Category Archives: Economists

Memo to The Donald: Cut Tariffs NOT Rates

trump tariff

So far, President Trump’s economic response to a potential coronavirus outbreak and a further stock market sell off has been expected – calls for more interest rate cuts and an additional round of monetary stimulus.  For the stock market, economy, and the virus itself, neither measure will have their desired effect and, in fact, may exacerbate things.

Further rate cuts and more money printing will not alleviate the situation since it has been the Federal Reserve’s recent “repo operations” which has pushed the market to its unsustainable highs.  For President Trump’s re-election hopes, the current “correction” better be short lived since he has repeatedly boasted about the stock market and has tied its success with the supposed health of the economy.  He will pay a political price if the market continues to tank and brings the economy down with it.

While President Trump and economic nationalists have bashed China for its trade practices, they are now going to see first hand how dependent the US and the West are on Chinese exports, as supply chains are disrupted over the coronavirus.

A Bloomberg article describes China’s weakest factory activity ever recorded:

The manufacturing purchasing managers’ index plunged to 35.7 in

February form 50 the previous month, according to data received by the

National bureau Statistics on Saturday, much lower than the median

estimate of economists.  Both were well below 50, which denotes

contraction.*

The expected reduction of Chinese goods will mean higher US domestic prices, however, the increase in prices can be offset somewhat not by rate cuts, but by tariff reductions, or, better still, elimination of duties on imports.  Increasing the money supply or cutting interest rates, which is what Trump, the market, and 95% of economists favor, will only mean higher prices for dwindling imports as greater amounts of money will chase fewer goods.

In the President’s comments on the coronavirus and the stock market plunge, he has repeatedly cited other nations’ (Japan, Germany) – lower interest rates as a policy that the Fed should pursue.  Apparently, the President is not aware that recent data out of Japan has shown that the economy shrank at an annualized rate of 6.3% for the fourth quarter of 2019 while the German economy only grew at 0.6% last year.**  Low rates have not helped either economy or anywhere else where they have been foolishly tried.

What President Trump, world policy makers, and central bankers do not understand, whether deliberately or from willful ignorance, is that the artificial suppression of interest rates and money printing does not lead to economic growth. Instead, prosperity can only come about by the arduous process of saving (abstention from consumption), which provides the means for capital formation, which leads to production.  Employment, wage growth, and income are also ultimately tied to savings.  For the creation of wealth, there is no way around this elementary economic principle – one that few profession economists comprehend.

For saving and investment to have their most efficacious impact and for individuals to engage in such sacrificial behavior, a sound monetary order must be in place.  Unfortunately, ever since the US went off the gold standard internationally in 1971, its monetary system has grown increasingly unstable.

If the Trump Administration would eliminate, or at least reduce significantly, tariffs, it would more than likely induce China to do the same.  The benefits of lower import prices for the millions of out of work Chinese due to the coronavirus shut downs would be a tremendous help and would also boost America’s export industries.  Such action would show to those who elected him that Donald Trump was not a typical politician, but one who thought outside the box.

While it did not cause the Great Depression, the Smoot-Hawley Tariff of 1930 contributed to its severity.  If the recent sell-off is indeed the beginning of the long anticipated bust, following a supposed decade long expansion, then policy makers should do all in their power to alleviate the coming suffering.  The reduction of tariffs not only on Chinese goods, but those the world over would be a step in the right direction.

Let us hope that someone will convince Donald Trump that tariff reduction and not rate cuts will help Americans better deal with the troublesome and potentially economic and socially devastating coronavirus.

*China Posts Weakest Factory Activity on Record,” Bloomberg News, 29 February 2020.  https://www.bloomberg.com/news/articles/2020-02-29/china-feb-manufacturing-pmi-at-35-7-est-45-0

**Megumi Fujikawa, “Japan’s Economy Shrinks Faster Than Expected.”  Market Watch.  16 February 2020.  https://www.marketwatch.com/story/japans-economy-shrinks-faster-than-expected-2020-02-16;  “German Economy Stagnates as Eurozone Growth Hits Seven-Year-Low,”  The Guardian,  14 February 2020, https://www.theguardian.com/business/live/2020/feb/14/german-economy-stagnates-growth-eurozone-gdp-business-live

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Pope Francis the Taxman

Bergoglio Marxist

 

On the heels of calling for a Marxist economic conference this coming March (“Economy of Francesco”), Jorge Bergoglio (a.k.a. “Pope Francis”) has once again opined on financial matters.  The purported head of the Catholic Church has now designated “tax cuts” as sinful behavior on a par, apparently, with stealing, lying, and adultery:

Today’s structures of sin include repeated tax cuts for the richest people,

often justified in the name of investment and development.*

Bergoglio did not mention what category of sin advocacy for tax cuts falls under – venial or mortal.  Maybe the details of how such a policy ranks in offending Divine Justice will be hammered out at the upcoming Economy of Francesco Commie confab!

In Bergoglio’s collectivist mind, those who try and keep their wealth from the ravenous demands of the State are somehow denying the poor their just due:

Every year hundreds of billions of dollars, which should be paid in taxes to

fund health care and education accumulate in tax haven accounts, thus

impeding the possibility of the dignified and sustained development of all

social agents.

What Bergoglio and his fellow socialists do not understand is that tax cuts lead to economic growth, whether they are for higher or lower income groups.  The less wealth that the State confiscates, the more is available to be used for saving and investment – two keys to economic growth.  The rich do not horde their money but expand and create businesses which leads to more and better paying jobs for lower income groups who supposedly Bergoglio wants to help.

The poor will only be uplifted by greater production where more goods and services are available at lower prices.  Redistribution of income via taxation does not create new wealth, but simply transfers existing wealth from the productive class.  Moreover, taxation has the deleterious effect of making individuals produce less since their efforts are siphoned off at the point of a gun.  More taxation means less production and, thus, less and more expensive goods for the poor.

Of course, this is basic economic theory that any sane person can understand unless one has matriculated to a Western university or college or pays attention to economic ignoramuses like Jorge Bergoglio!

Bergoglio’s constant attention to the plight of the poor along with other social issues (“climate change,” the environment, immigration) does not align with the vision that the Entity, which created the office that Bergoglio currently holds, had in mind.  On at least two occasions, He counseled His followers to focus their attention on spreading the “good news” instead of earthly concerns:

For the poor you have always with you:  but me you have not always.  [Mt. 26:11]

 

Let the dead bury their dead, but go thou, and preach the kingdom of

God.  [Lk. 9: 60]

While the Church has always sought to protect and help the poor, widows, orphans, and the downtrodden, its primary mission is to preach the Gospel.  Since the time of the Second Vatican Anti-Council, 1962-65, and especially during the “reign” of Pope Francis, evangelization has been condemned and, like tax cuts, is now considered sinful activity.

Bergoglio’s criticism of tax reduction is, no doubt, aimed at the Trump Administration’s plan for an additional round of tax cuts.  Tax reduction, however, without cuts in government spending will further explode budget deficits which are now even beyond sustainable.

Without corresponding spending reduction, tax cuts will mean that the Federal Reserve will have to make up for the short fall with further money printing.  One cannot have Big Government and tax cuts simultaneously.  The inevitable monetary crisis will, unfortunately, be blamed on tax cuts and will play into the hands of Bergoglio and his fellow travelers.

That Bergoglio spends most of his time as a social justice warrior instead of the supposed “vicar of Christ” on earth shows the state of the modern Church.  Worse, when he does speak on matters of faith, his words and actions are riddled with heresy.

For all those concerned, it is best that “Pope Francis” should be ignored not only for the falsehoods he spreads about Christianity, but also as a social theorist.  His pronouncements on the latter will only lead to further impoverishment of the poor and the rest of society while inciting class conflict between those who seek to keep their wealth and those who want to confiscate more of it.

 

*https://www.teaparty.org/tax-the-rich-pope-francis-calls-for-global-wealth-redistribution-427517/

Antonius Aquinas@AntoniusAquinas

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Pope Francis Calls Marxist Economic Summit

index

Pope Francis and his mentor

As if there needs to be further evidence that the current occupant of St. Peter’s Chair in Rome is a Marxist, the announcement of an upcoming conference at Assisi entitled the “Economy of Francesco” should convince any skeptic otherwise.

In his invitation letter to “young economists and entrepreneurs worldwide,” Bergoglio sets the agenda for the Leftist confab quite clearly which is virulently anti-market, a call for massive redistribution of wealth, and a reordering of the current economic systems of the world with a healthy dose of climate change nonesense:

. . . a different kind of economy: one that brings life not death, one that is inclusive and not exclusive, humane and not dehumanizing, one that cares for the environment and does not despoil it.*

While Bergoglio’s Marxist credentials have been firmly established, his blashemous  actions and words has a growing number outside of “sedevacantist circles” calling him a heretic.  The legitimacy of “Pope Francis,” however, is more fundamental than him being a manifest heretic, but his standing as a legitimate pope is invalid since his ordination as a priest and his consecration as a bishop came under the new rites of Holy Orders instituted in the wake of the Second Vatican anti-Council (1962-1965).

The mastermind behind Bergoglio’s summit is professor Luigino Bruni and from his comments he sounds more radical than the Argentine Apostate, if that is possible.  Professor Bruni wants to use taxation as a weapon to “redistribute income and wealth from the rich to the poor.”*

Bruni, a professor of political economy at the Italian University, LUMSA, and the author of a number of books, basis his advocacy for redistribution of wealth on the Scriptures:

[T]he Bible has many words to offer our economic life and ideas [with] the transformation of wealth into well-being.**

It appears that the good professor’s Bible is missing the Seventh Commandment of the Decalogue which solemnly states: THOU SHALL NOT STEAL!  In no legitimate commentary ever written on this Commandment is there an exception made for the confiscation of wealth from the well-to-do to be given to the poor.  Probably just an oversight on the Professor’s part.

Because they are blinded by socialistic ideology, Bruni, Bergoglio, and the likes of Bernie Sanders cannot see that the growing wealth inequality which they complain about is not the result of “capitalism,” but is the outcome of the monetary policy of the world’s central banks.  This, along with tax policies which hamper innovation and shield the entrenched financial class from competition, is why financial elites are able to maintain and increase their power.

Central bank policy of suppressing interest rates and of money printing allow banks and financial institutions to receive “free money” which they can invest and speculate with at zero cost.  The boom (actually a bubble) in asset prices on Wall Street is a demonstration of how wealth disparity takes place.

If Bergoglio really meant to reform the present system, he would call for the abolition of central banking and a return to “hard money.”  Under such an order, banks and financial institutions become wealthy on their ability to make prudent investment decisions subjected to profit and loss.  A free market in banking is the antithesis of the current system of credit expansion and money printing.

Not only have Bergoglio and his cohorts abandoned the Faith, but they have also overturned the Church’s long-held condemnation of socialism and have ignored many of its own outstanding thinkers on financial matters.  From the Scholastics to the School of Salamanca through the Jesuits and the great Cardinal Cajetan, who finally taught the proper doctrine on interest rates, the Church has produced scores of eminent economic thinkers in its long history.

index 1

School of Salamanca

Ever since socialism reared its ugly head as a social system of thought, the Church has warned of its dangers even its more milder forms as Pope Pius XII wrote, “No Catholic could subscribe even to moderate socialism.”  Since Vatican II and especially under Bergoglio’s regime, however, Leftist ideas of all sorts have been warmly embraced.

At the heart of socialism, be it Marxism or its equally pernicious variants, lies envy which became a part of the human condition with the fall of man.  While once condemned, envy has been turned into a virtue by the likes of Bergoglio.

While such ideas may sound appealing to human sensibilities, they will not pass the Divine Judge who knows the thoughts and souls of all His creatures even those of supposed popes.

*Vatican website: http://www.vatican.va/content/francesco/en/letters/2019/documents/papa-francesco_20190501_giovani-imprenditori.html

**Jules Gomes, “Pope Francis Convenes ‘Anti-Capitalism’ Summit,”  Church Militant.com, 15 January 2020.

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The Ethics of a Gold Standard

goldstandard

The efficacy of a metallic monetary system is beyond dispute at least among real economists which eliminates just about 95% of whom are now engaged in the “profession.”  Money, which gold is, allows for specialization, the division of labor, and provides the means for mankind to escape from barter and, thus, a primitive existence.  Like free trade, money naturally integrates mankind both among and between peoples.

A system of central banking with an unbacked paper currency is the antithesis of a gold standard.  Manipulation of currencies by central banks, mostly through debasement, hinders trade, creates distortions, and ultimately leads to the dreaded business cycle.  Murray Rothbard aptly describes the baneful results of state intervention in the monetary system:

. . . government meddling with money has

not only brought untold tyranny into the world;

it has also brought chaos and not order.  It has

fragmented the peaceful, productive world

market and shattered it into a thousand pieces,

with trade and investment hobbled and hampered

by myriad restrictions, controls, artificial rates,

currency breakdowns, etc.  It has helped bring

about wars by transforming a world of peaceful

intercourse into a jungle of warring currency blocs.*

Rothbard Money

While the economic efficiency of a gold standard is important, the ethical case for it is more compelling and was the reason why gold, as money, lasted as a medium of exchange for so long.  Gold/money has to be created through honest-to-goodness production and exchange.  The often dangerous mining of gold takes labor, capital goods, and land.  Turning raw gold into coinage is another process which requires a high level of specialization and production techniques.  Both are honest and morally sound activities which make for the betterment of life all around.

The ethical standing of central banking and its issuance of unbacked currency as money through the printing press, stroke of a computer key, or via the expansion of credit cannot stand similar scrutiny.  By any appraisal, central banking is immoral.  Through the creation of money, banks stealthy transfer wealth to those who control the money supply and those closely associated with it.

The ability of central banks to create unlimited amounts of money and credit has been the greatest redistribution scheme ever conceived.  The process ultimately leads to class conflict as the wealth disparity between the politically well-connected and those outside that nexus invariably widen.

Under a gold standard, none of this would take place.

Because of their lack and often distain for economic doctrines, in particular, monetary theory, “economic nationalists” (really “economic ignoramuses”) have wrongly focused on trade as a factor in the continued decline of the middle and working classes.  China’s supposed unfair trade practices was a staple of President Trump’s campaign rhetoric and has continued through much of his first term.

The focus on trade has deflected attention from the real cause of worsening economic conditions for American workers and the enrichment of Wall Street.  Despite the blatant transfer of wealth via the Fed’s policies of suppressed interest rates and money printing since the 2008 Recession, economic nationalists continue to applaud President Trump’s tariff policies while the President continues to browbeat the Fed to do more of the same even calling for negative interest rates and more Quantitative Easing.

The Left rightly speaks out of the vast and growing inequality of wealth distribution, but like those who espouse economic nationalism, they fail to understand the reason for why the societal imbalance has occurred.  One remedy they propose – a “wealth tax” – will not address the problem.  Moreover, their “soak-the-rich” schemes would snare in their plunder (not that Leftists particularly care) many of the wealthy outside of the banking and financial sector of their legitimate, just gains.

The case for honest money must be made on ethical grounds.  The current system must be exposed and shown for the scam that it is: a massive redistribution scheme enriching the political elites and their closely aligned business and financial allies. While it is undeniable that a gold standard would lead to enormous prosperity, its reinstatement would remedy one of the great injustices that plague the world – central banking!

*Murray N. Rothbard, What Has Government Done To Our Money?  BN Publishing, 2012: 84.

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“We’re All Socialists Now!”

Despite being probably robbed of the Democratic Party’s nomination by the Clinton political machine, the success of the Bernie Sanders’ 2016 campaign with his advocacy of “democratic socialism” was an ominous sign of things to come and, in some sense, more telling of the political climate than Donald Trump’s improbable victory in November, 2016.  The millions of votes garnered by Sanders in the Democratic primaries has emboldened other socialists to seek political office while socialist ideas are openly spoken of with little fear of political recriminations. 

Sanders has doubled down on his advocacy of democratic socialism in a recent speech at George Washington University, calling for the completion of Franklin Delano Roosevelt’s New Deal of the 1930s:

Today I am proposing we complete

the unfinished work of Franklin Roosevelt

and the Democratic Party by putting

forth a 21st century economic bill of rights.*

Even supposedly “moderate” Democrats are trying to tout their “progressive” credentials, such as creepy Joe Biden who recently said:

I’m told I get criticized by the

New Left.  I have the most

progressive record of anybody

running for . . . anybody who would run.**

While Sanders’ chance of becoming the Democratic nominee in 2020 is still uncertain, President Trump has already indicated what is going to be a centerpiece of his election strategy: oppose socialism.  The first hint of the strategy came at this year’s State of the Union address when the President declared:

America will never by a socialist country.***

While President Trump will espouse his supposed accomplishments (tax cuts, deregulation, trade) as a contrast to democratic socialism, his emphasis will also  deflect attention away from his most solemn campaign pledge which has not been achieved – a border wall and a crack down and deportation of illegal immigrants.

Whether this is a winning formula remains to be seen.  If the Democrats are led by Bernie Sanders in 2020, they will probably lose, unless the economy falls off a cliff (very possible) or the Donald follows the suicidal advice of the war- mongering team of Messrs Bolton and Pompeo and start a war with Iran.

While the Trump campaign narrative for 2020 may convince the masses who may still not be ready to vote for outright socialism, the country, like most of the Western world, has long ago imbibed and adopted many of the philosophy’s tenets. 

Frank Chodorov, one of the most perceptive and courageous writers of what was affectionately known as the “Old Right,” pointed out over a half century ago that America had enacted many of the ideas which were enumerated in Marx and Engels’ Communist Manifesto.  Chodorov constantly chided the Cold War warriors of his time, such as William Buckley, that communism had come to America without one shot being fired by the Soviets.

Frank Chodorov, 1887-1966

In one of his most penetrating essays, “How Communism Came to America,”* Chodorov incisively pointed out the “long-term objectives of communism:”

Among them are government ownership of land, a heavy progressive income tax,

abolition of inheritance rights, a national bank, government ownership or control of

communication and transportation facilities, state-owned factories, a government

program for soil conservation, government schools, free education.

He trenchantly asked: “How many of these planks of the Communist Manifesto do you support?  Federal Reserve Bank?  Interstate Commerce Commission? Federal Communications Commission? Tennessee Valley Authority? The Sixteenth (income tax) Amendment?  The inheritance tax?  Government schools with compulsory attendance and support?”   

Further in his piece, Chodorov describes how the American economy, even at the time, had taken on many features of state capitalism: deficit financing, insurance of bank deposits, guaranteed mortgages, control of bank credits, regulation of installment buying, price controls, farm price supports, agricultural credits, RFC loans to business, social security, government housing, public works, tariffs, foreign loans.

He again asked: “How many of these measures . . . do you oppose?” 

The next financial downturn, which is starring America in the face, will be far more devastating than the last since nothing has been resolved financially while the cause of the Great Recession – the Federal Reserve – continues to operate with impunity. As things continue to deteriorate, there will be even greater calls and support for more socialism.  The free market will be blamed.

Despite the collapse of communism in the Soviet Union and the present day economic basket cases of North Korea and Cuba, socialism continues to be espoused throughout the West.  Despite its historic and current failures, socialism survives because it was never debunked philosophically within Western academia.  The main reason for this is that the intelligentsia derives much of their influence, power, and position from a socialistic society. 

Until the ideology of socialism is shown to be the morally corrupt, economic destructive, and de-civilizing social system that it has always been, the likes of Bernie Sanders will continue to be a nuisance and quite possibly the new rulers of America. 

*Stephen Dinan, “Sanders Proclaims Democratic Socialism as Answer for America.” The Washington Times.  13 June 2019, A1.

**David Krayden, “Biden Says He’s The ‘Most Progressive’ Democrat as He Almost Announces His 2020 Candidacy,”  The Daily Caller, 17 March 2019.

https://dailycaller.com/2019/03/17/biden-most-progressive-democrat-2020/

***Dinan, “Sanders Proclaims Democratic Socialism as Answer for America.”

****Charles Hamilton, ed. Fugitive Essays: Selected Writings of Franck Chodorov.  Carmel, IN.: Liberty Fund, 1980, pp. 186-89.

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The Gold Standard: Protector of Individual Liberty and Economic Prosperity

goldstandard vs.    the-bill-of-rights

 

 

The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse.  Instead, in the American case, the Constitution created a powerful central government which eliminated much of the sovereignty and independence that the individual states possessed under the Articles of Confederation.

While the US Constitution contains a “Bill of Rights,” the interpreter of those rights and protections thereof is the very entity which has enumerated them.  It is only natural that decisions on whether, or if such rights have been violated will be in favor of the state.  Moreover, nearly every amendment which has come in the wake of the Bill of Rights, has augmented federal power at the expense of the individual states and that of property owners.

History has shown the steady erosion of individual rights and the creation of “new rights” and entitlements (education, health care, employment, etc.) which have occurred under constitutional rule.  Instead of limitation on government power, constitutions have given cover for the vast expansion of taxation, regulation, debt, and money creation.

While taxation has always been a facet of constitutional governments, it has been the advent of central banking and with it the elimination of the gold standard which has provided the means for the state to become such an omnipresent force in everyday life.  Irredeemable fiat paper money issued by central banks has also led to the entrenchment of political parties which has allowed these elites to create and subsidize dependency groups which, in turn, repeatedly vote to keep the political class in office.

Without the ability to create money and credit, the many bureaucracies, regulations, and laws could neither be created or enforced.  This would mean that the vast and powerful security and surveillance agencies could not exist or would be far less intrusive than they currently are.  With commodity money, debt creation would have to be repaid in gold, not monetized as it is currently done through the issuance of paper currency.

Just as important, it would have been next to impossible for the two world wars to have been fought and carried to their unimaginable destructive ends.  None of the populations involved would have put up with the level of taxation necessary to wage such costly undertakings.  Few of the wars which followed (most of which have been instigated by the US) could have taken place without central banking.  Nor could the level of “defense” spending – currently at a whopping $717 billion for fiscal year 2018 – be financed if the US was on a commodity standard.*

Under a gold standard, governments would have to rely on taxation alone.  Since citizens directly feel the effects of taxation, there is a “natural level” that it can be raised.  Punitive tax rates usually lead to a backlash and potential social insurrection which strike fear in the hearts of political elites.

Recent projections by the Congressional Budget Office again demonstrate that constitutional government provides little restraint on spending.

If present trends continue, the federal government will spend more on its interest serving its debt than it spends on the military, Medicare, or children’s programs.  It is also expected that next year’s interest on the debt will be some $390 billion, up an astonishing 50 percent from 2017.** And, for the entire fiscal year of 2018, the gross national debt surged by $1.271 trillion, to a mind-boggling $21.52 trillion.***

At one time, economists used to speak of the pernicious effects that “crowding out” had on an economy.  Since the onset of the “bubble era,” talk about deficits has almost dropped out of financial discussions.  Yet, the reality remains the same: public spending and borrowing divert scarce resources away from private capital markets to unproductive wasteful government projects and endeavors.

For those who seek a reduction in State power, defense of individual rights, and economic prosperity, the re-establishment of a monetary order based on the precious metals is the most efficacious path to take.  Such a social system would not require elaborate legislation or fancy proclamations of man’s inalienable rights, but simply a return to honest money – gold!

*Amanda Macias, “Trump Gives $717 Billion Defense Bill a Green Light. Here’s What the Pentagon is Poised to Get.”  CNBC.com 14 August 2018. https://www.cnbc.com/2018/08/13/trump-signs-717-billion-defense-bill.html

**Nelson D. Schwartz, “As Debt Rises, the Government Will Soon Spend More on Interest Than on the Military.”  The New York Times. 25 September 2018 https://www.nytimes.com/2018/09/25/business/economy/us-government-debt-interest.html

***Tyler Durden, “US Gross National Debt Soars $1.27 Trillion in Fiscal 2018, Hits $21.5 Trillion.” Zero Hedge.  2 October 2018.   https://www.zerohedge.com/news/2018-10-02/us-gross-national-debt-soars-127-trillion-fiscal-2018-hits-215-trillion

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The Fed’s “Inflation Target” is Impoverishing American Workers

Powell   Fed Chair Jerome Powell apparently doesn’t see the pernicious effects of inflation

At one time, the Federal Reserve’s sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.

Naturally, the Fed and all other central bankers prefer the definition of inflation as a rise in prices which insidiously hides the fact that they, being the issuers of currency, are the real culprit for increased prices.

Be that as it may, the common understanding of inflation as rising prices has always been seen as pernicious and destructive to an economy and living standards.  In the perverted world of modern economics, however, the idea of inflation as an intrinsic evil has been turned on its head and monetary authorities the world over now have “inflation targets” which they hope to attain.

America’s central bank is right in line with this lunacy, as it has been reported that at the Fed’s “May minutes” it wants “a temporary period of inflation modestly above 2 percent [which] would be consistent with the Committee’s symmetric inflation objective.”* Translated into understandable verbiage, the Fed wants everyone to pay at least 2% higher prices for the goods they buy.

Yes, by some crazed thinking US monetary officials believe that consumers paying higher prices is somehow good for economic activity and standards of living!  Of course, anyone with a modicum of sense can see that this is absurd and that those who espouse such policy should be laughed at and summarily locked up in an asylum!  Yet, this is now standard policy, not just with the Fed, but with the ECU and other central banks.

The baneful consequence of this economic quackery is being felt by American workers as admitted by the Labor Department.  Instead of spurring expansion, inflation is eating into and depressing wages:

For workers in ‘production and

nonsupervisory” positions, the value

of the average paycheck has actually

declined in the past year.  For those

workers, average ‘real wages’ – a

measure of pay that takes inflation

into account fell – from $22.62 in

May 2017 to $22.59 in May of 2018.*

While the decline in nominal wages is not significant, the manner in which the government now calculates inflation has been skewed to understate its impact.  Under the previous calculation, the current US inflation rate is probably closer to 5%.

Wage stagnation is not new.  Average real wages peaked more than 40 years ago and have fallen in real terms ever since.  Not surprisingly, the drop in wages in real terms began soon after the US went off the last vestiges of the gold standard in 1971.

As sound theory has long ago demonstrated, the idea of economic growth through money printing is absurd.  Increases in living standards and real wages can only come about through savings, investment, and capital accumulation.  Workers who have superior tools and equipment are obviously more productive than those that do not. Yet, capital goods have to be produced and production takes place over time.  Savings allow for the production process.

The level of wages are also closely linked to savings.  The greater savings an economy has enables entrepreneurs to bid for workers and increase wage rates.  This is how wages rise – competition for labor among businessmen pushes up wage rates.  The more savings entrepreneurs have, the higher they can bid for employees.

How and why wage rates rise and how employment is created had been understood by economists of yesteryear.  Today, however, the profession is dominated by “inflationists” and monetary cranks who believe that nearly every economic problem can be solved by the printing press.  Anyone who holds such ideas cannot be taken seriously.

While the Federal Reserve may think an inflation target will create prosperity, the reality for real wages is quite the opposite.  The laws of economic science have not been repealed.  An inflation target will lead to the impoverishment of not just workers, but lower living standards for all.

inflation target.jpg

*Jeff Stein and Andrew van Dam, “For the Biggest Group of American Workers, Wages Aren’t Just Flat.  They’re Falling.”  The Washington Post.  16 June 2018 A10.

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