Power & Market
The CNN headline news article says it all:
Biden at 100 days: Hottest stock market since JFK
Sounds like quite the accomplishment! As reported, the S&P 500 is up a whopping 8.6% since Biden took office, the largest gain since 1961. This was much larger than Biden’s predecessor, who only managed to see a 5% gain in his first 100 days in office.
CNN went as far as quoting Randy Frederick, vice president of trading and derivatives at Charles Schwab, who said:
There is a belief out there, that is absolutely incorrect, that markets do better under Republicans. It's completely wrong.
The article goes on say that Wall Street approves of Biden’s attempt to “corral the Covid-19 crisis and stimulate the economy,” and that:
the historic gains at the start of the Biden era add to a sense of optimism about America's economic recovery…
A chart is provided showing how great the returns under Democrats have been versus Republicans, who more often than not find themselves in a stock market slump when taking office.
This is a great example where stats or data are used to convey something which sounds interesting as a headline, but once you start to look deeper for substance, you find very little.
The only thing more misleading than celebrating gains in a stock market index, is when this gain is attributed to a President, Democrat or Republican. One of the best cases of this is Venezuela, where in 2019 the Forbes headline read:
The Caracas Stock Market Index is up nearly 200,000%.
Of course, the article notes, against the US Dollar, the enormous gain amounts to a loss of 94% in the year; the lesson being, we can’t always use percentage gains in stock markets as a barometer of success.
True, under Biden’s first 100 days, the market has performed well. We should ask questions, such as: What does the gain in the stock market mean, and what was the cost society paid for this?
As for the gain, it helps illustrate the often-cited separation between Wall Street and Main Street. The same CNN article notes that in 1932, under FDR and during the Great Depression, the stock market saw a gain of 104.4%. This big win should mean FDR was a successful President, or the nation was better off for the various government interventions and socialist schemes enacted during his presidency. Perhaps the divide between the stock market and the real economy has existed for longer than we realize…
And the cost? CNBC weighs in:
Congress already had appropriated more than $3 trillion in stimulus and the Federal Reserve had relaxed policy to the loosest point in the central bank’s history. All told, more than $5.3 trillion has been spent on Covid-related relief efforts, and the Fed’s bond purchases have nearly doubled its balance sheet to just shy of $8 trillion.
It seems, many trillions of dollars in stimulus efforts plus easy money policies can do wonders for the stock market, assuming the stock market is influenced by central bank action such as trillion-dollar bond buying and artificially low rates.
While big gains are great for executive compensation, corporate buybacks, money managers and those heavily invested in the stock market, we don’t hear about the millions who lost their job due to forced closures, or those on a fixed income who struggle with the perpetual loss of purchasing power of their dollars. We live in a society that borrows heavily against its future so that a select few can live in the now, calling stimulus today what will be debt tomorrow; a debt which can never be repaid. But this seldom makes headlines. It’s much more of a difficult story to cover and not as upbeat as an 8.6% stock market win for the new President.
On July 2, 2019, President Donald Trump nominated Mrs. Judy Shelton to join the Federal Reserve Board of Governors. She has a distinguished career as an economist and even co-authored a book called Roads to Sound Money, which supports ideas such as sound money and individual liberty. To those who support the free market and monetary/fiscal responsibility, her nomination is nothing short of a Godsend. But as of Tuesday’s vote, the Republican majority Senate still has not confirmed her nomination. Despite this process being highly bureaucratic and requiring many if’s, she actually still has a shot! CNN reports:
The final vote was 47-50.
The 50 votes against Mrs. Shelton include:
Senate Majority Leader Mitch McConnell, who had initially voted for the nominee, switched to vote against her, giving him the procedural right to bring her up for another vote in the near future.
Mitch switched his vote, utilizing a “procedural right,” something most citizens could never cite nor likely even knew existed.
Sen. Chuck Grassley, a Republican from Iowa, announced he would have to quarantine after potential exposure to Covid-19 and miss the vote -- his first missed vote in 27 years. He joins Florida Republican Sen. Rick Scott, who announced Saturday he would be away from the Capitol for the same reason.
“If” the two Republican Senators were in attendance, and “if” Mitch voted for Shelton, then things would look much different; but that did not happen. So where does that leave things?
Should there be another vote, CNN goes on to say, it will likely be scheduled after Thanksgiving. But this complicates things as:
Sen.-elect Mark Kelly, a Democrat who won a GOP seat in the special election in Arizona, is expected to be sworn in, meaning there would likely be one more Democratic "no" vote…
This wouldn’t bode well, as the Wall Street Journal reports that Democrat Mark Kelly would be sworn in on Nov 30, if combined with the three Republicans Mitt Romney, Susan Collins and more recent “dissenter” Lamar Alexander, it would make an already slim “yes” confirmation all the more difficult.
Once the math, voting strategy, and party lines become drawn, a new question arises:
When did the Federal Reserve governor nomination become “partisan politics” in Washington?
Even the Wall Street Journal notes:
Party-line votes for Fed board positions haven’t occurred before, reflecting the institution’s apolitical nature.
For all that’s been said about this “controversial” pick, Mrs. Shelton would have only one vote on a seven member board. She’d hardly be a threat to stopping the (unofficial goal of) US dollar debasement overnight, nor would she be able to implement a gold standard anytime soon. But what she has already done, even if inadvertently, is illustrate various problems with the way this system of democracy and central banking works. Since her nomination, we’ve seen countless displays of this “system,” which appears to not even help those it claims to serve.
Republican Senator Lamar Alexander displayed this on Monday when he came out against Mrs. Shelton, as CNBC quotes him saying:
I don’t want to turn over management of the money supply to a Congress and a President who can’t balance the federal budget.
Lamar is just one of 100 elected Senators, chosen “by the people” to represent their interests. In this case, they must confirm someone to serve on the board of governors to manage the nation’s central bank, an idea championed by many anti-capitalists, including Karl Marx.
Nonetheless, as the system is currently designed, it requires elected Senators like Alexander to be charged with managing the economic affairs of the entire nation; whether these senators understand economics is besides the point. Luckily, in instances where an elected official doesn’t understand, or wishes to be rid of someone with an idea they disagree, they can employ demagoguery to sway public opinion. As noted above, the Senator can paint a picture that the nation’s money supply would be somehow handed over to the President and Congress. This is misleading because it completely misunderstands the notion of sound money, limited government, and the control of the money supply, all which underline the gold standard.
If Judy Shelton does not get confirmed to the Federal Reserve, we lose an opportunity to expand the knowledge base at the Fed. We’ll have to add that to the list of things gone wrong in 2020, then move on. This leads us to the inevitable, unpleasant question: If not Judy, then what must the next candidate say or do in order to appeal to both sides of the political aisle?
Recently, I told my wife that the 2020 election follies made me think of John Milton. She commented that I may have been the only one in America to make that connection to the second most important author in the English language, after Shakespeare, best known for his poetry. After all, very little of this year’s politics has been poetic (though it could be argued to fit somewhere in Paradise Lost). I was thinking of Milton’s prose.
The primary reason is that well before America was founded, Milton famously argued for freedoms of speech and the press, and against censorship in England. His defense of freedom of conscience and religious toleration later powerfully resonated with America’s founders, as is most evident in the First Amendment to the US Constitution.
In contrast, we have of late been experiencing a widespread attack of censorship, which has not just limited citizens’ freedom of expression, but undermined Americans’ ability to inform themselves before voting for who will represent them. Because it originated with private actors rather than government, even though the intent was to dictate the government chosen, it was not a violation of the First Amendment. But the consequences of multiple powerful actors putting all of their thumbs on the same side of the scales they intended voters to use was, and remains, a serious threat to America. So it is worth remembering John Milton’s words on behalf of freedom of belief and expression, and their connection to our ability to discover truth.
- Give me the liberty to know, to utter, and to argue freely according to conscience, above all liberties.
- Truth….Let her and falsehood grapple.
- Who ever knew Truth put to the worse in a free and open encounter?
- Truth…needs no policies or stratagems…to make her victorious. These are the shifts and the defenses that error uses against her power.
- There is no learned man but will confess he hath much profited by reading controversies—his senses awakened, his judgment sharpened, and the truth which he holds firmly established. If then it be profitable for him to read, why should it not at least be tolerable and free for his adversary to write…it follows then, that all controversy being permitted, falsehood will appear more false, and truth the more true; which must needs conduce much to the general confirmation of an implicit truth.
- If it come to prohibiting, there is aught more likely to be prohibited than truth itself.
- No institution which does not continually test its ideals, techniques and measure of accomplishment can claim real vitality.
- When complaints are freely heard, deeply considered, and speedily reformed, then is the utmost bound of civil liberty obtained that wise men look for.
- Knowledge forbidden? Suspicious, reasonless. Why…?
- Truth and understanding are not such wares as to be monopolized.
- When language in common use in any country becomes irregular and depraved, it is followed by their ruin and degradation. For what do terms…which are at once corrupt and misapplied, denote but a people listless, supine, and ripe for servitude?
- How oft [have] nations gone corrupt…by their own devices brought down to servitude.
- Discern…in what things persuasion only is to work.
Not only was Milton an important advocate for freedom to discover truth without artificial constraint, he was an influential defender of other liberties whose defense relies upon that discovery. America’s founding generation echoed him in several ways. In fact, one could say that is best reflected in the Declaration of Independence’s assertion of unalienable rights to “life, liberty and the pursuit of happiness,” which, while more famously connected to the thought of John Locke, can also be collapsed into the word liberty, as Milton used it, as our right to life is part of our liberty and our ability to pursue happiness is the result of liberty.
In contrast, much of what has been proposed by politicians this year has involved widespread invasions of our liberties, disguised by focusing only on those promises to give, without much mention of the corresponding unavoidable promises to take from others to do so. His words sharpen our ability to judge that deviation from the ideas that created America.
- No man…can be so stupid to deny that all men naturally were born free, being the image and resemblance of God himself.
- The whole freedom of man consists either in spiritual or civil liberty.
- [God] created them free and free they must remain.
- Liberty…who loves that, must first be wise and good.
- None can love freedom but good men; the rest love not freedom, but license, which never hath more scope than under tyrants.
- Nations grow corrupt, love bondage more than liberty.
- [Those] with their freedom lost, all virtue lose.
- Liberty of conscience…above all other things ought to be to all men dearest and most precious.
- Liberty hath a sharp and double edge, fit only to be handled by just and virtuous men; to bad and dissolute, it becomes a mischief unwieldy in their own hands: neither is it completely given, but by them who have the happy skill to know what is grievance and unjust to a people, and how to remove it wisely; what good laws are wanting, and how to frame them substantially, that good men may enjoy the freedom which they merit, and the bad the curb which they need.
- Love Virtue, she alone is free.
- Is it just or reasonable, that…voices against the main end of government should enslave [those] that would be free?
- They who seek nothing but their own just liberty, have always right to win it and to keep it, whenever they have power, be the voices ever so numerous that oppose it.
- Who can in reason then or right assume monarchy over such as live by right his equals, if in power or splendor less, in freedom equal?
- The power of Kings and Magistrates is nothing else, but what is only derivative, transferred and committed to them in trust from the People, to the Common good of them all, in whom the power yet remains fundamentally, and cannot be taken from them, without a violation of their natural birthright.
- It is lawful…for anyone who have the power to call to account a tyrant.
Americans have been major beneficiaries of John Milton’s literary blows for liberty against tyranny through his political impact on our founders. But this year’s dramatic violations of our freedom to seek the truth and express our views to one another, and its widespread proposals to violate other core liberties, show that heritage to be at serious risk. Revisiting Milton’s arguments in these areas is a good way to recognize the risks we have already been exposed to and their ominous implications for the future and a good source of reinforcement for the principles our country was founded upon. And at their heart is his conclusion that free we must remain.
On Tuesday Reuters reported comments made by Republican senator John Thune:
Judy Shelton, U.S. President Donald Trump’s controversial pick to serve on the Federal Reserve’s interest-rate-setting panel, does not currently have the votes to win confirmation in the U.S. Senate.
Hope still remains as Senator Thune’s role as majority whip requires him to track votes made by Republicans; the official vote has not yet happened. In the senator’s words:
She’s a priority for the White House. It’s the Federal Reserve. It’s important. So, obviously, we want to get it done. But we’re not going to bring it up until we have the votes to confirm her.
The story is troubling because Republican’s have a 53–47 senate majority, but still not enough votes to approve the nomination. This raises questions for the Grand Old Party; mainly, what is the hesitation?
The Wall Street Journal echoed the “controversial selection” narrative:
Ms. Shelton has been a longtime proponent of a return to the gold standard, which would limit the Fed’s ability to influence inflation and employment, and concedes that her views are outside the mainstream of economics.
Of course, limiting the Fed’s ability to influence the free market, including inflation and employment is the purpose of the gold standard. The controversy centers around members of Congress and the Fed who may not want to concede the power to influence the market. It’s dangerous to those at upper levels of government and the Fed, as their control rests in the ability to manipulate interest rates and create US dollars in order to buy assets and run perpetual budget deficits.
A month ago a group known as “Fed Alumni,” comprised of various former Federal Reserve employees, as well as several presidents, published an open letter to the Senate with thirty-eight signatures asking them to reject the nomination. The number now stands at seventy-seven signatures.
Upon reading the letter, the problem with mainstream economics is revealed:
She has advocated for a return to the gold standard; she has questioned the need for federal deposit insurance; she has even questioned the need for a central bank at all.
The dogma is followed by hubris:
The Fed has serious work ahead of it. While we applaud the Board having a diversity of viewpoints represented at its table, Ms. Shelton’s views are so extreme and ill-considered as to be an unnecessary distraction from the tasks at hand.
If there is a controversy, it should be about the “serious work” the Fed has ahead of it. With the new goal of aiming to “achieve inflation moderately above 2 percent for some time,” it appears very few are asking the purpose behind this. Especially since the Fed is moving away from the belief in there being a tradeoff between inflation and unemployment, there seems little reason to push for higher price inflation any longer.
Contrast this sentiment with those in science, math, or physics, where questions and the ability to refute or prove theories allows these fields to advance. Yet economics is devoid of this advancement; as we can see, when someone offers ideas such as a return to the gold standard, the result is contempt. But it’s one thing to petition congress claiming lack of qualifications, yet quite another to offer coherent arguments, articulating where exactly the problem lies. So far, we’re still looking for a critique which goes beyond being discredited for brainstorming economic solutions.
This somewhat explains why economics is divided into “orthodoxy” and “heterodoxy,” which normally refer to religious doctrine—heterodoxy for beliefs falling outside the mainstream. Perhaps it’s time for the Fed to stop treating economics like a religion and start searching for the truth, where someone like Judy Shelton is praised instead of punished for questioning economic tradition.
Much uncertainty remains as we wait for 51 democratically elected senators to give their blessing, allowing Ms. Shelton to ascend to the hallowed halls of the Eccles Building, where she can join the ranks of those select few who have the almost godlike ability to decree paper (or its electronic equivalent) legal tender. Maybe long-standing beliefs like money creation leading to prosperity should be widely questioned: If it holds up to scrutiny then great; if not, then why should we adhere to it?
According to new jobs data released today by the US Labor Department, total nonfarm employment grew by 4.8 million in June (seasonally adjusted). The gain was even larger (5.1 million) in non–seasonally adjusted totals.
June's unemployment rate was 11.1 percent, a drop of 2.2 percent.
This means total employment is now "only" 14.6 million below the November peak, meaning the US is now back to where total employment was in 2015.
As we can see in the first graph, so far a "V-shaped recovery" looks possible. In April, employment crashed by the largest amount seen since the Great Depression. The economy recovered more than 3 million jobs in May in addition to June's 4.8 million jobs.
But it remains unclear if the current job recovery will continue at the same rate. In June it looked like government-imposed business closures might be disappearing, but by late June state governors and other policymakers had begun announcing or threatening new business closures and lockdowns. This will no doubt have an effect on employment in July, but the extent of the effect is impossible to predict at this time.
If the recovery continues at its current rate, then total employment could recover within a few months, making the 2020 recession (at least in terms of jobs) considerably shorter than the Great Recession. Here is total employment (by recession and final month in each cycle before job losses began) indexed to peak month, and the number of months that passed before employment returned to peak levels:
In recent weeks, however, unemployment claims have remained stubbornly flat. For the week ending June 27, new unemployment claims increased by 1.43 million. This was only down slightly from the previous week, when there were 1.48 million new claims. Since March, new unemployment claims have totaled over 48 million.
That 1.43 million number for last week remains very large. During the Great Recession, new unemployment claims peaked at around 660,000 in late 2009. So long as unemployment claims continue to number above a million, we're looking at job losses well above what would be considered "normal" even in a recession.
Moreover, continuing unemployment claims actually increased slightly from the week ending June 13 to the week ending June 20, climbing to 17.9 million.
If unemployment claims continue to move sideways, there's good reason to suspect employment in July may do the same.
At the same time, the unemployment rate could continue to fall if workforce participation continues to fall. As people leave the workforce, the unemployment rate could theoretically fall even without any job growth.
And workforce participation is indeed falling. In April of this year, participation (for all ages) fell to about a 43-year low, coming in around where it was in April 1976. Participation climbed again in May and June, but remains near a forty-year low for June.
The weak jobs market appears to be most impactful on young workers and old workers, as workforce participation in prime earnings years has not been as affected. For workers in the 25–54 category, workforce participation is back to where it was in 2015.
Unless we start to see a more rapid drop-off in unemployment claims, it's difficult to see how a V-shaped recovery will continue. Moreover, much will depend on how harsh ongoing business closures and partial "lockdowns" are in the US. Since these policies are set at the state level, employment numbers will likely be very uneven from state to state. As we saw in the state-to-state data for May, many states with particularly harsh lockdowns, such as New York and Michigan, were among the states with the highest unemployment rates.
Mises Institute president Jeff Deist tells The Hill why the "stimulus" bailout is very bad for America in this excerpt from his op-ed:
The unasked question lurking underneath the Senate bill is this: How do we pay for it all? Congress doesn’t have $2 trillion to spend, and 2020 tax receipts won’t begin to cover the bill. This means the federal government will effectively “print” the money, likely in a circuitous way by issuing new Treasury debt and using the Federal Reserve Bank as a backstop to buy it all if investors won’t. And what sort of investor wants to loan Uncle Sam money for 10 years at less than 1 percent interest anyway?
At least Sen. Bernie Sanders (I-Vt.) is more honest: He thinks government simply should give Americans money every month, with or without a crisis. We now see plainly that congressional Republicans agree with him, at least conditionally. What a sad state of affairs.
If the bailout of 2008 had worked, U.S. companies would not need a bailout today. They would have thanked their lucky stars then, and focused on building healthier balance sheets with more cash and less debt. Let new owners, not American taxpayers, save them today.
Many anticapitalist ideologies have long relied on the idea that capitalist oppressors use advertising to force/compel/trick people into purchasing goods and services "they don't need." Advertising, the theory goes, is a tool employed by the capitalists to exercise power against the workers. Left to their own devices, workers would save more money and only buy things they truly need. Workers would then use this savings to gain greater financial independence from the capitalists.
The anticapitalists assure us that this doesn't happen however, because advertising exists as a means to control workers and force them to spend virtually all their surplus on useless trinkets and status symbols.
For more, see this analysis of "consumerism."
Mises used the example of how modern advertisers can't convince people to purchase technologically obsolete goods. He noted that all the ads in the world are unlikely to get people to stop buying lightbulbs and light their houses with candles instead.
A notable popularizer of the anticapitalist position on this, however, was John Kenneth Galbraith. Galbraith took the opposite position of the Austrians. While Austrians maintain that producers produce in order to meet consumer demand, Galbraith claimed that producers made things and then relied on advertising to get people to buy new things. In other words, in the Austrian view, producers follow the consumers. In the Galbraithian view, consumers follow the producers.
It's a pretty big difference with major implications that I won't cover here at the moment. But a central mechanism at the core of this idea is the notion that producers basically tell consumers what to to buy. And the producers do this by using advertisements.
But, as Mises suggested with this example of lightbulbs, there are ample examples disproving Galbraith's theory.
Three examples were discussed in my article last week:
1. Mike Bloomberg's failed $500 million ad campaign.
2. The demise of the waterbed industry.
3. The decline of expensive funerals.
But recently one reader, Richard Wilcke, a former business professor, noted a very important example: the Ford Edsel. He writes in an email:
The assumptions of "nudgers" that posters, PSAs, even horrific cancer warnings on cigarette packs as in the UK, have major effects on public opinion is not evident, a topic on which I have lectured often in the past.
What I wanted to share is an interesting coincidence. Precisely as Galbraith’s book contending that corporations have great power—expressly through advertising—to sell anything they choose to American consumers was being published, Ford Motor Company was in the midst of the largest advertising campaign in history to sell the Edsel as "the most exciting and advanced new car ever." Ford’s marketing execs loved that many thousands of consumers were lined up at dealers to see the vehicle as it was unveiled. They expanded the budget on the grounds that selling merely 200,000 Edsels would be a grand success.
But in spite of their advertising, they sold barely 70,000 in 18 months and the company pulled the plug. Most glowing reviews of Galbraith’s book did not get it; namely, that a real-world experiment—a test of the idea—had been going on at that same time. I believe it dramatically disproved Galbraith’s thesis.
Ford was highly motivated to get buyers for the Edsel, to say the least. And yet they failed. So, if ad wizards couldn't get people to buy the Edsel, why should we assume Galbraith and his fellow travelers have been right about advertising?
In this vein, we could also note Robert Batemarco's 2014 article, which observes two cases that also suggest advertising is not at all a reliable tool for "making" people do anything.
One is military enlistment. If ads works so well, why not just run a bunch of advertisements about how military service is wonderful? If this actually worked, then there would be no military draft. And even when there is no draft, if ads worked, the US government would never have to increase wages for military personnel. Why raise wages, when they could just run an ad campaign telling workers to be content with one dollar per hour, on-base housing, and some canned slop at the commissary? Yet, as it is, recruiters have to make all sorts of promises to convince people to sign up.
And then there's the problem of people not buying health insurance. As we've often been told in the context of Obamacare, there are too many uninsured Americans, because many simply don't buy health insurance. This is especially true of young and healthy people who need few medical services. The "solution" to this is assumed to be laws that force people to buy health insurance. But why pass laws when the feds could just run a bunch of ads commanding people to buy health insurance? If ads are so powerful in getting consumers to buy things, Obamacare mandates would have never been "necessary."
While we're assured by the financial press that the Fed is full of Very Serious People, it's alarming how clueless some members of the Fed seem to be about the current operations of the central bank. The latest example is Neel Kashkari's take that the injections into the repo market have no impact on equity pricing.
Will Not-QE soon become QE4? Danielle DiMartino Booth thinks so. "The Fed will tell you it’s all technical in nature," she said. "In their last minutes, they said that if they had to move into [longer] coupons, they would. So the table has been set."
A decade of massive credit expansion in China has manifested in a variety of bubbles within the country, particularly in real estate. While the fallout from 2008 wasn't nearly as severe in the country as it was in the West, it severely shook confidence in China's stock market—which has never recovered to precrisis times. Instead, Chinese consumers have focused on land and financial products offered by shadow banks. Now, the consequences of China's debt-saturated economy are starting to make the middle class anxious.
South China Morning Post: China’s middle class frets the ‘good times’ are over amid sliding house prices, stagnant wages
#SouthKorea’s president thinks spending $51.2 bn on infrastructure will revive SK’s floundering #economy. The last decade of failed #govt spending programs suggest otherwise. #FreeMarkets, not white elephant infrastructure, will turn the economy around.https://t.co/XPI1LZwHuM— Prof. Steve Hanke (@steve_hanke) January 20, 2020
Until the Fed did 3 quick rate cuts over the summer further intervening into "markets" to uninvert the yield curve. https://t.co/0gAXyqJ7lk— Jason Burack (@JasonEBurack) January 17, 2020
Fed bugs are people with stubborn and unyielding belief in the abilities of central bankers, even in the face of history and current evidence to the contrary.— Jeff Deist (@jeffdeist) December 30, 2019