Of Stagflation and Economic Recovery

 

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Governments create inflation.  Since governments maintain a monopoly on money creation and exercise it constantly, the results of their policies are their own, whether they wish to own them or not.  Having said that, though government got us into this inflationary mess, more government is not going to get us out.  Yet, less government might.

The current administration—including the Federal Reserve—is in a tight spot.  Many repeatedly predicted that the unwholesome monetary and fiscal policies to respond to the equally unwholesome policies of dramatic economic shutdown of the 2020 Great Cessation would eventually lead to inflation.  So they have, even worse than what we saw in the 1970s.  The incoming Biden Administration persisted in blowing air into the inflationary balloon distended the year before.

This is not a partisan statement.  We have seen two Republican administrations doom themselves at the polls by engaging in ruinous economic policies because it was an election year.  Within memory of 2020 policymakers, the outgoing Bush Administration in 2008 mishandled the sure-to-be recession coming from the bursting of the housing bubble by panicking Congress into passing the TARP legislation, which fright drove investors to the sidelines.

True, the price rise from the 2020 massive fiscal and monetary stimulus did not appear as quickly as worriers, like me, expected.  Recipients of government largesse were not spurred to spend it as spontaneously as predicted.  Neither did negative real interest rates prod much borrowing, but it did punish savers.  While economic activity remained suppressed, people for a time sat on their money with little to do.  Eventually, puzzles all finished, people started coming out as 2021 wore on.  Congressional leadership called for more stimulus whilst the flood of funds from earlier stimulus at last began to flow.

The tight spot for the current administration is how to bring down inflation without bringing down the economy.  Of course, the economy will come down if they do not, because inflation eats away at the insides of economic activity.  Current White House leaders are sensitive about comparisons with the Carter Administration, yet there is talk of following the failed Carter example of trying to drive the economic car with one foot on the brake and the other on the accelerator.  That is the program for Carteresque stagflation, a stalled economy wrapped in continued high prices.

What we should have learned—and many have—is that the way to end inflation without getting into stagflation is not more government stimulus.  It is to end disincentives to business activity.  Reduce regulatory burdens and people will find ways to solve problems and get things done.  Inflation is caused by too much money chasing too few goods and services, stagflation impeding production of goods and services.  Reducing regulatory burdens and barriers to business activity addresses both problems by promoting productivity, innovation, and expansion, which increase supply at lower costs, reward creativity, and encourage new ideas in a virtuous economic circle.  It worked in the 1980s.  It can work 40 years later.

Of Christmas and Easter

 

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Christmas, in all its depth, is marvelous.  It gathers together a world, nay, a universe of goodness.  It also attracts that which may not be so good, but in this world that can be said of nearly all good things.  Love, which is the greatest virtue of all, attracts a plethora of counterfeits, some of which are cheapened varieties of love, too many of which undermine love.  Many broken marriages so teach us.

I love Christmas, because I love Easter.  It is from Easter that Christmas derives its profound meaning and joy.  The depth of meaning and joy involved in Easter is unfathomable, yet there is joy in seeking to fathom it.

All goodness and happiness in life and this world are founded upon what Jesus Christ suffered and accomplished in those last few days of His mortal life, His brief experience in the world of the dead, and His resurrecting entrance into eternal life.  The ancient prophet Lehi taught that everything has its opposite.  To his son, Jacob, he said, “there is an opposition in all things,” nothing excepted, “neither holiness nor misery, neither good nor bad.” (2 Nephi 2:11)  Christ plumbed the absolute depths of evil, suffering all of the pain, sorrow, and the effects of evil for all, and then overcame it all.

Consider what it means when Jesus Christ’s perfect love for all the Father’s children meets with His omniscience, His knowledge of everything, before, then, and since.  Consider all your sorrows, and comprehensively combine them with the sorrows of all who ever lived and all who will ever live.  To Christ that whole weight was fully and completely revealed.  Christ considered and knew and experienced.  In so doing, He earned in the balance of justice an infinite supply of mercy that he offers to you  and me.

Thereby consider the opposite to the sorrow, a fullness of joy that overwhelms that weight.  No wonder when, shortly after His resurrection that guaranteed the resurrection of all, Christ met with a multitude of disciples who loved Him as much as those who wanted Him crucified hated Him.  Beholding these disciples, Jesus blessed their sick, one by one.  Surround by their children, He said, “And now behold, my joy is full.”  How much would it mean for the Creator of the world, to experience fullness of joy? 

Filled with that joy, Christ “wept, and the multitude bare record of it”.  Then Jesus “took their little children, one by one, and blessed them . . . And when he had done this he wept again . . . and said unto them:  Behold your little ones.” (3 Nephi 17)

Christmas is a delight, because Easter is a joy, and Christmas points us to it.

I have heard that before the days of Lenin, it was customary for Russians to greet each other on Easter with the words, “Khristos voskres!” To which the reply would be “Voistinu voskres!”  Christ is risen!  Indeed, He is risen!  I understand that many in Russia have resumed that Easter greeting.  There is rejoicing that can lead to a fullness of joy for each of us, everywhere.

Of the Federal Reserve and Dreams of Success

 

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It may be easy, but I think unfair, to fault the Governors of the Federal Reserve System.  Their task is more than they can handle, and yet they are required to do it.  More accurately, I should say that their tasks are more than they can handle, and yet they are required to do them.

When the Fed was created, more than a century ago, a big concern was that it would be dominated by the financiers of New York and the politicians of Washington.  Hence, rather than a central bank, it was born as a system of a dozen regional banks, with a limited focus, to offset the liquidity risk inherent in banking.

Over time the Fed has not stayed that way.  Today, the Federal Reserve is effectively the biggest bank in the world.  Financiers in New York have an outsized influence, but the influence of the politicians in Washington may be greater.  Otherwise, how could a federal republic tolerate a handful of people at a single agency having so much sway over the daily lives and future prosperity of the individuals, families, communities, and businesses in the 50 States of the Union?  Accountability to the elected cannot long be withheld.

A great problem has been that the elected do not refrain from giving the Fed more things to do.  Its one first task has lost its focus by becoming three.  By law, the members of the Board, joined by the presidents of the 12 Fed banks, are to conduct themselves “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

What if they cannot succeed?  Then we fault them for failures while still pretending that they can.  We hide the goal posts in fog.  What is “maximum employment”?  Can it be today’s 62% of the adult population when we began the 21^st Century at 67%?  What are “stable prices”?  Does “stable” mean that the price of food tomorrow will be the same price it is today, or is “stable” the Fed’s official goal that things will cost 2% more each year, so that my young son’s retirement will require nearly twice as much as mine does?  Then there is the third, often forgotten requirement, that interest rates be “moderate.”  For 10 years the Fed kept quiet about that legal mandate, keeping interest rates very close to zero, a huge transfer of wealth from savers to borrowers, Uncle Sam being the world’s biggest borrower.  Is it surprising that the federal government’s debt grew during those 10 years to $30 trillion and still swelling?

What is the Fed to do?  We cannot reproach its current team, because they cannot succeed.  No government agency, regardless of excellent economists and the best computers, can manage it all.  If you read the statements, they carefully admit, essentially, “we don’t know how to succeed, but the law says we have to do something, so we will try this and that and see how it goes.”

Meanwhile, it has not been going so well.  To paraphrase liberally from psychiatrist Anthony Daniels, we should not be so beguiled by the dreamy tasks we have placed on the Fed that we cannot bear to lighten the load merely because it is not working.  

Of Hostile Invasions and Their Burdens

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It is hard to see what Russians gain from their government’s invasion of its neighbors.  Certainly neither Russian nor Ukrainian soldiers benefit.  That, however, is also true of the people of both nations, now and in the days to come.  How are the leaders of Russia, by recourse to bloody war, serving the people whom they govern?

Vladimir Putin apparently forgot why a prior Russian President, Boris Yeltsin, took Russia out of the Union of Soviet Socialist Republics.  Yeltsin knew, as even Soviet boss Mikhail Gorbachev knew, that the rest of the USSR was a burden and economic drain on Russia.  Supporting and controlling the other Socialist Republics cost more than they returned.  So Yeltsin did what had been until then unthinkable (or unspeakable)—until he did it.  As President of the Russian Soviet Federative Socialist Republic, Yeltsin considered what was best for the people of Russia and exercised the nation’s right under the Soviet Constitution to withdraw from the USSR.  It did not take Gorbachev long to recognize that he could do little about it.  Friendless and no longer fed by Russia, the USSR peacefully dissolved.

Today’s Russian economy is noticeably better than the heavy Soviet socialism.  Yet it continues to strain under weighty government control, corruption, and crony favoritism.  Ask the people in far eastern Ukraine—the part dominated by Russia for the last several years—how well Russian economic policies and promises are working for them?  They will not tell you, because they are not allowed to say.  Ask their neighboring Russians how much they have benefited from Russian control of those eastern provinces.  Take your answer from the looks on their faces.

Are those eastern Ukrainian provinces, with their boarded up windows, idle workplaces, unrepaired buildings and streets, and shortages of much of everything, a model for what Putin intends for the rest of Ukraine?  Ukraine has its economic troubles and corruption and cronyism, too, but the Ukrainians who have voted with their feet show why they have been leaving the Russian “liberated zones” and moving west.

Whatever the Russian government may declare to be success by its invasion, I cannot but think that it will be for naught.  Any bloody ground they seize, any unwilling people they capture, will be a constant drain on Russia, indeed the more the worse.  That is the hostile invaders’ burden and curse. 

After so many are killed and so much is destroyed, how long will Russians think that their government’s adventure was worth it?  What weights will Putin’s escapade be laying upon his people to carry?

The longer it goes on, the worse it gets for all concerned.  From the perspective of the people of Russia and Ukraine, I do not see how this ends well.

Of Rule by Experts and Rule by Law

 

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In the 1990s I was part of a congressional delegation to Argentina, when the Argentine economy was growing strongly and steadily, and inflation was low, the currency convertible 1-for-1 with the dollar.  Trade barriers were being lowered, commerce was booming.  I recall asking Argentines what could possibly darken what seemed to be a bright future.  They were quick to reply:  “Here in Argentina we have no rule of law.  You can have no confidence in getting justice from the courts.”  Not long after, political shenanigans to reward one part of the electorate by a transfer of wealth from others threw the Argentine economy into turmoil.  Momentary good policy is a tough path to walk across bogs of inadequate legal safeguards.  Freedom has rested upon rule by law rather than rule by men.

Fundamentally, the American Revolution was an assertion of the rule of law.  Most of the Declaration of Independence is a litany of abuse by the English rulers.  The Revolution was intended to take power away from man and men and rest it upon laws and rights, soon to be secured by the world’s first written Constitution.

The Progressive Movement, which thrived over a century ago, was a retreat, aggressively stepping backwards to the rule of men as an impatient alternative to the rule of law:  the Rule of Experts.  Their new view—really a very old view dressed up in modern rhetoric—was that there are benevolent experts, to whom we can safely yield our governance, for such understand the process of modern government better than ordinary people do.

It sounds akin to the ancient theory of Divine Right of Kings, that the worldly monarchs are chosen by God and invested with greater wisdom and perspective than the average man and woman.  To their benevolent expertise and fatherly care was entrusted the governance of the rest of us.

Today’s benevolent experts are invested by their colleagues with varieties of credentials certifying their expertise.  Not very democratic, they make no secret of their impatience with the Congress and other constitutional brakes on arbitrary authority.

Just as not all men are always just, not all men are reliably wise.  The American Founders thought to address this problem by the separation of powers, dividing political authority among three branches in the Federal Government and the States.

The current regulatory program rests heavily on the notion that benevolent experts should be entrusted with authority for the big questions and increasingly smaller questions, too.  It has evolved by progressively engulfing the constitutional separation of powers, merging legislative and executive—and often judicial—authority in “independent” regulatory agencies headed by unelected officials.  The unelected federal regulator writes the details of mandatory regulations, charges violators, assesses guilt, and applies penalties.

Professedly efficient, it does not work well in practice.  First, the regulators are not dispassionate umpires, limited to calling the balls and strikes.  They are also players in the game, having their own set of particular interests and incentives that they take care of first.

Second, reliance on benevolent experts assumes what is an unproven, undemonstrated level of knowledge, insight, and forecasting skills.  Regulators are not dumber than the rest of the population, but they are no smarter either.  It is just that life is too complex and the society of the living is proving too much to be run by any designated group of humans and their computers.

A third flaw is mission creep.  Even if the tasks are too great or require too much knowledge, insight, foresight, and other skills in unachievable degree, the regulators still take them on, with each failure met with calls to increase resources and power of the agency.  

An example is the Federal Reserve (commonly called the “Fed”), created with a specific and rather narrow purpose, to make enough funding available for the banking system in times of financial stress.  Before long, the Fed gained control of monetary policy and the practice of controlling interest rates.  Later, it was tasked with promoting maximum employment.  In 2010 the Fed’s role in supervising banks was enlarged to supervising any financial business considered to be systemically significant.  Each augmentation has drawn the Fed away from its narrow, objective task. 

This expansion of authority affects every business and every home.  The Federal Reserve is the world’s biggest rigger of interest rates.  Its prolonged policy of keeping short-term rates at or slightly above zero has resulted in penalizing all savers and those who live off of their savings, transferring trillions of dollars of wealth to borrowers, the biggest borrower being the Federal Government.

A partial but simple solution toward strengthening the rule of law and reducing exposure to the caprice of men would be returning to elected representatives the making of laws.  It is a messy process, exactly the messy process that the Founders intended to preserve freedom from the encroachment of arbitrary and oppressive government.  The regulators, which are theoretically part of the executive branch, should be limited to the duty of implementing the laws that the elected and accountable representatives make. 

If Congress were required to write the rules and mandates, and delegate only the implementation, the mandates of government would be circumscribed by the exposure of a legislative body held directly accountable for what it has wrought.  It is easy for legislators to complain about bad regulatory decisions, but too often, these are decisions that Congress never should have delegated to regulators in the first place.

Of Marx and His Side of History

 

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Karl Marx was a bad prophet.  His record is abysmal.  Reality paved a road moving opposite to the predictions of Marx.  That is a serious problem for someone whose theories of economics, life, and the future boastfully rest upon assertions of inevitable fulfillment clothed in scientific jargon.

My friend, Alex Pollock, has frequently said to me that predicting the future is easy; having the predictions come true is the hard part.  Richard M. Ebeling, a professor at The Citadel, has done what many have not.  He has studied what Karl Marx foretold in comparison with what happened.  The differences are stark.  Ebeling reports, “Being blunt, every one of Marx’s ‘predictions’ has failed to come true.” (See Richard M. Ebeling, “How Marx Got on the Wrong Side of History,” June 16, 2017, Foundation for Economic Education.) To begin, Marx’s forecast of the progressive immiseration of the general population was exploded by the greatest increase in standard of living in the shortest period of time for the largest number of people in history. 

His prediction that mass production would render labor skills ever simpler and homogenous, rewarded with mere subsistence wages, compares poorly with the dramatic expansion of the complexity, variety, sophistication, and compensation of employment and employees in the nearly two centuries since.  I admit that I am not comparing Marx’s predictions with the reality in Marxist societies, where Marx’s predictions of employee drudgery and subsistence living have come too painfully close to fulfillment.

Indeed, perhaps only in such a view, where Marxist experiments have been tried, can one find any relevance of the Marxist concept of being on the “wrong side of history.”  The once oppressed residents of the former Soviet bloc are still trying to get caught up with their neighbors who did not spend decades living Karl Marx’s utopian nightmare.  That is to say, the idea that the Marxist conception of history having “sides” has only been demonstrated in the negative by regimes who have imposed Marxist prescriptions on what they call their “masses,” often within walls to keep them on the inside.

What history has shown is that no one controls it, other than God.  From time to time God provides His prophets visions of future history, usually with invitations and cautions, invitations to actions that will bring progress and happiness, and cautions that if ignored yield destruction and sorrow.  Those prophecies have always come true.  In that sense, and that sense alone, to be “on the right side of history” is to be on the right side of God and His encouragements and warnings.

God our Father loves us and our freedom so much that He gives us room for our exercise of choice in creating our own history, disinclined to force what He wants or to prevent what He hates, ever offering counsel and eager to help when asked in faith.  History is littered with the ruins of societies that acted otherwise, when they reached a point described in scripture as being “fully ripe in iniquity.”

Of Vanity and Measureless Worth

 

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Millions who were recently fully employed today choose to remain off the market.  The unemployment rate, measured by the number seeking work who have not landed a job, is therefore approaching record lows.  Available jobs outnumber those looking for them.  The total of all employed remains fewer than it was two years ago.  Too many have stopped looking.  With generous government benefits for doing nothing, more than a few have concluded, what is the point?

That is bad for the economy, but it is worse for those who have taken a pass at gainful employment.  It is the ancient attitude of personal desuetude.  Solomon, the King of Israel of antiquity, wrote, “I have seen all the works that are done under the sun; and behold, all is vanity and vexation of spirit.” (Ecclesiastes 1:14)  Has the spiritual wind that brings value to life gone out of people’s sails?  Or have many stopped unfurling their sails?  Giving up on work, are they giving up on living?

Having seen it all, and explored and pondered life, Solomon, the richest and wisest of kings, ruled Israel at its peak in wealth and sway.  Observing “all things that are done under heaven,” he concluded, “vanity of vanities; all is vanity.  What profit hath a man of all his labour . . .?” (Ecclesiastes 1:2, 3)  Solomon presented a powerful case.  He described the profound emptiness of the ephemeral existence he perceived.  Generations of people come and go, forgotten.  People’s eyes are not satisfied with seeing nor their ears with hearing.  There is little remembrance of what was done in the past, and what will come will be little recalled by those who come after.  Man’s search for wisdom finds grief and his increase in knowledge increases his sorrow.  “There is no new thing under the sun.” (Ecclesiastes 1:9ff.)

A cursory reading of Solomon’s Biblical book, Ecclesiastes, has led some to regard Solomon’s wisdom as having soured on existence.  A more careful reading reveals an inspired wisdom that reaches beyond the world.  Solomon recognized, and hoped to cause others to recognize, that lasting value is not to be found in the perishable things of mortality.  He declared, “I saw that wisdom excelleth folly, as far as light excelleth darkness.” (Ecclesiastes 2:13)  He taught that wisdom was not to be found in a focus on things under heaven, but in the things from heaven, the eternal things.  God gave us the world as the school for us to prepare for heaven.  A focus on the world itself is folly, nothing but dust in the end.  A focus on the eternal, however, can enrich life now and to come.

What are the eternal things?  The scriptures resonate with counsel to make our life bountiful.  In modern times, Jesus Christ offered an exemplary list of things that give us joy and meaning today and endow us for heaven.  “Remember faith, virtue, knowledge, temperance, patience, brotherly kindness, godliness, charity, humility, diligence.” (Doctrine and Covenants 4:6) 

The temporary and transient are provided to be harnessed by us as we secure now and take with us what can be never ending.  What is that?  It is all that can go with us beyond the temporary grave, such as our family relations and the virtues that are developed in a family better than anywhere else.  I recently heard my daughter say that being a mother is the hardest work she has ever done, and she loves it.

Solomon urged a rearrangement of our priorities from an attraction to what would become inevitable vanity under heaven, to the use of what the Creator has given us to prepare for living in heaven.  “Remember now thy Creator in the days of thy youth, while the evil days come not, nor the years draw nigh, when thou shalt say, I have no pleasure in them.”  This is what Solomon called, “the conclusion of the whole matter . . .” (Ecclesiastes 12:1, 13)

The gift from Jesus Christ is to guide, preserve, magnify, and hold to every good thing which, if we will accept His gift, “without compulsory means . . . shall flow unto thee forever and ever.” (Doctrine and Covenants 121:46)