All too often, when we see a new technology we don’t understand, our natural inclination is to condemn it. Artificial intelligence is no exception.
Original Article: “Can We Understand AI? A Response to Jordan Peterson’s Podcast“
On this episode of Good Money with Tho Bishop, Peter St Onge joins the show to discuss this week’s Fed announcement and what it means to normal Americans. Tho and Peter also discuss the political battles in DC over the future of CBDCs and the dangerous trojan horse some Republicans may be creating on the issue.
Find more from Peter St Onge on Substack at StOnge.Substack.com. You can also find him on Twitter @ProfStOnge.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code “GoodMoney” at Mises.org/Good
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During a debate on capitalism with James Otteson, Michael Anton opined that free markets are harmful to a nation’s economy. Perhaps he needs to learn economics.
Original Article: “The Economic Nationalists Are Wrong: Free Trade Means Freedom and Prosperity“
News here in the USA has been full of the latest farce known as raising or not raising the debt ceiling. After the usual dog-and-pony show, a budget deal was reached. But was it progress? It was a foregone conclusion that the debt ceiling would be raised, yet again, for the simple mathematical reason that unless the budget is cut, via spending cuts or increases in taxes, it can do nothing else.
With the budget deficit projected to be (hold on to your hat!) $1.5 TRILLION, that is a political impossibility. Notice that I used the adjective “political.” Of course, technically it isn’t impossible to balance the budget or even run a surplus. But under the current monetary regime of fiat money that can be produced in any amount at the click of a computer at the Fed, there is no support either in Congress or among the electorate to do so.
All of us are corrupted collectively, as described by German economist Thorsten Polleit. Since the sky will not fall, yet, by printing more fiat money, no one can be expected to support real budget cuts—not the military, retirees, Medicare and Medicaid recipients . . . the list goes on and on. The Fed will continue to print money to support the rising government debt, in nominal terms only, until the dollar’s purchasing power is destroyed.
The only way to prevent this catastrophe is to return to sound money; i.e., linking the money stock to a commodity, almost certainly gold. By “linking” I mean that what the people call “money,” whether in the form of paper certificates, bank accounts, or some other form such as digital currency, is backed 100 percent by the commodity. The commodity is money. Nothing else. Certificates, bank accounts, or other forms are merely convenient ways to transfer ownership of claims upon the money stock.
Yes, this is the only way. Forget about electing or appointing the “right” people to Congress or the Fed. As long as any person or entity CAN print fiat money, it WILL print fiat money. It is illogical to support a monetary regime in which printing fiat money is permissible and expect that anyone exists who will refrain from doing so. Therefore, turn off your TV. Stop reading the business press. The US federal debt will grow and grow, and nothing can stop it under the current monetary regime.
The Return of Gold as Money
So, is that it? We are doomed? NO! Gold will return! Why? For the simple and rational reason that gold and only gold works. For five thousand years gold was money and money was gold. Gold allows complete strangers to engage in productive exchange. Not only complete strangers but even enemies can engage in productive exchange. You don’t like the Russians? OK, but you don’t have to like them in order to buy their natural gas. Cooperative exchange means, per se, that both parties expect to benefit.
For all I know my local hardware store owner may be an Atlanta Braves fan, about as low as it gets for a Philadelphia Phillies fan like me. Nevertheless, I appreciate the convenience and quality of his store’s products and services, and I’m sure he appreciates my patronage. This is not a frivolous matter. Gold allows everyone to benefit from a worldwide division of labor that requires no vetting of personal or political views or affiliations. In other words, gold leads us to a world of peace and prosperity.
The “East” Will Lead the Way, and Eventually the “West” Will Follow
The era of fiat money and dollar hegemony is coming to an end. Russia, China, India, the Arab nations, South Africa, Brazil, and others—let us call them the “East”—soon will settle their international trade in gold. It will work. Then the Western fiat money nations, led by the United States, will watch as, one by one, former allies start jumping ship. This does not mean that they are willing to be dominated by Russia or China, for example, only that real prosperity is dependent upon honest money; i.e., gold. The dollar will be thrown on the ash heap of history just like the French assignat, the Confederate dollar, the German papiermark, and more recently the Zimbabwean dollar. Of course, real statesmen, especially American, would understand this and start preparing their nations for this immense change in which military power is irrelevant.
Time for Humility
It never hurts to remind ourselves that the world is a very big place and America is just one small part of it. We must learn to be good citizens of the world, honest in our commercial affairs, friendly and respectful toward all, and meddle in the internal affairs of no one. For a nation that has arrogantly assumed that it is special, this will be a very hard pill to swallow. American military power and the dollar as the world’s premier reserve currency created a hubris that is evident in many areas.
Preposterously we claim the power and authority to change the weather and the earth’s temperature, to control the health outcomes for billions of people through international vaccine mandates, the ability and maybe authority to change a person’s biological sex . . . the list goes on and on. It is time for a return to humility, honesty, and above all freedom of the individual to live his life as he, and only he, sees fit.
Despite “concerns” about increasing federal debt, in the end Republican legislators have gone along with whatever the ruling elites want. The Limit, Save and Grow Act of 2023 is more of the same.
Original Article: “Republicans Fail on the Debt Ceiling in 2023“
As reported by Reason, Colorado—one of thirty-one states that had banned its local governments from imposing rent control—is considering repealing that ban. Recent efforts to allow or impose similar controls have also taken place in New York, California, Massachusetts, Oregon, and Minnesota. However, there is a good reason that most states still ban the local imposition of rent control laws.
The key reason is that the primary advantage of local determination in a federal system—allowing people mistreated by one government body to better protect themselves by “voting with their feet” to less abusive jurisdictions—does not apply to rent control laws. That is because neither selling nor moving allows owners of rental property to escape the imposed burdens.
In many circumstances, voting with your feet favors local governance. It is generally less costly to leave a local government jurisdiction whose benefits are not worth the cost than it is to leave a similarly bad state government jurisdiction, which is less costly to leave than to leave the United States entirely. The enhanced exit option may better protect citizens’ rights against abuse. For instance, residents who view state sales and income taxes as not giving them their money’s worth in benefits can avoid those burdens by going to another state with lower tax rates or better services. However, the same is not true of rent control, whether imposed locally or at the state level.
Owners of rent-controlled properties can move away. However, if they maintain ownership of their property, they are still forced to bear the burden of reduced earnings caused by rent control. If they sell their property, they bear the burden of reduced rental income in the form of a lower sales price that capitalizes the lower revenues the property will generate. Consequently, even selling your property and leaving the jurisdiction provide no escape.
While landlords do not have a right to a specific amount of rent, their ownership should give them the right to accept what tenants would willingly offer for their units. Market conditions that lower rents are not theft because the landlords’ property rights are not violated. However, rent control, which forcibly lowers rents below what willing tenants would offer, takes away that right and much of the value of the landlords’ properties in the process. That is theft, enforced by government guns rather than robbers’ guns. Worse, rent control directly violates the central role of government—the protection of citizens’ existing property rights—as John Locke explained long ago, echoed by America’s founders.
There is no difference in results between the tenants robbing their landlords of $500 every month and tenants voting themselves $500 monthly rent reductions, except rent control takes the money before landlords get it. That does not transform what we would all recognize as theft into something legitimate unless someone is determined not to recognize their equivalence.
Such theft has also been abetted by the Supreme Court’s Fifth Amendment rulings. The amendment asserts that “nor shall private property be taken for public use, without just compensation.” While today, this still prevents the government from physically taking your property without payment, the courts have redefined takings to only occur when all of a property’s value is taken. This logic would imply that a mugger who left a victim with Uber fare home would not have robbed him. So, while the government occupation of half of someone’s apartments would require compensation, rent control that takes half of the value of each of the units and transfers it to current tenants may take just as much wealth involuntarily but does not require compensation.
That limitation on the owners’ ability to evade those imposed burdens also explains why majority-renter localities may want to impose or reimpose rent control.
In such cases, renters outnumber other local voters and greatly outnumber rental property owners, giving the renters the votes to dictate local policy. Those rental property owners who do not live in the jurisdiction cannot even vote. By stripping owners of much of their properties’ value by mandating lower rents, local majority voting power can provide existing renters with very large wealth transfers. Given that rent controls typically give residents virtual tenure for as long as they choose to stay, that wealth transfer can be massive for long-term renters, as illustrated by the fall in the value of rental properties when rent control is imposed, the large payments offered to get rent control tenants to leave, and the frequency with which such offers are rejected by current tenants.
So, imposing rent controls in majority-renter municipalities targets the property rights of owners who cannot protect themselves by voting with their feet, and it transfers very large monetary gains to those who are already renting in the jurisdiction when price controls are adopted. The current renters get to vote, but all prospective future tenants not yet there—who will be harmed by the reduced supply of available rental housing that will result—cannot. This is also true of renters in neighboring jurisdictions whose housing costs will rise due to the reduced regional supply of rental units caused by rent controls in particular municipalities.
In other words, rent control guarantees that current renters in a municipality can vote themselves huge benefits out of the outnumbered owners’ pockets. However, it does not benefit all renters; it benefits only those renters who were living in a municipality at the time rent control was enacted. In fact, there will be far more renters who are harmed than who are helped. That is because the far larger number of future prospective renters will be harmed by the consequent reduction in the supply of rental housing, which will result in higher future prices (often including under-the-table payments) for those who are able to find a rental as well as “no vacancy” signs rather than housing for many others. It is piracy by the local political “might makes right” plebiscite at the expense of both rental property owners and future prospective renters.
That is why, unlike many other areas of governance, state-level preemption of local rent control may protect citizens’ rights and well-being better than local determination. It is analogous to the Bill of Rights in the federal Constitution, which Hugo Black called the “Thou Shalt Nots” and protected citizens against unwarranted national government abuses. Additionally, in practical day-to-day government operations, such a preemption would allow those for whom rent control would harm—particularly current owners and future potential renters—greater likelihood to be able to vote and have more of a voice in the policy at the state level.
In other words, state-level restrictions on rent control allow rental property owners who face robbery to unite in opposition more effectively. Such opposition would also include “outsiders” who would be interested in building rental properties there if such construction did not get frozen by the disincentives of rent control. It is also true for those nonresidents who would be turned away from finding rentals once rent control is imposed. Even government officials outside the local municipality who face falling tax revenue from the reduced construction and income that results from rent control’s disincentives would get a voice, rather than being ignored under local determination in majority-renter areas.
The result is that citizens may be better served by state limits on the ability of local renters to form a political juggernaut in their jurisdiction that can steamroll others’ rights and well-being.
Note, however, that this is an argument for the state government to ban the local imposition of rent control. This is not an argument that they should impose statewide rent control laws because state governments can impose even broader damage than local municipalities.
Statewide bans or restrictions on local rent control are perfectly consistent with the essential job of government—to protect individuals and their property against force and fraud. That can be seen by analogy to grand theft auto. States don’t allow localities to legalize grand theft auto because that better protects all the state’s citizens from harm. Similarly, it makes sense for states to disallow localities from committing even grander theft against rental property owners, which is what rent control represents.
The classical liberal economist Edmund Phelps wants government to aid poor people, but he clearly is not an egalitarian. His philosophy would be unacceptable to today’s “woke” egalitarians.
Original Article: “Edmund Phelps on Egalitarianism“
The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data Tuesday, and according to the report, price inflation during May decelerated, coming in at the lowest year-over-year increase in twenty-six months. According to the BLS, Consumer Price Index (CPI) inflation rose 4.0 percent year over year in May before seasonal adjustment. That’s down from April’s year-over-year increase of 4.9 percent, and May is the twenty-seventh month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. (More precisely, the Fed targets a two-percent rate in the PCE measure.)
Meanwhile, month-over-month inflation rose 0.1 percent (seasonally adjusted) from April to May. That’s down from April’s month-over-month gain of 0.4 percent.
May’s year-over-year growth rate is down from last June’s high of 9.1 percent, which was the highest price inflation rate since 1981. The BLS’s CPI inflation rate of increase has now slowed from June’s high for eleven months in a row.
Growth in CPI inflation has indeed slowed, and this reflects slowdowns in energy, gasoline, used cars and trucks. Food prices continued to rise at levels not seen since 1989 and 1990—with the exception of 2022’s 40-year highs. Food prices in May were up by 6.7 percent, year over year, in May. Prices in energy overall fell 11.7 percent, year over year, with gasoline prices dropping 19.7 percent over the same period.
Shelter prices have seen some of the most robust growth in recent years, and increases have remained among the highest we’ve seen since the 1980s. During May, however, year-over-year growth in shelter prices slightly slowed as shelter prices increased 8.0 percent in May. That’s down from April’s year-over-year increase of 8.1 percent, and was the second month of slowing increases for shelter prices.
Meanwhile, May was yet another month of declining real wages, and was the twenty-sixth month in a row during which growth in average hourly earnings failed to keep up with CPI growth. According to new BLS employment data released earlier this month, nominal wages grew with hourly earnings increasing 3.4 percent year over year in May. But with price inflation at 4.0 percent, real wages fell again.
Moreover, once we look beyond food and energy—the two most volatile components of the CPI—price inflation has barely slowed at all, and has even accelerated month over month. This so-called “core inflation” rate of increase fell to 5.3 percent in May, but that’s not down much from April’s growth rate of 5.5 percent, or from the 40-year high of 6.6 percent reached last September. Month-over-month, the CPI increased by 0.4 percent in May (seasonally adjusted). That’s the second month in a row of month-over-month growth in price inflation.
The market’s reaction to this very slight deceleration in price inflation has been to interpret it as a victory over price inflation and to assume that the Fed’s FOMC will now “pause” on interest rate hikes. According to The Hill, for example:
While the labor market has held strong amid the rate hikes, the combination of falling inflation and a slowdown in the broader economy has given the Fed reason to hold off on further increases.
Countless analysts on Wall Street have been making this same prediction for many months at this point, but Powell and the FOMC have repeatedly raised rates, pointing to jobs data as evidence that the economy has not sufficiently cooled to bring down price inflation. The narrative is now this: “price inflation is over. Now’s a great time to cut interest rates!”
Will Powell and the FOMC “pause” rate hikes? We’ll know at Wednesday’s press conference. At the last FOMC press conference, Jerome Powell hinted that the committee has taken a dovish turn, announcing that additional rate hikes can no longer be assumed. For what it’s worth however, at least some members of the Committee are maintaining the appearance of continued relative hawkishness. Last month, New York Fed President John Williams insisted that “We haven’t said we are done raising rates” and “if additional policy firming is appropriate, we’ll do that. …I do not see in my baseline forecast any reason to cut interest rates this year.”
It’s unclear that the Fed has much appetite for additional rate hikes, however. With the FOMC’s latest 25-basis-point hike to 5.25 percent, the target federal funds rate is now at the highest it’s been at any time since 2001. The target rate was also at 5.25 percent on the eve of 2008 financial crisis.
What Do Interest Rates Have to Do with Price Inflation?
When discussing the state of the economy and the Fed’s interest-rate policy, the general media narrative is that the Fed can “solve” mounting price inflation—or “win the inflation fight”—by “raising” interest rates.
Not surprisingly, the media—and most economists and Wall Street analysts—miss the point here. The key issue here is not that the central bank is “setting” the “wrong” interest rate. The problem arises from the fact that the Fed has long been relentlessly forcing down interest rates to satisfy various politically determined “needs.” The result has been monetary creation which in turn leads to asset price inflation and consumer price inflation. What are the “correct” interest rates? We’ll never know so long as the Fed keep intervening in markets. In truth, however, without ongoing Fed meddling in interest rates, most market rates would likely be much higher than they currently are. Moreover, allowing markets to actually determine interest rates would be among the most effective ways to “win” against inflation. But don’t expect any central bankers to entertain that idea any time soon.
Instead, the Fed has been doing the opposite. Traditionally, the Fed has been forcing down interest rates through the open market operations of the Federal Open Market Committee. That’s bad enough by itself. The process, however, was put on steroids in the wake of the 2008 financial crisis. Ever since then, the Fed has repeatedly bought up trillions of mortgage-backed securities and US government Treasurys. This was done to satisfy at least two policy goals: it kept interest low on government debt, and it propped up the values of assets held by major banks.
Without this intervention in the marketplace, it’s a safe bet that market interest rates would be considerably higher than they are and have been for the past decade. Some economists have attempted to claim otherwise, insisting that the “natural” interest rate has been coming down, and that the central bank has barely had anything to do with it. The absurdity of this claim is revealed in the fact that these economists also oppose an end to the Fed’s open market operations. Of course, if the Fed were “barely doing anything” to push down interest rates, then a total cessation of Fed meddling in asset markets would have virtually no effect. Everyone knows that in real life, however, interest rates would almost certainly head upward swiftly if the Fed reversed its low-interest-rate policy. In addition to ending its open-market operations, the Fed could do that by selling off the trillions of dollars worth of securities in its post-2008 asset hoard.
Indeed, the only reason the Fed is now allowing interest rates to creep upward at all is because price inflation has become a political problem. It’s a problem because the flip side the Fed’s low-interest-rate quest has been monetary creation. Forcing down market interest rates tends to increase credit through the commercial banking system—and in the case of the Fed’s asset-purchase schemes—efforts to push down interest rates lead to outright “money printing.” All this easy money of the past decade led to 40-year highs in price inflation. That has given us 26 months of falling real wages, soaring gas prices, and runaway home prices. It all presents a myriad of difficulties for ordinary workers and families who attempt to plan for the future and keep their incomes ahead of expenses. Historically, price inflation tends to be very unpopular among voters, and often leads even to civil unrest—as any observer of European or Latin American history can see.
Thanks to the soaring price inflation of the last year, the Fed is now attempting to somehow “win” against inflation by doing the absolute bare minimum in terms of reversing its longstanding policy of forcing down interest rates again and again. Because easy money helps inflate asset prices and create economic bubbles, Wall Street—which is now thoroughly addicted to easy money—is hoping the Fed will soon return to ramming down interest rates yet again.
Read More:
“Yes, the Fed Really Is Holding Down Interest Rates” by Joseph Salerno “Money Creation—Not Low Interest Rates—Is Behind the Boom-Bust Cycle” by Joseph Salerno”How the Fed Is Enabling Congress’s Trillion-Dollar Deficits” by Ryan McMaken
Despite America’s attention abroad being largely Russia-focused recently, the bigger fish to fry in Washington’s eyes is China. Even as the US pours aid package after aid package into the Ukraine conflict with one hand, it still manages to raise its other hand to wag a finger across the Pacific Ocean at its rival superpower. But like every other country in the world, China has been watching America’s cavalier foreign policy and interventionism in the past decades. Now China is wagging a finger back.
Sounding the Alarm
China recently concluded hosting a two-day China–Central Asia summit in the historic city of Xian where the ancient Silk Road connected imperial China to the cultures to its west. Addressing the leaders of the Central Asian countries, Chinese president Xi Jinping made statements on the future of Beijing’s engagement with the neighboring region through investment plans, freer trade terms, science and technology exchange, boosted tourism and agriculture, and security cooperation.
On the last point, Xi turned his attention to the United States. He minced no words saying, “We should act on the Global Security Initiative, and stand firm against external attempts to interfere in domestic affairs of regional countries or instigate color revolutions.” With this statement, Xi called out the US and warned against the type of meddling that Washington has discreetly carried out in recent decades.
Basis of Color Revolutions
Color revolutions have been consistently observed since the early ’90s after the fall of the Soviet Union and its sphere of influence. They are characterized by seemingly grassroots popular movements in the name of achieving freedom in nominally less democratic countries. These movements typically involve mass protests, demonstrations, and civil resistance movements aimed at toppling or changing the existing government regime. Often little understood or dismissed as conspiracy theories or disinformation, the US government has funded and guided so-called color revolutions in dozens of countries, particularly those that have leaned in favor of Russia or China in key geographic locations at their peripheries and beyond.
The mechanism of bringing about color revolutions is the nongovernmental organization (NGO). While on the surface, NGOs purport to promote democratic institutions, civil society, and good governance, groups like the National Endowment for Democracy (NED) and the Open Society Foundations have played a defining role in stoking political unrest, disrupting internal institutions and elections, and bringing pro-American leaders to power. Thus, under the guise of protecting democracy and freedom, color revolutions undermine elections and sovereignty in the name of the American empire.
Chinese Foreign Policy
Setting China’s authoritarian leadings aside, Beijing’s foreign policy offers an alternative to the American “my way or the highway” (or worse) approach to international relations. In contrast to American interventionism, China’s foreign policy revolves around its so-called Five Principles of Peaceful Coexistence: mutual respect for sovereignty and territorial integrity, mutual nonaggression, noninterference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. These principles emerged in the mid-1950s when the new communist government of the People’s Republic of China wanted to befriend foreign countries.
Pledging that China would not interfere in other countries’ internal affairs and respecting national sovereignty have been key differences in China’s approach to international cooperation and development compared to Western countries and their organizations. Now it appears that Beijing may go a step further and work together with its allies to collectively safeguard domestic matters from foreign influences like those US government-funded NGOs.
On Notice
This wouldn’t be the first time that the Chinese leader explicitly spoke out against color revolutions. At the latest Shanghai Cooperation Organisation summit in Samarkand, Uzbekistan—coincidentally, another key node on the Silk Road—Xi warned leaders of Central Asia, Russia, India, Pakistan, and Iran that “it is important not to allow attempts by external forces to provoke a color revolution,” and that the member states should “jointly oppose interference in the affairs of other countries under any pretext.”
Again, none of these countries are run by governments that we here in the West would like to emulate, but attempting to covertly flip them into Jeffersonian Republics is underhanded and pushes those countries to distrust the US and its values entirely. After all, the two color revolutions within a decade that tore Ukraine apart were major contributing factors to the current conflict with Russia.
Ironically, China has become the country offering economic cooperation under the terms of national sovereignty and encouraging peace while the US claims to uphold the international “rules-based order” that has overthrown governments, brought economic turmoil, and waged despicable wars and militarism around the world. As the tensions and rivalry between the US and China continue to ramp up into the foreseeable future, more countries may start to favor the Chinese approach to doing business and become more confident in pushing back against America’s already wobbling influence on the world stage. Washington might find it increasingly risky to continue running the color revolution playbook.
Contrary to the still-enduring myth about Republican budget cutting, there is no correlation whatsoever between Republican control of DC and the trajectory of federal spending.
Original Article: “The Republican Debt-Ceiling “Deal” Is Exactly What We Expected“