Inflation: The Art of Moving the Goal Posts
None Dare Call It Arbitrary
Paul Krugman, in an article titled "None Dare Call It Victory," calls on the Fed to change its inflation target from two to three percent, which would mean that the Fed could go ahead and reverse course on tightening, since at least one official price inflation measure has reached 2.9 percent.
He gives some reasons for three percent (or, as he casually dropped in, as much as four percent!), like how it would give the Fed more room to lower interest rates in a recession without hitting the zero lower bound, and how price inflation hovered around four percent during the 1980s without much grumbling. I think he's making this proposal so that if and when a recession comes, he can point back and say that the Fed didn't follow his advice and raised interest rates too high for too long.
He says that the main impediment to adopting a new target is political—the Fed fears losing credibility since they've had two percent as their target for so long. Moving up from that would look like they reneging on the price stability part of their dual mandate.
Of course, any intelligent person could rightfully respond with "Why not?" If all that matters is that inflation expectations are anchored, why not anchor them to three percent instead of two? But if we can say "Why not?" to this idea, then why not six percent? Or seven? Why not any single-digit number? (Double digits are certainly too scary even for Krugman.)
The simple, two-word question exposes the arbitrariness of central bank targets. Economists could conjure up statistics and theory (based on the best Keynesian models) to defend a two percent target just as easily as a four percent target. It's all arbitrary compared to what would occur in a free market economy with sound money: prices, interest rates, wages, the money supply, and production would all reflect consumer demands as entrepreneurs use economic calculation to arrange production in profitable ways.
In such a context, specific inflation targets would make no sense at all.
Growing US Debt Menaces Liberty and Prosperity
Congress’ top priority this fall will be passing legislation funding the government and avoiding a “shutdown.” As of this writing, it appears unlikely that the Republican-controlled House will be able to make a deal with President Biden and the Senate Democrats on a long-term spending bill. Instead, they will likely pass a short-term funding bill to give themselves more time to reach agreement on a longer-term bill.
Any bipartisan agreement is unlikely to reduce government spending or begin to pay down, or stop the growth of, the over $32 trillion national debt, which the Congressional Budget Office projects will grow by at least $115 trillion over the next thirty years. Instead, Congress and the administration will continue to pretend they are addressing the spending problem by “reducing in the projected rate of spending growth,” and other gimmicks.
The sad fact is both parties, along with a majority of the American people, are addicted to welfare-warfare spending. What little resistance there is to big government within the Republican party is likely to be further weakened by the rise of a new form of “conservatism” that advocates the use of government power—including deficit spending and increasing the federal debt — to advance conservative political and social goals.
The failure to take seriously the threat to the American economy caused by reckless federal spending is illustrated by the reactions to the credit rating agency Fitch’s downgrade of the US government’s credit rating. Instead of treating it as a wake-up call, government officials like current Treasury Secretary (and former Federal Reserve Chair) Janet Yellen dismissed the downgrade as “arbitrary and based on outdated data.”
One reason Yellen and others may be so blasé about the federal debt is that they believe the Federal Reserve will bail the government out by holding interest rate low enough to keep the federal government’s interest payments to manageable levels This is why, even though the Fed has been raising interest rates, the rates remain well below what they would likely be in a free market. However, the Fed knows it cannot go back to keeping rates at or below zero without causing price inflation.
Therefore the Fed will likely continue to raise rates for the next several months. The Fed will likely pause its rate increase next year in the hope of boosting economic activity to help President Biden’s reelection campaign. Former President Trump gave Powell an additional incentive to keep rates low next year by promising not to re-appoint him if he returns to the oval office.
Despite the Fed’s repeated interest rate increases, Americans are paying an average of $709 more per month for basic living expenses than they were two years ago. This is why credit card debt is over one trillion dollars. Adding more in private and public debt will increase pressure on the Fed to “do the impossible” - keep interest rates relatively low without creating price inflation. Eventually, the Fed-created debt-based economy will collapse as the dollar loses its reserve currency status. This will increase political divisions and may even lead to political violence.
Those of us who know the truth must make preparations to ensure the safety of ourselves and our loved ones and do all we can to spread the ideas of liberty. Creating a critical mass of people to reject the false promises of the welfare-warfare state is the only way to regain liberty without first suffering political and economic upheaval.
Remembering Robert Ekelund, A Good Colleague and Friend of the Mises Institute
When Robert (Bob) Ekelund passed away Thursday, August 17, just short of his eighty-third birthday, the academic world lost a truly great economist, the world lost a talented artist and musician, and many of us lost a man who was a good friend. The Mises Institute also lost someone who was a fellow traveler with the Austrian school and someone who was a mentor to those of us who did our graduate work at Auburn University while tied in various ways to the institute.
There have been many tributes written to him, including one by his former student Donald Boudreaux, and one could fill cyberspace with all of the accolades that he has received in the past few days. All are worth reading, if for no other reason than to start to gain an accurate picture of this most remarkable man.
Instead, I will write from the perspective of the graduate student who had the privilege of learning about him from the position of someone who was not his peer. In this time, when the ongoing cultural revolution has undermined traditional academic relationships, we should remember that those old relationships were important, and I was fortunate enough to have such a relationship with Bob.
I entered the PhD program at Auburn in September 1995. I was in my early forties, making me the oldest student in our cohort. Having met Bob earlier, I already had an inkling of the energy and enthusiasm he brought to the program, but because he opted out of teaching the introductory microeconomics course, I didn’t have him until the spring quarter, when he taught the second of the History of Economic Thought courses.
Before taking that class, I thought I understood Austrian economics, not to mention had at least some competence in historical economic thinking, but Bob quickly shot down that foolishness not by admonishment, but by his remarkable teaching. More than a decade earlier, I had purchased Carl Menger’s Principles of Economics but had never read it. Bob made us read all of it, and after he explained Menger’s theory of value, the scales fell from my eyes. It was not necessarily the Damascus Road experience, but it was close. My thinking—for that matter, my life—was changed forever.
I began to read some of Bob’s voluminous work afterward (it would take my lifetime to read everything he wrote) and was even more impressed. That work would introduce me to men like Jules Dupuit, a man obscure to most economists but someone who made quiet advances in better understanding marginal utility, the backbone of economic value theory as we know it. The economics program at Auburn became a much richer intellectual environment.
Bob’s creativity was also expressed in his test questions and in the questions that he produced for our doctoral exams. He especially loved to ask about joint production (where the production of one good also provides factors of production used in making other things) and I am ashamed to say that I blew his question about turkey production (I won’t say what I did, but it really was unbelievably stupid). He also loved examples of price discrimination, and his text cowritten with the late Richard Ault had some rich ones.
During the winter quarter of 1997, I was privileged to have Bob for two classes, Institutions and Regulation, and his expertise made every session a sit-on-the-edge-of-your-seats moment. Before taking those classes, I thought I knew something about each of the subjects but was reminded once again that my knowledge was deficient. The experience was life changing, and while at the time I had a vague idea of just how important these classes were, I have drawn from them each day since.
Graduate students often choose a program because of the presence of a certain faculty member, and for Auburn University’s PhD program in economics, that person was Bob Ekelund. I chose history of economic thought as one of my fields because he and Robert Hébert, both world-class scholars in that field, were in our program. Even though many economics programs have eliminated this area of study, I have no regrets about my choice.
Because of his extensive knowledge of economic thinking and history, Bob was able to “discover” and interpret the works of Jules Dupuit and Edwin Chadwick and point out how their ideas and actions could be applied to economic issues of our day. He also teamed up with his good friend, the late Robert Tollison, to use economic analysis to cover topics from mercantilism to the medieval Catholic Church.
Bob was more than just a classroom teacher, however. He was a mentor and chaired numerous dissertation committees, providing guidance to a generation of economics professors who have done well in the profession. In fact, even after retirement, he continued to write, even publishing a paper in the prestigious Journal of Political Economy.
Not to be satisfied with being a world-class economist, he also was an artist whose paintings enjoyed numerous exhibitions throughout the Southeast. He was a classical pianist and so much more. One of my classmates told me that Bob Ekelund was someone we thought would live forever, as few men his age had both the intellect and the energy to carry on as long as he did.
The economics profession, the Mises Institute, and countless others will miss him. His passing leaves a void that ordinary people—and even extraordinary individuals—cannot fill. Bob was one of a kind, and I doubt we will know anyone again who was like him. Rest in peace, good friend.
What to Do (And What NOT to Do) after Disasters Strike
In the following diagram, Jesús Huerta de Soto has summarized the actions people take to recover from a disaster when people are free.
Data from Jesús Huerta de Soto.
Graphic interpretation by author.
Figure. Stylized stages when free people save and invest.
The starting point in sustainable recovery is when deprivation stops being added. A hurricane ends. A war has ended. A government-money-error cycle reaches a low point and for once, government people don’t inflate the money quantity, which would start a new government-money inflation / recession cycle.
Stage 1
In a deprivation’s wake, people are producing and buying smaller quantities of consumer goods.
Consumer-product producers need to apply their fixed costs to as much production as they can, and need to keep as many of their people employed as they can, so they need to limit how much their production quantities decline. To do this, they reduce their product prices.
Stage 2
At the reduced prices, workers pay less to buy a given quantity of products. Their work has become more valuable; their real wages have increased.
Workers save more. Bankers have more saved money to loan to producers for projects or to customers for purchases. To loan this additional money, bankers price loans lower—they reduce interest rates.
Reduced interest rates give workers less interest on their money saved in banks, so workers move more money to riskier but more-rewarding investments in stocks. Workers’ increased investments increase stock prices. Increased stock prices in turn lead workers to invest even more of their saved money in stocks.
Meanwhile, producers’ smaller production quantities and lower prices make producers’ nominal profits smaller. Producers respond by reducing the number of workers. In time, the generally lower nominal prices mean that producers’ real profits end up not having declined as much.
Stage 3
Capital-products producers invest, hire workers, and increase production quantities. Workers move to capital-goods producers and away from intermediate-products producers and consumer-products producers.
Stage 4
Intermediate-products producers devise new products that make production more efficient overall, saving customers money, by making the structure of production more complex by adding production steps. These producers invest in capital products, hire workers, and produce new products.
Stage 5
Consumer-products producers invest in capital products, produce more, and lower their products’ prices.
Overall, a disaster makes producers produce smaller quantities and lower their prices. Workers first save more, producers then invest more in capital goods and in new production steps, and workers produce more, earn more, and finally buy more.
Along the way, unsustainable investments fail, the sooner the better. People salvage reusable materials and skills.
Free people work, save, and shop the best ways they each know of to produce value at every point in time. Free people recover from disasters truly sustainably—that is, in the way that will be sustained by saved earnings—and as quickly as they can.
In this case, the government-centric GDP increases not because “demand” increases but because supply increases—that is, workers earn and save more; producers invest more, increasing productivity; and workers earn more, producers produce more, and workers buy more.
When manmade disasters recur, when recovery feels tied down, ask yourself: What’s keeping people from freely adapting and recovering? What’s slowing people down?
- Government people inflate the money they force us to use.
- They restrict our choices and slow our actions with zoning and permitting and licensing.
- They take taxes from us for their regulators and schemes.
- They take taxes from us for interest payments to their enablers, the misguided people who loan government people the money that the politicians spend to try to get reelected.
Maybe ask yourself instead: What are government people doing that doesn’t slow us down?
It’s Called: Fed Listens
Last week, the Federal Reserve released Welcoming Remarks, as part of a Fed Listens event held in Atlanta. The stated purpose of this initiative was to gather insights from select members of the community regarding economic concerns.
Governor Michelle W. Bowman admits many are struggling on Main Street:
I know that high inflation has been a hardship, especially for lower- and middle-income families, who spend the majority of their income on necessities.
Going on to say:
I am interested to hear the ways in which inflation and higher interest rates are affecting the day-to-day lives of our participants today.
This borders on mockery, as the Fed doesn’t serve the public at large. In fact, they are the central catalyst for the rise in prices, what they refer to as inflation.
They could utilize over a century’s worth of scholarship from the Austrian School of Economics to correct the trajectory; admitting the zero-sum game the Fed plays of increasing prosperity for one by decreasing prosperity for another, is failing us. This would never happen. Instead of creating trillions of dollars or suppressing interest rates as public policy, it would require them to refrain from market intervention entirely.
The Fed proudly embraces inherently flawed data analysis, faulty prediction systems, and a conspicuous use of anti-free market ideals. In their circle, it would be acceptable to refer to their economic beliefs as “orthodox,” closer resembling religious conviction than logical deduction.
Economists and media still utilize the Consumer Price Index (CPI) as a barometer of the health of a nation. It is increasingly apparent these inflation indexes do not adequately capture the true nature of inflation, as they fail to address how currency debasement pushes the populace into poverty and desperation, eroding the moral fabric of a society itself.
An ever growing sense of hopelessness stemming from inflationary monetary policies can be seen across CNBC news headlines:
Here’s why Americans can’t stop living paycheck to paycheck
The article states a staggering statistic: 61% of adults are living paycheck to paycheck. If true, it's likely most citizens in one of the world’s wealthiest nations also have little to no savings.
Also noteworthy, in America, a sense of "comfort" begins with a salary nearing a quarter of a million dollars. A second survey found:
To feel ‘comfortable,’ Americans think they need a $233,000 salary and nearly $1.3 million for retirement.
For generations we’ve been led to believe inflation is necessary and that the Fed’s job is to ensure just the right amount for the benefit of society. Yet the Fed’s priorities hardly align with those of everyday people. The Fed claims computing inflation & employment data with interest rate & money supply decisions into highly complex formulas will help achieve their goal of economic prosperity. However, the real world has an unimaginable number of unforeseeable factors which their economic models could never comprehend, much less make credible predictions with any degree of certainty.
The only real certainty is that year after year, the purchasing power of our dollars steadily declines.
Alongside rising prices and rising rates comes rising debt levels:
Credit card balances jumped in the second quarter and are above $1 trillion for the first time
According to CNBC, part of this credit card debt is due to inflationary pressures coupled with “higher levels of consumption,” partially absolving the Fed.
Trapped in a perpetual state of desperation, most Americans live on the margin, forced to endure bouts of recession, depression, and the occasional currency collapse. Servicing a nearly $33 trillion national debt while also funding foreign wars and foreign aid are just a few of the obligations bestowed upon the American people.
Piecing the puzzle together, it adds up. If the Fed truly wanted to help, they would stop trying to help, as the Austrian school has been advocating for quite some time. The American people are the only ones powerful enough to do so. Let the market work itself out.
QJAE: Keynesian Supply Shocks and Hayekian Secondary Deflations
Abstract: In response to the COVID-19 lockdown policies, Guerrieri et al. (2020) developed a new concept: the Keynesian supply shock. A Keynesian supply shock is an aggregate supply shock that leads to an even larger aggregate demand shock. This paper suggests that Keynesian supply shocks are very similar to the secondary deflations suggested by Hayek (1931), and US data from the 2007–09 financial crisis show that these concepts may help to explain employment dynamics in the midst of a crisis. This fact implies that long-standing policy advice based on Austrian business cycle theory would be useful in responding to Keynesian supply shocks.
Read the full article in the Quarterly Journal of Austrian Economics.
Government Medicine Is Creating More Physician Burnout
According to the American Medical Association, “Physician burnout is a long-term stress reaction which can include the following:
“Physician burnout is an epidemic in the U.S. health care system, with nearly 63% of physicians reporting signs of burnout such as emotional exhaustion and depersonalization at least once a week.”
“While many factors contribute to burnout, the burnout epidemic is often associated with system inefficiencies, administrative burdens and increased regulation and technology requirements.” One expert sums up the primary cause of physician burnout: “It’s been said that people don’t leave their jobs. They leave their bosses. But for physicians, physicians don’t leave their careers. They are leaving their inbox.”
At my own institution, the most common sources of dissatisfaction expressed by physicians are the electronic medical record (EMR), dealing with insurance companies, and other administrative duties that take physicians away from their patients. I will deal with each of these causes and demonstrate why the system – including the burnout created – is working as intended.
Contrary to popular belief, the EMR was not intended to make records easier to read, or to improve patient care. The EMR was created so that Centers for Medicare and Medicaid Services (CMS) could systematically and objectively deny payment for services. “If it wasn’t documented, it didn’t happen” has become the foundation for EMR. Physicians have been educated through mandatory indoctrination on how to document services to justify billing. Templates have been created to instantiate the mandatory documentation with a few clicks of the mouse. The result is pages of text that nobody ever reads. However, computers can scan the notes for the documentation and failure to detect the documentation provides CMS with an objective basis for denial of payment. Each service has multiple codes with higher code levels resulting in greater payment. There are requirements to achieve each level of code. What the administrators do not acknowledge, however, is that the value of the time necessary to properly document each level of code (to the physician) far exceeds the increase in payment. The physician time has zero value to the administrator, so the administrators constantly harangue the physicians to spend more time on each record in order to generate higher payment. Some administrators do not understand this phenomenon; some do understand it but do not care. No administrator ever suggests that the solution is for the physician to spend less time on each record in order to see more patients or spend more time interacting with each patient. Physicians are regularly graded by Press-Gainey surveys of patient satisfaction. There will NEVER exist a Press-Gainey survey for physician satisfaction with CMS.
The insurance companies have merely taken the lead provided by CMS although the insurance companies have a different twist. The insurance companies require pre-authorization for expensive services. They deny authorization for reasons known only to the insurance company. The stated reason is always that the service is not medically necessary. It does not matter what the physician thinks about the necessity of the service. An appeal process is available, but the process is made as lengthy and as unpleasant as possible. The goal is obviously to make the process so unpleasant that physicians will not pursue an appeal. The insurance company convinced me a long time ago, so I just document that the insurance company denied the service that I recommended. Many other physicians have the misconception that the barrier is lack of education or understanding, so that they can convince the insurance company of the rightness of the request. Their effort may even work on occasion, but the time and effort required will never be worth the result. If the existing treadmill does not reduce requests for services sufficiently, the insurance treadmill will just spin faster. Many physicians do not understand that the only way to win this game is to refuse to play it. There will NEVER exist a Press-Gainey survey for physician satisfaction with insurance companies.
Administrators claim to be very concerned about physician burnout. Their solution to physician burnout is to increase the administrative burden even further with questionnaires about burnout and mandatory education about burnout. The administrators will never acknowledge that the questionnaires and mandatory training are part of the cause of physician burnout rather than a solution. There will NEVER exist a Press-Gainey survey of physician satisfaction with the number of mandatory training sessions required.
What are the consequences of physician burnout? Physicians retire earlier or commit suicide. However, a decrease in the number of physicians solves more problems than it creates. The U.S. health care system pretends to eliminate the scarcity of medical services. It is not possible to actually eliminate this scarcity, so we have to pretend. Medical services appear to be “free” to the patient, but they are still scarce, so they are not actually free. One method of solving this imbalance between actuality and appearance is called rent dissipation. Rather than paying for services with money, patients pay for services with inconvenience, time waiting in lines, or time and effort travelling to services no longer available locally. Another method of solving the imbalance between actuality and appearance of medical services is to decrease the number of physicians who order such services. Fewer physicians translate into fewer services which translate into lower payments by CMS and insurance companies. Another benefit of earlier retirement of physicians (or suicide) is there are more positions available for the excess number of physicians trained each year by medical schools. As older physicians disappear, demand for post graduate residents increase, so the current imbalance between number of medical graduates and residency training positions can be reduced. Physician burnout is a problem for physicians, but it is a solution for CMS and other third-party payers of medical care. Given that CMS makes the rules, do not expect physician burnout to go away very soon. To paraphrase Lenin, physicians sold CMS the rope by which they are being hanged.
JLS: Taxation and Forced Labor—The Two Bodies of the Citizen in Modern Political Theology
New from the Journal of Libertarian Studies:
ABSTRACT: This article will show that there is nothing innocent about taxation. While coercion had various and rather ruthless forms in premodern times, with the birth of the state, the expansion of taxation has increasingly become the repudiation of a visible brutality. The Enlightenment period marks the beginning of the fiscal state, an impeccable marriage of modern rationality and new forms of control. Tax imposition rendered political exploitation less painful, but at the same time, it inaugurated an expansion of dominion over individuals and society unparalleled in history. Taxation was the decisive cause of Rome’s downfall. After almost two millennia, Western civilization could implode again and for similar reasons, but the veil of ignorance of modernity will render it impossible for people to comprehend how it happened and why.
Read the full article in the Journal of Libertarian Studies.
An Anarchist’s Pragmatic Plan of Government for Argentina
The Argentine primary elections were held on August 13 and only one presidential candidate had presented a government plan in detail. The candidate is Javier Milei, economist and current member of congress. He is a self-described anarcho-capitalist, and he got 30 percent after he was expected to get around 20 percent of the total vote. There was reason to believe that he is more competitive than the polls showed, as they do not account for the level of energy in each voter group and their willingness to show up to the voting booth when the day comes. In all, a Milei win in the general election is now the most probable scenario.
While he had already described major elements of his plan, it was on August 2 that Milei presented a detailed plan. The main issues addressed by the plan are the economy and crime. Argentina suffers from an overwhelming state burden and rampant criminality. Around half of its population is currently below the poverty line. The plan itself is nothing if not pragmatic from an anarchist point of view.
The first measure consists of an organizational reform of the government, going from 18 to 8 ministries. The ministries to be included are interior, foreign relations, defense, economy, justice, security, infrastructure, and human capital. No career bureaucrats are to be fired initially, but they will be reassigned. The political appointees will not be renewed and will be kept to a minimum. All government employee privileges, such as bodyguards and drivers, will be eliminated, except in the cases in which they are absolutely necessary for security reasons. This measure also includes initiating the privatization or closure process of all state-owned companies.
The second measure consists of a significant reduction in public spending. For the first budget, they seek to eliminate expenditure items amounting to 15 percent of GDP, taking it from a deficit to a surplus. On the revenue side, they seek to eliminate 90 percent of taxes, which only raise an amount equal to 2 percent of GDP but have a distortive effect. There is also an intention of lowering the taxes that remain.
The third measure consists of a flexibilization of labor regulations. Firing an employee is currently very costly in Argentina between litigation and compensation. This measure is geared toward reducing those costs by making it easier for companies to fire new employees. The balancing side of this measure is the implementation of a private unemployment insurance scheme. With this measure they seek to take formal employment in the private sector from 6 million positions to 14 million positions.
The fourth measure consists of a liberalization of trade. The goal of this measure is unilateral free trade in the style of Chile. This includes the elimination of all import and export tariffs and the reduction of regulatory restrictions.
The fifth measure consists of a monetary reform. This measure includes allowing the use of any commodity or foreign currency as legal tender and the liquidation of the central bank, which would result in the elimination of the Argentine Peso. There are alternative plans for the implementation of this measure, but the leading one is the one developed by Emilio Ocampo and Nicolas Cachanosky. In terms of timing, it would take between nine and 24 months. The conversion would be made at the market exchange rate. Once two thirds of the monetary base has been converted, a countdown for the last date to convert would be triggered.
An additional challenge for this measure is that the central bank has remunerated liabilities three times the size of the monetary base. These are like the Federal Reserve’s program of paying interest on reserves in order to sterilize increases in the quantity of money. The central bank does have some commodities and foreign currencies in reserves but most of the assets consist of government bonds that currently trade at a third of their face value. To access the necessary liquidity to liquidate the central bank, the bonds would be transferred to a fund which would acquire the necessary line of credit using the bonds as collateral. The line of credit has already been confidentially agreed upon. The bonds are guaranteed to increase in price if the budget deficit is eliminated as specified in the second measure.
The sixth measure consists of an energy reform. This measure intends to eliminate all subsidies to energy providers through a recalibration of the financial equilibrium to lower costs to keep the companies profitable and minimize the impact on the cost to the consumers. This measure opens a door to subsidies on the demand side for vulnerable households. They also seek to improve the energy infrastructure through a scheme of public interest declarations for projects which would be financed and executed by the private sector, but for which the government might provide a minimum revenue guarantee.
The seventh measure consists of fostering investment. This will be done through a special legal arrangement for long term investment with a focus on mining, fossil fuels, renewable energy, forestry, and other sectors. In order to foster investment, they will also aim to eliminate foreign exchange restrictions and export fees.
The eighth measure consists of an agrarian reform. This includes the elimination of the foreign exchange spread between the official exchange rate and the market exchange rate through the liquidation of the central bank, the elimination of all export fees and retentions, the elimination of the gross revenue tax, the elimination of all restrictions to foreign trade including quotas and the need for authorization, the promulgation of a new seeds law, and the improvement to road infrastructure through private enterprise.
The ninth measure consists of a judicial reform. This measure includes the designation of a Minister of Justice with the consensus of the judicial branch, as well as the appointment of a Supreme Court Justice without political affiliations to fill the present vacancy, prohibiting members of the judicial branch from engaging in partisan politics, and promoting the budgetary independence of the judicial branch. Furthermore, they will seek to implement jury trials and oral proceedings throughout the country.
The tenth measure consists of a welfare reform. Current welfare benefits will be initially maintained. They aim to move in the long term towards a private system in which users pay for the health and education services they consume. In the short term they aim to provide income protection programs to mitigate extreme poverty, nutritional programs, parental educational programs about cognitive stimulation, greater coverage for preschool, incentives for graduation, programs for the integration of people with disabilities, the promotion of access to private credit, and the elimination of all middlemen in the provision of welfare.
The eleventh measure consists of an educational reform. They aim to move towards a greater degree of freedom to choose the curricula, methods, and educators. The measure also includes launching a school voucher pilot program. They will also establish an evaluation criterion for schools so that they may compete for incentives.
The twelfth measure consists of a health reform. They aim to transfer the subsidization of healthcare from supply to demand to allow for greater freedom of choice and competition. This measure includes providing the existing healthcare benefits as vouchers so that there is no restriction to a specific provider.
The thirteenth measure consists of a security reform. This measure includes reforms to the homeland security, national defense, and intelligence laws, as well as a reform to the penitentiary system to incorporate public private hybrids and intensifying the prosecution of drug trafficking.
Argentinian Voters Seek an Escape from 100% Inflation
In a surprising twist to Argentina's political landscape, Javier Milei, known by many as el Peluca ("The Wig") due to his rock 'n' roll hairstyle, secured a significant win in the recent primary elections held on August 13th.
Representing the coalition La Libertad Avanza (“Liberty Advances”), Milei triumphed with 30% of the votes, besting the incumbent president Alberto Fernández's coalition. Clearly, his unequivocal message of shuttering the Argentinian Central Bank resonated with a population beleaguered by an inflation rate of over 100%.
For those unfamiliar with this rising figure in Argentina, Milei is an economist, educated in Buenos Aires' private universities, and is a staunch supporter of libertarian politics and economics.
The politician has a pack of English mastiffs, named after his favorite economists: Milton (Freedman), Murray (Rothbard) and Lucas (Robert Lucas).
Identifying as a "liberal libertario" and "anarquista de mercado", he is an advocate for a reduced state role, emphasizing the need to cut public expenditure, taxes, and government intervention in the economy.
Milei's ascendancy isn't solely due to his political affiliations or ideologies. His prior prominence came from his roles as a columnist in national publications like La Nación and El Cronista and as a regular guest on television programs. Milei is not without controversy, having faced allegations of plagiarism in his columns and being known for his colorful language and confrontational style. Known for his leather jackets, admiration for Donald Trump, and advocacy for relaxed gun laws, Milei is a figure that polarizes and captivates.
Milei's libertarian ideas stem from deep roots. After witnessing hyperinflation in Argentina during his youth, he decided to become an economist. His later exposure to Murray Rothbard’s works made him an ardent Austrian economics supporter. This transformation was not just philosophical; it had political repercussions. By 2021, Milei's group had secured four of the 257 seats in the Chamber of Deputies. As a member of Congress, Milei's influence has grown, and his presidential aspirations have become increasingly viable.
The core of Milei's appeal, particularly to the younger demographic, is his anti-state stance. As Argentina continues to grapple with economic difficulties, including high poverty rates and inflation, Milei's condemnation of the political elites as "robbers" and "thieves" resonates with a populace yearning for change. His plan to overhaul the nation's systems and policies could offer Argentina a new direction.
Milei’s solution to intractable inflation in the South American nation is to dollarize the economy and do away with the peso, as Ecuador did in the year 2000. Critics question the practicalities of such a proposal, however, given the central bank has exhausted its domestic supply of dollars in a fruitless attempt at propping up the peso’s rapidly falling value. In addition, international markets have not reacted well to the increased possibility of a Milei presidency, with the Argentinian peso collapsing 20% against the dollar in the two days after the election.
In an article entitled, “Why does the victory of a pro-market candidate like Milei arouse fear among investors?" by Bloomberg Línea, the paradox was explained simply enough: markets do not like uncertainty. But, despite Milei’s lack of experience in politics, his plan appears to be based on sound economic principles and if implemented could do wonders for a nation mired by decades of economic stagnation brought about by welfarism, deficit spending and money printing.
In terms of what's next, if the primary elections are any indication, Milei is poised to make a significant impact on Argentina's upcoming general elections in October. Given the current challenges Argentina faces, the promise of drastic economic reforms and a significant reduction in government intervention might be exactly what voters are seeking.
Inflation: The Art of Moving the Goal Posts
There are two types of people who support the “inflation is low” narrative. The first type gets paid to push an agenda. The second type do not understand the Consumer Price Index (CPI) calculation. The methods behind the CPI will leave you with disdain for government intervention and a yearning for the free market.
On Wednesday the Bureau of Labor Statistics (BLS) released its monthly inflation data, a reading of 1.7% unadjusted CPI over the last 12 months. The importance of this data cannot be understated. Controlling price inflation is of paramount importance to Central Bankers. However, what if this economic data, upon which society relies so heavily, is completely false?
Starting with the CPI overview:
Ambitious. Yet given the sheer amount of goods and services, customers, and infinite reasons for price changes, some might say such an idea is impossible to adequately measure, let alone useful to plan an entire economy.
Nonetheless, per the March 2021 release of February’s data, it begins when:
Of course, it’s not enough for the BLS’s 2,500+ employees to simply collect prices of random goods and services across the nation. The data must be compiled in some way:
Perhaps the most overlooked, or little understood, input is the “weights” the experts assign to each item. It is here where the massaging of data has no limits.
Reviewing Relative Importance of the data dissolves any notion of credibility in the calculation:
The total weights add up to 100 (think 100%). Last reporting period, Food made up 14.107 whereas Energy was just 6.349. And yes, each month the “importance” of each item changes.
Relative importance is nothing more than a plug. If Food was 12 and energy 8, no one could argue this was more or less accurate than, say, 14 and 6. Yet such a change would have a momentous effect on inflation results. Since it’s impossible to credibly quantify the level of importance of a good in even one person’s life, it’s absurd this is done for the entire country.
Consider the relative importance of the following:
To believe college tuition, one of the largest expenses for millions of Americans, is slightly more important than cable tv is a strong indicator to the impossibility of the data.
The highly suspect CPI calculation is not so much a “conspiracy theory,” as it’s simply there are too many people depending on the low inflation narrative to stay afloat. The Fed, pension plans, unions, actuarial work, treasuries, etc. all rely on the low inflation narrative to avoid the negative consequences of our reality, including bankruptcy, or in the Fed’s case, the embarrassment of having to admit mistakes.
It becomes both freeing and unfathomable, that with just a few adjustments to a computer program, the “relative importance” of items, or the basket of goods themselves change. Understanding the calculation method shows the illegitimacy of the CPI. Its purpose is to mask the truth about the world. Life has never been more unaffordable for the masses, while world debt levels are at all time highs. We can solve the mystery by saying something most know anecdotally but are too afraid to admit as it conflicts with the data: The cost of living is terribly high and is rising at alarming rates. But “inflation is low,” only because our central planners push their narrative, and by extension, their power.