Power & Market
In a recent speech in Toronto titled: Generative AI, Productivity, the Labor Market, and Choice Behavior, Federal Reserve Governor Lisa D. Cook discussed the rise of Artificial Intelligence (A.I.) and how it may impact the future. In her own words:
Some of the uses of generative AI may be unsettling. For example, concerns about the ability of generative AI to impersonate individuals to harm their reputation or violate their privacy exist and are growing.
It’s true, the use of deepfakes can be used to discredit those in power. Privacy is a concern as well; but we can’t blame A.I. for nefarious activities or privacy breaches just yet.
The notion of “discriminative AI” may also be something of concern for regulators, as explained:
… AI models sometimes harbor, if not amplify, the biases found in their training data, leading to malign effects on decisions about mortgage approvals, insurance rates, medical diagnoses, and even pretrial detention.
Luckily it’s not all gloomy.
Some potential for efficiency improvements in the scientific process when it comes to literature review and writing is obvious. Yet AI can go much deeper, discovering patterns in data and in previous research to generate hypotheses for testing…
In the not-too-distant future, it would be nice if A.I. could analyze texts of Keynes against Ludwig von Mises and compare the use of logical inconsistencies, subterfuge, and nonsensical words or phrases.
Should A.I. ever become capable of making logical and unbiased choices, it would be interesting to see which school of thought it would lean towards. Would it prefer the popular dogmatic teachings guiding the world today or the axiomatic method of the Austrians?
She also asked, “Will AI itself improve steadily over time?” then followed it with uncertainty:
… AI goes back at least to the 1950s … Whether that explosive progress can be sustained is an open question.
Barring worldwide catastrophe, it’s difficult to imagine a future where technology simply stops progressing. World history comprises relentless technological innovations which can be suppressed from time to time; but in the long run (it seems) humanity is unable, or unwilling, to stop innovating.
The impact of Artificial Intelligence is far reaching.
… 80 percent of the U.S. workforce will see at least some of their tasks transformed by generative AI.
Given the high uncertainty and number of people who will be impacted, we should expect policymakers to intervene.
The benefit of AI to society as a whole will depend on the adaptability of workers' skills, how well they are retrained or redeployed, and how policymakers choose to support the groups that are hardest hit by these changes.
Her statements are subtle, yet devastating. On the cusp of major paradigm shifts in society, there are policymakers who advocate for some people at the expense of others.
We mustn’t be surprised if the government uses Artificial Intelligence against its own people, first in secret, then in the open.
Ending with some assurance about the future:
AI makes predictions, but AI does not make choices. Ultimately, human beings are still in control.
There’s much to consider, and much to be seen. It’s unlikely Artificial Intelligence can be stopped at this point; but it is likely the government will look to intervene wherever possible. And while it’s true that human beings are still in control, we should ask ourselves “How long will this control last?”
Last night's Republican debate was a farce from beginning to end.
The first laugh line of the evening was Fox Business personality Stuart Varney having a difficult time getting through the name of his co-host Ilia Calderón.
The debate's conclusion ended in a similarly awkward moment for the moderators, with candidates rebelling against an attempt to turn the debate into a political game of Survivor.
Fox News actually tried to get the candidates to play Survivor and write down who they would "vote off the island."— Citizen Free Press (@CitizenFreePres) September 28, 2023
The candidates looked at Dana Perino like she was an insane person. pic.twitter.com/rL5YD4rrdM
In between, the politicians on stage attempted to deliver carefully planned one-liners designed to demonstrate more personality than what comes naturally to them. In particular, while there is plenty to laugh at Mike Pence about, his attempted joke was not one of them.
Mike Pence absolutely bombs with the debate crowd with this joke:— Justin Baragona (@justinbaragona) September 28, 2023
"Look, I do sagree with something Tim Scott just said. Joe Biden does not belong on a picket line. He belongs on the unemployment line." pic.twitter.com/iXHM5HIddi
The most comedic line of the night belonged to South Carolina Senator Tim Scott. Scott, whose ten-year career in the Senate has left him with no argument for his candidacy beyond latent Republican desires for diversity on the ticket, dutifully stood up to defend the increasingly unpopular bipartisan financial aid lawmakers have provided Ukraine. In response to Florida Governor Ron DeSantis stating that he would reject further US financial support for the Ukrainian effort, Scott contended that 90% of the assistance is a loan that will be paid off.
Dissension arises over the proper response to the Ukraine war— MRCTV (@mrctv) September 28, 2023
Tim Scott: 90% of the money we send over there is a loan pic.twitter.com/cWuYTcB3cd
It is difficult to know whether or not Senator Scott actually believes this; most of what is said on a political debate stage should not be taken at face value. Even if we put aside the question of his 90% figure, which is significantly inflated from the percentage of financial aid that is currently considered a loan, a sincere belief that Ukraine will be expected to actually pay back war-time loans shows a disconnect with the way the modern American empire operates.
It is worth noting that there was a time when the United States government took repayment of political loans seriously. As a 1993 report by the Congressional Research Service noted:
Historically, the U.S. Government has rarely forgiven debts owed to it by foreign governments and individuals. It has been willing to adjust the repayment schedule, when the borrowers found they were unable to meet the original repayment terms for U.S. loans. Generally, however, the rescheduling process has been effected on a businesslike basis. Any foreign assistance effect of U.S. loans was provided up front, through the activity financed by the loan and any concessions or discounts in the payment terms. The debt collection procedure was not treated as an additional avenue for providing aid
Interestingly, a footnote in the first sentence did recognize that $2 billion of the $3 billion of Marshall Plan loans made to West Germany was forgiven in 1953, while most other European nations received direct grants rather than loans from the program and therefore didn't have to worry about repayment.
As the report goes on to document, any pre-existing federal commitment to debt repayment began to quickly erode during the George H.W. Bush Administration.
The movement towards debt forgiveness began with an initiative by Congress in 1989, augmented by subsequent legislation in 1991, authorizing the Administration to forgive foreign aid debts owed by countries in Africa and other very poor countries. As a result, the Administration wrote off $2.7 billion in low-income country debt. In 1990, President Bush proposed, in the Enterprise for the Americas Initiative, that debt be written off for Latin America in order to encourage democratization and economic policy reform. Following the adoption of legislation in 1990 and 1992, $605 million in foreign aid debt was forgiven through this program. President Bush also recommended in 1990 that debt owed by Egypt should be forgiven in order to assist and demonstrate U.S. support for that country. Congress concurred and added a similar debt write-off for Poland. As a result of legislation approved in 1990, $8.3 billion owed by these countries (most of it market-rate debt) was forgiven in fiscal year 1991.
This trend has continued since. President Bill Clinton worked with the IMF and the World Bank for major debt forgiveness for "heavily indebted poor countries." President George W. Bush added on to this legacy with the Multilateral Debt Relief Initiative. Further international debt relief was one campaign promise that Barack Obama fulfilled, even after Republicans took back the House after the 2010 midterms. These programs continue today, such as in 2021 when U.S. taxpayers generously financed $120 million in debt relief grants to the Sudan.
Additionally, any pretension that the United States expects repayment from Ukraine and Europe for loans offered during the Russian conflict flies in the face of how NATO currently operates. On the one hand, some political leaders have suggested a future where Ukraine may be admitted as a member of either NATO or the European Union. While, again, it is reasonable to be skeptical of the credibility of these proclamations, particularly given the history of the West cynically entertaining NATO expansion as a bargaining chip in geopolitical relations with Russia prior to the invasion, the financial standards these international bodies have for admission would be severely undermined by the expectation of Ukrainian debt forgiveness after the war.
Prior to Russia's invasion, Ukraine's economy would have been an extreme outlier relative to other E.U. nations. As Ryan McMaken notes, E.U. admission of Ukraine would create new economic hardships for a political union that has already been tested in recent years by financial crisis. Does Senator Scott honestly expect the U.S. government to add to these pressures with the expectation of debt forgiveness?
If the answer is yes, that would arguably be more disqualifying than telling a knowing lie.
Former President Donald Trump infuriated many anti-abortion voters last week when he refused to commit to national abortion restrictions and seemed to blame them for Republican losses in the 2022 mid-term elections. Trump even criticized the six-week abortion ban signed by Florida Governor (and fellow Republican candidate) Ron DeSantis. So, not only is Trump balking at national restrictions but he is criticizing a state restriction. What are pro-life voters to do?
Politically, Trump may feel he does not need the pro-life vote as much as he did in his previous presidential runs. After all, he is so far ahead in all primary polls that absent an extremely unusual event he is all but the presumptive Republican nominee. He hasn’t even felt compelled to participate in any of the primary debates, skipping the first one to sit for a hugely popular interview with Tucker Carlson.
Trump has attempted to placate pro-life voters by repeating that he is the most pro-life president in American history and by touting that the Supreme Court overturned Roe V. Wade on his watch and with his nominees. He is positioning himself as a moderator and dealmaker, promising to finally make peace on the abortion issue after 52 years of political warfare.
It is understandable that Trump may feel he has more wiggle room on the abortion issue this time. Pro-life voters are likely sufficiently angered by the rapid advance of Cultural Marxism and social chaos of the past three years under Biden that they are ready to jump at even the possibility of a return to more socially conservative values to the White House. If pro-life voters just stay home on election day, they may end up with something far worse than a generally friendly occupant in the White House.
But it doesn’t need to be this way. I strongly believe that the more difficult the issue is, the more local should be its solution. That is the real success of the Dobbs decision, because abortion should have never been a federal issue in the first place. Overturning Roe v Wade returned us to where we belonged, with state and local laws governing all issues not Constitutionally reserved for the Federal Government.
Bigger problems are best decided closest to home. Look for example at what happened when parents started going to school board meetings and demanding accountability on everything from Covid restrictions to transgenders in school bathrooms. Parents were extremely effective because they only had to travel to the local school board meeting to demand – and get - results. Does anyone think they would have been able to get the same results at the Department of Education in Washington DC?
Similarly, immigration is much better handled by those closer to the action. Ideally it would be a property rights issue, but at the least states like Texas should be taking an active role in preventing a foreign invasion into its borders rather than waiting for Washington to make a move.
The pro-life voters and a seemingly more moderate Trump are making a mistake drawing federal battle lines on the issue. The doors are wide open for state and local activism on the abortion issue. All in all, it is a win rather than a loss for power to be devolved from Washington to your local capital or city hall.
Libertarian Autobiographies, edited by Jo Ann Cavallo and Walter Block, delves into the trials, tribulations, intellectual formation, and accomplishments of 80 libertarians from around the world—in their own words! The following is an amended excerpt from the introduction written by the co-editors:
It is our fervent belief that libertarianism is the last best hope for humankind with regard to economics, liberty, justice, prosperity, peace, and thus even survival (pardon us for hyper-ventilating, but we maintain this is indeed the case). This belief of ours is predicated upon the crucial importance of the non-aggression principle (NAP): proper law should allow all people to engage in whichever acts they prefer, with the one exception being any behavior that violates this precept or any threat thereof. Thus, murder, rape, theft, kidnapping, fraud, and similar evil actions should be prohibited, and virtually everything else should be legally permitted.
But why assemble a collection of autobiographies penned by libertarians? Why not, instead, offer a collection of scholarly articles demonstrating the benefits of liberty? Many of the contributors to this volume have published just that sort of work on numerous occasions. Why not do so one more time? Although people may gain an understanding of this philosophy via rational argument, it cannot be denied that autobiographies, too, are important for the promotion of liberty. The personal touch may reach some people not approachable via any other means. Additionally, we all want to know the libertarian stories of people such as those who appear on these pages. Indeed, we find that libertarians have the most interesting stories to share because they often embrace this philosophy as the result of intense encounters with foundational texts or life-changing experiences.
One of the big “problems” we have with some of the best-known libertarians throughout history—such as John Locke, Lord Acton, Ludwig von Mises, Isabel Paterson, Henry Hazlitt, Friedrich Hayek, and Murray Rothbard—is that they never wrote an autobiography. Of course, if they had, alternative costs being what they are, they would likely not have been able to write other precious publications of theirs. But what about libertarians alive today? Would they be willing to share their stories? We already have the example of two volumes of libertarian autobiographies: Why Liberty: Personal Journeys Toward Peace & Freedom (Cobden Press), with 54 autobiographies edited by Marc Guttman, and I Chose Liberty: Autobiographies of Contemporary Libertarians (Mises Institute), with 82 autobiographies edited by one of the co-editors of this present volume, Walter Block (available as a free pdf at https://mises.org/library/i-chose-liberty-autobiographies-contemporary-libertarians). Both volumes were published over a decade ago, however, in 2010. We wanted to learn more about the lives of contemporary libertarians not covered in these two volumes and of others who have emerged since the time of these publications.
We therefore reached out to a number of influential scholars, activists, professors, journalists, and cultural icons who have worked toward a freer society across the globe, inviting them to write a brief autobiography for this collection. We asked them to articulate, for example, what their lives and thoughts were before they embraced libertarianism; which people, texts, or events most influenced their intellectual formation; what experiences, challenges, tribulations, and achievements they have had as participants or leaders in this movement; and how this philosophy has affected their personal or professional lives.
A volume of autobiographies on the part of libertarians immediately raises the question of precisely what constitutes this political economic philosophy. In our “big-tent” view, it comprises several strands. They all have something in common, such as an appreciation for individual liberty, private property rights, the rule of law, and free enterprise, but there are also discernible differences. That is why if you get ten libertarians in a room and ask them a question, you’ll likely get eleven (or more!) different responses. In this volume, we invited libertarians across the political-philosophical spectrum, including (1) anarcho-capitalism; (2) minimal government libertarianism, or minarchism; (3) constitutionalism; (4) classical liberalism; (5) thick libertarianism. The contributors to this volume range over the five main viewpoints mentioned above, and also fill in the gaps between them. Their essays express different perspectives on many issues even while articulating the same core principles. In fact, it is our desire that their very differences of opinion on some matters will invite readers to think for themselves. What we have sought to present is a sampling of the myriad individual journeys toward libertarianism, however defined.
Although the majority of contributors to the volume live in the United States, we are grateful to the libertarians from around the world who accepted our invitation to share their stories. This volume thus includes voices from Argentina, Austria, Brazil, Bulgaria, Canada, Chile, China, Colombia, Czech Republic, England, Germany, Guatemala, India, Ireland, Israel, Italy, Jamaica, Japan, Kenya, Korea, Nigeria, Peru, Poland, Romania, Russia, Scotland, South Africa, Spain, Sweden, and Ukraine.
It is the hope and expectation of the editors that by bringing together a range of contemporary voices from outside the dominant left–right paradigm, this volume will contribute to the viewpoint diversity that is crucially needed in today’s public discourse. Moreover, these personal and intellectual journeys not only offer compelling insights into their individual authors and the state of the world in our lifetime, but may also serve as an inspiration for the next generation who will feel called upon to make our society a freer one.
N.B. The publisher’s link to the book is: https://link.springer.com/book/10.1007/978-3-031-29608-6. Both the hardcover and the ebook are available for purchase internationally. Get 20% off the printed book or eBook by entering the following coupon code at checkout on link.springer.com: H5DoMQW47RT2HD (valid until Oct 13, 2023). In addition, the MyCopy version (printed ebook) is available at a low cost ($39.99 in the US) to individuals who belong to a university subscribed to SpringerLink. If your university subscribes to SpringerLink, you can also read the book online for free. (If you’re not on a university-sponsored device, a VPN, or the school’s WiFi, you might have to access the book through your university’s library page.)
America’s debt clock has ticked past $33 trillion, reaching a billion dollars of spending every hour. Meanwhile, the monetary policy conditions that have emboldened Washington’s spending spree are over. Current estimates predict a $2 trillion deficit for 2023, while the Federal Reserve’s rising interest rates are quickly forcing payments on that debt to become the highest budget item for the federal government.
America’s fiscal crisis is here.
Unsurprisingly few in Congress, of course, have an interest in recognizing the monster they have created.
Right now, the crisis in Washington is not the economic reality federal spending has created, but the small handful of legislators trying to disrupt the process that has created these conditions. To read Beltway-based publications, the real threat is a government shutdown, eroding support for yet another round of Ukrainian funding, and “far right” legislators seeking to return to a normal appropriations process.
The face of the opposition is Florida Congressman Matt Gaetz, who has made himself one of the most hated men in Washington as a result of his unrelenting criticism of Republican leadership, his entrenched opposition to budget-by-continuing resolution that has become the norm, and his made-for-clip sharing charisma that allows him to effectively communicate the corruption, hypocrisy, and relative dysfunction of the current political elite.
Gaetz, who helped spearhead the historic coronation of Speaker of the House Kevin McCarthy, has managed to build up enough of a coalition of his colleagues to stymie recent attempts to kick the can down the road. His stated goal is to force McCarthy to honor the promises made to the GOP caucus earlier this year, to force the House to vote on twelve single-issue spending bills — as required by the Budget Control Act of 1974 — rather than the bundled-together appropriation bills that have become the DC norm since the 1990s.
The reality is that any return to legislative normality is a threat to modern Washington. Most of Congress has no interest in vetting appropriations bills, as illustrated by the backlash Rep. Thomas Massie faced by standing in the way of allowing a voice vote to authorize $2 trillion covid-related spending bills. The role of a modern member of Congress is to fundraise and beat the market on stock trades, allowing the professional political class embedded in government bureaucracies to do the real governing.
In an all-too-perfect illustration of this dynamic, last Friday the Republican Appropriations Chair Kay Granger left a Congressional meeting dedicated to the upcoming spending battles early to attend a fundraiser with lobbyists for her political committee.
While the Gaetz-led coalition’s battle for restoring normality to the appropriations process is commendable, it is noteworthy that it is ultimately insufficient to tackle the basic math problems DC faces. Even the highest ambitions from fiscal hawks have been to cap discretionary spending — roughly a third of federal spending — to 2022 levels, baking in the massive spendingl increases seen during the Trump presidency. Untouched are the much larger drivers of fiscal destruction, military spending, entitlements, and the aforementioned financing of the debt. Even the uni party’s dogmatic dedication to the Zelenskyy regime has made the relatively low-hanging fruit, ending future aid to Ukraine that has seen its public support collapse in recent months, a seemingly impossible political sell on Capitol Hill.
In modern Washington, any responsible voices on fiscal issues will necessarily be presented as reckless extremism. The sacred cows of the Beltway must be slaughtered. National default on debt obligations, including entitlement promises, will be required. Those brave enough to state the obvious will be ruthlessly attacked by the political class and the obedient press, just as Ron Paul was during his Congressional career.
America’s fiscal crisis has required decades of work by both political parties to create. The underlying incentives of America’s political process reward economic myths over recognizing this reality. Younger generations will continue to be made poorer thanks to the policies authorized by the older legislative body in US history. Standing up for a basic return to procedural normality is the easiest challenge facing Congress. Anyone unwilling to take that stand will only continue to fuel a Washington that is preying upon the future of its citizens.
As Ludwig von Mises understood, the destruction of a nation can only be stopped with a change in an underlying shift in the ideology leading to its destruction. This is why the Mises Institute is dedicated to telling these unpopular truths. If you support this mission, please consider making a $5 donation this week during our fall campaign.
After not raising rates to fight inflation last week, Federal Reserve Chair Jerome Powell delivered his usual speech and Q & A. He opened with three very peculiar sentences regarding price stability, leading to a few unsettling conclusions.
He starts with:
Price stability is the responsibility of the Federal Reserve.
This statement raises concerns. First, it fails to define what price stability means. Even if Congress had assigned this responsibility to the Fed, it’s not something many would agree with if given the chance. While the approach to achieving this desired state of price stability appears quite absurd, for argument’s sake, let’s consider this statement true.
In Powell’s following sentence he inadvertently shares the dire consequences of giving this responsibility to a central bank, as explained:
Without price stability, the economy does not work for anyone.
This is a rather bold, yet hollow statement. He essentially suggests the economy cannot function without the Fed's intervention.
Examining the history of America reveals that central banking hasn't always been a requirement for prosperity and development. Looking at present-day and historical hyperinflations, it becomes evident central banking is largely culpable in a nation's currency collapse. From what we’ve seen of the Fed, there’s little reason to believe this current iteration of America's central bank is somehow different.
The Austrians have argued for over a century that a currency monopoly or central authority controlling a nation's currency is unnecessary, much like we don't need a czar to regulate the production of shoes, cars, or gold.
To state that the Fed makes the economy work for everyone is simply untrue. It’s clear how bankers who receive bailouts and capitalize off borrowing millions and low interest rates are better off; but the average person on main street who ultimately pays for this market distortion can hardly say the Fed’s policies work in their favor.
The third sentence follows a similar vein as the previous:
In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.
This claims that a strong labor market is due to the Fed’s management of price stability. He’s taking credit for something that cannot be verified. It would be useful if, during the Q&A session, a reporter inquired as to how the Fed ascertains what a "strong" labor market is and how market intervention contributes to a stronger labor force. However, questions like this are seldom asked.
Returning to one crucial point: although Powell does not address what he means by price stability, the St. Louis Fed has an article elaborating on it…
Price stability means that inflation remains low and stable over the longer run. When inflation is low and stable, people can hold money without having to worry that high inflation will erode its purchasing power.
In addition to not utilizing the historical definition of inflation, the notion that a gradual reduction in purchasing power could ever be beneficial to society is something everyone should recognize as false.
It's also worth noting Powell’s same three sentences have been used nearly verbatim in speeches in February of this year, as well as August and November of last year. If one were the wagering type, it would be reasonable to bet these three sentences have been reiterated more than four times during Powell's tenure.
The Government of Poland announced this week that it is no longer providing weapons support to Ukraine, and that Warsaw will focus on building up Polish weapons stockpiles instead.
Prime Minister Mateusz Morawiecki said Wednesday, “We are no longer transferring weapons to Ukraine, because we are now arming Poland with more modern weapons.”
Warsaw's decision comes as diplomatic relations between Ukraine and Poland have worsened due to a dispute over imports of Ukrainian grain into Poland. The conflict has its roots in the fact that Russia has largely prevented Ukraine from exporting grain via its Black Sea ports. Ukraine then turned to exporting grain by land, with much of it going through Poland. Waraw, however, feared that a massive influx of Ukrainian grain in Polish markets would drastically cut incomes for Polish farmers. As in many European countries, farmers in Poland retain sizable political clout, and Warsaw moved to convince the EU to restrict Ukrainian grain sales in Eastern Europe.
Last week, however, the European Commission moved to allow Ukrainian grain sales across the bloc prompting unilateral bans on sales in Poland, Hungary, and Slovakia. Ukraine then sued all three countries in the World Trade Organization, and has accused Warsaw of "acting in Moscow's Interests."
Thus, Poland's decision to pull back its Ukraine support comes after weeks of threats from Kyiv and the ongoing trade dispute. It is unlikely, however, that Warsaw's latest move is a mere bluff designed to push back Ukraine's grain exports. There is good evidence that the Ukrainian regime is beginning to wear out its welcome with Poland. Polish president Andrzej Duda this week compared Ukraine to a drowning person who pulls down people who try to save him. Duda suggested it becomes "necessary to act" to "protect oneself from being harmed by a drowning person" who "can pull you into the depths."
Also notable is the fact that these moves from Warsaw come as election season, so comments like these can also be read as attempts to shore up support with significant voting blocs within the country.
Until recently, Poland was one of Ukraine’s strongest allies in the war. Now Polish President Andrzej Duda compares Ukraine to a desperate drowning person who can pull the rescuer down with them. pic.twitter.com/JzjiGlp5Rn— David Sacks (@DavidSacks) September 21, 2023
The fact that Poland is slowly souring on endless largesse for Ukraine is quite a reversal from 2022 when Warsaw was one of Kyiv's most enthusiastic supporters. Indeed, as we noted here at mises.org, Polish support for Ukraine was downright reckless with Polish calls for a "no-fly zone" and a Polish scheme to ship F-16s to Ukraine in an attempt to escalate the conflict. Poland has also been a key partner to Kyiv in continuing to provide safe haven to about a million Ukrainian migrants seeking to escape conscription, war, and economic devastation in Ukraine. Poland also spent more than 8 billion euros on supporting these migrants in 2022 alone.
The slackening support for Ukraine also likely stems from the fact that more astute observers have perceived that initial predictions about the potential for a Europe-wide Russian invasion were clearly wrong. Russian tanks will obviously not be rolling through Poland or Hungary any time soon, even if NATO completely withdraws from Ukraine.
It is not a given, however, that the current ruling party in Poland will be rewarded in the upcoming elections for its softening support on Ukraine. NATO's operations in Ukraine—funded overwhelmingly by American taxpayers, of course—still has many supporters in Poland. However, if the ruling party comes out of the election unscathed following its pullback from Ukraine, this will likely be bad news for Kyiv which has already lost its summer "offensive" and continues to endure unsustainable losses. The Russians aren't giving up their control of southeast Ukraine any time soon. Moscow must retain control of the Cherson regime to keep control of irrigation waters for the Crimea, and total control over the Sea of Azov is key to ongoing plans to open up the trade routes with the Caspian Sea and the Volga River basin.
The longer Ukraine fails to make any progress in its south, the more likely other European regimes will conclude that endangering their own domestic budgets and agricultural voting bases are no longer worth the trouble.
The Biden Administration is celebrating the first anniversary of the passage of the Inflation Reduction Act, which allocates trillions of dollars in taxpayer subsidies to industries of their choice. Welcome to five-year plans.
While guest-lecturing in Moscow one cold March night in 1993, a student asked why western firms didn’t invest more in Russia. I had just finished my PhD Dissertation on the subject of US-Russian joint ventures, so I probably gave a long, boring answer, that ended with an observation that in Russia, it was hard to make plans. One bright student quipped, “We used to have plans. Five-year plans.” And the whole room erupted in laughter.
When I tell that story in my classes in the US, no one laughs. That’s because the Biden administration has just launched their version of “five-year plans.” They won’t work. I explain the failure of the Soviet socialist five-year plans in the classroom by asking a student who might be wearing a Patrick Mahomes Kansas City Chiefs jersey, “Will Mahomes be with the Chiefs in five years? Will they be in the Super Bowl in five years? Will they still be the Kansas City Chiefs in five years, or will they move to another city?” Students quickly get the idea that five-year plans are dumb because no one knows what jersey will be demanded in five years. Yet, five-year plans require that you make that prediction.
That statement from former House Speaker Dick Armey should be on the wall of every congressperson in DC. “The reason markets are smart is because they aggregate all the information available from every possible producer and consumer. Markets are where everyone votes. Isn’t that a good way to solve problems? Wasn’t that how the congressional representative was elected? We hear cries continually about “threats to democracy.” Well, the recent flood of money into narrowly specified industries is a threat to the democratic medium that we call the market. Why should only government elites get to vote? What’s wrong with “one person, one vote?” Because that’s what happens in a market. Here’s how economist Friedrich von Hayek explained it, "The advantage of a free market is that it allows millions of decision-makers to respond individually to freely determined prices, allocating resources - labor, capital, and human ingenuity - in a manner that can't be mimicked by a central plan, however brilliant the central planner."
When our house was built in 1999, the owner wanted to be “ahead of the curve,” so he ran three physical hard wires to every room: TV, telephone, and internet. We don’t use any of them. The investment was wasted. As the trillions of dollars in funding through the Inflation Reduction Act will be wasted. The Biden administration’s commitment to broadband, the power grid, and electric vehicles will suffer the same fate. No one knows which technology will dominate in the future.
“Predictions are difficult, especially those about the future,” quipped Danish Physicist Nils Bohr. But that doesn’t seem to slow the economic humanism that’s behind the motivation that encourages governmental bureaucrats to pick winners and losers. Speaking of those Kansas City Chiefs, would any reasonable person suggest that the government put their enormous resources behind ONE of the 32 teams in the NFL? Of course not, that would destroy the league. What do you think providing $28 billion via the Chips Act will do to the semiconductor industry?
When Milton Freidman popularized the phrase, “There is no free lunch,” he was making the point that trillions of dollars forcefully extracted from taxpayers are dollars that could have gone to other investments. Financial folks expect a return on their investment that is equal to, or above the average rate of return. Government subsidies perform well below that expected rate. Thus, every dollar that is committed to a government subsidy - on average - underperforms. That makes all of us poorer.
Solyndra is a classic example of governmental elites trying to predict the future. The solar panel manufacturer received $535 million in loan guarantees. When it failed, President Obama observed that he didn’t know which technologies would prevail. He’s right, he does not know. But the market does. The half-billion dollars that President Obama flushed down the Solyndra toilet was forcefully extracted from obedient, tax-paying citizens by the use of power. That’s why we should rely on the market.
When the market works, investors willingly contribute their own assets, by choice.
So it’s pretty simple: Would you rather have a society operated by power, or by freedom? That’s why it’s called free market capitalism. Another warning from the economist Hayek, “I regard the preservation of free markets, as an essential condition of the very survival of mankind.” Or as Whole Foods founder John Mackey said, “Capitalism is humanity’s greatest invention.” Then, government subsidies are humanity’s worst invention.
Only three months ago, the US debt crossed the $32 trillion mark. Here we are again, this week passing $33 trillion, with still no end in sight. As usual, Democrats are blaming Republicans, Republicans are blaming Democrats, as the political circus in Washington perpetuates a never-ending debt ceiling crisis.
The New York Times attempts to shed light on some of the reasons behind this relentless debt growth.
The Inflation Reduction Act of 2022 was previously estimated to cost about $400 billion over a decade, but according to estimates …. it could cost more than $1 trillion thanks to strong demand for the law’s generous clean energy tax credits.
Connecting clean energy tax credits with inflation reduction remains a rather vague proposition; and trillion-dollar spending programs are notorious for blowing through budgets.
It’s bad enough the State forces taxation upon the People; but, the inability to spend within an annual multi-trillion-dollar budget only adds insult to injury.
The New York Times highlights another troubling issue:
In late 2022, the I.R.S. delayed by one year a new tax policy that would require users of digital wallets and e-commerce platforms to start reporting small transactions to the agency. The policy was projected to raise about $8 billion in additional tax revenue over a decade.
Now, picture being $33 trillion in debt while looking for new and innovative ways to tax private citizens on their crypto wallets to “raise” $8 billion over a 10-year period. It’s evident taxation alone will never sufficiently address the fiscal challenges in Washington.
A Treasury Department report last week showed that the deficit — the gap between what the United States spends and what it collects through taxes and other revenue — was $1.5 trillion for the first 11 months of the fiscal year, a 61 percent increase from the same period a year ago.
The feasibility of extracting an extra $1.5 trillion in annual tax revenue must be questioned. Barring significantly increasing the wealth confiscation of the masses, making up for this annual shortfall by simply taxing more will never suffice. Even if higher taxes were the solution, we shouldn't be surprised if deficits persist.
Amidst this alarming $33 trillion milestone, Treasury Secretary Janet Yellen appears unfazed by the debt level, appearing on CNBC, addressing the nation with a straight face saying:
The statistic or metric that I look at most often to judge our fiscal course is net interest as a share of GDP.
By the same logic, should the government borrow and spend $10 trillion at 1% on make-work projects, this would be okay as the trillion-dollar interest expense pales in comparison to the boost in GDP. If so, it rings true that debt doesn’t matter, so long as taking on new debt services the old debt.
The causal nature of the Federal Reserve is seldom made. But we must keep in mind that the Fed’s ability to buy government debt makes the US Government's ability to spend money it doesn’t have that much easier. It’s true the Fed does not own all the US debt. But if it weren’t for the Fed, we wouldn’t be $33 trillion in debt as it is.
The Harmonized Index of Consumer Prices (HICP) consists of 12 subindices, which are weighted according to their shares in total household expenditures. If, for example, food and non-alcoholic beverages (subindex 1) account for 15% of expenditures, they should also be given a weight of 15% in the overall index. In this way, each expenditure category would be given the importance it has for an average household. This is the claim of official statistics. But here, too, as so often, aspiration and reality diverge.
In Germany, the traditionally largest subindex covers housing, water, electricity, gas and other fuels (subindex 4). It has always accounted for more than 21% of the overall index since the mid-1990s. Between 2020 and 2022, the weight had increased to slightly more than 25%. The official statistics thus assumed that German households spend on average around a quarter of their total expenditure on goods of this category. This is too little in the eyes of some critics. Many households spend significantly more on goods of this type. In larger urban areas, households often spend more than a third of their income on rent alone.
There has now been an unexpected change in 2023. The Federal Statistical Offices did not increase the weight of subindex 4, but lowered it from 25.2% in the previous year to 16.5%. No valid justification for this has yet been provided. On the website of the Federal Statistical Offices, there are only empty phrases: "The Corona pandemic, which has been prevalent since 2020, with its restrictions on public life and the resulting consequences, makes it necessary to change the usual procedure for updating the goods weights for the third year in a row as well." (translated with DeepL because AI is really good at translating bureaucratic talk.)
How could one even justify such an implausible adjustment? As a matter of fact, the adjustment means that from now on official statistics will assume that the average German household spends only 16.5% of its total expenditure on housing, water, electricity, gas and other fuels. Whether this assumption is realistic is something everyone can consider for themselves.
What is clear is that the down-weighted subindex 4 has been showing above-average inflation rates for some time now. Between 1996 and 2022, it has risen by 84% overall, but the HICP as a whole has risen by only 59%. Only subindex 2 for alcoholic beverages, tobacco and narcotics has risen even more strongly during this period, by 115%.
During the inflationary phase of last year, prices in subindex 4 rose the most of all. The inflation rate here was 13.9%, more than 5 percentage points above the official average inflation. That the Federal Statistical Offices have now decided to lower the weight of this subindex has one practical effect: the officially measured inflation will be lower. But it measures past reality.