a concern for me to be put into the same bag as my unlikely-to-get-reelected local government, but because it is only half of what I believe.

I do think, though, that we should remember and apply what Jeff proposed in his “For A New Libertarian” speech, that is, to fight for what matters for the common man, understanding that these fights, pretty much unrelated to libertarianism, are what form the basis of the abstract freedom libertarians strive for.

We cannot forget both Rothbard and Hoppe began with the most absolute individualistic rationalism in their thinking to end up admiring the freedom of traditional medieval order in Europe in his first volume of his Austrian. Perspective on the History of Economic Thought and developing a rather reactionary and aristocratic communitarianism in his magnum opus, Democracy: The God That Failed, respectively.

Neither should we forget that the father of modern conservatism, Edmund Burke, came from a fairly liberal and Whig background, both as an intellectual and as a statesman, without that getting into conflict with his Anglo-Irish and Christian (both Anglican and Catholic) roots.

At last, more as an anecdote than as an example, both great English traditionalist of the late 19^th century, G. K. Chesterton and Hillaire Belloc were involved with classical liberalism while maintaining their own religious and traditionalist beliefs. Chesterton stated in his book Orthodoxy  that "I was brought up a Liberal, and have always believed in democracy, in the elementary liberal doctrine of a self-governing humanity”, while Belloc was elected as a Member of the British Parliament supported by the British Liberal Party.

I would like to finish by bringing up John Adams famous words about the US Constitution, “Our Constitution was made for a moral and religious people. It is wholly inadequate to the government of any other. […] The only foundation of a free Constitution is pure virtue, and if this cannot be inspired into our people in a greater measure than they have it now, they may change their rulers and the forms of government, but they will not obtain a lasting liberty. They will only exchange tyrants and tyrannies.”

John Adams understood that self-government, decentralization, and individual freedoms needed a moral framework to thrive, to develop to its full potential, for their respect was not enforced by an all-powerful government, but by a shared common tradition that guided the lives of all under their same provisions.

It was the moderation and tolerance of the Christian tradition in the Anglosphere the created the right conditions for classical liberalism to be applied and be the framework for the establishment of the American Republic, and the Catholic virtue of the Habsburgs in their rule over the Spanish and Danubian Empires that led to the development of the Salamanca and Austrian Schools.

On the other hand, it was the excesses of the Continental Liberals, as christened by F.A. Hayek, with their hyper-rationalist constructivism that led from Revolution, Jacobinism, expansive nationalism, and Marxist Socialism up to the horrors of Bolshevik Leninism, Soviet Stalinism, and German Nazism.

Continental Liberalism, as extreme as today’s Progressive Liberalism, also lead to the radical ideas of ultramontanism and dictatorship promoted by Maistre and Donoso Cortés and later taken up by Carl Schmitt.

It is better for us libertarians and conservatives to be together and follow Burke and Meyer into a neo-fusionist path, before our bona fide conservative intellectuals, pushed to the extreme by our corporatocratic elites and their loyal woke hordes, decide to follow the Counter Enlightenment path.

So even if libertarians and conservatives seem opposed at times, we both belong together as different sides of the same golden coin, counterbalancing each other excesses, and recognizing each other’s value.

Only through virtue, we can get order and freedom, understood as self-government, and only through free self-government we can get prosperity. There is no other way.