Free money destroyed the pricing mechanism, and demand has soared despite much higher prices.

The shortages are not at Costco or Safeway, though they too might run out of a few weird items here and there. But other retailers are complaining about them, including apparel retailers and shoe retailers – yup, it took five weeks for my running shoes to arrive after I ordered them online, when normally I’d get them in a day or two.

There are shortages cropping up in different types of equipment and appliances and electronics. There are reports of shortages of certain types of fasteners and all kinds of doodads that you’d normally take for granted.

The shortages are all over the auto industry, driven by the global semiconductor shortages that keep getting dragged out and are now expected to abate maybe, hopefully, possibly in 2022.

It isn’t that there aren’t any new vehicles out there, but there are not enough of them. Inventories have been depleted in a historic manner. And customers are buying vehicles as soon as they come off the car carrier, or they order them and wait patiently till they arrive.

There are now huge storage areas around auto manufacturing plants were automakers store vehicles that are essentially ready to go but are still missing a component or two because some chips couldn’t be made, and when those components arrive, they’ll be installed and the vehicles will then be sent to dealers.

These semiconductor and component shortages have shut down auto assembly plants in the US and around the world for weeks at a time, all year long.

So everyone in the auto industry is prioritizing their high-end most profitable units and their most profitable channel, which is retail. The huge rental fleets that together would normally buy close to 3 million new vehicles a year in the US alone, but usually lower-end models, with large discounts, well, they’re being de-prioritized because no one is making money on selling to rental fleets.

Rental car companies have been complaining since the first quarter this year that they cannot get enough vehicles from automakers because automakers are prioritizing the most profitable high-end vehicles that they then sell through their highly profitable retail channels.

Automakers have slashed their incentives, and so effectively, prices of these vehicles have jumped, and dealers are selling hot models over sticker. Dealers and automakers are making out like bandits.

In normal times, demand for new and used vehicles would have collapsed after these kinds of price spikes as most consumers don’t have to buy a vehicle today. They can just drive what they have for a while longer.

But not this time. Now, Americans, after they’ve gotten this free money, don’t mind paying out of their nose for new vehicles, instead of haggling over them as they used to do.

And rental car companies are not getting enough vehicles built, and so there are rental car shortages in some areas. Rental car companies have responded by not selling their older rental units, as they would have normally done, but instead they keep them longer, and the mileage with which they’re now running them through the auction has nearly doubled over the past year. And they’re running fewer cars through the auction.

Rental car companies supply the used-vehicle market with close to 3 million used vehicles a year. And that number has plunged because rental car companies have trouble getting new vehicles to replace their current units. So this triggered the used vehicle shortage.

Then there is the infamous container shortage. It isn’t that there aren’t enough containers out there. It’s that containers are hung up on huge ships that each carry many thousands of containers, and those ships are waiting in large numbers to get into ports.

Yesterday, just outside the ports of Los Angeles and Long Beach, a record 44 container ships were anchored, waiting. And there are hundreds of these ships hung up somewhere globally, trying to get into a port, or they’re being rerouted to different ports. And all this takes time.

And containers are stuck in ports because railroads are backlogged, trucking companies are troubled by driver shortages, and containers are hung up in railyards and clog them up to where some railroads have stopped routing trains to those particular railyards until the backlog is cleared, thereby further contributing to the pileup of containers at ports.

And each extra day that a loaded container doesn’t get to its destination is a day that it cannot be unloaded and returned to the flow of containers, and cannot be sent to a manufacturer that has goods ready to ship but cannot ship them because they cannot get empty containers.

This chaos in the container industry caused the rates of shipping containers from Asia to the US to spike four-fold and five-fold from before the pandemic.

Last week, it cost on average $11,300 to ship a 40-foot container from Shanghai to Los Angeles, over five times the typical rate before the pandemic of around $2,000, according to Drewry.

*****

Continue reading this article, published September 2, 2021 at Wolf Street.

The Sixth Circuit Court of Appeals unanimously ruled that the national eviction moratorium mandated by the U.S. Centers for Disease Control and Prevention (CDC) is unconstitutional. The court said in its ruling that the matter ultimately needed to be resolved by Congress.

The three-judge panel ruled that the CDC engaged in federal overreach by mandating that tenants who are unable to pay their rent and are in breach of their rental agreements may not be evicted. The CDC had implemented a moratorium in response to millions of people losing their jobs due to governors shutting down their state economies to slow the spread of COVID-19.

The court upheld a ruling from U.S. District Judge Mark Norris, who in March blocked the eviction moratorium from being implemented in western Tennessee.

The CDC had argued in court that Congress authorized the eviction freeze as part of COVID-19 relief legislation and that issuing the moratorium was within its regulatory authority. The three-panel appeals court rejected their argument Friday.

“What’s the difference between executive-branch experts and congressional ones? Executive-branch experts make regulations; congressional experts make recommendations,” they wrote. “Congressional bureaucracy leaves the law-making power with the people’s representatives – right where the Founders put it.”

Last month, the U.S. Supreme Court ruled the opposite way in a 5-4 decision in a case brought by landlords seeking to end the eviction moratorium.

Justice Brett Kavanaugh argued that while he believed the CDC had exceeded its authority by implementing the moratorium, he voted against ending it because the policy was set to expire on July 31 anyway.

“Landlords have been losing over $13 billion every month under the moratorium, and the total effect of the CDC’s overreach may reach up to $200 billion if it remains in effect for a year,” the National Association of Realtors said in an emergency petition they filed with the Supreme Court.

The Goldwater Institute has filed more than $23 million in claims against the Arizona city of Flagstaff on behalf of more than 50 property owners in defense of their property rights, which it holds were violated by the new High Occupancy House Plan.

Flagstaff, home of Northern Arizona University, had a total of 29,569 students enrolled last fall. The city has been growing rapidly since 2010, according to data from the U.S. Census Bureau.

The High Occupancy Housing Plan, effective in Flagstaff since March 1, resulted from the recommendation of the Student Housing Action Plan to “develop appropriate programs and tools to ensure the appropriate placement, design, and operation of new student housing developments consistent with neighborhood character and scale.”

High Occupancy Housing refers to buildings that house more than 75 people per acre or have more than 30 units per acre in dormitory or apartment-style units. Because of a combination of pent-up demand, constrained supply and the 2011 changes to the zoning code to promote mixed use development, there has been an increase in interest in large multifamily housing projects.

The amendment to the zoning code eliminated the “rooming and boarding” system, requiring developers to comply with requirements regarding land use, density, maximum number of bedrooms per acre, location, unit bedroom diversity, parking, proximity to transportation, waste management and heritage preservation.

Christina Sandefur, executive vice president of the Goldwater Institute, a free market policy group, said in a news release Flagstaff’s plan “imposes sweeping regulations that deprive a wide variety of property owners, including families and small businesses, of their right to decide what to do with their land.”

The Goldwater Institute said the ordinance violates Arizona’s Private Property Rights Protection Act, Proposition 207, which requires the government to reimburse individuals whenever regulations diminish the value of their property.

Prop. 207 was a 2006 ballot initiative adopted in Arizona as a rejection of the 2005 U.S. Supreme Court ruling in Kelo v. New London, which gave state officials the ability to seize private property for whatever reasons politicians considered worthwhile.

Under Prop. 207, the government can bar owners from polluting the environment, maintaining dangerous conditions on their property or using their land in ways that violate their neighbors’ rights, but they cannot prohibit them from renovating, improving or developing their property without paying them.

Prop. 207 includes that property owners whose rights are violated must send the city a demand letter asking officials to either pay for the diminishment of property value caused by that violation or waive the restriction entirely.

Sandefur said because the High Occupancy Housing Plan diminishes property values for such a large quantity of Flagstaff residents, many more claims against the city will be filed, which could cost the city hundreds of millions of additional dollars.

When asked for comment, the city of Flagstaff said it does not comment on pending litigation.

The new ordinance also harms the Flagstaff economy “by discouraging the development and improvement of key areas of the city, devaluing neighboring properties elsewhere in the city, and exacerbating growing housing demands at a time when Flagstaff residents are already under severe strain,” Sandefur said.

She criticized Flagstaff bureaucrats for further imposing on Arizonans as they struggle to recover from the COVID-19 pandemic.

“We hope the city will take the severe financial and economic consequences of its actions into consideration as it contemplates its response to these demand letters,” Sandefur said.

She advised Flagstaff to restore its citizens’ property rights and avoid substantial monetary losses “by rethinking its excessive restrictions and allowing Flagstaff residents to exercise their legally protected right to private property.”

*****

This article was published on July 23, 2021 and is reproduced with permission from The Center Square.

Author Carol Roth discusses the winners and losers in the 2020 pandemic lockdowns and how the American Dream can be saved in a wide-ranging interview with FEE.

This week FEE sat down with Carol Roth, an American entrepreneur, TV personality, radio host, investor, and bestselling author.

Roth’s latest book, The War on Small Business: How the Government Used the Pandemic to Crush the Backbone of America, examines the government’s response to the coronavirus pandemic in 2020, which triggered the sharpest economic collapse in American history.

In a wide-ranging interview, we talked about the winners and losers in the 2020 pandemic, lockdowns, and how the American Dream can be saved.*

First, what made you decide to write this book? What led you to realize that this book was needed?

ROTH: I’d written a book ten years ago called The Entrepreneur Equation. It was about all of the risks you take on as a small business owner and how difficult it is to be a small business owner. So I was highly aware of the plight of the small business owner. Little did I realize that the government shutting them down and taking away their business by mandate while leaving their big competitors open was actually their number one risk.

So HarperCollins approached me early in the pandemic. They knew this was going to be historic economically in some way, shape, or form. They wanted someone who had deep economic knowledge to be able to give a fair assessment and get into the nitty gritty, not something based on high level talking points.

So like a crazy person I said, “Oh, that sounds like fun!”

Did anything surprise you during the process?

I didn’t realize at the time this was going to be the herculean task that it was. Obviously things were unfolding in real time, information would dribble out and I’d have to piece it together. So I kind of wrote three and a half different books during the pandemic (laughs).

Ultimately, I knew small business was going to be a big part of the story. I didn’t realize the extent to which it would involve government picking winners and losers—not based on data or science but purely on political clout and connections. Government enabled the most historic wealth transfer we’ve seen in our lifetimes from Main Street to Wall Street.

We were the first person to market really making this case. So we were really excited. Unfortunately, it’s largely falling on deaf ears. It’s striking to me that no one is talking about this.

You write that government bureaucrats have been looking for the chance to destroy small businesses for years. Why would government declare war on small businesses? As you point out, they are in many ways the backbone of the US economy.

It sounds counterintuitive until you get into the details and see how the government has been slanting the playing field towards big businesses and away from small businesses for years via regulatory capture, anti-competitive regulations, tax structure, and so on.

As I write in the book, really what’s happened over the last twenty years or so is that we’ve moved away from free market capitalism toward central planning.

Many people today would say America is a capitalist country. You seem less sure.

I specifically use the term central planning because I don’t want to get caught up in terms like socialism and communism and democratic socialism. It doesn’t matter. It’s a handful of people who are making decisions for the masses using force and coercion and control. That always benefits the people in the “in club.”

If you think about the way the economy is built—and most people don’t think about it—it’s basically split in half. Half of it is very decentralized and looks more like a free market. Before COVID, it was about 30.2 million small businesses that accounted for about half the GDP and half the jobs and represented about 99.9 percent of all business entities. This half of the economy is very hard to corral and get lobbying dollars from and so forth.

If you’re disrupting wealth creation opportunities for the average American and you’re building this Frankenstein behemoth that is increasing its purview and doing everything inefficiently and ineffectively, that’s havoc in my opinion.

The other half of the economy—next to these 30.2 million or so businesses—you got 10,000 or 15,000 big businesses. If you’re trying to centralize power and make the government more powerful and increase its purview and spending, what are you going to do?

Are you going to focus on the half that’s easy to work with or focus on the decentralized, independent 30.2 million?

When you start thinking in that direction and looking at what they’ve actually done, you just ask yourself: If you were intentionally trying to do this to small business, would you have done anything differently?

You write in the book that even before the pandemic arrived central planning was here and wreaking havoc on the US economy. What kind of havoc. Do you have some examples?

Obviously it depends on your perspective of what you think havoc is, but if you look before COVID, governments at all levels were spending somewhere around $8.1 trillion. That’s insane.

If you look at the number of laws passed—the numbers are cited in the book—it’s more than a million over a fifty-year period. That doesn’t even include the last 20 years. More recently you’ve had 12,000 or 15,000 laws passed at the state level and 15,000 federal regulations passed.

We didn’t have liberty and we didn’t have lockdowns. We targeted individuals who were deemed ‘non-essential’ and locked them down. But we had a whole host of individuals and businesses who were declared “essential” by politicians.

If you look at these laws and how they’ve disrupted wealth-creating opportunities for the average American, it’s very real. They’ve made it harder to get appropriate health care. I know people will argue about the ACA, but I can tell you most people are paying more and getting less. It’s become harder to generate wealth in the stock market or even off a money market because the Fed has disrupted risk in the market. It’s become more expensive and difficult to purchase a home and create a small business.

These are all the ways that people create wealth in this country. If you’re disrupting wealth creation opportunities for the average American and you’re building this Frankenstein behemoth that is increasing its purview and doing everything inefficiently and ineffectively, that’s havoc in my opinion.

Good answer.

(laughs) You know, I’ve given this a little thought.

Let’s talk about lockdowns a minute. At FEE, we spent much of the last year writing about the unintended consequences of lockdowns, which have been severe. I’ll ask you point blank. Were the lockdowns the right move?

We didn’t have lockdowns. This is the big issue. We didn’t have liberty and we didn’t have lockdowns. We targeted individuals who were deemed “non-essential” and locked them down. But we had a whole host of individuals and businesses who were declared “essential” by politicians. Whether it was an Amazon warehouse or a weed dispensary that had been illegal just a few years ago, we all had these businesses that were magically declared essential.

So we didn’t have lockdowns. We didn’t have everyone sharing equally in the pain. And because of the Fed’s actions, we didn’t have sustained pain the market. So I can’t say if the lockdowns were the right move, because we didn’t have one.

If your strategy is to do this to just part of the people—based on whim, not science—then you need to appropriately compensate them. And to that point, it’s not like we didn’t spend $6 trillion, we just didn’t spend it on the people who deserved due compensation.

Let’s talk about that. You write that when the federal government stepped in with its “assistance” during the pandemic—$1.9 trillion CARES Act—it clearly favored the wealthy and well connected. You offer numerous examples. The Kennedy Center got a $25 million grant (even though it furloughed most of its staff). The country’s wealthiest universities were allocated millions of dollars even though they had multibillion-dollar endowments.

Why was so much of this money flowing to the Kennedy Center and universities and not to small businesses that were ordered closed?

Cash for cronies. This is the whole issue. When there is an opportunity to do the right thing, the people are not angels who are going to organize society for us, as Milton Friedman quipped.

They are power-hungry, greedy individuals who are going to give favors to the people that they know. And they never let a good crisis go to waste. That’s what we saw last year.

The Kennedy Center had hundreds of millions in assets. It received all kinds of funding, this random arts center for the hoity toity. And they weren’t even open! They were given $25 million and one of the stated reasons was deep cleaning of the building? Are you kidding me?

Interviewer: *Laughs*

It’s funny, but it’s not funny. Same thing with the universities, who by the way already get tax advantages and have been able to drive up their prices because of the government effectively nationalizing most of the student lending business. They had already been paid for the semester by their students. They were losing zero revenue and had a lower operating cost structure because no one was there. Frankly, they should have been refunding their students’ money, not receiving money from us.

The worst part is that nobody reported on it. I tried to keep this on the DL because I don’t want to get targeted, but I was the one who brought up the Harvard thing on Twitter that went viral and eventually forced them to give the money back.

You as a saver or a retiree are earning next to nothing on your savings that are being lended out and then multiplied by free Fed money to give to big companies who are using that to get a competitive advantage and get bigger.

One of my followers brought the table to my attention. I started making it a big deal that Harvard—which I always call a hedge fund with a university attached to it—got millions of dollars for nothing. They didn’t have to jump through hoops or do anything. They were just gonna get it handed to them.

Meanwhile, my local dry cleaner, pizza parlor, and hair dresser were duking it out with everyone over what was a couple hundred billion dollars. What does that say? You tell small businesses they’re non-essential, and then you back it up with how you allocate the money.

It’s the government picking winners and losers. It always works out well for those who are connected. It doesn’t work out for those who aren’t in the inner circle.

It was recently pointed out that the top 1 percent in America hold more wealth at any time in history since the Federal Reserve has tracked the statistic. Are you suggesting it’s not a coincidence this happened during the greatest expansion of government in modern history?

Their increase in wealth closely matches what the Fed has printed over the last twelve to fifteen months! It’s no surprise, but it comes at the expense of Main Street and the average American.

You as a saver or a retiree are earning next to nothing on your savings that are being lended out and then multiplied by free Fed money to give to big companies who are using that to get a competitive advantage and get bigger. I talk in the book about how the money is used to prop up zombie companies that probably shouldn’t even exist anymore. It’s all to the detriment of innovation and small businesses and fair competition.

Black Rock going in and buying up residential housing is a direct result of these policies. Artificially low-interest rates that need to go and find yields because risk has been completely disrupted, and all of this government money is coming to compete with the average American.

As far as the 1 percent, I’m a free market capitalist. There’s always going to be a top 1 percent. I don’t care. If you innovate and the market determines you should get all this wealth, great! But I have a huge problem when that comes as the result of government mandate and action.

During this spending bonanza, untold numbers of Americans who owned small businesses were being crushed. We’ve all seen the Yelp figures, but those only scratch the surface. Do we have any hard data on how many small businesses went under over the last 15 months?

Different sets of data say different things. The Biden administration has said more than 400,000. We know that’s a floor for sure. They wouldn’t say it if it was less than that.

That figure was reported by Opportunity Insights and the Hamilton Project out of Harvard in June 2020. I know for a fact that many small businesses have closed since then.

The Opportunity Insights data also say 38 or 39 percent of all small businesses across the country have closed permanently. I do not believe that figure is correct. But it could be true of employer small businesses—that number was 6 million of the 30.2 million small businesses pre COVID—which would put the total at about 2 million.

I don’t think people really understand how staggering that is. And that number is going to be obfuscated because an epic number of small businesses were also started last year.

I don’t know about you, but I had a good year in 2020. Stocks were great. Value of my home increased a lot. A lot of people like me did really well. How do we convince these people that what government did in 2020 was really bad?

You have them read The War on Small Business (laughs). That’s why I wrote the book.

Look, we’ve seen what I’ve called an E shaped recovery. A capital letter E has three tiers. This very top level just killed it; they consolidated wealth and power and value. The bottom tier did not do well. It’s not okay to say, “Well, I’m not in that part, so I shouldn’t care about it.”

The business survived Prohibition—as a bar. But it could not survive the mandates and the long tail effects of the mandates.

It was done by government choice. This isn’t the natural outcome of someone not working hard or making the wrong decisions. This was by choice and by mandate. That is scary.

And what if you don’t get the golden ticket next time? You need to care about these principles. If you give up on the principles, they’re just going to move everyone toward socialism and the government mandates and soon there will not be wealth creating opportunities in this country.

We’ll turn into France or the UK, and that’s the best case scenario. The worst is we turn into Venezuela.

Was there someone you interviewed or a story you heard that drove home just how damaging lockdowns were for families that owned small businesses?

Two stick out. I’ll share the less grim one first.

I live in Chicago. There’s a place called South Port Lanes. It’s in the Lakeview neighborhood.

It’s a bar that had been in Chicago forever under a couple different names. It was a year away from celebrating its 100-year anniversary. It survived Prohibition—as a bar. But it could not survive the mandates and the long tail effects of the mandates. It’s closing after nearly a hundred years as a bar. That gives you the scope of this.

And the other one?

Right. This one broke my heart.

There’s a gentleman who I’ve known for a long time. He had a friend who cleaned carpets in northwest Chicago. His business was one of the first forced to shut down and he didn’t qualify for PPP because he’d had some debt issues in the past. He was in a bad financial situation and he turned to drinking more. He ended up taking his own life.

You’re told first, ‘You didn’t build that.’ Then you’re told you’re not ‘essential.’ What does that say to people?

It was a direct outgrowth of the mandate and not getting the compensation. That shifted his life. And by the way, there are many examples like that. I just happened to know a guy who was friends with this individual.

That’s what people don’t understand. When someone has a business and they risk their own money, a lot of times it becomes their identity and their reason for being. And how are they treated?

You’re told first, “You didn’t build that.” Then you’re told you’re not “essential.” What does that say to people? How is it that we’re supposed to be the bastion of free markets and the American Dream and you got the government coming down to the place where businesses are built telling people those kinds of things? It’s disgusting.

And frankly the organizations who should be standing up for small businesses just weren’t there.

You write that decentralization is the key to saving small business and preserving American prosperity. How does that happen?

It happens with people pushing back. You’re seeing the movement organically. You’re seeing people start businesses. You’re seeing workers turn to gig work instead of corporate work. You’re seeing people turn to cryptocurrencies instead of trusting the Fed and the government. You’re seeing media creators turn to the creator economy and to report and share outlets on different platforms outside the corporate press.

The reality is every decision a business is making right now is political whether we like it or not. We don’t have to discuss this in terms of parties though. And I don’t. This is a non-partisan issue.

People are naturally doing all this. Consider how you spend your dollars. We have choice in how we spend our dollars, and I think people should also really consider that. I saw a statistic yesterday that said 85 percent of back to school shopping is going to be done on Amazon. That’s a choice people can make or not make.

We have some responsibility to vote with our dollars. We have some responsibility to stand up to bad legislation.

I’ve been telling small business owners to sue. I think we need to say, you used eminent domain to subjugate our rights. We didn’t get appropriate compensation. Pay us. If we don’t challenge this unconstitutional behavior, we’re going to have more of it.

Let’s talk about you a little bit. What was your process for writing the book?

I’m super anal retentive. So I took my deadline for the manuscript and gave myself a buffer of a month. Then I broke it down and said, how many words do I need to write each day to make sure I get my work done.

I did have a couple people helping me with research. But then you have to go back and verify all that.

Overall, it was a pretty methodical approach.

What do you find more fun: Writing the book or doing the tour and the promotion and that stuff?

Totally different experiences from this book and my first two. With my first book, which I wrote in like six weeks, I enjoyed the writing process a lot more. It was a lot of opinion writing and stories.

In this one, oh lord. It was much harder. It took so much sourcing. It was insane. And given the fact that this is such an underreported and important story, I obviously enjoy spreading the message. I hate to be the messenger about it, but it has to be said.

So it’s been a mission getting people engaged with this information so they themselves can turn into messengers.

I follow you on Twitter, so I saw that at least one speaking engagement you had scheduled was canceled after someone expressed concern that your book was “too controversial.” What’s controversial about defending small business? Last I checked, Americans of every color, creed, gender, etc. owned and operated them. Few things are more diverse and universal today than small business. Where’s the controversy?

Your timing is great. I had a follow up call with them this morning and said the same thing to them. I’m like, “I don’t understand why we can’t take a side.” I mean, what’s the side to killing small business?

As I mentioned on Twitter, it was one outside PR consultant who raised all these questions and concerns and didn’t like one of the six people I had on the back of the book. I tried to explain, look I know you’re trying to not be political right now. But the reality is every decision a business is making right now is political whether we like it or not. We don’t have to discuss this in terms of parties though. And I don’t. This is a non-partisan issue; it’s a systemic political issue.

I had a Twitter follower who recently was my bellhop in Vegas when I was there speaking. He was like, “Are you Carol Roth from Twitter? I follow you!”

Everybody is afraid of one squeaky wheel who probably doesn’t even buy from them. It’s a sad state of affairs. I have a lot of friends from other countries who live here. They think we are the most ridiculous and insane people ever.

Anyway, the marketing person told me he hadn’t actually read the book. He said he’s going to. I’m back in the game in a sense. I don’t know. We’ll wait and see.

Your fans seem to love you and your book. It seems to be doing very well. I’m seeing you in the New York Post and on Fox News and in other media. So are you famous now? Are people starting to recognize you when you go out for coffee?

Alton Brown called it modern famous. It’s like one percent of the people think you’re the Beetles, and 99 percent don’t know who you are.

I’ve been stopped at hockey games. I’ve been stopped in airports. It used to happen a lot more when I was traveling back and forth from New York for CNBC. I’d be on a plane with my hair and makeup done and someone had just watched the show.

I’m naturally crazy. My husband says I have a low bar for humor. I spend my days cracking myself up. I find humor in life and situations.

I had a Twitter follower who recently was my bellhop in Vegas when I was there speaking. He was like, “Are you Carol Roth from Twitter? I follow you!”

So it happens. But I always say I’m like a luxury brand. I’m very well curated. I’m somewhat popular but definitely not for everybody. I don’t have the personality or the desire to be a mass brand. I’m not controversial for the sake of being controversial. I try to be nice to people, unless they’re jerks to me first, and then I’ll light them up.

I have a very specific set of knowledge and humor and either you get it or you don’t, and I’m okay with that.

On Twitter you told a fan you don’t drink or smoke marijuana. So what do you do for fun when you’re not writing bestselling books?

I’m naturally crazy. My husband says I have a low bar for humor. I spend my days cracking myself up. I find humor in life and situations. I have a pinball machine in my living room—that is broken at the moment. The flipper is burned out. I’m trying to get the pinball guys out here to fix it.

I’m a big sports fan. My Blackhawks didn’t make the Stanley Cup playoffs this year, but I’m still rooting for them.

I like to create. I like to read and hang out with family. I spend like 90 percent of my time completely amused.

That’s a good way to live.

I think so.

Final question: It’s March 2020. Carol Roth is president of the United States. Does Dr. Anthony Fauci keep his job?

Nope. In fact, Anthony Fauci probably wouldn’t have had a job to begin with. And he definitely doesn’t get on TV to do the whole little tour to begin with.

*****

This interview was published on July 14, 2021 and is reproduced with permission from FEE, Foundation for Economic Education

Before, during, and after the 2007–09 financial crisis, the masthead of the Federal Reserve Board’s main webpage included the following assertion right below its name at the top of the page:

The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible and stable monetary and financial system.

This statement is still there today. Can we all breathe easier now? Maybe not, if we endured one of the worst financial crises ever while the Fed was championing itself as a source of stability.

Rebranding to Inspire Confidence

Curiously, the board changed the wording of the statement at the top of the main page of its website during 2007, amid the onset of the 2007–09 disaster. Back in January 2007, the internet archive Wayback Machine shows the following saying to the right of the board’s name at the top:

The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.

In other words, at the beginning of the year, the assertion was an opinion of what Congress intended, not what the Federal Reserve said that it provided in reality. By the end of 2007, however, the statement had taken on the more assertive, confidence-inspiring tone it has today. The Fed has advertised itself as a sufficient condition for financial stability, period—not simply as a means by which Congress tried to promote that difficult goal.

This helps to explain why the Fed’s forecasting failed so dismally before 2008–09. When advertising itself as a source of stability, it may have been hard to predict what ended up being one of the worst financial crises in our nation’s history.

We should try to learn lessons from history, including this one. Can we take for granted the Fed’s continuing claims to be a guarantor of stability, today? Not just in terms of the Fed’s role in stabilizing and/or bailing out large financial institutions, but for a stable price level?

In this light, the Fed’s more recent claims that inflation threats are “transitory,” and that it has the tools to manage higher inflation if it arises may not be so comforting. And the factors undermining confidence in the Fed’s credibility for inflation-fighting are related to its claims to serve as a source of financial system stability.

The Financial Stability Report: Avoiding Liability for Crises

Back in 2010, reeling from the political effects of the 2007–09 financial crisis, Congress passed the 849-page “Dodd-Frank” legislation. It was signed by President Barack Obama with a statement that the law was intended “to make sure that a crisis like this never happens again.”

The first section of Dodd-Frank created a new Financial Stability Oversight Council (FSOC). The first listed member of the FSOC was the secretary of the Treasury and the second was the chairman of the Federal Reserve Board of Governors. The law made the Treasury secretary, not the chair of the Federal Reserve, the chair of the FSOC. And the law created ten voting members, with the chair of the Fed holding only one of those votes.

The law directed the FSOC to annually report on financial market developments with “potential emerging threats to the financial stability of the United States,” including developments relating to “accounting regulations and standards.”

In 2011, the FSOC issued its first annual report. That report listed a financial system that was “less vulnerable to crisis” first among three elements of the “stronger, more resilient financial system” the FSOC said the law was trying to promote. In turn, the first of six elements of policies to achieve those ends was “tougher constraints on excessive risk taking and leverage across the financial system.”

Before 2011, and indeed before 2008, the Federal Reserve had assumed the lead role on such matters. That may help explain why, beginning in 2018, the Fed began publishing its own Financial Stability Report. The Fed doesn’t have a specific directive from Congress for this report, and it has justified enlightening the rest of us on financial stability developments as a means for promoting increased “transparency and accountability for the Federal Reserve’s views,” given that “promoting financial stability is a key element in meeting the Federal Reserve’s dual mandate for monetary policy regarding full employment and stable prices.”

But the Fed has already long reported semiannually on its performance in meeting Congress’s dual mandate in the Humphrey-Hawkins testimony, raising the question of whether this report is necessary or merely a means by which the Fed is trying to defend and promote its leadership role.

The latest version of the Fed’s Financial Stability Report arrived in May 2021. The Fed distinguishes “shocks” from “vulnerabilities,” with a view to promoting a financial system capable of performing intermediation services during and after the arrival of difficult-to-predict or control “shocks.” In making this distinction, the Fed risks a perception that is trying to wash its hands of responsibility for creating the conditions under which shocks arise.

In all of its financial stability reports issued since 2018, the Fed has reviewed developments in four categories established for its “vulnerabilities,” including asset valuations, funding risk, borrowing by businesses and households, and “leverage in the financial sector.” For the last category, the Fed has been tracking leverage among banks, broker-dealers, insurance companies, and hedge funds—but it has refused to look at itself in the mirror. The financial stability framework does not include leverage for the Federal Reserve Banks in monitoring vulnerabilities.

Doing More Harm Than Good

In its latest weekly consolidated balance sheet for the twelve reserve banks, the Fed reported $8.1 trillion in total assets, funded by $8.0 trillion in liabilities and $36.9 billion in capital. That’s a massive amount of leverage for an $8 trillion dollar “company,” one whose assets and liabilities quadrupled from 2007 to 2019, and have since doubled with the arrival of the pandemic and the impact of government lockdowns on the economy.

Assume a widely unforeseen but significant increase in inflationary expectations arrives in the coming months. That might qualify as a shock—under the Fed’s framework for financial stability, anyway—especially given the implications for the prices of trillions of dollars of “risk-free” Treasury bonds, as well as longer-term securities issued in the private sector. In turn, widespread losses in bond prices would have immediate consequences for the finances of the Federal Reserve Banks and the independent exercise of monetary policy.

In “normal” times, the Fed could try to manage rising inflationary expectations with contractionary monetary policy, selling bonds in open market operations with a view to drawing down reserves in the financial system. Given its high leverage, however, selling bonds could generate significant losses for the Reserve Banks. These would wipe out its reported capital were it not for an accounting change the Fed made to its own accounting standards a few years ago.

In 2014, Marvin Goodfriend identified Federal Reserve quantitative easing as a “bond market carry trade,” one that accumulated risk on the Fed’s balance sheet and threatened the independent exercise of monetary policy given the Fed’s implied reliance on the US Treasury and future fiscal policy. Goodfriend argued that the Fed should retain more of its earnings and build up its capital to reduce its leverage risk and bolster the credibility of its monetary policy.

In this light, the Fed’s ongoing efforts to monitor and advertise its ability to manage financial market stability bring to mind a prophetic article written by George Kaufman and Kenneth Scott in 2003, titled “What Is Systemic Risk, and Do Bank Regulators Retard or Contribute to It?,” Kaufman and Scott decried the moral hazard implications of government safety net policies, concluding that “many bank regulatory actions have been double-edged, if not counterproductive,” and called for significantly reducing government’s backup role in the financial sector.

Congress should explore a fundamental reexamination of that backup role today.

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This article was published on July 13, 2021 and is reproduced with permission from the Ludwig von Mises Institute.

Defying economists’ expectations for sixth month in a row, inflation heats up instead of easing off. And it’s a lot worse than it seems.

The Consumer Price Index jumped 0.9% in June from May, after having jumped 0.6% in May, and 0.8% in April – all of them the steepest month-to-month jumps since 2009, according to the Bureau of Labor Statistics today. The CPI without the volatile food and energy components (“core CPI”) jumped by 0.8% for the month and by 9.5% for the past three months annualized, the red-hottest “core CPI” since June 1982.

The CPI tracks the loss of the purchasing power of the consumer dollar – everything denominated in dollars for consumers, including what they can buy with their labor – and this dollar has dropped at a rate of 10.7% over the past three months annualized, the fastest drop since June 1982

Loss of purchasing power is “permanent,” as the chart shows.

There is nothing “transitory” or “temporary” about the loss of purchasing power as the chart above shows. Only a period of deflation can reverse some of the drop in purchasing power, which is a rare event in the US and happened only a few quarters over my lifetime, including for several months in 2008 – that little notch in the chart above.

The only aspect of inflation or the loss of purchasing power of the dollar that is temporary is the speed with which it progresses, faster or slower, from month to month.

Actual home price spikes v. charade of CPI for housing.

Housing costs – rent and homeownership costs – are included in the CPI as services and account for about one-third of the overall CPI. It’s the biggie, but it barely moves despite surging housing costs.

The rent component of CPI (“rent of primary residence”), weighing 7.7% in the overall CPI has been ticking up every month this year at a constant 0.2%, including in June, and is up only 1.9% year-over-year.

The homeownership component (“Owners’ equivalent rent of residences”), weighing 23.7% in the overall CPI, rose 0.5% in June and only a stunningly low 2.3% year-over-year, even as home prices have exploded, no matter how they’re measured.

The median price of all types of existing homes in the US, as tracked by the National Association of Realtors, spiked by a record 24% compared to a year ago.

The Case-Shiller Home Price Index, which measures the price changes over time for the same house and is, therefore, an appropriate measure of house price inflation, spiked by 14.6% year-over-year, the red-hottest increase in the data going back to 1987 (purple line). This contrasts with the languid CPI for homeownership (red line):

The reason the CPI’s homeownership component doesn’t track this rampant home-price inflation, and thereby the loss of the dollar’s purchasing power with regards to homes, is because it doesn’t track it. It is survey-based, and tracks what homeowners think their home might rent for – hence its name, “owners’ equivalent rent of residences.” It is a measure of rent, as imagined by the homeowner…..

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Continue reading this article published July 13, 2021 at  Wolf Street.

The right should pose one simple request to the Biden administration: You want to audit other ‘rich’ people? Why not audit yourself first, Mr. President?

A bipartisan Senate working group has proposed paying for new infrastructure spending in part by providing $40 billion to the Internal Revenue Service. But before Congress even considers the legislation, conservatives rightly skeptical of doling out new funds and authority to the IRS should pose one simple request to the Biden administration: You want to audit other “rich” people? Why not audit yourself first, Mr. President?

While the press has largely ignored it in favor of wall-to-wall coverage of his predecessor’s tax practices, Biden’s returns raise their own set of questions. If the current president declines this offer, Congress should take the matter out of his hands, and propose an amendment to the infrastructure bill requiring the IRS to audit the last four years of tax returns for Joe and Jill Biden.

‘Aggressive’ Use of Loophole Biden Now Wants to Close

As I previously noted, from 2017 through 2020, Joe Biden and his wife Jill characterized the vast majority of their income—more than $13.6 million worth—as profits from two S-corporations rather than wages. In so doing, the Bidens avoided paying nearly $517,000 in payroll taxes that fund Medicare and Obamacare.

While Biden’s budget proposed closing the S-corporation loophole that he and his wife so recently exploited, the tactic currently remains legal—up to a point. The IRS requires that individuals using S-corporations must pay themselves “reasonable compensation” in the form of wages, on which they must pay payroll taxes.

On that count, Joe Biden’s actions, in particular, raise serious questions. In 2017, Biden reported total income of more than $9.6 million, yet paid payroll taxes on $145,833—only 1.45 percent of his income. His 2018 return followed a similar pattern, in which he paid payroll taxes on just under 10 percent of his more than $3 million of total income.

Earlier this year, Joe Biden cited his taxes as evidence of his ethics, claiming he instructed his accountant that “The foul line is 15 feet away from the basket. Never get me closer than 17 feet, because it really is a matter of the public trust.”

But after reviewing his returns, tax experts called his actions into question. Two years ago, an analyst at the liberal Tax Policy Center called the Bidens’ behavior “pretty aggressive,” while another tax analyst said the Bidens used the S-corporations solely to avoid paying Medicare and Obamacare taxes.

Scrutinizing the Returns

The Internal Revenue Manual does provide for mandatory audits of the president and vice president. But it only does so with respect to sitting office-holders, referencing “the individual tax returns and accounts of the President and Vice President of the United States in office at the time of filing” (emphasis added).

In other words, federal law does not require the IRS to audit the Bidens’ 2017, 2018, and 2019 tax returns, which were filed after Joe Biden left office as vice president, but before he returned to office as president. This is a convenient fact for Joe Biden, because it omits any automatic scrutiny of behavior that the Tax Policy Center raised concerns about.

Therein lies the question lawmakers should ask the Biden administration. A research organization run by the (liberal) Brookings Institution and (liberal) Urban Institute raised legitimate questions about the propriety of his conduct. If President Biden wants to audit others, why shouldn’t he demand that the IRS audit his own returns first—to put to bed any questions about his conduct—before trying to sic the agency on others?

If Biden finds questions about his tax practices too embarrassing to request an audit of his returns, Congress should settle the matter for him. Lawmakers should offer an amendment ordering the IRS to audit his 2017, 2018, and 2019 returns—and force Democrats to go on the record as favoring or opposing it. While the agency normally audits only returns for the last three years (in this case, 2018, 2019, and 2020), the IRS can go back into 2017 if it finds significant discrepancies in the Bidens’ most recent returns—or if Congress instructs it to do so.

‘Not-So Middle Class’ Joe

The left and the media (but I repeat myself) remain fixated on President Trump’s tax affairs. And courts in New York will pass judgment on the propriety of his business dealings in due season.

But the current occupant of the White House has far from clean hands on taxes. Recall first that Biden wants to close a loophole that he exploited mere months ago, and second that he considered renting this house outside Washington a bigger priority than paying Obamacare and Medicare taxes on all his earnings in 2017 and 2018.

For someone with this kind of checkered history to propose siccing IRS agents on others represents the height of cheek. Perhaps Joe Biden will rethink his strategy after spending some time in the barrel himself.

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This article was published on July 13, 2021 and is reproduced with permission from The Federalist.

There is a fable that has been created in our society over the last 50 years. That fable is you will not succeed in America unless you have a college degree. It is so much so that students (and their families) have driven themselves into $1.4 trillion of debt. The Democrats want to make college free (Yes – “free”) while we (the nation) absorb the existing debt.

Fortunately, many major employers, in part driven by the pandemic, have realized that not all their employees need degrees. In fact, it is harming their employment goals.

Not only have larger employers used a college degree as a distinguishing aspect in their hiring practices but so have many medium and smaller-sized employers. One of the reasons it is a demarcation on a resume is because it can be. In today’s legalistic world of hiring, employers can maintain employees’ college degrees as a characteristic to stratify employees. Mindlessly or not.

Research for this column noted that many employers felt a college degree confirms a higher level of verbal and writing skills. That is fascinating because most employers I know think the current college graduates (except for possibly ones with advanced degrees) have terrible language skills. They write horribly and do not know how to address customers in a business setting. Then there is their complete lack of knowledge of the words please and thank you in dealing with customers.

Many of the Big Tech companies like Tesla and Apple have begun to eliminate college degrees from several of their positions including programmers. Elon Musk noted at a recent conference that many of the top people at tech companies such as Larry Ellison, Bill Gates, and Mark Zuckerberg never graduated from college. It would seem silly for these companies to then turn around and require programmers to have a college degree.

Requiring a college degree often runs contrary to actual experience for the positions. A 2014 survey found that 65% of employers were requiring college degrees for an executive assistant and secretarial positions. At the time, 19% of people filling those positioning had degrees. Does that mean 81% of the people in those positions were performing inadequately or was it a knee-jerk reaction by employers to include college degrees as a requirement?

In a 2017 Harvard study, we found out the obvious. If you throw in a college degree requirement for middle-skill positions, the employees cost more. They not only found that people with college degrees have a higher turnover rate, but likewise tend to be less engaged and are no more productive than high-school graduates doing the same job. All these factors are major turnoffs to employers once they become aware of the facts.

In my research, a lot of people analyzed the problem with too many college degree requirements and skipped over what seems to be an obvious cause. That cause is the advent of Human Resource (HR) departments. There are many good reasons to have HR departments in the complex world of employment and the related benefits. It seems obvious to me that the explosion of adding college degree requirements for jobs mirrors the explosion of HR personnel. Most executives stay away from hiring (except for key positions) to avoid charges of favoritism, nepotism, and discrimination. Many executives were unaware of the over-credentialed requirements that resulted in 71 million high school graduates in the workforce being precluded from filling positions despite being excellent candidates.

At a 2019 White House Conference, Siemens USA CEO Barbara Humpton identified the problem. She stated, “All too often, job requisitions will say they require a four-year degree, when in fact there’s nothing about the job that truly requires a four-year degree — it merely helped our hiring managers sort of weed through the crowd and get a smaller qualified candidate group.” Translation: the requirement is for the convenience of HR and not the company or potential employees.

To summarize, many employers have been inflating requirements for positions adding in college degrees where the requirements of the position do not warrant the degree. That has eliminated many qualified high school graduates who could capably fill the positions at potentially a lower cost and who would stay in the positions for a longer period reducing the costs of turnovers.

It is time for all employers to evaluate whether their open positions need a college degree. They should also evaluate whether a college degree is really needed for management positions, or whether people with hands-on practical experience may be better suited to fill those positions. It is time employers in America stop forcing young Americans to needlessly take on debt for a degree they neither want nor need.

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This article was published in FlashReport on July 12, 2021 and is reproduced with permission from the author.