Economy Archives - Page 155 of 161

Will the Fed’s “Feelgood” Medicine Cause an Economic Collapse?

February 19, 2021/in Economy, Liberty, Politics /by Barry Brownstein

Dr. Max Jacobson became known as Dr. Feelgood and “Miracle Max” for treating wealthy celebrities with concoctions, “mixing amphetamines, vitamins, enzymes, tranquilizers, placenta, and anything else that inspired him.” Jacobson’s most famous client was President Kennedy, who became sadly dependent on Jacobson’s “elixirs.”

How much speed, narcotics, and other powerful drugs Jacobson injected into Kennedy we will never know. Certainly, Jacobson’s elixirs allowed Kennedy to override his body’s signals that would have led to more sustainable treatments for his ailments.

Many decades ago, Dr. Feelgood was a cover story for New York Magazine; the cover rhetorically questioned Dr. Feelgood, You make me feel so good, are you sure it’s all right?

The Fed has become the economy’s Dr. Feelgood with its expansionary monetary policy. The lender of last resort has become the prime pusher of financial amphetamines. The Fed is promoting moral hazard by working overtime to eliminate consequences for risk-taking. Such policies didn’t begin with Covid-19.

Along with staggering increases in the money supply, the Fed’s balance sheet has almost doubled from about $3.8 trillion in August 2019 to $7.4 trillion in January. With the Fed’s willingness to support corporate debt, even junk bonds have plunged to record low yields. President Biden wants to “go big” with new deficit stimulus programs that will need still more of the Fed’s largesse.

Long-time Fed critic and financial analyst James Grant, writing in the Wall Street Journal, calls out Fed chair Jerome Powell for being the Fed’s Dr. Feelgood. Grant quotes Powell saying, “What we’re thinking about now is providing the accommodation that this economy needs for as long as it needs it.” What Jacobson did for Kennedy, Powell is sure he can do the country.

Of course, behind Powell are the over 400 Ph.D. economists providing intellectual succor for easy money schemes. Powell may be the Fed’s head, but the monetary Dr. Feelgood is the collective persona of an ideology that robs from the poor to give to the wealthy.

Consider the case of investment bank Morgan Stanley. Before Covid-19 hit the economy, Morgan Stanley stock was trading at about $55 a share. Their stock hit a March Covid low of $27 a share and today trades at around $73 a share. As a result, “Morgan Stanley Chief Executive James Gorman’s annual pay rose by $6 million, or 22%” to $33 million a year. Without the Fed’s asset bubble support, Morgan Stanley’s stock and Gorman’s salary would likely be considerably lower. Down the road, the rest of us will pay when the asset bubble bursts.

Grant explains how artificially low-interest rates prop up the stock market.:

“Ultralow interest rates are a financial psychotropic. They induce feelings of neediness (on the parts of savers to reach for yield), grandiosity (by corporate deal-doers to reach for the moon) or fantasy (for any who would try to rationalize otherwise insupportably high stock prices with reference to the tiny cost of a loan).”

The market process depends on accurate price signals. Grant warns, “Ground-scraping interest rates turn savers into speculators and quarantined millennials into day traders. They facilitate overborrowing, suppress market signals, misdirect investment dollars, and promote the dubious business of turning well-financed public companies into heavily indebted private ones.”

The interest rate is a core price in the economy, facilitating discovery of the real cost of borrowing money. As Don Boudreaux puts it in his book The Essential Hayek, “There’s trouble if prices do not reflect realities.” Boudreaux explains, “Our trust in the overall ‘correctness’ of people’s economic decisions, however, requires that the prices that people use to guide their decision-making are reasonably accurate sources of information.”

None of this is to imply that those setting Fed policy are evil or stupid. Yet, good intentions won’t spare us from the consequences of policy driven by mistaken beliefs. Consider a recent essay by Eric Levitz, who mocks the “regressive” idea that “there is some ‘natural’ benchmark interest rate that exists outside of politics and policy, and that the Fed is corruptly flouting this natural market law.” As a consequence of his misguided beliefs, Levitiz concludes “condemnations of the Fed for bailing out corporate America with its easy money policies” are unwarranted.

Levitz is not alone in believing politicians and policymakers, not markets should set interest rates. Jörg Guido Hülsmann summarizes their ideology:

“We are told by virtually all the experts on money and finance—the central bankers and most university professors—that the crisis hits us despite the best efforts of the Fed; that money, banking, and financial markets are not meant to be free, because they end up in disarray despite the massive presence of the government as a financial agent, as a regulator, and as money producer; that our monetary system provides us with great benefits that we would be foolish not to preserve. Those same experts therefore urge us to give the government an even greater presence in the financial markets, to increase its regulatory powers, and to encourage even more money production to be used for bailouts.”

Grant explains, “The official message is rather that today’s unprecedented monetary-policy offensive holds no potential for anything but a wholesome reduction in the damage of the lockdown-induced recession.” Many people want to believe this “official message,” though it is misguided.

The Cantillon Effect

Richard Cantillon was an 18th-century economist whose work came before Adam Smith. He is most famous for his observation that is now known as the Cantillon Effect: The creation of new money—inflation—does not have equal effects across the economy. Those who are the first recipients of new money, “political entrepreneurs,” gain at the expense of everyone else.

Suppose a family of four sets down to dessert after dinner with one pie to share. Cutting the pie into eight equal pieces means dessert today and tomorrow with each member of the family receiving one slice each evening. Now, suppose one member of the family said, “Let’s create eight additional slices.” If each family member received four pieces, the amount of pie each family member received would be the same.

Suppose the family member cutting the pie sixteen ways has an ulterior motive. He wants more pie at the expense of everyone else. After slicing the pie sixteen ways, he gives everyone two slices and keeps the extra eight pieces for himself. Someone in the family might remark, “My two slices of pie are smaller and less filling.” “No, you are mistaken,” the pie cutter obfuscates. “You are receiving two slices of pie as always.”

Similarly, as Ananya Chowdhury explains, monetary expansion “results in arbitrary benefit to some who have not created any economic value and detriment to others who have not destroyed anything of economic value.”

You may be trying to make sense of the incessant claims by politicians and economists that in order to save the economy the Federal Reserve must engage in fresh rounds of monetary easing. In that case, the Cantillon Effect provides useful insights: Wealth is redistributed to the primary beneficiaries of the new money.

The injection of new money, Don Boudreaux explains, sets the stage for business failures and stagnation in the future:

“The process of injecting newly created money into the economy can distort the pattern of relative prices and, hence, encourage an unusually large number of faulty economic decisions—that is, encourage an unusually large number of economic decisions that are revealed only later to be mistaken. Specifically, injecting new money into the economy causes too many resources to be invested in those industries that first receive the new money. Those industries over-expand.”

In Human Action, Ludwig von Mises wrote of interest rate manipulations: “The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.”

Some people believe the judicious use of monetary policy can avoid the worst. Mises has a wake-up call: further credit expansion can only postpone—but not prevent—the business cycle’s liquidation stage. Mises writes, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Monetary expansion today, like a Dr. Feelgood elixir, leads to future trouble. In The Constitution of Liberty, Hayek concurred with Mises,

“There are two points which cannot be stressed enough: first, it seems certain that we shall not stop the drift toward more and more state control unless we stop the inflationary trend; and, second, any continued rise in prices is dangerous because, once we begin to rely on its stimulating effect, we shall be committed to a course that will leave us no choice but that between more inflation, on the one hand, and paying for our mistake by a recession or depression, on the other. Even a very moderate degree of inflation is dangerous because it ties the hands of those responsible for policy by creating a situation in which, every time a problem arises, a little more inflation seems the only easy way out.”

Yet, few have studied economic principles set out by Mises, Hayek, Boudreaux and others in the Austrian school of economics.

Many people want to believe in the Fed’s Dr. Feelgood magical powers. Many believe that the Federal Reserve Board has learned to prevent long-term bear markets. “Don’t fight the Fed” is used as a mantra by those who are convinced stock prices only go up. “This time is different” is their mistaken belief.

Of course, human beings want to believe the Fed is in control of an essentially uncontrollable economy. In a bear market, people, rather than questioning their false belief, lash out with recriminations and blame.

The hubris of politicians and Fed chairs is only a reflection of our hubris. As a society, we have collectively spent beyond our means and have had the arrogance to believe that there will be no consequences.

Grant warns, “In neither medicine nor central banking is free lunch on offer. Say yes to a cortisone injection for that inflamed knee, and you risk cartilage damage, death of a nearby bone, nerve damage, etc.”

Take for example a young family house hunting. Grant asks, “Do low mortgage rates advantage young families shopping for their first houses?” “Maybe not,” Grant explains, “if the same low rates spark a rise in house prices greater than the evident savings in interest expense.”

By attempting to create perpetual sunshine on financial assets, the Fed makes it difficult to enter the stock market or housing markets for those on the bottom rungs of the economic ladder.

Eventually, as Mises wrote, all the Fed expansionary policy in the world will not stave off a significant and perhaps a catastrophic bear market. In a bear market, new and even more dangerous populist political movements will be born out of the resulting economic suffering.

The promise of cheap money leading to perpetual asset price sunshine may seem like a reality today. Tomorrow the consequences will be like Dr. Feelgood’s needles. To avoid the worst, markets—not politicians or bureaucrats, must be free to uncover the real cost of borrowing money.

*****

This article first appeared on February 9, 2021, and is reproduced with permission of the American Institute for Economic Research, AIER

Minimum Wages Had a Eugenic Intent

February 19, 2021/in Culture Wars, Economy, Liberty, Life Advocacy, News, Politics /by Jeffrey Tucker

All this talk of a $15 national minimum wage prompted me to revisit the standard textbook on economics of the US Progressive Era. Principles of Economics, by Frank W. Taussig (1917) is a pretty interesting book overall and it does hold up in general as an elucidation of then-existing knowledge and pedagogy.

There is one section, however, where the author really goes off the rails. He is discussing labor policy and a “compulsory minimum wage rate.” There was no such national law at the time (that didn’t arrive until 1933) but Professor Taussig made the case for one.

For him, this was not about lifting up the poor or increasing wages for everyone. He saw it as a tool for including and excluding workers based on whether and to what extent the people in question should even be part of the labor pool.

As he plainly says, the purpose of the law is to “regulate the plane of competition” so that “one could undersell the others by cutting below the established rate.” Workers whose productivity fell below the minimum would simply be excluded from the workforce: “It would be impossible to compel employers to pay the minimum to those whose services were not worth it.”

To him, this is a feature, not a bug.

Why would anyone want such exclusion? Here is where Taussig gets brutal. Some people are simply unemployable, he says, for example “those who are helpless from cases irremediable” due to “old age, infirmity, disabling accident” and also those suffering from “congenital feebleness of body and charters, alcoholism, dissolute living…irretrievable criminals and tramps.”

This class, he opines, “must be stamped out” and should not “be allowed to breed.” Ideally, he says, we should “proceed to chloroform them once for all” but that might have a bad look. Instead, “at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.”

What does this have to do with minimum wages? They are one tool to use to achieve that goal. However, in order to enforce this, “the power of laws must be very strong indeed, and very rigidly exercised, to order to prevent the making of bargains which are welcome to both bargainers.”

Pretty chilling? Indeed. Welcome to the world of Progressive-Era economics as informed by eugenic concerns in which the law is deployed for purposes of stamping out undesirables. Taussig’s view was not considered scandalous because it was fully mainstream opinion at the time. As grim and immoral as his aspirations, at least he gets the economics right: the minimum wage does indeed lock people without privilege out of the labor force.

He was hardly alone in this view, which is why no one of that generation found it particularly shocking.

Princeton University’s Royal Meeker, Woodrow Wilson’s commissioner of labor, held the same position. “It is much better to enact a minimum-wage law even if it deprives these unfortunates of work,” Meeker argued in 1910. “Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind.”

Henry Rogers Seager of Columbia University, and president of the American Association of Labor Legislation, laid it all out in “The Theory of the Minimum Wage” as published in the American Labor Legislation Review in 1913: “The operation of the minimum wage requirement would merely extend the definition of defectives to embrace all individuals, who even after having received special training, remain incapable of adequate self-support.”

“If we are to maintain a race that is to be made up of capable, efficient and independent individuals and family groups,” Seager continued, “we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization.”

Fabian socialist Sidney Webb summed up the consensus of the time in his 1912 article “The Economic Theory of the Minimum Wage:” “Legal Minimum Wage positively increases the productivity of the nation’s industry, by ensuring that the surplus of unemployed workmen shall be exclusively the least efficient workmen; or, to put it in another way, by ensuring that all the situations shall be filled by the most efficient operatives who are available.”

And so on it goes. The whole generation was frank about their intentions: the point of the minimum wage law was to reserve jobs in society only for those who are deemed worthy of civic inclusion. The wage rate was to be used as a test. If your earning power falls below a specified floor, this must be because you are unfit. At that point, the mandatory minimum had eugenic intent. Its purpose was to “stamp out” those who couldn’t make the cut.

For more on this, have a look at Thomas Leonard’s eye-opening account Illiberal Reformers.

You could of course say that none of this matters. That generation was filled with moral monsters who believed that culling the population of non-normative people was a function of the state. These days, however, the purpose of the minimum wage is to uplift everyone. The problem with this excuse is that the previous generation at least had the economics correct. Price control on wages creates serious market dislocations.

Let’s say that instead of a $15 an hour minimum, Congress pushed a $15 maximum wage/salary. The rich would simply stop working, while everyone else would likely lose professional aspiration. This is not complicated to understand. So too with a wage floor: it cuts the poor out of the market just as the eugenicists said it would.

*****

This article was first published on February 15, 2021, and was reproduced with permission from the American Institute of Economic Research, AIER

CARES Act Coronavirus Relief Went to CAIR, Bail Fund for Criminals

February 18, 2021/in DrRichSwier.com, Economy, Elections, News, Politics, Taxes, Waste, Fraud and Abuse /by Robert Spencer

The text of the CARES Act states that it was implemented to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.”

As Jason Rantz documents, Washington illegally imposed a racial test on recipients. Federal aid should really be conditioned on non-discriminatory application.

…to qualify to the Washington Equity Relief Fund, a group of “reviewers” made sure the nonprofits were “led by and serving Black, Indigenous and people of color.”…

A group of over 100 peer reviewers discussed and scored applications before doling out funding, in collaboration with the Department of Commerce.

The reviewers were “prioritized” on the basis of their race. About 95% identified as a racial minority and 77% experienced poverty. Ironically, the Department of Commerce had the reviewers, who were excluding nonprofits run by white people due to perceived privilege, go through compulsory “anti-bias” training.

Consider all of this to essentially be funding for Democrat organizers and campaign operations at taxpayer expense. That’s the case with much of the “community” non-profit sector that’s funded by city, state and federal funds.

But it gets worse.

Collective Justice, part of the Public Defenders Association, is a partisan, social justice group. It actively lobbies light-on-crime policies and is now being propped up by federal tax dollars.

The nonprofit is currently asking supporters to back a Democrat-sponsored bill forcing courts to ignore the juvenile crimes of adult defendants in sentencing. It received $25,000 in federal tax dollars through the state.

Also receiving funds: the Council on Islamic American Relations of Washington (CAIR-WA). It frequently engages in partisan political activism and has fundraised locally for anti-Semitic congresswoman Ilhan Omar (D-MN).

The Bail Project Spokane received $50,000 from the fund. The nonprofit is part of the national group, which opposes cash bail. It has been responsible for paying the bail for criminals who commit high-profile crimes after release.

The more money the government spends, the worse things get. That’s a solid rule. And the coronavirus turned into a pretext for funding some of the worst of the worst. This is not how politicians sold the CARES Act, but it’s how Democrats implemented it.

COLUMN BY

DANIEL GREENFIELD

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VIDEO: Texas Freeze Shuts Down ‘Renewable’ Power

February 17, 2021/1 Comment/in Culture Wars, DrRichSwier.com, Economy, Energy, Environment, Politics, Science /by Committee For A Constructive Tomorrow

Texas is experiencing a serious deep freeze which is causing people to lose power.

Texas investors larded their state with solar panels and wind turbines to rake in federal subsidies and tax credits. Wind and solar are not only inefficient, a cold snap can shut them down all together.

CFACT’s Marc Morano discussed the Texas freeze with Tucker Carlson on Fox News last night:

“Warren Buffett famously said years ago that there’s no reason to build windmills without the tax breaks and without the subsidies… the same thing’s happening in Germany by the way right now Tucker. Their solar panels are covered in snow and Germans are freezing through winter much the way Texans are. Who would have thought this would have happened in Texas? But this is what we’re dealing with. And Biden now wants to nationalize this plan of the less than four percent that comes from solar and wind and make it our chief go-to energy source.”

After generations of striving, America at last achieved energy independence. Forcing America to abandon efficient energy sources such as natural gas and nuclear power and pushing them instead to wind and solar which can’t deliver is a tragic mistake.

As Marc told Tucker Carlson:

“We were in a position where we weren’t just independent, we were dominant. We had our own domestic energy. So the Green New Deal is going to swap that for a reliance on solar and wind and electric cars which, by the way, are going to be using rare earth minerals from China — 90% of which dominates things like cobalt copper, nickel. And we’re going to now be reliant on China for these rare earth minerals to make these unreliable solar and wind power batteries! So the Green New Deal is lose, lose, lose all the way. We’re seeing it unfold in Texas like we’ve seen it unfold in California.”

Europe and Australia have already proven that forcing people to subsidize wind and solar energy raises prices for consumers while making energy grids unreliable.

It only took a little cold and snow to show that you can’t depend on them in Texas either.

Relying on wind and solar to power the grid is always a mistake. Don’t count on the Biden Administration figuring that out.

Lockdown: Incoherent and Ineffective

February 17, 2021/in Economy, Healthcare, Liberty, Politics /by Thomas C. Patterson

Our response to the Covid pandemic continues to be incoherent and ineffective. No matter how many interstate comparisons prove that lockdowns confer no permanent benefit, no matter how much economic devastation we endure and how many lives are ruined, we soldier on, refusing to learn from experience.

Our panic-driven approach was originally in reaction to an apparent overall death rate of 3% and the need to keep hospitals from being overwhelmed. But we now know that 82 studies worldwide have found a median death rate of 0.2% of all those infected by Covid and supplemental hospital units were mothballed.

Even more encouraging, the virus is not equally threatening to all. The mortality rate for people over 70 is 1000 times greater than for children, who are almost totally protected. In fact, over twice as many children have died from seasonal flu this year than from Covid.

The sparing of the young is of course a great blessing. Yet we continue to pursue policies of blanket restrictions as if all groups are at equal risk.

This is the folly addressed in the Great Barrington Declaration (GBD), authored by Stanford, Harvard, and Oxford epidemiologists, now signed by 50,000 medical practitioners and 664,000 concerned citizens worldwide. The declaration calls for “focused protection“ in place of the one-size-fits-all lockdowns that have wreaked havoc everywhere.

Societies are urged to concentrate isolation strategies on those most at risk: the elderly, obese, and already ill, who comprise the vast majority of fatalities. Those who would likely experience Covid as a flu-like infection, or nothing at all, follow basic prevention hygiene protocols but otherwise resume their lives.

Unfortunately, what should be a stimulus for rational scientific discovery and discussion has deteriorated into another of the partisan brawls Americans have come to despise. Fights break out over masks. Police block the entrance to gyms and bars. Protests over mandates become unruly. Nut cases threaten public officials.

In this hyper-politicized environment, the right to peaceably disagree goes out the window. Although epidemiology is normally not influenced by political ideology, the reliably left-wing media has been reflexively hostile. Google initially shadowbanned GBD.

Many scientists have resorted to name-calling and silencing rather than reasoned debate. One of the GBD authors was accused of “Trumpian epidemiology“ by a colleague. Another doctor charged the GBD was the work of “COVID-19 deniers“ similar to “creationists, HIV/AID denialists, and climate science deniers“. Meanwhile, 1300 epidemiologists signed a letter assuring that BLM protests were harmless but all the rest of us should self-quarantine.

Lockdown critics are frequently charged with a heartless over-emphasis on economics. But the UN estimates that 130 million additional people internationally will starve as a result of the economic damage resulting from lockdowns.

Moreover, the fixation on one disease at the expense of all others has severe consequences. Childhood diseases like diphtheria, pertussis, and polio are beginning to reappear because parents are over-focused on Covid. Deaths from heart disease, cancer, and diabetes are also trending up from patients’ reluctance to seek routine care.

Mental well-being is in steep decline. Seven in ten teenagers report struggling with their mental health and crisis hotlines are reporting a surge in suicide-related calls. Suicide deaths far outnumber Covid deaths among the young.

School shutdowns may be the most harmful and senseless of all. Since school children very rarely get sick from Covid, they neither endanger themselves nor are contagious to others. The spectacle of millions of children staying home or struggling with distance learning, because the teacher’s unions insist upon it, is an outrage.

The vaccine will help of course, but those expecting a permanent eradication of Covid anytime soon are likely to be disappointed. For starters, 46% of Americans, partly in response to the disparagement of the president who oversaw its development, intend to refuse the vaccine. Moreover, most flu-type viruses mutate freely so immunity, even when achieved, may not be permanent.

We’ll likely be dealing with the virus for some time yet and will need realistic science-based guidance. But science can’t do its job in an environment where anyone challenging the politically dominant status quo gets demeaned or canceled.

*****

Thomas C. Patterson, MD is a retired Emergency Medicine physician, Arizona state Senator and Arizona Senate Majority Leader in the ’90s. He is a former Chairman, Goldwater Institute.

A Phoenix Event of Interest for Liberty

February 16, 2021/in Economy, Education, Liberty, News, Politics /by Editorial Staff

The Prickly Pear announces an outstanding IN-PERSON one-day program for all lovers of liberty being held in Phoenix this Saturday, February 20 from 8:00 AM to 3:00 PM (MST). Location of the IN-PERSON symposium is announced at registration (below).

Heirs of the Republic Presents:

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Are We in a Bubble?

February 16, 2021/in Economy, Education, Politics /by Neland Nobel

All this money printing threatens to eventually create a sugar high in equities. We aren’t there yet, but markets are floating on a sea of new money. In fact, it’s more like a tsunami! Inflation hedges (real estate, commodities, materials companies) will do well. Traditional fixed income (long-term bonds) is at risk. The return of inflation because of misguided policy choices is a very real threat to the long-term health of the US economy.

Brian S. Wesbury – Chief Economist, First Trust

There are increasing concerns that a number of financial markets are entering what some are calling a financial bubble. But a bubble itself has a number of developmental phases before it bursts either of its own accord or is pricked by some outside event. Knowing exactly where you are in such a cycle is difficult to know.

Some are even starting to call the current situation, the “everything bubble.” This is because multiple markets are beginning to display bubble-like characteristics in roughly the same time frame. This includes stocks, bonds, housing (homes and apartments not commercial), cryptocurrencies, and some select commodities.

To shed some light on this subject, we review a recent book on the subject: Boom and Bust, A Global History of Financial Bubbles by William Quinn and John D. Turner, Cambridge University Press, 2020.

Written by two Professors from the University of Belfast, it won Best Book of the Year from the Financial Times.

The book surveys some of the better known, and some not so well known, financial bubbles from the past in an attempt to develop common elements among them. If these common elements can be isolated, then we might be able to identify when a bubble is in progress.

Sadly, most bubbles tend to be identified after the fact, far too late to help those unfortunate individuals caught up in them.

It is also true that both financial journalists and investors throw the term “bubble” around without much precision.

Is a bubble simply an asset class that appreciates rapidly, extends far beyond its underlying fundamentals, and then comes crashing down?

Why are some bubbles isolated and others not? Why do some bubbles do little harm to the economy when they burst, while others create such economic trauma the whole economy goes into recession or depression? Why are some bubbles localized, while others can become international and actually damage the world economy? Why do some bubbles do so much damage that political and social disintegration occurs, leading to revolution?

These are all good questions, and after reading the book the reader walks away with at least some partial answers.

The authors start with the framework that, we should view things as arson investigators do when engaged in their work. What does it take for a fire to start and run out of control? It takes oxygen, fuel, and a heat source or spark. If one of the elements is missing, you can’t really have a fire. And if you have a fire, the removal of one side of the triangle stops the fire.

Likewise, to have a financial bubble, you need three sides of a triangle of excessive money and credit creation, widespread speculation, and increased marketability. And, like a fire, the best way to stop a bubble, is to remove one or more of the triangle sides from the equation.

Historically, they note that the worst bubbles, the ones that really do severe economic, social and political damage are usually started by the government. This is often because the government has excessive debt and is trying to find ways of dealing with that heavy burden.

Some bubbles have to do with new technology that is emerging, which destabilizes things for a while but usually does not cause more than localized harm. That actually can be helpful.

Sometimes, technological revolutions are mixed up with government caused bubbles, and both destabilizing factors are taking place at the same time.

Getting back to the bubble triangle, the fuel for a bubble is money and credit. This is usually where the government plays a leading role. This is often caused by excessive government debt, loose regulation of the banking system, excessive money creation, and ultra-low interest rates. All of these factors spread credit abuse throughout the system with both the public and private sectors overindulging in credit.

In financial terms, it allows the use of excessive leverage or the use of small amounts of money down and the rest borrowed. This allows small amounts of money to control much more in the way of investments, which is of great benefit on the way up and a recipe for disaster on the way down.

The current era would certainly seem to qualify in terms of this side of the triangle. Never in the history of financial markets have we had interest rates so low, for so long.

The next side of the triangle is marketability. This is basically the ease of finding a buyer and a seller and having an organized market with prices and financial vehicles that allow for widespread public participation. For example, Beanie Babies may have been a mania, but there was no organized market between buyers and sellers. You could buy, but not really sell.

Financial innovation in new financial products is usually observed in a bubble that allows vast new numbers of people to participate in highly liquid markets. Recent inventions of stock futures, futures on individual stocks, exchange-traded funds (ETFs), reverse ETFs, leveraged ETFs, mortgaged back securities that could be sliced and diced into small pieces and sold all over the world, options, to today’s SPACs or Special Purpose Acquisition Companies all would qualify as financial innovation that permitted increased marketability.

The current era would certainly seem to qualify as we have multiple new concepts and vehicles in addition to the entrance of new inexperienced traders using no commission platforms like Robinhood. There is no filter between the keyboard and trading execution, and the whole world is wired together jabbering about investments.

The final leg of the triangle that must be present is speculation.

In a sense, all investments are speculative because the outcome is not perfectly known. But speculation in the sense they use the word is the purchase of sale of investments primarily not to hold for a stream of income but to quickly sell for a capital gain. What is important is attractive price momentum, the underlying value of the company or the commodity is of little import. What is important is that the thing has momentum, you can jump on, and quickly jump off, making quick easy money. It is not investing really, but closer to gambling.

Thinking shifts from being a shareholder who intends to own a company for a number of years, to a trader chasing price movement.

In the speculative phase, they note “large numbers of novices become speculators, many of whom trade purely on momentum.”

The migration of novices usually is triggered by greed, low-interest rates that create a zeal for any kind of return, and celebrity endorsement where speculative leaders become folk heroes in the financial press.

The press comes in for withering criticism by the authors. One thing that comes through rather loudly, is that fake news is as old as the news business. In addition, you can sell newspapers and advertising air time by growing your audience. You do this by joining in the bubble rather than spreading caution. Financial television, Twitter, Reddit, and message boards are all ways the crowd can organize and move with the synchrony of a school of fish.

The migration of new investors is also intimately connected to the human desire to fit in, to conform. Humans, despite our rational nature, are herd animals. Why do people all wear torn jeans at the same time, pierce their faces, or tattoo their bodies? Why did all hippies look alike, all the while they professed their “individualism”? There are trends in fashion and trends in thinking.

On February 13, 2021 The Wall Street Journal had a fascinating article about the “messiahs of momentum.” These are folks like Mark Cuban, Snoop Dog, Elon Musk, and the like. Value investors like Warren Buffet have gone the way of the dodo bird. What kind of a Twitter following does he have?

But as the saying goes, when everyone is thinking the same thing, no one is thinking. We noted in a previous article, we seem to be reaching a stage in market sentiment, when the dominant view is hyper-bullish. That historically has not been a good sign.

So, it would seem, the speculative leg of the bubble triangle is being satisfied as well. Thus, with all three satisfied, we likely are in a bubble, but it is hard to know how far along we are in the process. Things looked pretty dicey in 1997 when Greenspan made his “irrational exuberance” remarks, yet the party continued for about three more years.

The problem is, big money can be made in the final phases of market mania and money managers can ill afford to underperform, lest they are quickly fired by greedy clients. The whole thing continues to gain momentum and creates self-reinforcing feedback loops.

Moreover, no one knows exactly how extreme things can get. And no one really knows, what possible events could occur which suddenly reveals the rotten underpinnings of a credit bubble.

However, it would appear we have the fuel, loose money and credit, and a government that has gone fiscally insane. We have expanded marketability, with many new products and venues to permit public speculation. And, we have massive speculative participation and an attitude shift by both the general public and institutions.

Timing remains difficult, but at least we can understand the environment in which we are investing.

Usually, a good sign that you are nearing the end is the market adopts a “new era” or “new paradigm” point of view. Old valuation measures are discarded as are standards of financial probity. Financial extremes are rationalized away because “this time it is different.”

Each cycle is different to a degree, and that makes historic comparisons difficult. What the authors have done is establish a framework that seems common to all financial bubbles.

Besides the importance of this discussion to investors, it should also be of importance to policymakers. One of the points the authors make is that financial bubbles are coming much more frequently, roughly every six years. This has never happened before. The US for example, basically went from 1929 to 1973-74, without a financial crisis.

Now they come every six years? Not only that, most recent bubbles were blown by the government, usually to favor certain groups, like the housing crisis, which was a bipartisan effort to expand homeownership to minorities.

Instead of the Keynesian notion of government acting as a counterbalance to the excesses of the private sectors, the private sector and government are co-joined in their own respective excesses. So, where is the counterbalance? In the past, it might have been the “bond vigilantes” or the foreign exchange markets. But today, the government through the Treasury and the FED put such a giant thumb on the scale, these corrective mechanisms seem slow or unable to work.

To this observer, the next financial crisis looks like a big one. The debt situation is extreme in most sectors, it appears international in nature, hostility to capitalism is on the rise and the social and political fabric of the nation is shredding. Such a divided government can prove to be a paralyzed government.

Government tools of liquidity injections and low rates are already being employed just to maintain prosperity and have already reached historic extremes. What happens in the next financial war when the government has already fired all the ammunition? The very policy prescriptions used to mitigate the prior crisis are in fact the cause of the present.

Coming on the heels of the disaster of lockdown and a severely divided nation, faith in institutions and the government are at all-time lows.

This would not be a good time to have a financial crisis.

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Neland D. Nobel is Editor-at-Large of The Prickly Pear and retired after 45 years in financial services and financial planning.

Biden KILLS pipelines at home but promotes them for Taliban terrorists

February 15, 2021/in DrRichSwier.com, Economy, Elections, News, Politics /by Pamela Geller

This tells you everything about the ongoing coup against America from within.

Biden kills pipelines at home but promotes them for the Taliban

By Michael Rubin | Washington Examiner | February 08, 2021:

On his first day in office, President Biden canceled permits for the Keystone XL pipeline. Environmentalists and anti-fossil fuel activists should not have applauded his move.

After all, Canada will not stop extracting oil from the tar sands of northern Alberta. Instead, it will simply export oil over existing pipelines or to the Pacific Ocean, where the damage from a potential spill would be harder to address. Biden’s cancellation cost jobs and pushes Canada toward greater economic cooperation with China. It also shakes confidence in U.S. business. Who would invest in the country if any future administration can simply renege on deals with the stroke of a pen? Especially, that is, when the investments involved here reach into the billions of dollars?

Biden’s move was both political theater and an indulgence of his liberal base. But his hypocrisy was stunning even for a politician who has spent a half-century in Washington. Consider that while the Biden administration is killing a pipeline from which the public could benefit, Biden is promoting a pipeline to enrich both one of the world’s worst dictatorships and a group responsible for thousands of U.S. deaths.

The government has apparently brokered a meeting between the Turkmenistan government and the Taliban for a trans-Afghanistan pipeline to bring Turkmen gas across Afghanistan and Pakistan to India. If this scheme sounds familiar, it should: It was the same deal that now-Special Envoy Zalmay Khalilzad sought to make with the Taliban in the years before the Sept. 11 terror attacks when he was a consultant for the Unocal Corporation.

Khalilzad’s scheme was bad policy two decades ago, and it is even worse now.

Put aside environmental arguments and consider profit. Freedom House’s latest Freedom in the World report ranks Turkmenistan as among the world’s worst offenders, below even North Korea in terms of freedom and civil liberties. To promote the export of Turkmen gas is to entrench its regime even further. Part of the deal is then paying the Taliban protection money or transit fees for the pipeline transiting Afghan territory. Not only would this undermine the elected Afghanistan government even further, but it would also reward the Taliban for insurgency to the tune of tens of millions of dollars each month. Who needs Russian bounties on U.S. soldiers when the State Department has crafted a scheme to reward the Taliban beyond their wildest dreams?

One issue here is Khalilzad’s penchant for using diplomacy as a stepping stone to cut side deals. But the other issue is U.S. strategic interests. Perhaps a misunderstanding of the Taliban agenda was an excuse 20 years ago. It should not be one now. If the Biden administration says no to pipeline jobs in the Midwest, it should not then turn around and help enrich the Taliban to ship Turkmen gas to the Indian Ocean. It is time for Secretary of State Antony Blinken to call his envoy, end this hypocrisy, and to stop coddling some of the world’s most anti-American movements.

EDITORS NOTE: This Geller Report column is republished with permission. ©All rights reserved. Quick note: Tech giants are snuffing us out. You know this. Facebook, Twitter, Google et al have shadowbanned, suspended and in some cases deleted us from your news feeds. They are disappearing us. But we are here. Subscribe to Geller Report newsletter here— it’s free and it’s critical NOW more than ever.

Dollar’s Purchasing Power Drops to Record Low Despite Aggressive “Hedonic Quality Adjustments”

February 15, 2021/in Economy /by Wolf Richter

Spiking prices for new and used vehicles under the microscope.

The “Purchasing Power of the Consumer Dollar” – part of the Bureau of Labor Statistics’ Consumer Price Index data released today – is the politically incorrect mirror image of inflation in consumer prices, as measured by the Consumer Price Index (CPI). By wanting to increase consumer price inflation, the Fed in effect wants to decrease the purchasing power of the consumer dollar, to where consumers have to pay more for the same thing. Thereby it wants to decrease the purchasing power of labor paid in those dollars.

And that purchasing power of the dollar in January dropped by 1.5% year-over-year to another record low:

Note how the purchasing power of the dollar recovered for a few months during the Financial Crisis when consumers could actually buy a little more with the fruits of their labor. The Fed considered this condition a horror show.

Inflation in durable goods, non-durable goods, and services.

The overall CPI for urban consumers, the politically correct way of expressing the decline in the purchasing power of the dollar, rose 1.4% in January, compared to a year earlier.

Each product that is in the basket of consumer goods tracked by the CPI has its own specific CPI. And all these products fall into three categories: durable goods (black line), nondurable goods (green line), and services (red line), with services accounting for 60% of the overall CPI. Here they are, with discussions below:

The CPI for services (red line) – everything from rent to airfares – increased mostly between 2% and 3% year-over-year for the last decade, but dropped during the Pandemic as demand for services such as hotels, flights, and cruises collapsed. For example, in January, year-over-year, the CPI for……

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Continue reading this article published February 10, 2021 at Wolf Street.

VIDEO: Biden’s proposed gas tax will destroy trucking industry

February 14, 2021/in DrRichSwier.com, Economy, Politics, Taxes, Waste, Fraud and Abuse /by Dr. Rich Swier

A trucking company owner said the Biden administration’s plan to hike fuel tax could destroy the industry. One America America News Network’s Caitlin Sinclair has more.

New Walgreens CEO Pushes Company Further Left in The Pursuit of “Equality”

February 13, 2021/in Culture Wars, DrRichSwier.com, Economy, News, Politics /by 2ndvote .com

Roz Brewer, the former Chief Operating Officer of Starbucks, has just been named CEO of Walgreens. It’s a big step up in the world, but unfortunately, Brewer’s biases threaten to push the company even further left in the pursuit of “equality” — which, practically speaking, means support of violent activist groups like Black Lives Matter (BLM) and over-emphasis on forced racial and gender diversity in the corporate sphere.

A Starbucks letter in support of BLM, which Brewer and other executives signed last summer, reveals a troubling bias towards the leftist narrative. “Together, we’re saying: Black Lives Matter and it’s going to take ALL of us, working together, to affect [sic] change,” the letter read. It went on to detail some of the ways in which people might effect change, sticking to ambiguous talking points such as “joining local peaceful protests” without acknowledging that many of BLM and its affiliates’ protests have proven violent and have hurt black people more than they have helped.

Brewer has also chosen to focus on perceived challenges as a black corporate leader instead of inspiring other black Americans to aspire to become leaders. In her view, as reported by CNBC, misunderstandings are evidence of larger racial and gender biases in the workplace. “You get mistaken as someone who could actually not have that top job,” Brewer said. “Sometimes you’re mistaken for kitchen help. Sometimes people assume you’re in the wrong place, and all I can think in the back of my head is, ‘No, you’re in the wrong place’.”

Even before Brewer became Walgreens’ CEO, the company was far from neutral. Our 2ndVote ranking system puts Walgreens at a low of 1.50 on a scale of 1.00 – 5.00, revealing their support for leftist organizations and causes such as abortion and gun control. Rather than spending money with Walgreens, you can use your 2ndVote dollars to shop at CVS (3.72). They offer comparable services and products while remaining neutral in the culture wars. Until and unless Brewer changes her company’s policies, 2ndVote supporters should spend their money with competitors like CVS. For now, get in touch with Walgreens and let them know what changes you’d like to see. Remind corporate America that they depend on economics, not on furthering leftist agendas or taking part in violent social activism.

Mob Mixes Business with Pressure

February 13, 2021/in Culture Wars, Economy, Liberty, Politics /by Tony Perkins

They used to call it “retail therapy.” But for conservatives, there’s nothing therapeutic about walking the aisles of stores that want to shut down your speech, cancel your bank accounts, or send cents on every dollar to Marxist groups who despise America. In an age when conservatives can’t turn on the TV, send their kids to school, check their Facebook feeds, or watch sports without being reminded about the wokeness of corporate extremists, it’s no wonder they’re fed up. And fed up — Gallup warns — is exactly what they are.

It used to be “cool and countercultural” to be liberal in corporate America, Dave Seminara pointed out. “Today, the Left is the establishment — and conservatives are [the] new counterculture that quietly seethes as companies we patronize inundate us with… virtue signaling.” Most people don’t expect or even want corporate America to embrace conservatives causes, the WSJ’s editorial board agrees. But it would certainly be nice if these CEOs didn’t “aggressively antagonize the very Americans it has long relied on to protect it from government control.”

After being canceled, threatened, and shamed, it’s no wonder the majority of Republicans are disgusted at the betrayal of a business community it has historically championed. In its latest survey, the GOP’s satisfaction with the “size and influence of major corporations” took a nosedive, plummeting a whopping 26 points from 2020 to a new record low: 31 percent. The relationship between the two longtime allies has soured — and fast.

Justin Danhof, general counsel for the National Center for Public Policy and Research, has been tracking this political drift for the last 10 years, and his only surprise is that it took this long for conservatives to wake up and realize that corporate America is in the tank for the political Left. “When it comes to cultural conservatives, religious conservatives, corporations are on the opposite side of every issue that you hold dear,” he warned on “Washington Watch.” “Many of them fund Planned Parenthood. Many of them oppose your religious freedom — and not just vocally — but in the courts legally fighting against [it].”

Most Americans had no idea how bad it was until last year when Black Lives Matter was burning our cities to the ground, and how did Amazon and Pepsi respond? By sending the organization huge checks. But it wasn’t just the money that bothered conservatives, it was the moralizing. “That’s what a lot of Americans found so unpalatable — that… these godless, soulless corporations like Disney and Apple are trying to dictate morality here in the United States by saying that this is a white supremacist nation, that our institutions are founded on white supremacy, that we all must bend our knees to Black Lives Matter.” Then, in the same breath, these same CEOs turn around and do business with communist China. Suddenly, they don’t care about racial justice. They don’t mind that slave laborers from nearby concentration camps are stitching together their Nikes. It’s a culture of corruption, Justin shook his head, and it’s oozing hypocrisy.

If there is good news, Justin agrees, it’s that consumers are finally seeing corporate America for what it is…..

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To continue reading click here and go to The Family Research Council.

Watch 13:46 minute video of Justin Danhof discussing Growing Dissatisfaction with Major Corporations with Tony Perkins.

Wind Turbines Don’t Even Last 20 Years

February 11, 2021/in Economy, Environment, News, Politics /by Isaac Orr

Editors Note: As some at the Arizona Corporation Commission want to take us down the “green” rat hole of subsidies and expensive electricity, we need to learn what has happened in other states, in this case, Minnesota.

According to the National Renewable Energy Laboratory (NREL), wind turbines are supposed to have a useful lifetime of 20 years, but real-life evidence shows that wind turbines don’t even last this long before they are torn down and repowered so wind companies can soak up more of your tax dollars. This is why Xcel Energy is spending $750 million on repowering wind projects built between 2008 and 2015.

It’s All About the Subsidies, Baby!

Thanks to a subsidy that has been “temporary” since 1992, wind turbines receive a federal tax credit of $24 for every megawatt-hour (MWh) generated. The most recent extension of these “temporary” tax credits locks in wind developments at 60 percent of the original subsidy, or $18 per MWh, according to the U.S. Energy Information Administration.

Wind turbines don’t receive this tax subsidy for their entire lives, however. The subsidy expires after the first ten years of a project’s life. Unsurprisingly, a report from Lawrence Berkeley National Labs shows the average age of repowered turbines was 11 years, meaning electric companies are spending millions of dollars to help themselves to more of your tax dollars and increase electricity prices at the same time.

The shorter lifetime of wind turbines may help pad Xcel Energy’s government-guaranteed profits, but this is bad news for ratepayers because it means electricity generated from wind turbines is much more expensive than advertised.

How Shorter Lifespans Affect the Levelized Cost of Energy

The cost of generating electricity is often expressed using a metric called the Levelized Cost of Energy (LCOE), which attempts to figure out the cost of each energy source per unit of electricity generated. In simpler terms, it is like comparing the cost of driving different cars for each mile driven, taking things into account like up-front cost, gas mileage, and the cost of fuel. The more miles you drive, the lower the cost per mile.

If wind turbines are only operating for half of their original, useful lifetimes, it means they are generating fewer units of electricity, which makes the LCOE of wind much higher than advertised. We can see this in action in the example below. For this example, I use Region 3 MISW assumptions for capital costs and fixed operational and maintenance costs from Table 3 of the 2021 Assumptions to the Annual Energy Outlook.

If a wind facility operates for 11 years instead of 20 years, the cost of electricity from the facility increases by $14.01, from $37.57 per MWh to $51.58 per MWh. This represents a 37 percent increase in the cost of wind energy, and it means that new wind is far more expensive than continuing to operate Minnesota’s existing coal, nuclear, and natural gas facilities.

Conclusions

The wind industry is kept afloat by infusions of your money. These infusions come in the form of higher taxes to pay for federal subsidies and the higher electricity prices you pay each month. The fact that Xcel Energy is repowering wind facilities that are less than 10 years old is all the evidence you need to conclude that wind turbines are not the future of energy. Instead of squandering more money on the wind, we should be looking to keep our existing power plants open as long as possible while looking toward a future powered by nuclear, hydro, and carbon capture resources.

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This article first appeared on February 10, 2021 at The Center of the American Experiment.

Can American democracy survive Big Tech?

February 10, 2021/in Culture Wars, DrRichSwier.com, Economy, Politics, Waste, Fraud and Abuse /by MercatorNet - Navigating Modern Complexities

Roars of outrage can’t be heard unless Big Tech approves of the roar.

Two articles I came across recently raise the question in the headline of today’s column. One is by a journalist named Allum Bokhari, who gave a speech last November at Hillsdale College, one of the very small number of U. S. colleges that does not accept Federal grants, loans, or other funding. The other is by Robert D. Kaplan, a geopolitics specialist at the Foreign Policy Research Institute. Both gentlemen are deeply concerned that social media, as it now works, constitute an existential threat to American small-d democratic government.

Kaplan is concerned that social media may create conditions in which the “fragile, perhaps even ephemeral” experiment called American democracy cannot survive. His studies of nation-states range widely over time and geography. The old USSR, he points out, was not defeated from without by nuclear or conventional warfare. Rather, it was destroyed by internal weaknesses and a crisis of purpose that led to its disintegration. Regarding the present rivalry between the US and China, he sees social media playing radically different roles in the two countries.

In China, the authoritarian government ensures that everything on social media reinforces the “blood-and-soil nationalism” of the dominant Han cultural matrix. Traces of dissent are ruthlessly stamped out, and ethnic minorities such as Tibetans and Uighurs are suppressed and even locked up in concentration camps. There is basically one political story available in China, and social media reinforce it.

In the US, on the other hand, Big Tech effectively control social media, and recent events emphasize the subtle but increasingly effective control they exert. The dominant vision embraced by those who inhabit the upper reaches of corporate and cultural America is a transnational one which, when it looks at American history at all, sees a story of exploitation and shame, exemplified by the New York Times‘s “1619 Project” that attempted to show that the founders based America on slavery, not on anything noble.

Even worse, the economics of social media have come to embrace the divide-and-conquer principle that feeding different kinds of people what they most want to hear means cutting up the citizenry into “racial, gender, political, or sexual” identity groups that are often pitted against each other, to the great loss of the basic unity that any nation needs to survive.

Allum Bokhari brings his experience with Breitbart News to the table. While I am no fan of Breitbart News, the old principle of free speech (much abused lately) says that every voice deserves to be heard, if not believed. And he brings some indisputable facts to the table that are worth considering.

Unlike the early days of the Internet when no single social-media platform was dominant and everybody had more or less equal access to everybody else’s website, today’s Internet is a creature of the Google-Facebook-Amazon complex of corporate control. And control is the right word. The velvet glove of free apps and fun-looking websites conceals an iron hand of manipulation that is so subtle and complex, powered by advanced AI software, that the vast majority of users have little or no idea that they are being manipulated. But they are.

Cadres of software engineers spend countless hours devising complex algorithms to change behavior, not only to the benefit of advertisers on Big Tech’s media, but for other reasons as well. One quote that Bokhari reports from a source he interviewed at Facebook says it all: “We have thousands of people on the platform who have gone from far right to center in the past year, so we can build a model from those people and try to make everyone else on the right follow the same path.”

If this isn’t manipulation, I don’t know what is.

In recent months, the manipulation and control has come above ground for everyone to see. Bokhari cites the actions of Facebook, Twitter, and other Big Tech firms in de-platforming President Trump, and of Amazon and Apple in kicking the upstart social-media platform Parler off their equipment (or in the case of Apple, off the privately owned phones of millions of users).

One can argue about the motivations for such actions. But the bare fact of the actions remain: privately owned companies, largely unhindered and in fact protected by government regulation from lawsuits that private individuals can be subject to (that is what Section 230 of the Communications Decency Act does), unilaterally censored an entire social-media network regardless of who or what was on it, and also censored the sitting President of the United States.

For those who can remember the old days of only three television networks, the only analogous action I can imagine would be if the President decided to make a speech one day, and in the middle of his words spoken to the “pool” camera that all three networks were taking their video feed from, executives decided to pull the switch and return to their regular programming of the Beverly Hillbillies or whatever. Nothing like that ever happened, but if it had, the roars of outrage from common citizens of every political viewpoint would have been deafening.

Today, roars—or anything else—can’t be heard unless Big Tech approves of the roar. The dominant progressive political views of the transnational cultural elite who are in charge are squeezing out the wide spectrum of views that, no matter how annoying some of the extremes are, turn out to be vital to the survival of democracy.

To those who deplore disagreement and debate, I would say this: disagreement and debate are features of democracy, not bugs. Cut them off and you are left with a softer form of what China has: a homogenized, uniform, expert-driven technocracy that maintains the form of democracy, perhaps, but denies its power. If this nation, which has endured for 245 years, is to preserve government “of the people, by the people, for the people,” the malignant effects of social media and corporate control must be dealt with. And soon, before it is too late.

This article has been republished with permission from the Engineering Ethics blog.

COLUMN BY

Karl D. Stephan

Karl D. Stephan received the B. S. in Engineering from the California Institute of Technology in 1976. Following a year of graduate study at Cornell, he received the Master of Engineering degree in 1977… More by Karl D. Stephan

Inflation Pressures Heat Up Even in Services

February 8, 2021/in Economy, News /by Wolf Richter

There is still the theme that some of it is just temporary.

Big parts of the services sector – such as restaurants, entertainment, lodging, and travel – have been hit hard during this crisis. Other parts of the services industries – such as real estate, services related to eCommerce, transportation services, video games, streaming services, etc. – have boomed. And other segments in services have muddled through. Services account for nearly 70% of the economy. Despite the decline in overall demand for services, inflation pressures are heating up – both in terms of prices paid by service firms, and the prices they charge their customers, according to two measures for these price pressures in January.

Across the US service sector, “cost burdens soared once again, with the rate of input price inflation the fastest since the survey began in 2009, according to the IHS Markit U.S. Services PMI this morning. “And the rate of increase has now accelerated for three successive months,” it said.

“Firms largely passed on higher costs to clients through a marked rise in charges,” it said, meaning that the resistance to higher prices appears to have faded, and companies get away with raising prices without losing customers.

“Service providers recorded a steep increase in selling prices during January,” it said amid “strong client demand and a spike in input prices.”

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This article first appeared on Wolfstreet.com on February 3, 2021.

Lockdowns Have Depleted Capital in All Forms

February 8, 2021/in Economy, Education, Healthcare, Liberty, News /by Jeffrey Tucker

When lockdowns first happened, my initial thought was geeky, and only later did I begin to realize the implications for human rights and liberties.

My thought was: this is going to be devastating for future capital investment. The basis of my fear was the knowledge that in almost all poor countries, property rights are insecure, particularly for capital goods. These are goods that are produced to make other goods (the “produced means of production,” in the classic formulation by Eugen von Böhm-Bawerk). Their existence and protection is a key to prosperity. They enable more complex economic structures – the extended order, in F.A. Hayek’s phrase. It’s the basis of hiring and investment, and the foundation of wealth production.

In the normal course of economic life, capital structures are constantly adapting to changed conditions. Changes in available technology, consumer demand, labor pools, and other conditions require entrepreneurs to stay constantly on the move. They need the freedom to act based on the expectation that their decisions matter within a market framework in which there is a test for success or failure. Without this ability, writes Ludwig Lachmann, “a civilized economy could not survive at all.”

When governments attack capital by making it less secure, denying its own volition over how it is deployed, or it comes to be depleted through some other shock like a natural disaster, capital cannot do the work of creating wealth. This is a major reason for poverty. Start a business, make some money, employ some people, and a powerful person or agency comes along and steals it all. People get demoralized and give up. Society can’t progress under such conditions. Take it far enough and people end up living hand to mouth.

Lockdowns seem focused on expenditures and consumption but fundamentally they attack capital. The restaurant, the theater, the stadium, the school, the means of transport, all are forced into idleness. They cannot return a profit to the owners. It’s a form of theft. All that you have done to save and work and invest is voided.

That investors and entrepreneurs would lose faith in the rule of law – and thereby the security of their rights – was my main worry about lockdowns. Before lockdowns, life was functioning normally for so very long, decades and decades. Restaurants and hotels stayed up, operating according to their owners’ wishes. People could make plans and invest across state and national boundaries, never thinking that they could be prevented from traveling. A new theater could open and rent out space for concerts or other performances. A band could form and travel here and there and arrange bookings. Large conferences could be put on in cities all over the country, and there was nary a thought of the possibility that some politician would just decide to shut it down.

Starting March 8, 2020, all that changed. The mayor of Austin, Texas, shut down South by Southwest, forcibly canceling 100,000 contracts for flights, hotels, and conference participation. It seemed unbelievable to me at the time. Surely there would be a flurry of lawsuits and the courts would intervene to call the mayor’s actions despotic. The lesson would be learned and such a thing would not happen again in America for a very long time, if ever. We do have a Fifth Amendment that rules out such “takings” without due process, and as a general principle we believe in the right to run enterprises.

To my shock, this was just the beginning. Travel ceased. Schools shut down. Businesses were forcibly closed and events we had taken for granted just weeks before were deemed illegal. The churches were padlocked. Courts closed. You know the rest. By March 16, the buzzing, happy, progressing world of enterprise and creativity was shut down by governments. The politicians locked us down. People were panicked too but once rationality struggled to make a return, the law stood in the way of normalcy.

All of this amounts to an attack on economic networks and capital infrastructure. Investment plunged during the great suppression. These days, private investment in the United States is back to 2018 levels but I wonder about the long-term economic effects. Do we expect “snap lockdowns” in the future such as that experienced by Perth, Australia, last week? A writer for the Washington Post thinks they are just fantastic:

It may seem strange to act so aggressively for a single case, but we Australians complied. There were no complaints of infringing on freedoms. No marches against masks. My city of Perth came to a standstill. The roads were quiet, and our beaches were deserted. A trip to the supermarket for essential groceries saw everyone wearing a mask — for the first time. Other states restricted travel of West Australians, desperate to keep the virus out.

The subsequent two days didn’t bring a rush of cases that we feared; instead, for the first two days of lockdown, no new cases of covid-19 were detected. Residents of other countries might think this was overkill; in truth, that’s how a proper pandemic response should look.

Under the conditions, how is planning possible? You have dinner reservations, a party planned, a wedding with contracts, a business meeting, a concert, a delivery scheduled, or anything at all, and everything can be closed for an indefinite period of time. This could happen any time day or night, all on the authority of government officials and all because of a positive PCR test. Australia is widely celebrated as a success but is it a success when any state within Australia can fall to totalitarian control at the drop of a hat, in a country that has locked its citizens within its borders and locked visitors out, thus smashing the whole of the tourist industry?

Do we really want to live in this world? And also a relevant question: what does this do to the ability to plan and invest in the future? There is the thing called “time preference” which refers to the willingness of individuals to put off current consumption for the future. A low time preference is essential for building a progressing economy and social order and it is contingent on a stable and predictable regime that doesn’t randomly invade people’s rights. When arbitrary power comes along to pillage people’s property, inhibit their freedom of movement, and restrict their associations, the effect is to make planning for the future less possible and hence disincentivize it. In effect, you encourage people to live for the moment rather than planning for the future. Hope is replaced by nihilism.

Lockdowns also attacked other forms of capital: professional, educational, and social. About one-third of workers in America started working from home. For many, the word working should be in quotes. Life changed dramatically. Forget the commutes, the traffic, the office environment, the waits for the elevator, the lunch hour, the after-hours cocktails with friends. Instead, work became about laptops, houseshoes, all-day snacks, afternoon drinking, and binging Netflix in the background. Laziness became too easy.

Maybe this was viable for a few weeks. But after several months, it became obvious that people’s personal capital was under attack. Some people could continue to receive a paycheck while staring at a screen while others have to hustle, go to work, cut the meat and stock the shelves, check out the customers, slog around the hospital, paint the houses and do the yardwork, serve people where dining was allowed, and so on. Still, others were forcibly put out of work (movie theaters, the arts, conference venues, and so on). Whether you could deploy your labors to your benefit depended entirely on the exigencies of the planning elites.

All this terrible disruption has shattered people’s confidence in the system and rattled people’s sense of their own value. Lockdowns have taken their toll on our confidence in the law and our optimism that we live in a world in which our persons and property are safe from invasion by political elites.

A very practical example of a form of investment concerns the decision to have children. Kids have been locked out of their schools for a year, depleting educational capital. One million mothers have left the workforce to care for kids, depleting professional capital. Three-quarters of families have said they feel intense stress. Early on after the lockdowns began, people were predicting a new baby boom.

Not so much anymore. Now there is growing wonder whether people will decide not to have children because of the burden, the lack of educational security, the possibility that this whole nightmare could happen again and leave parents with impossible circumstances yet again. Then there is the deeper question of whether we really want to bring children into a world in which they could be so brutalized as they were in 2020. Perhaps this accounts for why births in Italy alone plunged 22% since lockdowns.

The same fear is expressed by many capitalists. Why open a restaurant if it can be shut down? Why build a hotel if travel restrictions can leave it empty for months and even years? If you don’t have confidence in a stable legal regime for the future, what can one say about whether investing in anything physical or that depends on customers coming and going is really a good idea? Do we really want to open a factory that can be closed at any time by decree?

Outside of a major war, it is hard to recall a time when government policies have so seriously roiled business practices, economic structures, and personal lives as much as lockdowns have, not only in the US but all over the world. The consequences will be felt for many years in the future.

What we need today more than anything is a guarantee, an ironclad guarantee from our leaders that nothing like this can ever happen again. To make that promise credible we also need a flurry of frank admissions that they made terrible mistakes this time, detailing what they were, and give us proof that there are legal means to stop the next guy in that office from locking people down yet again. We need the rule of law to once again protect essential rights. If we do not get that, we will continue to see people lose hope and confidence in the future, and that could have a devastating long-term effect on prosperity and social peace.

*****

This article was first published on February 6, 2021 at AIER, American Institute for Economic Research and is reproduced with permission.

‘Terrible Idea’ with ‘Dismal Track Record’: Top Economists Blast Elizabeth Warren’s Latest Proposal

February 7, 2021/in Economy, Education, News, Politics /by Brad Palumbo

Economists interviewed by FEE warn that Senator Warren’s new proposal would backfire horribly.

Senator Elizabeth Warren made a “wealth tax” on net worth one of the defining proposals of her unsuccessful 2020 presidential campaign. Now, the staunch progressive is using her new perch on the Senate Finance Committee to introduce a wealth tax at long last.

Warren’s wealth tax would affect families with assets of $50 million and greater, Fox Business reports. It would start at a 2 percent annual tax, but add an additional 3 or 6 percent levy on those with assets totaling $1 billion and more.

Other progressive lawmakers like Senator Bernie Sanders have long supported similar proposals, and it is projected that Warren’s wealth tax would apply to roughly 75,000 American families.

At first glance, average Americans might understandably think this tax only marginally hurts the wealthy, not anyone else, and shrug their shoulders. But top economists exclusively interviewed by FEE warn that this proposal is deeply misguided and counterproductive.

For one, taxing something discourages it, economists said, the same way cigarette or carbon taxes are designed to discourage smoking and CO2 emissions.

“There will be less of whatever is taxed,” Texas Public Policy Foundation chief economist Vance Ginn explained, calling a wealth tax a “terrible” idea. “Taxing wealth is just another flawed redistribution approach masked as good tax policy as it will destroy wealth creation and the incentives to save and invest, which are fundamental to human flourishing.”

Of course, voters might imagine a levy only being applied to the vast wealth billionaires have tucked away, hoarded and not being utilized for societal gain. Cato Institute economist Chris Edwards told me that’s not how wealth works.

“Proponents of wealth taxes seem to think that the wealth of rich folks is gold bars hidden under their beds,” Edwards said. “In fact, looking at billionaires, only 2 percent of their wealth is accounted for by their personal assets such as homes, yachts, and airplanes. The vast majority of their wealth is in productive business assets that generate output for the economy. So the wealth at the top represents active investment that generates jobs and incomes for all of us.”

“Why punish and penalize investment with a wealth tax?” he asked. “It’s much better for the rest of us if the rich invest their wealth into business growth rather than to consume it. A wealth tax would encourage consumption, which would be counterproductive for the economy.”

Ginn, a former White House economic advisor, concurred.

“Less [wealth] would be available throughout the financial system to fund business loans, mortgages, and other loans that generally support new jobs, wage gains, and lower prices,” he said. “Those who will likely feel the brunt of the cost of this tax the most are the non-wealthy.”

A wealth tax “might make for a great political slogan,” the Heritage Foundation’s Joel Griffith added, “but it actually incentivizes the well-off to spend more of their resources now on consumption, instead of investing those resources in ways that will help grow and strengthen the economy and create jobs down the road.”

In fact, wealth taxes have failed across the world where they’ve been tried.

“Warren’s proposal has a dismal track record in other countries that have attempted wealth taxation,” Senior Research Fellow at the American Institute for Economic Research and economic historian Phil Magness warned. “It simply encourages the wealthy to relocate abroad, taking their businesses with them.”

Economists say that’s why the global trend has not been passing wealth taxes, but repealing them. Edwards pointed out that in 1990, 12 European countries had wealth taxes. Now? Just three still do.

“Even most of the leftist welfare states in Europe have repealed their wealth taxes because of the complex administration, the negative impacts on growth, and the encouragement of avoidance and evasion,” Cato’s Edwards concurred.

With the economy still struggling to rebound from COVID-19 and crushing government lockdowns, the timing for such a proposal couldn’t be worse, some warned.

“Wealth taxation would only exacerbate [ongoing economic turmoil] by creating an overtly hostile business climate and hampering economic recovery, which translates into persistent unemployment for those already reeling from the punitive effects of lockdowns on the job market,” Magness concluded.

The most ironic part of all? Warren’s wealth tax isn’t even an effective way of raising revenue to fund government programs, the economists said.

“On the unlikely chance that Warren’s proposal survived a constitutional challenge,” Magness said, noting the tax’s likely unconstitutionality, “we may reasonably expect to see a similar outcome to what several European countries experienced under their own wealth tax experiments in the last few decades: an exodus of wealthy residents who often take their assets and businesses with them, resulting in a revenue stream that consistently falls short of projections.”

“The wealth tax won’t come close to paying for the promises of the progressive agenda,” Griffith added. “Even the more than $4 trillion in capital over 10 years estimated to be confiscated under one version of the plan covers less than ten percent of the estimated costs of a variety of the big-government proposals of the 2020 presidential campaign.”

Elizabeth Warren’s wealth tax might play well with the progressive base and successfully tap into rising populist sentiment. But economists know it’s a severely misguided proposal rife with unintended consequences that would hurt all Americans—not just the wealthy.

*****

This article first appeared at FEE, Foundation for Economic Education on February 4, 2021 and is reproduced with permission.

Why Chick-fil-A Is so Much More Efficient (and Friendlier) Than Government

February 4, 2021/1 Comment/in Culture Wars, DrRichSwier.com, Economy, Politics, Regulation /by Foundation for Economic Education (FEE)

There’s a simple reasons operations like Chick-fil-A can operate with an efficiency bureaucracies will never be able to match.

When Will Haynie had a traffic problem, he knew just who to call.

It started with a computer glitch on a busy Friday at the COVID-19 vaccination center at Seacoast Church. Health officials told the Mount Pleasant, South Carolina, mayor that traffic was a mess and wait-times for the vaccine had reached more than an hour.

So Haynie called in the cavalry: Chick-fil-A Manager Jerry Walkowiak.

“When you need help, call the pros,” Haynie said. “I called him [Walkowiak] on my way over and he actually got there before I did.”

Standing beneath an umbrella in a cold rain, Walkowiak quickly began directing drivers using the Chick-fil-A blueprint, approaching drivers in line, ensuring they had their paperwork ready to go, and then directing them to a spot where they could wait to receive their vaccine.

Soon wait times were down to just 15 minutes, Fox 11 Los Angeles reports.

“All those issues got fixed as things progressed,” Haynie later tweeted. “[Chick-fil-A] to the rescue!”

Chic Fil A manager Jerry Walkowiak donating his professional drive thru experience to help our vaccination program in Mt Pleasant today. When you need help, call the pros. pic.twitter.com/63RvcVR8KJ

— Will Haynie (@willhaynie) January 22, 2021

Despite Vaccines, Thousands of Americans Are Dying Each Day

The COVID-19 vaccine has arrived, but the pandemic is far from over. More than 4,000 Americans are dying with the virus each day, according to official statistics.

Part of the problem stems from the clumsy rollout of vaccines by public officials. Distribution has been slow and marred by mass dumping of vaccines—inoculations that could be saving lives—because of bureaucratic dysfunction and rigid guidelines.

While there are no reports of vaccine dumping in South Carolina, some public officials have expressed frustration with delays in the rollout. News reports say that as of Sunday, South Carolina had received 542,750 total vaccines, 277,258 of which had been administered.

To be sure, delivering and administering hundreds of thousands of vaccines takes time. But that’s all the more reason why unnecessary delays—like the one briefly experienced at Seacoast Church on Friday—should be avoided at all costs.

Chick-fil-A’s Legendary Drive-Thru Efficiency

Chick-fil-A is the third largest fast food chain in the US, bringing in $11.3 billion in sales in 2019 at more than 2,600 locations. One of the reasons for its meteoric rise is its legendary drive-thru efficiency.

Chick-fil-A is known for insanely long lines, especially during peak hours. According to Buzzfeed News, on average, a Chick-fil-A drive-thru serves 95 cars between noon and 1 p.m. alone, far more than its competitors, and more than 60 percent of the chain’s revenues come via the drive-thru window.

So many people marvel at Chick-fil-A’s drive-thru mastery that it came as a shock to many to learn the chain’s drive-thru times are actually longer than its competitors. This revelation, which was reported by news outlets with little context, didn’t sit well with Chick-fil-A fans.

But as QSR magazine (who conducted the survey) points out, there’s more to the story than long wait times.

Put simply, [Chick-fil-A’s] speed of service is much longer because its drive-thru lanes are busier than every other competitor—and it’s not even close. A full 77 percent of its drive-thru experiences had three or more cars in line, according to the study, while 35.5 percent had six or more cars in line.

For context, McDonald’s claimed the second-busiest drive thru, and only 41.8 percent of its drive thrus had three or more cars and 9.1 percent had six or more.

Essentially, drive-thru times are a bit longer because of the enormous volume Chick-fil-A serves at the drive-thru.

The reality is people hate waiting in lines, and Chick-fil-A fans are no exception. But Chick-fil-A has managed to make waits relatively short—322 seconds, on average, about a minute longer than the fast food average—despite its insanely long lines.

This speed and efficiency—Chick-fil-A also earns top marks in order accuracy—is the reason surveys show Chick-fil-A ranks number one in customer satisfaction among fast-food chains.

Chick-fil-A is only able to pull this off because of the efficiency Walkowiak showed at the vaccine center. And that efficiency is no accident.

Chick-fil-A has no fewer than three “Innovation Centers” where the chain tests restaurant layouts to maximize efficiency for various operations. Buzzfeed reporter Venessa Wong describes how on one January afternoon, at the Atlanta-based chain’s newest innovation center, workers tested a new drive-thru design at a mock restaurant.

“The main question at hand: How narrow could the drive-thru lanes get to save space?” Wong writes. “There is also the lingering but essential question of how to move cars through more quickly, to shorten those epic lines.”

The solution, or one of them, was to have teams of servers (up to six people) walking among cars drive-thru lanes taking orders and running payments via tablet. This allows Chick-fil-A to get customers in and out quickly despite lines that at times look, frankly, daunting.

Long line at the Chick-Fil-A Drive-thru on Winchester. pic.twitter.com/WZln0dDf

— melissa moon (@MMoon_WREG3) August 1, 2012

But the effort to serve customers and make their experience enjoyable and swift has paid off.

Customers love Chick-fil-A and its stellar service, and the chain continues to see impressive growth in revenue and franchises.

The Incentives of Markets

Compare the miraculous efficiency of Chick-fil-A to, say, your local DMV.

On my last visit, I waited in line 10 minutes before I was able to talk to someone. When I got to the window, I was given a number and told to take a seat. “It might be a while.”

Forty-five minutes later, a woman tested my eyes, snapped my picture, and asked me to sign some paperwork. The entire process took two minutes, but I was there for an hour. And the truth was, I was relieved! It could have taken longer, or I could have dealt with an unpleasant person.

The woman who took my picture was not exactly warm, but at least she wasn’t rude or curt. And in my experience, this often is not the case when dealing with bureaucrats and bureaucracy. In fact, it’s something we almost expect.

There’s a reason the unhelpful or snippy bureaucrat has been depicted ad infinitum in both film and literature. The theme of the nightmares of bureaucracy has been explored by numerous thinkers—most notably, perhaps, by the great Franz Kafka—but my personal favorite depiction comes in the 2015 Wachowskis film Jupiter Ascending, starring Mila Kunis, Sean Bean, and Channing Tatum.

While the space opera was a bit of a disappointment overall, the scene depicting the horror of dealing with an interplanetary bureaucracy (see below) is nothing short of hilarious. And part of the reason it’s so funny is because it’s something nearly all of us have experienced at one time or another.

Think about it for a moment. Why is your service at Chick-fil-A, Home Depot, or the local Toyota dealer so different from your visit to the DMV or the Post Office? It’s not because nice people go into customer service and ornery or unhelpful people go into bureaucracy.

The answer comes down to a single word: incentives. The absence of market forces means there is really no compelling incentive for the DMV to improve efficiency (or smile when you come through the door). As I pointed out earlier, we’ve pretty much come to expect bureaucracies to be slow and cold.

For Chick-fil-A, however, there is a clear incentive. Chick-fil-A wants customers to be happy because they want their business, which means serving them the very best they can. Indeed, the word customer service tells us something about the relationship between buyer and seller. The seller exists to serve customers.

Now, we’ve all had less than satisfactory experiences with businesses as well as bureaucracy, but the inherent dynamics of the systems themselves are unmistakable. Businesses want people to be happy and are incentivized to make them so. No such incentive exists in bureaucracy, which is why we walk on eggshells when going through TSA security checkpoints or walk up to the counter at the DMV.

The “customer” in these situations has very little power. We know it and, more importantly, they know it. This is why the economist Ludwig von Mises found descriptive terms for modem captains of industry—“chocolate king” or a “cotton king” or “automobile king”—as inherently misleading.

“Their use of such terminology implies that they see practically no difference between the modern heads of industry and those feudal kings, dukes or lords of earlier days,” Mises wrote. “But the difference is in fact very great, for a chocolate king does not rule at all, he serves.”

Mises correctly observed that these “kings” do not in fact reign over conquered territory. They exist to serve us.

“The chocolate king—or the steel king or the automobile king or any other king of modern industry—depends on the industry he operates and on the customers he serves,” Mises continued. “This ‘king’ must stay in the good graces of his subjects, the consumers; he loses his ‘kingdom’ as soon as he is no longer in a position to give his customers better service and provide it at lower cost than others with whom he must compete.”

With government “services,” on the other hand, we the “customers” are the ones who often must grovel like subjects to win the good graces of a bureaucrat if we want to make our flight, renew our driver’s license, or (in some systems) get the medical care we need.

It’s this dynamic that explains why our experiences at Chick-fil-A are so much better than those trips to the DMV. And the incentives baked into markets—to make customer experience enjoyable and satisfactory—also explain why operations like Chick-fil-A can operate with an efficiency bureaucracies will never be able to match.

Some might be tempted to believe we could improve, say, vaccine distribution if only bureaucracies had more resources, if they partnered with private industry, or if they were led by people like Jerry Walkowiak.

But that’s the wrong lesson.

The lesson is that vaccine distribution should be removed from the hands of bureaucrats altogether, and placed in the metaphorical hands of markets. Only then will we see these life-saving doses quickly and efficiently administered.

COLUMN BY

Jon Miltimore

Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune. Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times.

Companies Are Preparing to Cut Jobs and Automate if Biden Gets $15 Minimum Wage Hike, Reporting Shows

February 4, 2021/in Culture Wars, DrRichSwier.com, Economy, Elections, News, Politics, Regulation /by Foundation for Economic Education (FEE)

Let’s hope that Joe Biden’s minimum wage fantasies never become law—or workers will pay the price for his economic naiveté.

Nobel laureate Milton Friedman once said that “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” When it comes to the $15 minimum wage hike supported by Joe Biden and many of his fellow Democrats, it’s becoming increasingly clear that the results will be ugly.

New reporting reveals that Chief Financial Officers at top American companies are “considering raising prices, cutting workers’ hours and investing in automation to offset a potential rise in labor costs.”

CFOs are gearing up to raise prices, reduce workers’ hours and ramp up technology investments as they face the possibility of higher labor costs under a Biden administration, @markgmaurer reports for @CFOJournal @WSJ. https://t.co/t6Kscf5lu6

— CFO Journal (@CFOJournal) November 12, 2020

“Companies including Chipotle Mexican Grill Inc., Potbelly Corp. and Texas Roadhouse Inc. are already doing the math to assess what a higher federal minimum wage could mean for their operations and cost base,” the Wall Street Journal reports.

“Some executives fear that increases to the federal pay floor would drive up wages across income classes, hurting profits and forcing businesses to find savings to offset higher spending on labor,” the paper continues.

First and foremost, we can expect businesses to respond to artificially-high wage mandates by cutting jobs and reducing employee hours.

Why?

Well, labor is a product like any other. If the cost of soda was artificially mandated at $10 per can by the government, the simple fact is that consumers would buy less of it. When employers are legally forced to pay more for labor than it is worth in the market, they naturally and inevitably do the same.

“By the simplest and most basic economics, a price artificially raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by supply and demand in a free market,” famed economist Thomas Sowell wrote in Basic Economics. “The result is a surplus, whether the price that is set artificially high is that of farm produce or labor.”

“Unfortunately, the real minimum wage is always zero,” Sowell concluded. “And that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage.”

The government may determine and decree a “living wage” under a minimum wage law, but unless the worker actually finds an employer willing to pay him that much, he will remain unemployed with a hypothetical right.

— Thomas Sowell (@ThomasSowell) July 12, 2019

Ample evidence confirms these theoretical predictions.

For example, the nonpartisan Congressional Budget Office projects that enacting a $15 minimum wage nationwide would destroy from 1.3 to 3.7 million jobs. Similarly, analysis from the Employment Policies Institute concludes that a federal $15 minimum wage would kill 2 million jobs.

These studies aren’t outliers. A research review by the Cato Institute concluded, “The main finding of economic theory and empirical research over the past 70 years is that minimum wage increases tend to reduce employment.”

So, it’s fair to assume that the warnings CFOs are offering about potential slashes in employment can be extrapolated beyond their specific companies. Proponents of a $15 minimum wage might intend to help workers, but they will inevitably and invariably put millions of them out of work altogether if their efforts are successful.

Meanwhile, other companies told the Journal they would pass the costs onto consumers by hiking prices. (Is that a win for the working class?)

And in an another twist, some companies said they would seek additional opportunities to invest in automation and eliminate their demand for labor altogether in lieu of paying mandated wages that far exceed a worker’s value.

“Pool Corp., a distributor of swimming pool supplies, plans to ramp up investments in technology to offset the potential rise in labor costs,” the Journal reports. “The company would look to reduce manual processes such as product orders and certain warehouse operations.”

“[Automation is] the most significant investment that we can make…when it comes to lowering the impact of potentially higher labor costs down the road,” Pool Corp CFO Mark Joslin said.

All of this is bad, bad news for workers. You know, the group that a $15 minimum wage is supposed to help.

So, let’s hope that Joe Biden’s minimum wage fantasies never become law—or workers will pay the price for his naiveté.

COLUMN BY

Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.

RELATED PODCAST: “Wage”ing War

VIDEO: NY Young Republicans Re-Occupy Wall Street: Let the People Trade!

February 4, 2021/1 Comment/in DrRichSwier.com, Economy, Politics, Regulation /by Pamela Geller

“We shouldn’t have one rule for rich hedge funds in Manhattan and a different set of rules for every other American.” – Ted Cruz

January 31. 2021. Noon. A small crowd braved the bitter cold in Zuccotti Park, scene of the once infamous Occupy Wall Street encampment of 2011 (2011 Flickr Link).

Today the NYC Young Republican Club was out to RE-Occupy Zuccotti, demanding that The People be allowed to trade.

The group is co-opting the Occupy name to push populist policies in light of the GameStop short selling fiasco.

“Wall Street hedge fund hypocrites, “corporate oligarchs” are “screwing the little people”. One more assault on our economy as the world according to Biden and the CCP communists continues to spiral.” [NY Post]

This whole mess with #WallStreet is about to make people on BOTH the Left and Right realize we have found the new class of “robber barons”—hedge fund managers.

The main speaker of the event was Curtis Sliwa, leader of the Guardian Angels and candidate for Mayor of New York.

Sliwa challenged the crowd with, “They screwed the little people once, let’s get these hedge-fund monsters before they get us.”

He also called-out the hypocritical Wall Street bankers who took billions of dollars in tax-funded bailouts in 2008, only to now cry foul.

Just before the presser began, this fellow started shouting at the crowd – particularly about the CCP. (very short video)

According to the Young Republicans, Sunday’s protest wasn’t about political affiliations — they dubbed it a non-partisan event.

“There’s two standards, Wax said in a speech to protesters, “There’s rules for thee, not for me. You got these big hedge-fund guys who are trying to short companies into the ground, and then they got called on their bluff by a bunch of anonymous day traders on Reddit.”

Gavin Wax video –

“They want us to bail them out, they want Janet Yellen to make phone calls for them, they want to shut down trading. Are you kidding me? These schmucks in Wall Street or Greenwich can do whatever the hell they want to do with no repercussions.” Jan 31 Gavin Wax at @NYYRC rally

He then introduced, Viswanag B. Burra – Vice President New York Young Republican Club [ video ]

A published statement, from their President, Gavin Wax (@GavinWax)

“Fellow patriots,

We look forward to seeing you tomorrow, Sunday, January 31, at 12:00 pm as we gather in Zuccotti Park to RE-OCCUPY WALL STREET.

Over the past few days, we have seen how corporate oligarchs who work in connection with key members of the Biden administration have corrupted the integrity of our financial markets in a blatant manner by directing retail brokerages to freeze trading for small investors while institutional investors operate unimpeded.

As rumors percolate that the SEC may attempt to unwind trades in certain companies conducted over the past few days, our protest to LET THE PEOPLE TRADE becomes ever more critical.

And remember: unlike the original “Occupiers,” we will assemble peaceably and in accordance with civilized standards of decorum. No shitting in the streets.”

Reports from NY Post and Breitbart:

[Breitbart]

“Members of the New York Young Republicans staged a “Re-Occupy Wall Street” demonstration Sunday over the financial sector’s manipulation of GameStop stock after a Reddit group launched a buying surge.

GameStop, a mall retailer of video games and electronic accessories, saw shares soar more than 1,700 percent this week when amateur day traders bought massive amounts of the stock to protest Wall Street short-sellers who were banking on GameStop’s failure.

It was co-ordinated. There needs to be repercussions,” Wax said of the institutions’ efforts to shut down amateur trading.

The Reddit page WallStreetBets initially organized the mass buy.

As the stock skyrocketed and hedge funds lost billions of dollars, trading apps tried to block additional sales of the stock. One of the apps, RobinHood, faces a class-action lawsuit.”

[NY Post] [NY Post 2]

“Dozens of members of the New York Young Republicans Club jumped on the anti-Wall Street bandwagon Sunday, gathering in Manhattan’s Zuccotti Park to blast the hedge-fund managers targeting GameStop.

The “Re-Occupy Wall Street” protesters ripped the big-money investors as “despicable” for moving to stop last week’s “little guy” Reddit-fueled run on the video-game-seller’s stock to shore it up after the money men bet on it tanking.

“There’s some blatant corruption going on in the buildings around us and in Greenwich, [Ct.], wherever hell they are,” Gavin Wax, the group’s president, told about 50 protesters.”

Heirs of the Republic Presents:

Biden kills pipelines at home but promotes them for the Taliban

Economists interviewed by FEE warn that Senator Warren’s new proposal would backfire horribly.

Despite Vaccines, Thousands of Americans Are Dying Each Day

Chick-fil-A’s Legendary Drive-Thru Efficiency

The Incentives of Markets

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