19 Nuggets of Wisdom from the Best Economics Writer You've Never Heard Of

 Arthur Seldon

By Gary M. Galles

May 29 marks the birth of Arthur Seldon. While too-little known to American readers, he was editorial director of the London-based Institute of Economic Affairs for more than thirty years, during which, The Economist wrote, it “brought to the lay reader the ideas of all the leading free-market economists and thinkers of the day.”

Seldon produced a seven-volume set of collected works, including books, monographs, essays and articles, as well as editing hundreds of papers, monographs, and pamphlets.

In such a vast body of work, one cannot easily winnow out the best of Arthur Seldon’s insights. Therefore, consider some of the wisdom in just one of his books—Capitalism—winner of the Fisher Arts Literary Prize and celebrating its 30th anniversary this year:

1. "Capitalism…creating high and rising living standards for the masses without sacrificing personal liberty speaks for itself. Only the deaf will not hear and the blind will not see."
2. "Even bad men are led by the market process to do good, but good men are induced by the political process to do harm. [So] discipline the writ of politics to the bare minimum."
3. "Private property is a potent working institution. Public ownership is…political power cornered by handfuls of irresponsible non-ownerships."
4. "Capitalism…allows individuals to take the risks of living their lives as they see best."
5. "The capitalist market…puts power--effective purchasing power--directly into the hands of the common man and woman for them to use where they wish…That is why the market is more essentially democratic than government."
6. "Changing private identifiable property into public unidentifiable property is to destroy the incentives to protect, conserve, improve and render it productive by using it profitably in making goods and services for which consumers will pay."
7. "Pricing is the peaceful way of resolving argument and conflict."
8. "It was the development and refinement of the law of private property rights that explains… modern progress."
9. "That in practice markets are imperfect has obscured the more fundamental truth that they are the best-known way of enabling individuals to meet for mutual benefit . . . World practice and experience…show no better, less imperfect, mechanism."
10. "As government has been inflated…It has undermined the instrument that could have done more for the common man."
11. "Capitalism embraces the self-correcting mechanisms of open discussion in free society to identify error and open competition in free markets to apply the corrections."
12. "The market does not require people to be good: it takes people as they are and induces them to do good by using their capabilities to provide what others want."
13. "Wherever it is used, government is so disappointing or worse—inefficient, unaccountable and corrupt—that it is best not to use it at all except for functions where all its faults have to be tolerated to obtain the services required…In short, the price of government is so high that it should be avoided wherever possible."
14. "The state has shown itself the false god of all who have looked to it."
15. "Capitalism…requires the eventual withdrawal by government from most of its accumulated activities."
16. "The inducements of capitalism compel the money-makers to do good; the inducements of socialism enable the power-holders to do harm."
17. "The political process…has become the master rather than the servant of the people."
18. "Individuals are smothered by collective decisions in the political process."
19. "The market of capitalism treats people as individuals; the political process of socialism herds them into categories. Capitalism makes for harmony, socialism for friction."

Americans would do well to make up the deficit in their knowledge of the works of Arthur Seldon and his “life for liberty,” as his biographer, Colin Robinson, described it. As the IEA website put it, “Seldon highlights the improvements of mankind which came about not through some central plan or social organization but through individuals recognizing an opportunity to produce goods and services which met a need expressed by the demand in the market.”

In so doing, he advanced every individual’s potential, which is expanded by private property and voluntary market arrangements, but constricted when political power hinders the freedom and cooperation they engender.

The above originally appeared at FEE.org.

Interest on Excess Reserves and the Prospects for Price Inflation

Kevin emails:

I’m not sure if you have addressed this recently, and I apologize if you have and I missed it.  I’m curious about the current Fed policy regarding Interest on Excess Reserves (IOER).  What is their current policy and how might that policy interact with coming inflation expectations?

RW response:

The Federal Reserve Board reduced reserve requirement ratios to zero percent effective March 26, 2020.  This action eliminated reserve requirements for all depository institutions.

IOER has a negligible role in money supply creation with this change. Bank capital requirements, etc. are much more important but it really doesn't make sense except for a Fed watcher nerd to pay attention to these details. It is wading into the deep weeds for no reason.

Just watch money supply growth and that will give you plenty of guidance as to the pressures on price inflation.

And right now, they are enormous. Thirteen-week annualized money supply growth. the way I calculate it (detailed in The Fed Flunks), is now growing at a remarkable 40.5%.

The pink line above shows current money supply growth. The other lines show growth for the 8 previous years. Obviously, we are not in Kansas anymore.

If George Clooney Understood Basic Economics, He Wouldn't Be So Sad

George Clooney, who is a paid promoter of Nespresso, said he was “surprised and saddened” to learn of child labor allegations facing the coffee giant, reports The New York Post.

A forthcoming investigation from the British documentary program Dispatches claims Nespresso and Starbucks rely on beans picked by young children working long, “grueling” shifts in Guatemala to pick beans for their coffee.

“Honestly I was surprised and saddened to see this story,” Clooney, 58, said in a statement sent to USA TODAY. “Clearly this board and this company still have work to do. And that work will be done.”

Of course, if Clooney understood basic economics he would know that children working "long grueling shifts" are doing so because it is the best alternative they have. Nespresso is really doing a good thing by employing them. It has been documented that these children, in their environment, often turn to prostitution or begging as the only alternative to Nespresso type jobs.

Ben Powell has done an excellent job of explaining this:




-RW

Trump to Squeeze Hong Kong Economy

Hong Kong

President Trump said Friday that his administration would “begin the process” of ending the American government’s special relationship with Hong Kong, including on trade and law enforcement, reports The New York Times.

“My announcement today will affect the full range of agreements we have with Hong Kong,” the president said, including “action to revoke Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China.”

Make no mistake about it, ending the special relationship with Hong Kong is essentially putting sanctions of a sort on the region. It is restricting free trade.

Restricting free trade is never a good idea.

The United States and Hong Kong also enjoy visa-free travel, making it easy for business executives to come and go. If the United States removes Hong Kong’s special status, that could come to an end.

Specifically, under the United States-Hong Kong Policy Act of 1992, Hong Kong is treated differently by U.S. law when it comes to financial transactions, immigration and trade. That is there are little to no tariffs and other charges

That status has allowed annual trade between the two to grow to some $38 billion.

Notes the Times:

The removal of the special status could lead the United States to treat Hong Kong the same way it treats any other Chinese city. That would mean higher tariffs, including those enacted amid the trade war between the United States and China. Movement between the two places would be restricted as well. Many American businesses may choose to leave...

The bizarre goal of the Trump administration in removing the special status is to put pressure on China to ease up on its accelerating involvement in the regulations set on the city. Of course, such pressure never works and certainly won't work against a giant like China. It only increases antagonism between the US and China and leaves less ability for Hong Kong, through trade, to breathe on its own.

“The harder the U.S. hits us in terms of cutting our ties, what will happen is that will drive us towards mainland China, won’t it?” Regina Ip, the leader of the pro-Beijing New People’s Party in Hong Kong, told the Times.


-RW

Battle Hymn Of The Gesundheitsfuhrers: Sickness Is The Health Of The State!

By David Stockman

A hundred years ago in response to the horror of WWI, the great Randolph Bourne famously pronounced the truth that “War is the Health of the State.” Said Bourne,

War is the health of the State. 

It automatically sets in motion throughout society those irresistible forces for uniformity, for passionate co-operation with the Government in coercing into obedience the minority groups and individuals which lack the larger herd sense. The machinery of government sets and enforces the drastic penalties, the minorities are either intimidated into silence or brought slowly around by a subtle process of persuasion which may seem to them to really converting them...... 

Other values such artistic creation, knowledge, reason, beauty, the enhancement of life, are instantly and almost unanimously sacrificed and the significant classes who have constituted themselves the amateur agents of the State are engaged not only in sacrificing these values for themselves but in coercing all other persons into sacrificing them.
In a nation at war, every citizen identifies himself with the whole, and feels immensely strengthened in that identification. The purpose and desire of the collective community live in each person who throws himself whole-heartedly into the cause of war. The impeding distinction between society and the individual is almost blotted out. 

A century later it appears that Randolph Bourne needs an update: Apparently, Sickness is the Health of the State, as well.

During the past 10 weeks, state control of economic and social life in America has erupted like never before. The stay-at-home and lockdown orders decreed by mayors and governors intrude into every nook and cranny of daily life, essentially subjecting tens of millions of Americans to house arrest and/or entombment in six-foot cylinders of social control.

The historic quasi-regimentation and suppression of dissent that occurred domestically during both world wars, for instance, pales by comparison.

The pretext, of course, has been that the coronavirus presents a dire threat to the very life and limb of the American public, and that exigent and invasive controls on individual action and daily commerce are necessary to stop its spread.

But that’s a gargantuan lie. The risk of death to an average healthy person under 60 years of age is no greater than that entailed in commuting 50 miles per day by car to work and back.

And besides, once a highly contagious virus gets loose among the general population— which the coronavirus had done long before Lockdown Nation was launched on March 13—its spread cannot be stopped, anyway.

In fact, it shouldn’t be stopped. When the virus is already out the barn-door and is relatively benign among 95% of the population which contracts it, the right course of action is to let freedom reign. That is, enable its natural spread among the healthy population and thereby foster the herd immunities that the human organism and social community have been deploying to combat such diseases for millennia.

Stated differently, the very high threshold of across-the-board threat to the health and life of the citizenry that would be required to suspend their liberties and pursuit of economic livelihood has not been remotely reached by the Covid. So what has and is still happening in Lockdown Nation is a case of grotesque and malign disproportion.

That’s evident enough in any random sample of the social controls and “nonessential business lockdowns” that have been hastily stood up coast to coast. But these excerpts from the lawsuit of an Illinois businessman capture the intrusive absurdity being foisted on the public as well as any:

I won’t get COVID if I get an abortion but I will get COVID if I get a colonoscopy. 

Selling pot is essential but selling goods and services at a family- owned business is not. Pot wasn’t even legal and pot dispensaries didn’t even exist in this state until five months ago and, in that five months, they have become essential but a family-owned business in existence for five generations is not. 

A family of six can pile in their car and drive to Carlyle Lake without contracting COVID but, if they all get in the same boat, they will. 

We are told that kids rarely contract the virus and sunlight kills it, but summer youth programs, sports programs are cancelled. Four people can drive to the golf course and not get COVID but, if they play in a foursome, they will. 

If I go to Walmart, I won’t get COVID but, if I go to church, I will. 

Murderers are released from custody while small business owners are threatened with arrest if they have the audacity to attempt to feed their families. 

These are just a few examples of rules, regulations and consequences that are arbitrary, capricious and completely devoid of anything even remotely approaching common sense. But this kind of arbitrary state invasion of economic and personal life is what happens when officialdom and politicians are green-lighted by an overpowering Big Lie.

In the case of Illinois, the state has its own bully-boy, Donald Trump wanna-be master of the universe in the state house. Governor J. B. Pritzker is the entitled scion of a brass knuckled family of Chicago business speculators who is used to getting his way, and has decided that it is his job job to quash the coronavirus—the rights of the state’s citizens and needs of the economy be damned.

But it is worth noting that the WITH Covid mortality rate in Illinois as of May 27 was just 40 per 100,000, which is only slightly above the US average and far below the level in hard hit states, where the apparent mortality rates are far higher.

It’s also about the same as Sweden, which hasn’t closed its schools, businesses and places of social congregation; and it is well above a variety of other US states and countries including Japan and South Korea, which have not employed anything remotely resembling the sweeping Lockdowns imposed by the state of Illinois:


WITH Covid Mortality Rates Per 100,000 (as of May 28) 

• New York: 153;
• New Jersey: 128;
• Connecticut: 107;
• Massachusetts: 95;
• Rhode Island: 64;
• Sweden: 42;
• Illinois: 40; 
• Georgia: 18;
• Florida: 11;
• Germany: 10;
• Texas: 6;
• Switzerland: 4;
• Russia: 3;
• Belarus: 2;
• Japan: 0.7;
• South Korea: 0.5

 Indeed, the sweeping range of mortality rates among these jurisdictions tell you that intrusive lockdowns designed to stop the virus’ spread don’t have much to do at all with actual outcomes. Public health measures in Georgia, Florida, Texas, Japan, Belarus and South Korea, for example, were not a fraction as intrusive and comprehensive as those in the state of Illinois.

Even then, fully 50% of the WITH Covid deaths in Illinois have been in nursing and other long-term care facilities—places outside the reach of the general public lockdowns, anyway.

So if you set aside the long-term care deaths, the general population mortality rate in Illinois is actually about 20 Covid deaths per 100,000. That’s only slightly higher than the year-in and year-out suicide rate of 15 per 100,000 and not even 3% of Illinois’ annual mortality rate from all causes of about 875 per 100,000.

So you have the worst of both worlds: The Illinois lockdowns do not account for its moderate mortality rates because if plenary lockdowns were efficacious, the mortality figures for New York and New Jersey would be drastically lower.

At the same time, destroying an economy and personal liberties and livelihoods on account of a 3% share of the state’s normal mortality rate gives the idea of overkill and disproportion an altogether new meaning.

To take another example, the WITH Covid mortality rate of 15.7 per 100,000 in Virginia is only a tad above its annual suicide rate of 13.9 per 100,000.

But that hasn’t stopped its power-grabbing governor, Ralph Northam, from imposing a sweeping lockdown on the state’s residents, including an edict that after Friday all Virginians over 10 years of age will wear the Mask pretty much everywhere. As one acerbic critic rightly noted,

Or else! Gesundheitsfuhrers – health police – will do the enforcing, handing out misdemeanor fines and presumably Hut! Hut! Huts! to the non-compliant. 

Needless to say, even as the state balloons with its puffed up health police, the private sector has literally imploded. With today’s weekly report on initial unemployment claims, we have now reached a milestone which was not attained even during the darkest moments of the Great Depression.

To wit, during the past ten weeks 40.7 million workers have filed for state unemployment benefits, a figure which is nine times greater than the worst 10 months of the Great Recession; and when you add in the 4.5 million workers newly eligible under PUA (Pandemic Unemployment Assistance), the total is close to 45 million.

The total employed work force on the eve of Lockdown Nation in February 2020, however, was just 158.7 million.

So, actually, 28.3% of employed workers in what was alleged to be the Greatest Economy Ever have now received pink slips, and in a ten-week flash of the eye.

Still, this needless calamity gets us to another avenue by which sickness have become the Health of the State.

After the Donald’s camarilla of malpracticing doctors green-lighted the Governors and Mayors to lockdown their economies in Mid-March and conducted daily coronavirus task force briefings which became the fodder for the MSM to generate hysteria among the general public, the Washington politicians experienced their own version of fear contagion. That is, they passed sight unseen a $3 trillion Everything Bailout which has literally eviscerated the public finances of the nation.

Consequently, and unlike even the worst period of the Great Recession, lockdown starved US Treasury receipts of $3 trillion in FY 2020 will amount to only 40% of Bailout bloated outlays, which will exceed $7 trillion. That’s not even worthy of banana republic style finance.

Needless to say, the Covid-fighters on Capitol Hill held no hearings, took no expert testimony, had the benefit of no professional analysis or even a cursory reading of the bills.

So they apparently didn’t bother to find out, for instance, that there were 71 million American workers last year whose paychecks averaged less than the new combined Federal/state benefit of $1,000 per week; and that there were 17 million workers in the hospitality and leisure sector as of February 2020, who averaged less than 25 hours per week on the clock and got paychecks of less than $350.

So now the state’s Virus Patrols are confronted with a new variety of ailment that may be afflicting millions of workers. To wit, the discovery that it pays big time to get furloughed.

As one widely circulated commentary on the social media put it: Thank Heavens for the Covid!

Before COVID I was miserable. 

I had a job working $14.75/hr and hated waking up most days. I’ve since been laid off (obviously) but am one of those who is making much more by NOT working. 

I used to make $550-600 per week depending on my hours but since COVID began, I’m clearing just over $1000/week. My gf is in the same situation and she’s also clearing just over $1000. 

Today we plan to do some hiking since it’s going to be so nice out and I’ll be using my new grill to cook up some steak tonight. The gf is kind of a wine snob so she likes to splurge on really nice reds (which I’ll definitely be having later as well). 

I really don’t understand people who say they’re more stressed or are fighting with their gf/wife more than before. It makes absolutely no sense to me. These have been the best 2 months I’ve had in a while. I can’t imagine going back to my old life and way of doing things. NOT HAPPENING! 

The only thing that isn’t ideal right now is not being able to travel normally but I only vacationed once or twice a year before due to work/money issues. Now I’m able to save $800-1000/month with COVID stimulus and bonus so we’ll definitely be taking a nice vacation at some point this summer. 

So the question recurs: Why the Lockdowns?

House arrest and the 6-foot cylinder of social control that have been stood up to thwart the spread of the virus are inherently unmatched to the task, which is illicit in the first place. But they will inherently clobber the economy and the livelihoods of millions— notwithstanding a lot of brave talk about the “new normal”.

As the Wall Street Journal detailed in a story about the travails of the restaurant industry, the so-called re-opening will only be a short bridge to oblivion for large segments of the industry:

Across the U.S., dining rooms are reopening and some customers are returning, industry data shows. But restaurants say they expect months of sales losses ahead due to capacity constraints imposed to contain the new coronavirus. They are also buying plexiglass walls to separate tables, hiring cleaning staff and turning fewer tables to give booths deeper scrub downs between customers, expenses that draw on a shallower pool of revenue.

Of the 30 states that have allowed restaurants statewide to resume serving customers indoors, 15 have limited capacity to 25% or 50%, according to market-research firm Gordon Haskett. The rest are mandating social distancing that have the effect of reducing capacity, or have yet to release guidance. Restaurant executives expect the limits to last at least through the summer.

Independent restaurants face even greater challenges than sit-down chains because they tend to have less room to cordon off customers and fewer seats to remove. A survey of 250 Colorado restaurant operators earlier this month found that nearly half expected to permanently close in less than three months at the 50% capacity cap that the state set on Wednesday. A study of 483 New York City venues found that 61% couldn’t make it with occupancy limits below 70%.

For a typical 75-seat sit-down restaurant in New York, an occupancy cap of 50% would allow for just 20 diners after accounting for employees, said James Mallios, a New York City restaurateur and attorney.

He said the number drops to around five diners at a 25% capacity limit. New York City hasn’t yet eased stay-at-home orders or set final capacity guidelines for restaurants.

Then again, there are 275 million Americans 64 years and under who face virtually no risk of death or serious illness. As of May 16, the CDC’s own data show that the WITH- Covid mortality rate for this massive share of the population was just 4.9 per 100,000— about in line with the annual toll of traffic and other accidents.

By contrasts, the serious illnesses and deaths are occurring mainly where the Lockdowns aren’t. Persons 65 and older account for 16% of the population but 81% of the WITH-Covid deaths; and 32% of deaths have been among those 85 and older, which account for just 2.0% of the population—most of whom are in long-term care homes, and do not frequent restaurants.

The reason for high mortality and low public socializing, of course, is that the 22,543 persons 85 and older who died WITH Covid were pretty sick already. To wit, among them were—

• 8,267 cases of influenza and pneumonia;
• 11,250 cases of chronic lower respiratory and other pulmonary illnesses;
• 4,075 cases of high blood pressure;
• 4,000 cases of cardiac arrest and arterial arrhythmia;
• 5,800 cases of other circulatory diseases;
• 1,870 cases of diabetes and obesity;
• 3,650 cases of dementia;
• 1,700 cases of sepis and cancer;
• 1,025 cases of Alzheimer;
• 1,175 cases of renal failure; and
• 8,000 cases of other serious ailments including accidents and poisonings.

In all, the deceased over the age of 84 years had 50,800 of cases of classifiable diseases, most of them life-threatening. That’s an average of 2.25 each.

Needless to day, sickness is a condition of life—especially of advanced age; and it needs to be fought with medical care and personal health practices, not society-wide social engineering.

But when it becomes the Health of the State, as during the current Covid Hysteria, it is now apparent that the State becomes a greater mortal threat to liberty and prosperity than even during times of military war.

And we are quite sure that Randolph Bourne would heartily agree.

Read more of Stockman's analysis here.

David Stockman was Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.

Massive Lockdown Induced Budget Crisis Looms in California

Downtown SanFrancisco

The bizarre lockdown of the entire state of California by Gov. Gavin Newsom, without any scientific support that lockdowns are sound, is now leading to secondary problems for the state.

State and local government revenues are collapsing and government spending at state and local levels will shrink dramatically.

While I am extremely sympathetic to the shrinking of government at all levels, the actions of the governor and local officials, such as London Breed, Libby Schaaf and Eric Garcetti, suggest that they have little ability for sound thinking. Thus, it is going to be quite the circus act to observe how these mini-Maos deal with the severe budget crises they brought on by their own doing.

The San Francisco Chronicle reports that the state alone is facing a projected $54 billion deficit through the next fiscal year, and tens of billions more in years to come, because of the pandemic-induced economic collapse.

On a local level, the city of San Francisco is likely to be especially hit hard because Breed was among the first to issue lockdown orders and her orders remain even more stringent than Newsom's orders.

The city issued more orders just yesterday, requiring mask-wearing essentially at all times outdoors, even when jogging.

Since the city receives significant revenue from tourist visits, this is a particularly odd way to encourage visits to the city, especially since more and more evidence questions the value of mask-wearing.

Indeed, this just appeared in a  The New England Journal of Medicine article (ht Martin Hill):

We know that wearing a mask outside health care facilities offers little, if any, protection from infection. Public health authorities define a significant exposure to Covid-19 as face-to-face contact within 6 feet with a patient with symptomatic Covid-19 that is sustained for at least a few minutes (and some say more than 10 minutes or even 30 minutes). The chance of catching Covid-19 from a passing interaction in a public space is therefore minimal. In many cases, the desire for widespread masking is a reflexive reaction to anxiety over the pandemic...such reactions may not be strictly logical, we are all subject to fear and anxiety, especially during times of crisis. One might argue that fear and anxiety are better countered with data and education than with a marginally beneficial mask, particularly in light of the worldwide mask shortage, but it is difficult to get clinicians to hear this message in the heat of the current crisis. 

-RW

The Gabriel Zucman Six Act Social Media Event

I am generally no supporter of White House economic adviser Kevin "Baghdad" Hassett but during a recent interview on CNN, Hassett used a common economic term "human capital."

It was an odd phrase to use during a general television interview but there was nothing technically wrong with its use.

But Alexandria Ocasio-Cortez, who somehow gained a bachelor's degree in economics from Boston Univeristy (SEE: Boston University Economics Professors: "We Are Very Proud of Alexandria Ocasio-Cortez") exploded at Hassett's perfectly sound use of the term.

Human Capital Stock.

An ugly term w ugly history, but for many powerful ppl it‘s their most honest view of workers: human stock.

By their logic, the moment a person stops being useful to profit motive (retirement, health, etc) they are a liability. That’s the system we live in. https://t.co/ZihhtaI00W

— Alexandria Ocasio-Cortez (@AOC) May 26, 2020

The pro-tax economics professor at UC Berkeley, Gabriel Zucman, backed AOC up.

Phil Magness picks up the story from here with the six act play:

 Act 1: Gabriel Zucman fires off a bunch of tweets claiming that the phrase "human capital stock" only makes sense in reference to slavery, thereby lending support to the AOC/Steinbaum claims of the last few days.

Act 2: A bunch of twitter users find lecture slides on Zucman's own website where he approvingly refers to the "stock of human capital" in its normal usage.

Act 3: Zucman alters the lecture slides on his website to hide his previous use of the term.

Act 4: Twitter users dig up an archive of the original text and show it's been altered in the last few hours.

Act 5: BadEconTakes tweets the whole series of events.

pic.twitter.com/hePpoow6Cn

— Bad Econ Takes (@BadEconTakes) May 28, 2020

Act 6: Zucman lashes out at BadEconTakes and claims he's the victim of "bullying."

Please take note: The left plays by different rules whereby truth and reality are not necessary if it is a hindrance in an attack or to gain power.

-RW

Tyler Cowen Takes an Odd Swipe at the Austrian School

Tyler Cowen

In a review of the soon to be published book by Stephanie Kelton, Modern Monetary Theory and the Birth of the People’s Economy, Cowen makes 12 points.

It is a roller coaster ride.

In point one he says:

1. Much of it is quite unobjectionable and well-known, dating back to the Bullionist debates or earlier yet.  Yet regularly it flies off the handle and makes unsupported macroeconomic assertions.

At point 10, he hits the hardest:

10. I am plenty well read in the “money cranks” of earlier times, including Soddy, Foster, Catchings, Kitson, Proudhon, Tucker, and many more.  They got a lot of things right, but they also failed to produce coherent macro theories.  I would strongly recommend that Kelton undertake a close study of their failings.

He ends up while attacking Kealton's argument, apparently supporting more Fed printing in his final point. Incredibly, he states that monetizing the budget deficit is desirable:

12. The real grain of truth here is that if monetary policy is otherwise too deflationary, monetizing parts or all of the budget deficit is not only possible, it is desirable.  Absolutely, but don’t then let somebody talk loops around you.

And then there is the odd swipe at the Austrian school early on in his second point:

2. Like many of the Austrians, Kelton likes to insist on special terms, such as the government spending “coming first.”  You don’t have to say this is wrong, just keep your eye on the ball and don’t let it distract you.

I don't know of any Austrian that uses a term to attempt to mislead. If anything, some Austrians use terms, such as inflation, in a very strict sense to highlight a problem (the increase in the money supply). I have never seen Kelton do anything but use terms in a way other than to obfuscate and mislead. What a nasty swipe at Austrians to compare them with Kelton.

-RW

A TEACHING MOMENT: New York Governor Cuomo Gave Immunity to Nursing Home Execs After Big Campaign Donations

New York power freak Andrew Cuomo

The Guardian informs:

As Governor Andrew Cuomo faced a spirited challenge in his bid to win New York’s 2018 Democratic primary, his political apparatus got a last-minute boost: a powerful healthcare industry group suddenly poured more than $1m into a Democratic committee backing his campaign.

Less than two years after that flood of cash from the Greater New York Hospital Association (GNYHA), Cuomo signed legislation last month quietly shielding hospital and nursing home executives from the threat of lawsuits stemming from the coronavirus outbreak. The provision, inserted into an annual budget bill by Cuomo’s aides, created one of the nation’s most explicit immunity protections for healthcare industry officials, according to legal experts.

There is a very important lesson here.

When power centers are created, those close to power will benefit.

The only way to end this cronyism is to end the power centers themselves.

In this particular case, the question must be asked: What the hell is New York State doing setting up terms of lawsuits against hospitals and nursing homes?

What is wrong with allowing free markets to set terms? Under free markets, we are likely to have a myriad number of options from different organizations instead of a power center taking the weapon of options and alternatives out of the hands of consumers and, in this case, making Andrew Cuomo the great decider for all (after money is stuck in his campaign pocket).

-RW

Paul Krugman Confirms My Spectacular Stock Market Forecast

Paul Krugman

On March 24, I wrote here at EPJ:

I have seen many stock market analysts state that they expect the rebound in the stock market to be similar to what occurred after the 1987 stock market crash or the 2008 financial crisis or what occurred after the 1929 stock market crash.

But none of these periods fit the model of the current COVID-19 inspired crisis. There is another period, however, that will show exactly what I expect the upside will look like and I haven't heard anyone mention it---no one.

In tomorrow's EPJ Daily Alert, I am going to discuss that period and why the rebound from the lockdown will most likely look like that period... 

I have been writing the EPJ Daily Alert for years but I have never written an Alert like the one I am going to write on Wednesday.

I think it may well be THE CALL of my career.

This is what I wrote in the EPJ Daily Alert the next day:

The stock market is getting pummeled day after day. It is seemingly non-stop. At least in 1987 and 2008, the carnage slowed after the Fed started to intervene There was one more low, in both periods, a couple of months out and that was it.

The current Fed money printing hasn't slowed the carnage at all. The market continues to get hit and hit. The way the market is getting hit reminds me of the Paul Volcker years before August of 1982.

Specifically, before of August of 1982, the market was just getting hit and hit in early 1982 as Paul Volcker was keeping interest rates high to fight off inflation and everybody knew it. Then in August of 1982, Paul Volcker's Fed decided to change course and ease up when that happened all hell broke lose to the upside.

Starting in the middle of August 1982, the stock market shot up day after day. It was a buying panic.

After bottoming, the market fully recovered its prior peak just 83 days (2.8 months) later on November 3, 1982.

From an August low of  777 the Dow closed the end of 1982 at 1,046!

There was no churning of months before the explosion.

The key was, there was a specific event that everyone understood would end the pummeling in the stock market. If the Fed was no longer pushing interest rates higher, the worst for the economy was clearly over.

There is an even clearer specific event this time, when the lockdown is over everyone will know the worst is over and I expect the same kind of advance as in the second half of 1982.

The lockdowns may end by regions but at some point it is going to be understood the worst is over. It will be a trigger event, 1987 and 2008 didn't have such trigger events. The current perod, like 1982, does.

I then concluded (highlight in original):

I believe the end of the lockdown trigger event will be recognized by investors sooner than later. I am now advising to go ALL IN in the EPJ Model Portfolio. Take the remaining cash and add it to the SPDR S&P500 ETF (Symbol SPY) position.We may not be at the exact bottom but we are very close and I will just ride out any bumps because once the spike comes it is not going to stop. 

Since I wrote that edition of the ALERT the stock market, as measured by the Dow Industrials averages, is up more than 35%. The bottom actually occurred roughly 48 hours earlier. There was plenty of panic at that time.

A lot of investing when you have the Fed and other government agencies manipulating the economy is to figure out how the manipulations will impact the stock market (up or down). Anyone trained in mainstream Keynesian economics has no clue how to do this in a timely fashion and Austrian-lites just don't get the nuances of the theory.

This one looked kind of obvious to me especially with the money being pumped into the economy and which I report on in the Alert every Friday.

Now the Krug, who does watch the data closely but is a Keynesian, finally, two months later sees what I saw when panic was in the air.

Yesterday, he generally confirmed the forecast that I made at a time when there was still complete panic. He told Bloomberg yesterday:

I’ve been trying to get a handle on this by looking at recessions over the past 40 years. Until now we’ve had two kinds: 1979-82-type slumps basically caused by tight money and the 2007-09 type caused by private-sector overreach. The first kind was followed by V-shaped “morning in America” recoveries; the second by sluggish recoveries that took a long time to restore full employment.

My take is that the Covid slump is more like 1979-82 than 2007-09: it wasn’t caused by imbalances that will take years to correct. So that would suggest fast recovery once the virus is contained. But some big caveats.

Please note: Past spectacular forecasts do not mean future spectacular forecasts.

-RW

The Man With The Great Political Campaign Slogan: 'Nothing for Anybody'

Richard Timberlake

By George Selgin

I don't think of myself as an especially lucky fellow. I've never bought a lottery ticket, or wagered more than a few bucks at a time (and that only in my impetuous youth) on horses, slots, or roulette. So far as I'm concerned, I can no more escape Murphy's Law than defy gravity. Yet I don't doubt for a moment that I've been lucky in my friends, and never more so than when Dick Timberlake befriended me.

That lucky event happened sometime in 1982, when I was a grad student at NYU. I got a call from the late Elizabeth Currier inviting me to give a talk on the real bills doctrine at the annual meeting of the Committee for Monetary Research and Education at Arden House.

In those days I read just about every book about money or banking I could lay my hands on. One that I very much liked was Dick's book on The Origins of Central Banking in the United States which, if I recall correctly, had a photo of Dick—it may be the very one shown here—on its fly-leaf. If you either know Dick or glance at the photo you'll understand why I might have recognized him at once among the other conference participants. In fact, since Dick was well over six feet tall, and almost always wore the same seersucker suit and some sort of tartan tie, I'd have had to be blind to miss him!

Naturally I introduced myself, and we small-talked for a bit. Then I asked the inevitable question, "What are you working on these days?"

"I'm writing about bank clearinghouses, and the emergency lending they did before the Fed came along," he said.

"Oh," I said, "that's really interesting! So, do you agree with Sprague about the importance of reserve equalization?" (One of the other books I'd read was O.M.W. Sprague's 1910 History of Crises Under the National Banking System.)

From that moment, Dick and I were best buddies. Later that day Dick heard me go after the real bills doctrine. Good Chicago product that he was, Dick thoroughly detested the real bills doctrine, so I suppose that helped to cement our friendship. (It did not endear me, alas, to some others at the CMRE. But that's a story for another time!) Some months after, having written a paper on the same subject, I sent a copy to Dick for his comments. Before long it came back in the mail, red ball-point markings throughout. Dick's advice was like gold—he was a fantastic writer. But I especially remember his reading me the Riot Act when it came to "unsubstantiated" thises and thats. To this day, I cannot see either in an MS without breaking-out my own red pen.

Dick and I stayed in touch as I completed my work at NYU and went on to teach at George Mason. There I managed, after just three years, to be promoted to professor non-grata and granted an indefinite (albeit unpaid) sabbatical, which I decided to spend at the University of Hong Kong. For all I know, I might still be languishing there, if not in some dismal Chinese "re-education camp," had Dick (and Larry White, my NYU mentor) not come to the rescue.

My deliverance came just a couple of weeks after the Tiananmen massacre. My then-wife Joanne and I had only recently come back from a harrowing visit to Shanghai, which convinced us, if Tiananmen itself hadn't, that once the Chinese took it back, as they would in less than a decade, Hong Kong might not be the best place for a libertarian-leaning academic with a big mouth. In fact the whole faculty was thinking the same, and seeking opportunities abroad accordingly. So when the call came from the chair of UGA's econ department asking me if I'd like to visit, I didn't hesitate to say yes. Since both Dick and Larry were then teaching at UGA, I knew the invitation was their doing.

During my first weeks in Athens, Georgia, while I was looking for a home for myself and Joanne (who joined me later), I stayed with Dick and his lovely wife Hildegard. There Dick and I found we had a lot besides economics in common, including a fondness for old cars. I learned there Dick's secret to longevity: a long jog and 50 pull-ups every day, followed by bacon and eggs! I managed the bacon and eggs OK, but not the pull-ups.

My visit to UGA was only supposed to last for a year. But Dick wanted me to stay on. So… he retired just to make a space for me. The vote was a near-run thing, but I got on the tenure-track, and then managed (believe me, it was no milk run!) to hang on at UGA for another 25 years. Although Dick had retired, we saw each other often, attending conferences together and even spending most of one summer together in a program in Bowling Green, Ohio.

Speaking of milk runs, one memorable day during that stay in Ohio, Dick and I clambered through one of the few still airworthy B-17s. In fact it was the second time we'd done so, the first having been in Athens, with a different plane. What made it so fun was the fact that Dick had been a B-17 co-pilot during "the" war. Twice wounded, the second time ended his war, and left him with a souvenir that never failed to set off metal detectors. Unlike some veterans he spoke freely of his experience, but never with the least suggestion that there was anything romantic about it. In fact he considered the whole business a rotten one, and said as much in a wonderful memoir he eventually published with the typically Timberlakian title, They Never Saw Me Then. That two of Dick's three sons ended up becoming pilots says a lot about how they must have looked up to their father despite (or perhaps because of) his thoroughgoing modesty. He was, in fact, the most unpretentious man I ever knew.

Yet Dick was far from having "much to be modest about." Not that he was good at everything: a brief foray into local politics (he ran for Commissioner of his district) was an utter failure. (That Dick's campaign slogan, inspired by his libertarian worldview, was "Nothing for Anybody," didn't help.) But Dick's scholarship was of the highest quality—thoroughly researched, extremely well written, and unfailingly interesting. Anyone who read his work could count on coming out of the experience safely in the black. Nor, to judge from the hundreds of encomiums Dick's youngest son Tommy and I received after we made people aware, first of Dick's illness, and then of his death, were there many scholars in Dick's field who failed to take advantage of those profit opportunities.

And there were so many profit opportunities! If I'm not mistaken, Dick's first academic journal article was "The Specie Circular and the Distribution of the Surplus," which appeared in 1960. His final work, Gold, the Real Bills Doctrine, and the Fed: Sources of Monetary Disorder, 1922-1938, coauthored with Tom Humphrey, came out just last year. That's sixty years' worth of output, with no long breaks. And, if you ask me, it's all good. (Here is my review of Dick's penultimate book, Constitutional Money.)

If ever a man deserved to die happy, Dick did. Besides contributing much, he was thoroughly good and kind. If anyone ever disliked him, I never heard about it. And Dick died happy sure enough: Hildegard and Tommy were with him, sharing some of those good wishes and tributes that had begun pouring in. Dick, unassuming as ever, smiled and said, "I didn't really realize my work has had that kind of impact. It's really terrific." Then he fell asleep.

In these days of lockdowns and other precautions, old-fashioned funeral or memorial services are out of the question, even in Georgia. But knowing Dick as I do, I don't think he would mind. Instead, I'm pretty sure he'd rather have people remember him by continuing to study and make use of his work, of which he was, for once, though rightfully, proud. That may not sound like much. But to a devoted scholar like Dick, it's pretty much everything.

The above originally appeared at Cato.org

Post COVID-19 Supply Restraints, Yes Even in Las Vegas Casinos

Having a good time in Vegas.

Over at Target Liberty, I highlight the post-COVID 19 changes that will take place in Las Vegas casinos thanks to super-aggressive regulators in the wake of COVID-19which is essentially a flu-like virus.

One thing that deserves special focus here at EPJ is the limitation on the number of card players at blackjack and poker tables:

Regulators have capped capacity at three players a table for blackjack and four for poker.

And spacing at dice tables:

 “The days of 16 people standing around the dice table high-fiving one another are over for now,” said Adam Wiesberg, the general manager of the El Cortez.

These are really examples of post-COVID supply restraints and as you would expect it will mean higher prices:

 Casinos are now...considering raising minimum bets at card tables.

Given the penchant for mini-Maos across the country to regulate, often in extremely bizarre fashion, there will be supply restraints across the economy that an outsider can't possibly imagine in advance but that will be part of the supply shock to the economy that will result in fewer products and services being available---resulting in upward pressure on prices.

-RW

Top Obama Economist Warns Democrats: "We are about to see the best economic data we’ve seen in the history of this country."

Jason Furman

 Jason Furman, a former chairman of the Council of Economic Advisers  in the Obama administration and now a professor at Harvard is warning Democrats that "We are about to see the best economic data we’ve seen in the history of this country."

During one Zoom presentation,“Everyone looked puzzled and thought I had misspoken,” Furman said in a Politico interview. Instead of forecasting a prolonged Depression-level economic catastrophe, Furman laid out a detailed case for why the months preceding the November election could offer Trump the chance to brag — truthfully — about the most explosive monthly employment numbers and gross domestic product growth ever.

And Furman has this right. It is a point I have been making, especially in the EPJ Daily Alert, since the start of the lockdowns, that the current economic downturn is different from a business cycle downturn.

Politico explains:

Furman’s case begins with the premise that the 2020 pandemic-triggered economic collapse is categorically different than the Great Depression or the Great Recession, which both had slow, grinding recoveries.

Instead, he believes, the way to think about the current economic drop-off, at least in the first two phases, is more like what happens to a thriving economy during and after a natural disaster: a quick and steep decline in economic activity followed by a quick and steep rebound.

The Covid-19 recession started with a sudden shuttering of many businesses, a nationwide decline in consumption and massive increase in unemployment. But starting around April 15, when economic reopening started to spread but the overall numbers still looked grim, Furman noticed some data that pointed to the kind of recovery that economists often see after a hurricane or industrywide catastrophe like the Gulf of Mexico oil spill.

Consumption and hiring started to tick up “in gross terms, not in net terms,” Furman said, describing the phenomenon as a “partial rebound.” The bounce back “can be very very fast, because people go back to their original job, they get called back from furlough, you put the lights back on in your business. Given how many people were furloughed and how many businesses were closed you can get a big jump out of that. It will look like a V.”

This good news is not viewed as good news by Democratic leadership.

Politico again:

Furman’s counterintuitive pitch has caused some Democrats, especially Obama alumni, around Washington to panic. “This is my big worry,” said a former Obama White House official who is still close to the former president. Asked about the level of concern among top party officials, he said, “It’s high — high, high, high, high.”

If Trump wants to get re-elected, he needs to do everything he can to end the lockdowns.
-RW

Is the Velocity of Money Signalling That There Will Be No Price Inflation?

Despite the super-aggressive money printing by the Federal Reserve, I am beginning to see a number of economists, sympathetic to Chicago School monetary thinking, playing down the potential of a strong spike up in price inflation "because the velocity of money is falling."

First off, the concept of the velocity of money is, to put it mildly, a bit rough around the edges (SEE: Man, Economy, and State: With Power and Market by Murray Rothbard pp. 831-842).

But to allow this problem to pass for the moment, one has to then ask: Why wouldn't the velocity of money be declining now, given the lockdown?

It is not like there are vast sectors where money can be spent. Indeed, many of the areas that are currently open have sticky prices.

For example, under current conditions, even if new money is pumped into individuals' wallets, it won't mean that rents will necessarily be going up immediately. Rent prices are, especially under current conditions, very sticky.

If we have an economy that consists of, say,  rent payments and ice cream buying and ice cream buying is locked down, then it is very possible for the velocity to decline under a lockdown.

However that says nothing about price inflation once the restrictions on ice cream selling are lifted. If restrictions are removed and everyone goes back to buying ice cream and everyone has more Fed money in their pockets, then the money spent on ice cream could very well go up--and the price of ice cream.

Further, if at the same time, there are supply shocks where less ice cream is available in the market than before the lockdown, you could have price pressures from both more dollar demand and less supply.

I also hasten to point out that it is possible for prices to go up when the velocity is declining if enough new money is in the system.

Let us go back to our ice cream example, if we assume that the money supply has increased by 10%  and that the cost of an ice cream with cone before the lockdown/money pump was $3.00, then we can say that buyers could now pay $3.30 for an ice cream with cone to keep the same price-money supply ratio.

But it is entirely possible that consumers, in general, would only be willing to bid $3.05 for ice cream with cones. This would result in price inflation but also a decline in velocity.

In other words, if dollar bidding only uses a small fraction of a money supply expansion above previous dollar demand, then you would have a case of increasing prices plus falling velocity.

-RW

Trump Considering Tax Holiday for Capital Gains

White House economic adviser Kevin Hassett suggested Sunday on CNN that the White House is considering a tax holiday for capital gains.

Here is the relevant exchange:

DANA BASH: OK.
What about direct payments to Americans? 

KEVIN HASSETT: That was something that was an enormously successful part of the first three phases. We mailed, like, $1,200 checks to 140 million people.

And I think, depending on the state of the economy, it's something that I guess we would consider. But, right now, it looks like the economy's picking up at a very rapid rate, in which case we could potentially move on to other things that the president has mentioned, like the payroll tax cut and potentially even a capital gains holiday.

And earlier in May, President Trump tweeted this:

Well run States should not be bailing out poorly run States, using CoronaVirus as the excuse! The elimination of Sanctuary Cities, Payroll Taxes, and perhaps Capital Gains Taxes, must be put on the table. Also lawsuit indemnification & business deductions for restaurants & ent.

— Donald J. Trump (@realDonaldTrump) May 5, 2020

I have zero problems with supporting cuts or eliminating particular taxes but if they are not accompanied by cuts in government spending, it is just a shell game where money is taken out of the private sector in other ways, either through borrowing that crowds out private sector borrowing or borrowing that is monetized by the Federal Reserve, neither is good. Both methods work to decrease the standard of living in the country.

Yes, by all means, cut taxes but also cut government spending at the same time.

-RW

Citi Investment Bank Head: Investment Banker Staff Will Have to Return to Working in Offices

The benefits to banks of having their staff work from home will “erode over time”, Citigroup’s investment banking boss Paco Ybarra, told the Financial Times.

"I am very cautious about this,” Ybarra said in an interview with the Times. He argued that banks had been able to make the most of remote working because of “capital that we have accumulated before” when people met face to face.

“At some point, you would see depreciation of that capital and then you would start seeing problems,” he added, pointing to the potential for difficulties with on-the-job learning and people’s ability to relate to each other. “Some of the feeling that we have about how well this thing works, I think will erode with time.”

But he predicted more flexible arrangements, such as staff working two days from the office and three days remotely.

Ybarra's division generates two-thirds of Citi’s $19 billion in profits.

-RW

The Economy is Starting to Turn Upwards

The Wall Street Journal reports:

The number of travelers passing through Transportation Security Administration security screening checkpoints fell to 87,534 on April 14, 96% below the same day a year earlier. But by May 22, the figure had more than tripled to 348,673, although that is still down 88% from the same day a year earlier. Meanwhile, data from online restaurant-booking company OpenTable shows diners are beginning to return in several states.

The turn upward is starting but you have a serious number of governors and mayors in lefty states keeping a hard lockdown, as long as this continues the progress is going to be slow.

The most significant hard lockdown state is California with it accounting for roughly 15% of U.S. GDP and the economy pretty much shut down in the key metropolitan areas of Los Angeles and San Francisco.

-RW

Thank You Lockdown Power Freaks: For the First Time in 30 Years, The Percentage of Those in Extreme Poverty Will Increase

Anthony Fauci

Jackson Diehl, Washington Post Deputy Editorial Page Editor, writes:

Here’s some unexpected good news from the covid-19 front: In many of the world’s most miserable places, where health agencies have been bracing for a devastating onslaught, the coronavirus so far has delivered only a glancing blow...

It’s hard to overstate the health catastrophes that were expected and that, until now, have been avoided. Some experts predicted up to 100,000 deaths in Idlib province, where 3 million Syrians, half of them displaced, are crammed into a territory where hospitals have been systematically destroyed by Russian bombing. But there have been no deaths reported so far. The same is true in Gaza, where nearly 2 million Palestinians are served by 40 intensive care beds; and in the densely packed camps, where some 1 million Rohingya have precariously sheltered since being driven out of neighboring Myanmar....

Unfortunately, that is not the end of the story. Even though they haven’t been directly ravaged by the virus, the world’s poorest people may yet suffer some of the pandemic’s greatest losses — in the form of plummeting incomes and, as a consequence, growing hunger. “There’s a huge covid impact which is economic, and that is drowning out the disease itself,” [Mark Lowcock, the U.N. under-secretary-general for humanitarian affairs and emergency relief coordinator,] told me during an interview last week...

The math is pretty straightforward. The global economy is now expected to shrink this year by at least 3 percent, delivering a direct hit to the primary goods exports, remittances and tourism on which many poor countries subsist. According to Lowcock, for the first time in 30 years, the percentage of the world’s population in extreme poverty — those living on less than $1.90 a day — will increase.

At the beginning of the year, the United Nations reckoned that 130 million people would be at risk of starvation. “Now we think there will be 265 million,” Lowcock said. “We could have mass hunger and multiple famines.”

It should be noted that Trump's top COVID-19 adviser (or at least he was) has admitted that he never took into account secondary consequences of the lockdowns (SEE:  Anthony Fauci Admits He Has Not Taken Into Consideration The Unseen Deaths Caused by the Lockdowns).

He now appears to have changed his position on this as he has done on many other points (SEE: Nutjob Fauci Now Says Staying Closed for Too Long Could Cause ‘Irreparable Damage’; Calls for Opening Up the Economy).

Fauci has been extremely erratic in his recommendations. It is really difficult to understand what drives this bizarre little man, but he is certainly not a person that should be anywhere close to power and influence. Power positions themselves are evil and should be eliminated (SEE: Foundations of Private Property Theory) but Fauci has a unique ability to destroy from such a position and at the same time create appreciation from the masses. This is very dangerous.

On a related anecdotal note, I know of no major libertarians or Austrian school economists that have been infected by COVID-19--and I have been asking far and wide--but I am aware, from friends of at least two suicides that were likely COVID-19 related.

-RW

GOP is Considering Back-to-Work Bonuses

Rob Portman

Senate Republicans are examining offering cash incentives for unemployed Americans returning to work, as an alternative to the extension of enhanced jobless benefits supported by Democrats, reports The Wall Street Journal.

Republicans are concerned that the current $600 a week unemployment payment—on top of state unemployment benefits—is so generous that it is discouraging people from going back to work and damping the economy’s reopening amid the coronavirus panic, notes the Journal.

It's a problem I highlighted weeks ago. See my post: Why is President Trump Bailing Out His Dishonest, Power Freak, Democratic Rivals?

A proposal is being put forth by Sen. Rob Portman (R., Ohio) to provide a temporary $450-a-week bonus for unemployed workers returning to work, on top of their wages.

Portman, according to the Journal, says his proposal is good for employees “because they can go back to work, go back to their health care and go back to their retirement savings, and yet get a nice, nice bonus for doing so.”

This is heading in the right direction from a realpolitik perspective. Of course, the sound principled thing to do from a free market direction is to end all the programs and end all the payments, immediately. That is not going to happen.

The key to Portman's plan working is to ensure that the enhanced jobless benefits end on July 31 which is when they are now scheduled to end. If they don't end, then many unemployed will have no incentive to go back to work and they won't be pressuring the strict-lockdown states to end the lockdowns.

The key is to develop pressure on lockdown states to open up so that the economy can open up.

Of course, there still is the very big problem that the federal government doesn't have the money for any of these payments and so it would require more  Federal Reserve Board money printing out of thin air.

-RW