# Ron Paul on the Trump-Kim Summit

## Ron Paul on the Trump-Kim Summit

06/12/2018Ron Paul

"I can't help but feel a little bit proud that our views, which aren't mentioned very often, are really being talked about. They are talking about a peace treaty and ending the war. They are talking about bringing troops home. They are talking about spending less money and no more military games over there. Wow. That is very good." - Ron Paul

## How Not To Use Percentages In a News Story

06/18/2019Joakim Book

Using numbers to describe the world is fraught with peril. The problem is not that you can prove anything with statistics (you can’t) or the Mark Twain quip equating statistics with lies, but rather that numbers unaccompanied by correct reference points tend to be very misleading. Hayek’s famous quote where aggregates conceal is merely a subsection of this larger mistake; to report one number (an average, a percentage, a growth statistics) when the correct or more fully elaborated story includes that number in combination with other numbers, is the major concern.

In politics (and the media tasked with covering it), the stakes to portraying numbers in one’s own favor are very high and so we see this mistake all the time. Let me address what may be the most common one: failing to divide by the correct denominator – disguised by the frequent and careless use of percentages.

Normally, claims expressed in percent such as “87.2% of American households have a computer” have straightforward meanings; the word ‘percent’ literally means “by the hundred.” If there were 100 American households, we would know that about 87 of them have a computer. Our brains correctly read “almost all American households”, since 87.2 is the vast majority of 100. If we have some additional information about the number of households (119 million) we can quickly establish that some 104 million households have a computer; the remaining 12.8% (around 15 million or so) don’t, which we know since the groups are mutually exclusive (either your household has a computer or it doesn’t) and that percentages sum to a hundred (87.2+12.8=100). Easy.

Dealing with non-negative numbers such as car-owners, votes, revenues or incomes like this is rarely a problem, and percentages are ideally suited to perform that task; they don’t require the reader to have detailed information about the number of households in order to gauge the meaning of the 87.2% digit. Numbers reported in percent give us a natural reference point: households with computers divided by all households.

This quickly changes when the subset of numbers you’re describing may include negative numbers, such as net job creation or income growth. Since those numbers can occasionally turn negative for even large subsections of a population, the meaning of “percent” is completely lost. The intuition is this: when you include negative numbers in a sample, and take a percentage based on some remaining (positive) number, individual percentages easily sum to more than a hundred.

Here’s an illustration of a hypothetical economy of three people (A, B, and C), whose combined earnings in the first year is \$300 (distributed as \$50 for A, \$100 for B, and \$150 for C). In year two, A increased his income to \$70 (a 40% increase), B only earned \$80 (a 20% reduction) and C’s income went from \$150 to \$180 (a 20% increase). The total growth of income in our economy was 10% (A+B+C equaled \$300 in year one, A+B+C equaled \$330 in year two), for a total income gain of \$30. If we divide A’s income gain (\$20) with the total income gain (\$30) we find that two-thirds, or 66.7% of the income gain went to A. If we similarly divide C’s income gain (\$30) by the total income gain (\$30) we find that a 100% of the year’s income gain went to C. How in the world can C have gotten the entire income gain when we just said that A received two-thirds of it?

 Year 1 Year 2 Income gain(%) Income gain(dollars) Income gain% of total A 50 70 40% +20 +66.7% B 100 80 -20% -20 -66.7% C 150 180 20% +30 +100% Sum \$300 \$330 10% +30 100%

Any data presented this way would quickly raise questions: clearly, there’s something wrong with the statement that A and C together received 166.7% of total income gain. Because B’s negative income gain distorts the picture, the percentages reflecting A’s and C’s share of income gains no longer mean what they usually mean.

#### What Has Gone Wrong Here?

As made evident in the table, we can quickly see that because A’s income gains in absolute numbers cancel out B’s income gain, any discussion including somebody’s share of income growth is seriously misleading. The shares of income growths only sum to a hundred when we include B’s negative income gain, but if we only care about the top earners – in this case C – we could easily (and erroneously) conclude that all the income gain was captured by the rich.

Let’s use another example to make the mistake even more blatantly obvious. If you remember Mitt Romney’s job creation debate in the run-up to the 2012 election, this is a great illustration of using incorrect denominators. The RNC and the Romney Campaign calculated that the net job loss from January 2009 to March 2012 was 740,000 , but that the net job loss for women during the same period was 683,000. Quick calculations show that women accounted for 92.3% (683,000/740,000=0.923). Of course, we can make this even more absurd by comparing February 2009 to March 2012 instead, where the net job loss was 16,000 jobs. On net, women lost almost half a million jobs during that period, which yields a result of around 3100% of all job losses! The straightforward meaning of “percent” as fraction of a hundred has entirely disappeared.

Because “net job losses” involve jobs created minus jobs lost, dividing the number of jobs lost by women by net job losses is entirely the wrong denominator to use. “Percent” no longer carries the straightforward meanings it usually does, but it still conveys that message to the uninformed reader.

#### Percentage-Flingers Abound

Sure, anybody with even rudimentary understanding of statistics knows not to use selected percentages when underlying set of numbers can be negative. But the skilled deceiver or the careless fool can still say things like “100% of the income gain between year one and year two went to earner C”, and the reader will interpret “100%” with its usual meaning (“all”). But whenever the full set includes negative numbers, the relevant denominator is no longer 100.

Either through malice or ignorance, economists and media pundits fall into this trap all the time. CNBC reported last year that “in nine states, the income growth of the top 1 percent was half or more of all income growth in that time period.” A few years ago, the inequality Joseph Stiglitz wrote that “all the growth in recent decades — and more — has gone to those at the top”. A recent working paper by Emmanuel Saez — a U.C. Berkeley economist who really should know better — summarized his findings that the “top 1% families captured 49% of total real income growth per family from 2009-2017”. Coming out of the Great Recession, the British Magazine The Economist remarked that “around 95% of the increase in American income since 2009 has gone to the top 1%”. Of course, leftist politicians make these kinds of claims on a regular basis, but they are statistically unsound.

In his successful How Not To Be Wrong, Maths professor Jordan Ellenberg concluded that “the combination of positive and negative allows you, if you’re not careful, to tell a fake story, in which the whole work of job creation in the tradeable sector was done by [a single] industry.”

Reporting percentages when the underlying dataset include negative numbers removes the standard meaning of percent. 90% of something that includes negative numbers no longer means "almost all" or "a very large majority."

Numbers presented alone indeed conceal or mislead the reader; “Always Be Comparing Thy Number” ought to be a statistical commandment. While numbers reported in percentages do provide a useful reference for the reader, dividing by the wrong denominator or involving negative numbers, seriously distorts the story. Be aware when statistical deceivers or careless fools fling percentages around. Sometimes they really shouldn’t.

## A New Interview with John V. Denson

06/17/2019Ryan McMaken

Be sure to check out this new interview with John Denson in C.Jay Engel's new physical print magazine Austro Libertarian. He covers everything from World War One, to 9/11 to Donald Trump.

If you're not familiar with Denson's work, he is the Distinguished Scholar in History and Law here at the Mises Institute. He is also a practicing attorney in Alabama and the editor of two books, The Costs of War and Reassessing the Presidency, and the author of A Century of War: Lincoln, Wilson and Roosevelt.

## In Our Hyper-Political World, Political Ideology Is More Important Than It Should Be

06/17/2019C.Jay Engel

The thesis here is that libertarianism as a political theory only carries the veneer of importance and centrality due to the strength and power of the democratic, administrative state in our time. Everywhere we look, we see the influence and effect of the state as an apparatus that guides and oversees the machinations of modern civilization. We speak not merely of the obvious libertarian issues like taxes and regulation but we see in the modern western state a cultural force. We so often push the idea that politics is downstream from culture, that we have lost the culture and therefore the state has followed the path of destruction.

But as was hinted on the AL editor’s blog, it is far more likely that Paul Gottfried has it right: the state has morphed into something much more sinister and it now leads the culture toward its own ends. The modern administrative state is the creator of culture and culture is now downstream from the state. Gottfried is especially succinct as to his meaning in his short excerpt:

Contrary to an older understanding of culture, what we are referring to is a process of moral and social radicalization. It is a process that didn’t come about unbidden but which powerful, pervasive administrative rule promoted. And the social engineering function of public administration here and elsewhere in the West has been particularly evident since the 1960s, with governmentally encouraged immigration and an accelerating war against discrimination. Presumably, when Hillary Clinton assured a gay rights group that she was addressing last year (October 5, 2015) that she would use the IRS to force recalcitrant religious institutions into endorsing gay marriage, she was not simply responding to a cultural condition. She was working to create one.

We have entered into a full politicization of society; there is nothing that the state-cultural complex does not touch. It guides the way we interact with others, the way we process and interpret events, and the way we think about social norms and basic social units and institutions.

Now then, to bring this back to the thesis: “libertarianism as a political theory only carries the veneer of importance and centrality due to the strength and power of the democratic, administrative, state in our time.” Since the state is everywhere we look, and libertarianism has a set of particular ethical critiques against the state, it seems to follow that libertarianism plays such an important place in our lives.

Stated differently, according to the libertarian doctrine, the initiation of aggression against the body or exterior property of others is a breach of ethically-laden rights; and the state is the most systematic, constant, and egregious violator of the principle. And as the state surrounds our every move, so we see libertarianism as a response to so much of our world.

This creates the illusion that libertarianism plays a fundamental role in society. That political theory itself is of primary importance for a people who wish for a better world, a world that is both more ethical and more free. And from this, we work to create a libertarian political strategy and a libertarian movement as well. And thus, the disease of modern administrative statism, which takes over our minds as the lens through which we find meaning, produces the impulse that one ought to dedicate himself to libertarianism as a path toward social preservation.

But it should be made clear that the only reason libertarianism as such seems to play such a fundamental role in the self-identity and life-meaning of so many in libertarian circles is due to the politicization of society. We live in the administrative state’s world and thus we even put our path toward social improvement strictly in terms of the political. It is not just that the state formally speaking is everywhere we look, it is that there is hardly any longer a culture that is distinct from the state. When Buck Johnson recently asked Paul Gottfried whether the Left or the State was the chief enemy in our time, Gottfried quickly responded: “what’s the difference?”

#### We Are Not the State

In times past libertarians correctly and properly held firm that “we” are not the state! Society and the state were separate and the state is an artificial entity as compared to society, which is natural. While importantly and profoundly still true, this does not take into account the extent to which the state has replaced natural and spontaneous society with its artificial one. It is true that the natural society is not born out of the state; the state is not the thing that naturally binds together peoples. But as the administrative, democratic state has come of age, it has created its own artificial society which is of course a society of Egalitarian Terror.

Under a free society that is not created by or bound up in the existence of the state, libertarianism plays much more the role of a legal theory, not a political theory. It’s important to remember that libertarianism chiefly speaks wisdom to scenarios of tension and strife between people who want to use scarce resources for their own ends. Libertarianism offers a standard by which we can determine who gets to use which good and in what way.

The role of libertarianism is to help us resolve disputes and arbitrate in situations of conflict. In other words, libertarianism is chiefly a legal theory that of course has political ramifications once society faces the creation of the state as an institutionalization of aggression (or as Murray Rothbard described it, “a band of robbers writ large.”).

Thus, the writer known as "Bionic Mosquito," offers:

I think we might want to stop thinking in such terms [as libertarian movement]. Not to give up on libertarian ideas, as these have a proper and meaningful place in any free society. Instead, to consider that libertarianism – properly defined – is so thin as to not allow any “libertarian” movement to form.

What this means to me is that men are not connected to other men on the basis of libertarianism. Marxist political movements, for instance, purport that classes are held together by their economic status: workers of the world unite. You are neither German nor Russian nor English. You are a worker, or you are a member of the bourgeois.

It is not the same with libertarianism, or at least a meaningful and realistic libertarianism over against the more universal libertarianism . Let me be clear here: libertarianism is only the thing that binds us is we presume the state’s politicized world! The Marxist worldview is at its root political so it makes sense that Marxism as an ideology binds them.

But libertarianism plays a different role in a free (non-politicized) society; it comes to the picture as a set of principles and guidelines by which we can judiciously determine what is criminal and what is legal, what should be responded to with coercion (such as murder or theft), and what should not be responded to with coercion (such as creating goods and services on the market).

In this case, those of us who are beginning to pay particular attention to the rapid and concerning leftist social revolution likely have more in common with each other, outside the bounds of libertarianism as a legal theory. And as the left-libertarians and mainstream libertarians in general either praise these developments as at the culmination of the “libertarian spirit” or at least just watch it all with neutral expressions and ambivalent reaction, they likely have more in common, generally speaking, with the progressive left.

The response to this is so often that “libertarians are connected not by their cultural preferences but by their anti-statism!” But this is only true under a politicized worldview. Putting aside the issue of politics, which presumably all libertarians would eventually want out of the way anyway, there is nothing else that binds us. And thus, our pretending that we are transcendentally bound by our libertarianism is exactly the sort of artificial connections that the state has aimed for!

Men form society not on the basis of a unifying legal theory, but the legal theory is adopted post-society. Libertarianism is a helpful tool in the development of peaceful civilization; it is neither the spring nor the engine from which society flows. Libertarianism as a unifying spirit is only conceivable because we operate in a world that has experienced the imposition of a political society. But perhaps, to presuppose this statist-world moving forward, and to subsequently work toward a bigger libertarian political movement, is to have already made the very mistake that continues to undermine our efforts toward a free society.

## Does the US Need a Rate Cut? No!

06/17/2019Daniel Lacalle

Consumer confidence is high, unemployment is low and Treasuries’ yield is at 2.1%, while credit to the economy and corporate financing are not suffering.

The weakness in core consumer prices in May, which increased by only 0.1 %, was entirely due to lower prices of used vehicles, and core CPI inflation remains within the Fed target, falling from 2.4% in mid-2018 to 2.0% in May. Headline CPI inflation fell to 1.8% in May due to lower energy prices, so there is absolutely no logic in a rate cut. With unemployment at 3.6%and annualized GDP growth expected to remain above 2.3%, demands for a rate cut are only an excuse to keep financial asset prices higher at any cost

There are some elements that point to a slight weakness in the economy but no need for a rate cut.

• Industrial production rose 0.4% m/m in May while it stalled in other global economies.
• A strong 0.5% rise in underlying retail sales in May, along with upward revisions to previous months’ gains which means consumption is likely to grow close to 4% annualized in the second quarter.
• The headline confidence index declined marginally to 97.9 in June, from 100.0, but remains at very high levels.

A rate cut would only fuel the debt bubble further, and leave the Fed with fewer tools to address a slowdown. When so-called “High Yield” means 365 bps for junk bonds of companies close to bankruptcy and Treasuries yield 2.1% there is no reason at all to cut rates. Rather the opposite.

The debt bubble is dangerously inflated and lower rates would only make it worse. The ratio of US corporate debt to GDP, as well as the high-risk loan figure and securitized debt,  have risen to pre-crisis levels.  US deficit is rising because spending soars and the government finds debt cheap and abundant. Government spending rose to \$440 billion in May 2019, up 21% from May of 2018. Yes, up 21% from May of 2018. All this despite record revenues. Receipts increased to \$232 billion, up 7% from the same month last year.

A rate cut would only create a larger problem in the future. If the already dangerous corporate and sovereign debt bubble grow significantly more, no monetary policy will prevent a debt crisis.

## The Real Tragedy of the Tragic War Hero

06/15/2019Alan Mosley

If you take an hour drive down the I-65 corridor south from Nashville, Tennessee, you’ll find yourself in Columbia. My hometown isn’t quite as sleepy of a southern town as it used to be, much to my chagrin, but it’s still home nonetheless. The county seat of Maury, Columbia does have a handful of claims to fame to save itself from being a complete afterthought. If claiming a title means you get to keep it for all time, then I suppose it’s proper that Columbia still styles itself as the “Mule Capital of the World.” It’s been a century and change since the mule trade featured prominently in Columbia’s economy, but if a former president is still “Mr. President”, then I suppose Columbia is still “Mule Town”.

Don’t think for a second this isn’t an adequate cause for celebration. They’ll be putting on their 179th Annual Mule Day celebration, which is more appropriately titled Mule Days than Mule Day since it stretches nearly a week long, replete with fried foods, music, and even a parade down Main Street. While he wasn’t born there (Pineville, NC gets that honor), Columbia likes to pride itself as being the home of an American president. The James K Polk Home, the final residence of the nation’s 11th executive, sits a couple blocks down from the courthouse. It’s a museum now, among blocks of buildings that would make one think they had traveled back to the 19 th century were it not for a Dairy Queen.

Another notable Columbian is John Harlan Willis, whose name graces a Columbia bridge that crosses the Duck River. Nearly 40 of the 3,503 individuals who have been awarded the Congressional Medal of Honor are natives of Tennessee, and one of them is John Harlan Willis. Willis was born in Columbia in 1921. He graduated from my high school alma mater, Columbia Central, in 1940, only a short 64 years before myself. I remember walking every day by the display case, which contained his portrait. He was a baby-faced young man with a bit of a mischievous grin wearing his dark blue uniform. John wanted to become a doctor, as he was far more inclined to aid the ailing around him than to bring them to any harm. It was no surprise, then, that when the United States entered World War II, he found himself taking up the role of a Pharmacist’s Mate, First Class, in the U.S. Navy. Willis enlisted in 1940, receiving his naval recruit training at Naval Training Station in Norfolk, Virginia, before moving on to his hospital corpsman training at the Norfolk Naval Hospital in Portsmouth. By the onset of 1944, having spent most of the war learning the healing arts rather than combat, Willis was finally transferred to the 3 rd Battalion, 27th Marine Regiment, 5th Marine Division and sent to the Pacific theater. It was on Iwo Jima where, on the last day of February 1945, he would earn the Medal of Honor.

While Willis was unquestionably selfless and heroic, I’m not so sure about that last assertion. Did John Harlan Willis really give his life for his country? Did he race back to the front, dodging fire and explosions, in order to please his country with his sacrifice, or rather that he could be the difference in his allies returning home safely? Perhaps we can find some answer in this photograph, which shows his widow Winfrey Willis holding her baby boy in one hand and taking her husband’s posthumous medal in the other from the Secretary of the Navy. Does Mrs. Willis look like a woman content to know her husband’s violent death somehow contributed to protecting America from an enemy it provoked in the first place, or rather a physically and emotionally exhausted single mother who would hand the medal right back if it meant little John could be hoisted in the air by his namesake? I tend to think if John were here today, he would tell you that, if indeed his life were destined to be extinguished on Iwo Jima that day, then he wasn’t giving his life for his country, but rather he was giving it to save his brothers in arms.

John Harlan Willis was laid to rest at Rose Hill Cemetery, just a couple blocks north of the courthouse. He sits today among Civil War soldiers, a handful of congressmen, a senator, and even a NASCAR driver. The hallowed burial ground, the honors, the memorial halls at medical centers, and even the destroyer USS John Willis are a bad trade for a devoted husband and father. He wanted to become a doctor. It might be a stretch to hope that he would have cured cancer had he survived the war, though he would’ve been valued all the same. A man who would brave bullets and shrapnel time and again, practically defenseless, in order to give a wounded man some plasma sounds like someone who would’ve made for an excellent neighbor. But we’ll never know what sort of family the Willis’s could’ve produced, the kind of physician he could’ve become, nor the sort of compassionate presence he could’ve brought to the community. And so the real tragedy of the tragic war hero is not in what they managed to accomplish, but rather in what they were never afforded the chance to.

## Why Attacking Big Business Is Back In Vogue

06/12/2019Tom Chanter

"Progressive" politicians like Bernie Sanders, Alexandria Ocasio-Cortez, and Elizabeth Warren are becoming more fashionable, and it follows that attacking big business is back in vogue. “Political and academic progressives expand their frenzied attacks on ‘wealth’ and on the alleged transgressions of ‘big business,’” writes Dominick Armentano, Professor Emeritus in Economics at the University of Hartford.

What is it about human nature that drives these attacks? Perhaps we must look to Ludwig Von Mises for an answer. But first, we can get a general idea of how the anti-big-business impulse remains so popular by looking at the work of economist Tyler Cowen.

In April, Cowen published his latest book, Big Business: A Love Letter to an American Anti-Hero, documenting how “Most young Americans hold highly critical perspectives on capitalism.” Indeed, the Harvard Kennedy School produced a report on young adults, revealing 51 percent did not support capitalism. Furthermore, 33 percent endorsed socialism as an alternative.

Clearly, that 33 percent is ignorant to the Two Reasons Why Socialism Repeatedly Fails;

1) the impossibility of economic calculation without true market prices, and

2) the lack of an incentive to produce only what consumers actually want.

Nevertheless, support for socialism endures, and we don’t have to look further than our TV screens and Twitter to observe what may be the one of the key points of origin of this critical narrative against big business. Yet this negativity is driven by more than radical rhetoric from the left-wing media. The very nature of media coverage has an effect.

Cowen adds, “Virtually all media outlets have a significant bias toward negative news of all kinds, including news about business. So scandals, corruption, and abuse of workers all receive much more publicity than the normal, everyday massive successes of America’s major corporations. “Corporations had another stellar day producing things and keeping people employed,” just isn’t a great news headline.”

Furthermore, big business is blamed for the failings of big government. We need look no further than the Occupy Wall Street movement. As the angry masses protested on Wall Street, a more appropriate place to fight for freedom was a short walk away: three blocks north of Wall Street at 33 Liberty Street sits a brownstone building — the home of the Federal Reserve.

Yet, there was little interest in addressing the outsized role of the Federal Reserve in manipulating the global economy. This blind spot for the role of the central bank illustrates just how wrongheaded are many leftwing approaches to diagnosing the source of our economic problems.

Protestors would do well to consult Austrian Business Cycle Theory which helps explain how the stock market crash and economic downturn were attributable not to "big business," but largely to a prior bank credit expansion by the Federal Reserve and the Fed-regulated banking sector.

Yet, anti-capitalist agitprop spreads through social-media like typhus through the Gulags, even though it is private capital and private business which has made social media possible.

This sort of thing is nothing new. As Ludwig Von Mises wrote, “All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.”

## The War Crimes That Don't Get Punished

06/12/2019Ron Paul

Rep. Duncan Hunter (R-CA) found himself in hot water recently over comments he made in defense of Navy SEAL Edward Gallagher, who faces war crimes charges over his alleged conduct while serving in combat overseas. Gallagher is charged with stabbing a 15 year old ISIS member while in custody, of taking photos posing with the corpse of the teen, and with killing several civilians.

Defending Gallagher recently, Hunter put his own record up next to the SEAL to suggest that he’s an elected Congressman who has done worse things in battle than Gallagher.

That’s where Hunter’s defense earned him some perhaps unwanted attention. While participating in the first “Battle of Fallujah” in early 2007, by Hunter’s own account he and his fellow soldiers killed hundreds of innocent civilians, including women and children. They fired mortars into the city and killed at random.

In the sanitized world of US mainstream media reporting on US wars overseas, we do not hear about non-combatants being killed by Americans. How many times has there been any reporting on the birth defects that Iraqis continue to suffer in the aftermath of US attacks with horrific weapons like depleted uranium and white phosphorus?

Rep. Hunter described his philosophy when fighting in Iraq:

“You go in fast and hard, you kill people, you hit them in the face and then you get out…We’re going to hurt you and then we’re going to leave. And if you want to be nice to America, we’ll be nice to you. If you don’t want to be nice to us, we’re going to slap you again.”

This shows how much Duncan Hunter does not understand about war. When he speaks of hitting people in the face until they are nice to America, he doesn’t seem to realize that the people of Fallujah – and all of Iraq – never did a thing to the US to deserve that hit in the face. The war was launched on the basis of lies and cooked-up intelligence by many of the people who are serving in the current Administration.

And that brings us to the real war criminals. Rep. Duncan Hunter and his fellow soldiers may have killed hundreds of innocent civilians and even felt justified. Their superior officers, after all, established the rules of engagement. Above those superior officers, going up and beyond to the policymakers, the lie was sold to the American people to justify a war of choice against a country that could not have threatened us if it wanted to.

Vice President Dick Cheney knew what he was doing when he kept returning to the CIA headquarters, strong-arming analysts to make the intelligence fit the chosen policy. John Bolton and the other neocons knew what they were doing when they made claims about Iraq’s weapons of mass destruction they knew were false. The Pentagon’s Office of Special Plans played its role in selling the lie. So did the media.

Edward Gallagher will face trial and possibly jail for his actions. Rep. Duncan Hunter may even face punishment – though perhaps only at the ballot box – for his admitted crimes. But until those at the top who continue to lie and manipulate us into war for their own gain face justice, the real criminals will continue to go free and we will continue pursuing a suicidal neocon foreign policy.

## Judy Shelton's Remarkable Attack on the Fed

06/11/2019Jeff Deist

Judy Shelton's recent interview with the Financial Times is nothing short of remarkable. Her comments represent the most substantive attack on the Fed, and central banking generally, by any potential nominee to the Fed board in recent history. She not only challenges how Jerome Powell and Fed officials conduct monetary policy, but whether they can conduct it competently at all.

Consider this salvo against the Fed's inescapable role as central planner:

How can a dozen, slightly less than a dozen, people meeting eight times a year, decide what the cost of capital should be versus some kind of organically, market supply determined rate? The Fed is not omniscient. They don’t know what the right rate should be. How could anyone?” Ms Shelton said. “If the success of capitalism depends on someone being smart enough to know what the rate should be on everything . . . we’re doomed. We might as well resurrect Gosplan,” she said, referring to the state committee that ran the Soviet Union’s planned economy.

And her attack on the Fed's outsized role in the economy:

She also said that the Fed should continue to reduce its balance sheet below the \$3.5tn target set by Jay Powell, the chairman. “I would rather the Fed be less of an entity. When a central bank buys up government debt, that’s the beginning of compromised finances.”

She also recognizes malinvestment:

“It’s the distorting aspect of the Fed that is the worst aspect — it’s a wag-the-dog situation. People are fixated on the Fed and are making money by arbitraging, trillions of a second after the latest FOMC announcement,” she added.

And she isn't afraid to support a role for gold in monetary policy:

Ms Shelton has long been sympathetic to the gold standard, which the US fully abandoned in the early 1970s in favour of a flexible exchange rate for the dollar. “People call me a goldbug, and I think, well, what does that make them? A Fed bug,” she says.

"Fed Bugs"! Why didn't we think of this?

Shelton, who works as an economic adviser to Trump, is not an economist by training. Her PhD in business administration, from Utah State no less, is sure to draw jeers from the Ivy League central bank crowd. But it's Ivy League economists, after all, who created the last crisis in 2008. And needless to say they're sounding alarm bells about Mrs. Shelton. The worst offender is former Treasury official Larry Summers, who shamelessly calls Shelton "dangerous."

Sorry, but a financial terrorist and chief architect of the weaponized derivatives market in the 2000s should have the simple decency to keep quiet and thank his lucky stars he's not in jail.

Judy Shelton is not an Austrian. She appears mostly aligned with the supply-side camp of her longtime friend and mentor Larry Kudlow, who heads the Trump administration's (useless) National Economic Council. And her support for a modified gold standard rests on shaky ground, as she unfortunately favors a rules-based approach under which the Fed would target a dollar price for gold—what Joe Salerno refers to as "price-rule monetarism."

So Shelton doesn't want to End the Fed. But in the parlance of woke America, she's an "ally." Recognizing the limits of central bank omniscience, and challenging its benevolence, are important first steps on the road to redeeming our money and our economy.

## The Fed Has Lost Control

06/11/2019Doug French

The gold price shot up \$50 in the last 30 days during a time of the year when the yellow metal typically lays down to begin its summer nap. At the same time, Bitcoin’s price has rose from its slumber. What’s up? Luke Gromen, founder of Forest for the Trees LLC , a macro/thematic research firm catering to institutions and individuals may have put his finger on it during his interview with Ed Harrison on Real Vision .

Gromen points out that something happened in the 4th quarter of last year and on March 20th of this year. Alarm bells have gone off at the Fed because for the first time in 70 years, government deficits matter. According to Gromen,

With Fed Funds went over interest on excess reserves, that was a sign that the United States government's deficits were getting so big and foreigners' interest in treasury bonds, because FX had yields, were so negative, though the interest from foreign private sector investors was so low, that we are crowding out our own banking system. And so, if the Fed does not inject a significant amount of dollar liquidity soon- be that via repo, be that via rate cuts, and I think you're going to be seeing QE probably in six to nine months at the latest.

From October through April , Uncle Sam’s outflow exceeded his inflow by \$531 billion or 38% more than a year ago. Foreign central banks used to buy up US Treasuries like there is no tomorrow, but now, not so much. Late last year,

the hedging costs for foreign investors to buy US Treasuries went negative. In other words, for a Japanese or German private sector investor- and again, the US government's now critically reliant on foreign private sector investors to buy Treasuries, the yield FX hedged turn negative.

Last year the U.S. government issued \$10 trillion worth of Treasuries, 70 percent of which have less than one-year maturities. This year it’ll be \$11.5 trillion, again with 70 per cent maturing in less than 12 months.

The upshot of all this is

the Fed is losing control of [the] Fed Funds Rate at the short end because US deficits are growing as fast as they are. And because foreign official sector is not buying really at all on net. The foreign private sector is not buying enough, they are buying some unhedged but not nearly enough relative to the size of the deficits we're running.

The price of money is the Fed’s business and the gang at the Eccles Building has lost its grip according to Gromen, who believes, Powell has no choice but “to cede control over the quantity of money in order to control the price of money.”

A year ago, it was tighten, tighten, tighten, now three rate cuts are expected by the market by year-end. Gromen told Harrison that Trump’s tariffs matter some, but, it’s the deficits that really matter and are forcing the Fed’s hand.

And so, ultimately, what that suggests is that any rate cut you have because, again, the reason why all this is happening is US deficits are big and growing and structural. And they're crowding out the US private sector. And so, basically, the primary dealer of last resort, I think I saw someone say, or call it, the Fed is going to have to start bidding for these bonds again. So, I think it depends a lot on messaging on July- we were talking before, if they don't do what's expected, it's not going to be good for risk. But ultimately, they're going to have to unless they don't want to exist anymore.

We can be sure Chairman Powell will not want the Fed to vanish under his watch. He’ll be printing and bidding (for Treasuries). QE will return, along with a growing Fed balance sheet.

So what’s a person to do? Gromen sees more asset price inflation on the way and it will accelerate. In particular, he likes gold, both the barbaric version, and the electronic version, Bitcoin.

## Prices and Entrepreneurial Decision Making

Value is subjective. Prices are objective. Subjective value comes from the mind of the consumer, and influences market prices. When an actor chooses, he must forgo other choices, and he is demonstrating a preference for something, revealing part of the rankings of his values. Since perceived value relative to the actor’s value scale influences prices, then all prices are a result of human actions and choices on the market, caused by the actors' values. Tracing back price changes to human actions on the market is part of what an entrepreneur must do in order to understand the market better. Value travels up the structure of production, from the consumer goods to the producer goods. Tracing the implications of prices changes is part of what an entrepreneur does to understand his market.

Hayek calls prices signals. They are signals that are generated by the market through the market process, which is the interaction between buyers and sellers through their transactions with each other (supply and demand). These signals, in the form of prices and their changes, inform entrepreneurs about what's going on, and guide their actions, and this coordination mechanism is scalable and connects everyone. The market and its prices are all that are needed to coordinate a vast number of people's actions with precision. The entrepreneur doesn't need statistics to make a decision on what to invest in. An entrepreneur that doesn't understand this system is missing out on what's really going on and would be at a disadvantage. Austrian Economics with its deductive method, reveals to us the workings of this price mechanism through its theories and its methodology.

Rothbard said in a lecture (paraphrasing), "An entrepreneur knows more about his specific market than any economist or expert. The reason is that he has skin in the game. A lousy entrepreneur would quickly be eliminated from the market. There is a self-selecting process. The economist or expert has no skin in the game and isn't risking anything when he's wrong about the market." The key insight here is that the entrepreneur knows more than any expert about his specific market and its actors. The entrepreneur gets his information from multiple sources, and forms an outlook on what will happen. The entrepreneur may talk to suppliers, customers, friends, he may hear rumors, read news, from these he would construct a narrative, on top of this can use prices, changes in prices and check it against economic theory to see what's true. From all of this the entrepreneur forms his understanding. This understanding plus other things like intuition, gut feeling, that help the entrepreneur form judgments about the future and judge the best course of action in the present. The entrepreneur has to filter out of the noise what information is the most significant, the factors that will influence the future the most.

In understanding prices and tracing the causes of their changes, an entrepreneur can understand his market better. Prices can inform an entrepreneur about what's happening before journalists and news outlets catch on to it. Prices contain within them information, they are the final outcome of a process of buying and selling by many actors, prices are a kind of average of what all the actors think the price should be. Each good has its own price behavior, which is influenced by the good's physical properties, and other properties such as scarcity, it's perceived value, and finally fluctuations in supply and demand, and the behavior of buyers and sellers. Austrian Economics gives the entrepreneur a correct theory that can help the entrepreneur narrow down on what's happening in the market and gain superior understanding of his market. Knowledge of economics can't guarantee success, but it can bring increased awareness of what's going on underneath the numbers and prices. Eventually helping the entrepreneur gain a better understanding of the market, which means the values of the consumers and the actions of the other actors in the market.

Mises says, "The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of the consumers.” Correctly anticipating the actions of market actors and anticipating future prices and preparing for that future state is what generates entrepreneurial profit.

Mises says, "Monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production." Prices determine costs, and not the other way around. Prices are determined in the market. All internal costs should be benchmarked to the market prices in order to have the most accurate cost calculation. Monetary calculation includes retrospective accounting of profit and loss, and prospective accounting with its anticipated costs and anticipated profits. If prices change in the market then not only do the present and future look different, but also the past accounts of profit and loss look different. What worked at one time in the past under the cost structure of that time may not work again with current prices. Accounts give a feeling of certainty in their numbers, but they are static. They are an oversimplified static representation of an inherently dynamic phenomenon.

Austrian Economics can help an entrepreneur have a deeper understanding of his market and of accounting. This can help the entrepreneur in making better decisions out of this better understanding. Here we narrowly focus on prices and costs, but there are many other areas of Austrian Economics that are applicable and will be covered in future articles.