Power & Market
Interview with Professor Georg Oesterdiekhoff
Georg Oesterdiekhoff has taught sociology at the universities of Aachen, Erlangen-Nuremberg and at the Universidad Nacional de Colombia in Bogotá. He has written or edited 30 books and has published about 100 journal articles. His work has been covered in leading journals, such as the American Journal of Psychology, Journal of Social Sciences, Anthropos: International Review of Anthropology and Linguistics, Physics International, Human Evolution and other reputable publications. He has developed the so-called “structural-genetic theory programme” that aims to use developmental psychology to explain history generally, and accordingly, the history of culture, society, law, morals, politics, arts, and religion.
- Jean Piaget is frequently discussed in your articles, so why is he so important?
Jean Piaget has shown that human development from childhood to adulthood goes through four major psychological stages, transforming basic mental processes, personality structures, experiences of people, and the understanding of logic, nature, social affairs, law, politics, morals, and religion. He has already shown that pre-modern peoples usually do not develop the fourth stage of human development and often neither the third stage. The second stage of human development – the preoperational stage – is the stage that describes the mental world of ancient or pre-modern peoples best. However, Piaget did not work out a systematic and coherent theory to describe all the phenomena involved. Others such as C. Hallpike, L. Ibarra, Rolando Garcia, C. Radding, and S. Gablik have devoted complete monographs to describe the similarities between ancient adults and modern children more comprehensively, using Piaget´s research. My task is to develop a theory that explains and tackles all the problems originating in that comparison between ontogeny and history. Moreover, I have shown that the parallels between children and ancient adults concern every single aspect. There is not one phenomenon that characterizes the psyche of a child that does not also describe the main characteristics of ancient adult humans. They may differ in experience and knowledge but not in those structures coming from the psychological stage.
- Can you explain the differences between ancient adults and children in more detail?
Children and ancient humans, from whichever world culture, region, and time period, share the same patterns in logic, the same animistic understanding of movements and physics, the same belief in magic and ghosts, the same categories concerning causality, chance, and probability, the same view on myths and dreams, and the same understanding of law and religion. You will not find one detail to describe the psychology of a child that is not being described as a main feature of the psyche of ancient humans, described in ethnological or historical books. For example, both groups of humans do not understand syllogisms and both groups also believe that desire and ritual can turn rocks to humans or birds to horses (belief in metamorphosis). Similarly, like children pre-modern adults attribute humanlike abilities to animals, plants, and objects.
- Why could ancient humans not develop beyond these stages?
Piagetian Cross-Cultural Psychology found that exposure to modern schooling is decisive to attain the adolescent stage of formal operations. Pre-modern societies, with their lack of quality education could not stimulate further development. This shows that a dialectical interrelationship between material culture on the one side and psychological advancements on the other side is the motor behind the progress of civilization. Without socialization in modern culture people do not develop beyond childhood´s stages.
- A signature theme of your work is the difference between pre-modern societies and contemporary societies, but how did the former differ from the latter?
Societies are made by people and not by social structures as sociologists do believe. People staying on the preoperational stage make societies that are different from modern societies created by people staying on higher psychological stages. Pre-modern societies are characterized by simple technologies, lack of sciences, huge role of religion and magic, superstitions and rituals, punitive laws, and brutal social affairs such as maltreatment of women, slavery, or even cannibalism. Modern societies could only emerge as result of that interplay between culture and human development that I have mentioned above. Modern society is characterized by science, industrial growth, enlightenment, humanism, and liberty. The adolescent stage of formal operations, that emerged in Europe during the 17th and 18th century, created science and the age of enlightenment, and gave birth to the rise of the modern, industrial society.
- Why were ancient societies like Rome unable to transition to modernity?
The Romans could not preserve the achievements of the Hellenistic culture and sciences – they really destroyed that culture in consequence of their conquest of the Eastern Mediterranean B. C. The Romans were not good at sciences as the Greeks had been. They obviously could not establish a culture able to promote the evolution of formal operations, as the ancient Chinese, Japanese, and Indians couldn´t, too. I have no complete answer why the Europeans of the 17th and 18th century were successful, and why the other civilizations weren´t. Gutenberg´s invention may be part of the answer or may contribute to the explanation needed. The general theoretical model (interrelationship between socialization and psychological development) is apparent, the single factors crucial in history are still opaque.
- Can the cognitive developmental approach explain the rise of the Physical Sciences?
Piaget and Garcia published in 1983 a book dedicated to that subject. The preoperational stage is incapable to develop scientific thinking. The intellectual prerequisites of scientific thinking are given when the adolescent stage of formal operations arises. This stage emerges in modern adolescents between their 12th and their 18th year, with the 15th year as a decisive year. Then adolescents can understand theories and think systematically, coherently, experimentally and empirically. They replace the magical-animistic worldview of the child with the rational and scientific worldview. The same transformation took place in Europe during the 17th century, whereas Asia endured in preserving the worldview of the child, being therefore incapable to develop the physical sciences. As currently the whole world advances, at least more or less, with backbenchers and forerunners, sciences have disseminated on a worldwide scale.
- You submit that the cognitive developmental approach explains the rise of modern society, but what’s its relation to the European miracle?
The rise of modern, industrial society is the European miracle. Historians and sociologists have tried to explain the rise of modern society by reference to colonial exploitation of the South (Wallerstein), by exploitation of the working class (Marx), by struggle of classes (Moore), by Protestant ethics (Weber), by liberal markets (Hayek) or by Property Rights (North, Thomas). These theories are either superficial or even wrong. The emergence of the modern world originates in education and human development, that is, in the adolescent stage of formal operations. This stage explains the rise of the science and technology, the establishment of civilized political systems, the evolution of music and arts, and the emergence of humanism in human relations and pedagogics.
- Did pre-modern people have a different approach to law?
Children and ancient people did not distinguish physical and moral (legal) laws. For pre-modern humans and children, the behavior of physical objects originates in their obedience to the moral laws, rather than the laws of mechanical causality, unknown in premodern nations till Europe’s 17th century, and initially unknown among modern children, because of the same cognitive immaturity both groups share. Physical laws were considered norms imposed by God that physical entities followed by will and obedience, whereas moral norms, also imposed by God, were regarded as holy and unchangeable. This confusion of physical and legal laws is typical for the child´s understanding of law and nature, as Piaget has already found out in 1932. Piagetian Cross-Cultural Psychology evidenced that ancient people have the same understanding. Therefore, they deny democracy and the change of laws and customs (misoneism). Secondly, children and ancient humans embrace the phenomenon called objective responsibility (Erfolgshaftung in history).
The implication of this is that people bear consequences of actions they are not responsible for. Collective punishments, bloodshed, and judicial prosecution of animals belong to this subject. Thirdly, both groups of humans resort to combats, oaths or ordeals to solve conflicts. The ordeal of hot iron, fire or boiling water to decide judicial questions originated in the mentality of the child. Fourthly, young children support severe punishments even when socialized in modern households. Likewise ancient humankind demanded severe punishments. That explains the brutal-sadistic punishment systems of the ancient word.
- Is the cognitive developmental a tool to understand the precipitous decline in violence observed by people like Steven Pinker?
Ancient humans staying on the child´s stages tend to be more emotional and passionate, aggressive, and violent. This observation stood in the centre of Elias´ theory of civilization which Steven Pinker follows in his relevant book on the history of violence. Of course, the decline of violence during history is also explainable in terms of existence/lack of institutional forces (police; justice). However, it is obvious that more rational and civilized people deny violence while people staying on the child´s stages resort to violence more easily. You only have to read a report on the culture of duels and bloodshed in former times to gain the data you need to understand that point.
- Intelligence is indeed influenced by genetics; however, your work argues that the success of industrial societies is primarily a result of modernization pressure, please discuss your findings?
Psychologists and biologists say that hereditary factors affect the individual intelligence, some maintain that this observation should be extended to the acknowledgment of racial differences. I have no idea how to combine these contentions with those won by Piagetian Cross-Cultural Psychology. What we see is that every race can stay either on the preoperational stage or on the formal operational stage in mere dependence of culture and socialization. White people stood on the preoperational stage some centuries ago, and they were the first to advance. However, nowadays people from all over the world follow this path due to modernization and globalization. Therefore, I see not much room for hereditary factors to play a crucial part. By the way, “intelligence” refers to mental abilities only, “psychological stage” describes phenomena more profound. When people can develop from preoperational to formal operational stage within two following generations then it is to assume that culture affects psyche much more than genes do.
- What is the status you ascribe to your theory?
I regard the discovery that pre-modern humans stood on preoperational or concrete-operational stages but not on the adolescent stage of formal operations as the greatest discovery ever made in the whole history of social sciences and humanities. Provided that there is and will be progress in sciences then I estimate that in 200 years this discovery will be appreciated as the greatest discovery on a worldwide scale. It matches the discovery of evolution in biology fully. You must appreciate stage theory in order to be able to explain the world history of law, politics, morals, economy, religion, and arts. Moreover, there are no foundations that lie deeper than the stage structures because the development from suckling over child to adult is the deepest layer of psychological phenomena to discover. Even the reduction to neurological phenomena would bring nothing because it is necessary to describe the phenomena in psychological terms. That means that now social sciences and humanities have found true foundations of historical trajectories for the first time.
The current ignorance in relation to this discovery is part of the advancement and progress from Middle Ages to Modernity: It is one thing to develop, and it is another thing to understand that this development has really taken place. Therefore, modern social scientists, in consequence of the stage they have elaborated, cannot understand animism, worship of ancestors, magical rituals, judicial procedures against animals, etc. as manifestations of different psychological stages but try to interpret them by insufficient means. In the future when scientists have reached higher stages then they will easily see the huge gap between the ancient and the modern world.
- For our interested audience, which of your publications would you recommend as a first step of studying your research?
For example, the article “Different developmental stages and developmental ages of humans in history. Culture and socialization, open and closed developmental windows, and promoted and arrested developments.”, published in the American Journal of Psychology in 2021.
Is It a Rothbardian Moment? Populists Win in Arizona GOP Primary
The Republicans for National Renewal (RNR) held a promotional event in Phoenix, Arizona for the holiday season last year after an extensive lineup was sponsored on social media. At the time, they had little to no bragging rights as they fought an uphill battle against election integrity.
During the late hours of night in August 2022, it was clear that two themes were stated with confidence: Conservatives were out, and populists were in. The election results proved that the political landscape has been malleable, however there had been a lack of momentum from conservatives.
Like Murray Rothbard, others were estimating what the future ideological divide could be. Sam Francis was infamous for naming names, yet his most academic profile was the philosophical foundation that aligned with Rothbard. He asked:
“Should we be Lockians, Hobbesians, or Burkeans: natural rightsers, or traditionalists, or utilitarians? On political frameworks, should we be monarchists, check-and-balance federalists, or radical decentralists? Hamiltonians or Jeffersonians?”
These were the questions rarely asked outside of Mises conferences, but one man has been making them relevant again. Peter Thiel provides a backstory that only Rothbard seemed interested in years prior. When public gatherings like RNR were organized, a refreshing dialogue had a visible impact on the audience and sounded similar to Francis’s pitch. He said:
The strategy of the Right should be to enhance the polarization of Middle Americans from the incumbent regime, not to build coalitions with the regime's defenders and beneficiaries" (p. 230).
This was the place where the August election started its trajectory. It may have looked like a smaller competitor to the concurring Turning Point USA conference just down the street. In terms of finances, this would certainly be accurate. Another notable presence were the youth groups disaffected by the Republican organizations. Years ago, there were a handful of college opportunities that provided proper networking opportunities. Today, the groups are more distinct beyond the vague patriotism heard in conservative media. If donors like Thiel remain regulars in this populist faction, the financial gap may not be an obstacle moving forward.
As the title suggests, the event was a referendum on the GOP’s direction and not a carbon copy of the party platform. Many of the speakers consisted of Republicans, although not in the conventional sense. Blake Masters, backed by Thiel, delivered a speech on his prominent one income policy reverting to a human centered economy. Two more Arizona regulars, Kari Lake, and Wendy Rodgers shared dissident views on branching away from the party in favor of the Trumpian model over its neoconservative counterpart.
All the Rothbardian staples were present. They argued that the renewal within the GOP started with Pat Buchanan’s presidential campaign in 1992 and succeeded with Donald Trump. A list of the greatest hits were shared from the declining standard of living to unapologetic nationalism. According to Newsweek, this was part of a broader trend among Generation Z seeing where the wind is blowing and seizing the opportunity.
The culture wars were waging once more at the forefront of the event. Economic concerns, championed by the conservative establishment, took a back seat as social topics surfaced above everything else. The usual suspects were under the gun including Big Tech, unregulated capitalism, and feckless Republicans. The alliance binding all these Trumpian senators and influencers contributed to the “working-class realignment.” Based on the guest list, a coalition of grassroots conservatives were underway and anticipating the midterms with revitalized enthusiasm.
It was also a safe haven for the often-neglected paleo libertarians of the Mises Institute. Books from Hans-Hermann Hoppe and others were scattered throughout the greeting tables. Tho Bishop appeared as the main representative, opening one of the first serious speeches of the night. The tone resembles what Murray Rothbard referred to as “Right Wing Populism” and claimed to be the only strategic way to win elections in the long run. After a lengthy celebration in August, many have speculated that this trend isn’t exclusive to the state of Arizona.
For all their flaws, Generation Z is reaching an impasse, and many are hedging their bets on college organizations as the way forward for the GOP. But, if they’re wrong, Rothbard’s prominent words may be palatable among the new generation of populists.
Innovation TrumpsGovernment Dictates in Reducing Waste as UK Researchers Create “Edible Plastic”
I've always cared for the environment. I was indoctrinated into it, and during my university career wrote all my lecture notes on the back of discarded “misprints” from the library. Why waste?
Nonetheless I cringe and cringe at token efforts to reduce plastic waste by putting mandatory charges on shopping bags while almost everything we pick up from supermarket shelves are coated in plastic wrapping! Listen guys - we all wanna save the world, but we ain't gonna do it by banning plastic straws.
It's transparent to us that these measures are more about making it look like elected officials are doing something while nothing of any substance is being accomplished. Monsanto get away with spraying toxic chemicals that run off into “public land” and rivers every single day the world turns, and while they poison me slowly to death, I've got paper in my mouth from sipping this mojito.
Besides, people aren't as stupid as lawmakers think. They were already recycling their plastic shopping bags by using them as bin-liners and things. Now they need to go out and buy a roll of plastic bin-liners instead.
We will never see the end to environmental degradation until the land has private owners who can sue despoilers. Garbage disposal has to be privitized so that people are charged for their waste in proportion to how difficult it is to dispose of. Suddenly there will be a surge in innovation in sustainability as people rush to minimize the cost of having their trash bags picked up.
Until then, the do-gooders in government will continue to lecture us on carbon emissions while travelling the world in private jets.
I Love Plastic Straws
Whether you happen to be a sceptic of “the green agenda” or you’re worried that your continent is going to be under sixteen feet of water by 2030, recent innovations should put a smile on your face.
A team of researchers, led by Professor Saffa Riffat from the University of Nottingham, are working to introduce a plant-based alternative to food packaging that will not only be eco-friendly, but edible too. It uses starch, konjac flour, cellulose, or proteins to produce. All the materials can be safely eaten and so they don't pose any threat to wildlife or the oceans, and because they are organic, they are also biodegradable as well.
Professor Riffat says:
Plastic materials have been in use for around a century, their poor degradability is now known to cause serious environmental harm…We need to find degradable solutions to tackle plastic pollution, and this is what we are working on... The packaging materials we are working on have low gas permeability, making them more airtight. This feature cuts moisture loss, which slows down spoilage, and seals in the flavour. This is of great importance for the quality, preservation, storage, and safety of foods.
The new materials are tipped to give consumers access to fresher produce by providing better storage, safer usage, and a longer shelf life. With a little luck, they won't turn to mush in my beverage
It’s Not 1970 or 1980
It’s closer to 2023, yet, we’re constantly reminded how the Fed has learned from the Volcker era, therefore knows how to steer the economy in the right direction. Nothing could be further from the truth.
On Tuesday St. Louis Fed President James Bullard told CNBC that the economy can still avoid a recession and that rates will likely “have to go to 3.75% - 4% by the end of 2022,” in order to fight (price) inflation. He continued by drawing comparisons to over 40 years ago, as reported:
Bullard compared the Fed’s current situation to the problems central banks faced in the 1970s and early ’80s. Inflation is now running at the highest points since 1981.
In the time-honored tradition of throwing one’s predecessors under the bus, claiming this time will be different, Bullard said:
Modern central banks have more credibility than their counterparts in the 1970s.
According to him, it’s this credibility that the Fed and European Central Bank:
…may be able to disinflate in an orderly manner and achieve a relatively soft landing.
He bases his confidence on the Fed’s “credibility,” as if this determines what causes recessions or cures periods of high inflation. The article tries to explain his theory:
But Bullard argued that the ability for the Fed to steer the economy toward a soft landing rests largely on its credibility, specifically whether the financial markets and the public believe the Fed has the will to stop inflation. He differentiated that from the 1970s era when the Fed enacted rate hikes when faced with inflation but quickly backed off.
It's quite the explanation! However, it offers little confidence that anyone at the Fed knows what they’re doing, appealing to the passage of time and hope for a better future, more than anything.
Bullard makes a final plea to this fabled credibility as the difference maker:
That credibility didn’t exist in the earlier era… We have a lot more credibility than we used to have.
Unfortunately, it will take a lot more than credibility to get the economy out of its current (or upcoming) recession and bust cycle. Displaying little knowledge of the Austrian Business Cycle and how changes to the money supply alter the structure of production causing the boom/bust, it will be difficult for the Fed to “do the right thing,” which would simply be leaving the economy alone.
The on-going comparisons between now versus several decades ago is worrisome. Considering the national debt in 1981 was still under $1 trillion, but now is over $30 trillion, it’s disingenuous to say 2022 is the same as 1981. Still, one might argue that it’s all relative, and GDP has grown since then.
Despite the problems with GDP, looking at the debt to GDP ratio shows something troubling, making the comparison between now and then even more difficult to support:
Between 1970 to 1980, the debt to GDP ratio hovered around 35%. By comparison, today’s ratio is at 123%! Very roughly, if the national debt were closer to 7 to 9 trillion dollars, we could say it has grown consistently with GDP. But we cannot say that. Either the national debt has drastically exploded, GDP has inexplicably shrunk, or a combination of the two.
Beyond that, it's exceedingly difficult to believe that any central banker or government official learned anything from 40 to 50 years ago, since they’ve done nothing except take on more debt and increase the money supply every year in as much time; if they really learned, then inflation would never have gotten this high to begin with. Technology is different. The Geo-Political landscape is also different. The accumulation of all debts, past inflations, price valuations, and malinvestments over time are now all combining to increase the severity of the next bust.
Other than “high inflation” now and “high inflation” then, and the hope to lower the rate of price increases, it’s best to believe that the Fed steers this ship without a rudder. Since little comparison can be made to now versus half a century ago, it makes little sense to cite this period pretending like our new central planners are more advanced, learned, or better than their predecessors.
Is There an Opportunity for Real Change in Britain?
(Endorsed by Godfrey Bloom, Alasdair Macleod, Simon Hunt, and Claudio Grass)
In a few days the British Conservative Party will select a new prime minister from within its ranks. The new PM will have a short-lived opportunity to select new ministers. But more importantly, due to the inevitable adverse consequences of a decade and a half of unprecedented money printing, little real action to complete the promise of Brexit, and war in Ukraine, the new PM can select ministers pledged to sound money, a rational and pro-growth tax policy, free markets, limited government, and a non-interventionist foreign policy.
In perhaps an apocryphal story, it is held that Ludwig von Mises was once asked what one reform he would select if allowed only one. He quickly answered...return to sound money. By sound money, Mises meant a money not controlled by government but rather by the market. Without a doubt the market would choose a commodity-based money, most likely gold. Sound money would force government to live within its means. Under a sound money regime, it becomes clear that every pound or shilling spent by government comes directly from the people. Government spending reduces private spending pound-for-pound. The so-called "spending multiplier" by which one pound of government spending increases total spending by multiples of that amount is a complete fallacy.
New taxes will always be unpopular and rightly so. Increase in government borrowing can only happen by pre-empting private borrowing, via higher interest rates, which is recessionary by its very nature. It is natural and good that government must overcome the public's reluctance for new taxes and more government debt to increase spending. Government must justify their increased spending plans to the people. By the same token, government spending cuts will mean that the public will have more to spend themselves.
A Rational Tax Policy
Like the need for sound money, the need for a sound taxation policy is one of the most important, yet least understood, aspects of government. Even the current debate between the final two Prime Ministerial contenders, who of all people should be better briefed, reveals a profound confusion that exemplifies Frederic Bastiat’s distinction between what is seen and what is not seen.
Every time one of them declares an intention to cut, say, corporation tax and more recently, even income tax, the predictable counterblast is:
But that will cost the Exchequer ‘£x billion’ per annum and will mortgage our children’s future, creating ‘£y billion’ of additional borrowing that will take ‘z years’ to repay. The nation can’t live on credit-card economics! I will first address the problem of inflation, and only then cut taxes – that’s the responsible approach!
These emotive responses perfectly illustrate Bastiat’s “what is seen” – but it completely misses the vast potential increase in tax revenues that might flow from a lower rate. What is not seen is the effect of international tax competitiveness on the number of businesses that will register their residence in the UK because it has a comparatively low rate of corporation tax – witness Ireland, which has a corporate tax rate of only 12.5%, compared with the USA rate of 21%.
Consequently, what is not seen is the gain to the exchequer of welcoming thriving, profitable companies into the UK, rather than the converse - losing UK businesses to jurisdictions with lower tax rates.
Also “not seen” is the economic benefit that will flow from the presence in this country of thousands of employees and their families. Because it is not seen, it is also unquantifiable – but what is certain is that we shall see supply-side net economic growth. The “tone” will have been established – and the direction of travel is bound to be positive. It will result in a bigger pie – not a bigger slice of a diminishing pie.
What is seen is always limited – such as revenue from new tariffs on imports – while ignoring the harmful market distortions and negative price impacts that impinge directly and indirectly on the cost of living. There are important lessons here.
The examples of the failure of government run programs is there for anyone who is not an ideologue to see. Just this past week, the Financial Times reported that the government may halt all increases in new housing in the London area due to the lack of adequate capacity in the power grid. In other words, Britain's publicly owned and operated power system is not producing enough electricity. A top to bottom privatization of not only power generation but fuel sources is required.
Scrap regulations on all sources of energy including nuclear and fossil fuels. Nuclear power is one of the safest and lowest cost sources of power available. Its higher costs are completely the result of unnecessary regulation that, frankly, seems intended to end nuclear power completely. Britain has been a leader in nuclear power technology for over half a century. All its important warships and submarines run on nuclear power, and hardly anyone thinks a thing about it.
Britain has been a fossil fuel giant since the eighteenth century. Coal made the industrial revolution possible. North Sea oil has never met its full potential. There is no reason that Britain needs import fuel, unless it can be purchased more cheaply elsewhere, such as the Middle East or even, dare we say the word, Russia.
Limited government means two things--limited government involvement in the economy and limited spending. The two go hand-in-hand. An additional benefit is that limited spending can be funded out of lower taxes. The British legal system, based upon the common law, is all that is required for the smooth regulation of economic matters. For example, fraud and contract law are well defined in the British legal system for the smooth regulation of commercial life. Tort law regulates harms inflicted, making product liability laws, for example, unnecessary. Just as a better mousetrap drives fewer effective ones from the market, better and cheaper products drive less effective and more expensive ones from the market, making product regulation completely unnecessary.
A better template than the unitary state is the Swiss principle of subsidiarity. Switzerland is a multi-ethnic land, making a one-size-fits-all government impractical. Therefore, government is pushed down to the lowest governmental level possible wherever practical, and it turns out that much of day-to-day practical government can be handled at local levels where the people really do have a voice. Britain should try this approach
The National Health Service is a disgrace on almost any objective basis of functional and cost-effective analysis, and it's getting worse rather than better. End taxpayer support and put a fee-for-service price on its operation, forcing it to compete with private healthcare providers.
There is no room for EU regulations, quotas, etc. in a sovereign country ruled by common law with limited government. Only Brexit supporters should be considered for ministerial jobs.
A Non-interventionist Foreign Policy
The war in Ukraine has illustrated how nations can be dragged into war when their own national interest has not been threatened. NATO expanded eastward after the fall of the Berlin wall three decades ago, until it ran into real opposition in the form of Russia. There was no need for this expansion and there is no need for Britain to be involved in Ukraine in any way.
The war there has taken on a life of its own and only a strong leader with a dedicated cabinet of peace minded ministers will be able to dislodge Britain from this conflict and prevent Britain from being dragged into similar conflicts, such as the new dispute between Serbia and Kosovo. Instead of taking sides in purely local conflicts, Britain should do all it can to create a new Concert of Europe. This will require real statesmanship. Britain can and should lead the way.
A truly sovereign Britain can defend itself when its real interests are threatened. Armed neutrality requires a strong national defense and a non-interventionist foreign policy. The emphasis is on "defense" and "non-intervention.” A good maxim to follow is "Mind your own business and set a good example."
I Got a D in Economics; Today's Policymakers Deserve an F
I got a D the first time I took economics in college. I was right out of high school and directionless. I was content living at home, working at a video store (remember those?), golfing and partying.
Plus, I was obsessed with my instructor’s uneven sideburns and the girls in class. Not the model student.
Obviously, this changed, but it came to mind recently when reading Joseph C. Sternberg’s review of former Federal Reserve Chairman Ben Bernanke’s new book, “21st Century Monetary Policy” in the Wall Street Journal.
Certainly there are longer economics books than this one, which checks in at 480 pages. And I’m sure more reviewers will pick it apart. I myself however, will not be one of them. It would go against one of the basic tenets I teach my students, one that hopefully helps them avoid that same D: keep it simple.
Economics is not that complicated. The world has been worse off since we’ve portrayed the “dismal science” to be so. Tax policy was my first lesson, and the vehicle was former President George W. Bush’s $1.5 trillion dollar tax-cut proposal.
There was Senate minority leader Tom Daschle standing in front of a Lexus saying rich people would be able to buy another one with their “windfall.” At the same time, Republicans were saying it would create jobs.
I felt like someone was being disingenuous, if not outright lying to me. Though my curiosity pushed me into grad school, I didn’t need it to arrive at a couple of initial, basic conclusions.
So what if rich people bought another luxury car? It was their money anyway. And it would after all, help keep a car salesman employed. In that regard, Republicans were correct.
I learned later that they were onto something when stating that the rich would be as likely to invest their recaptured resources. That would in turn create steady, durable employment.
Now, in the realm of monetary issues, we have Nobel Laureate Paul Krugman admitting he was wrong about his inflation prophecies.
It’s true presidents play more of a role in the value of the currency than many realize. However, simple math tells us that when the number of dollar bills in society artificially blasts through the roof, the ones in our pockets subsequently decline in value. Therefore, it takes more of them to buy things.
To add insult to injury, Mr. Krugman’s ilk has been suggesting for years that inflation was too low. They promoted policies they thought would push it higher, we get it, and now they’re saying “sorry”?
Moreover, he barely mentions the real cause of soaring prices: the response of the Federal Reserve System to the offensive lockdowns forced upon us by state and local governments.
This is where bureaucrats and many academics lose me; their attempts to predict policy outcomes.
The predictions of impacts from regulations and ordinances. The predictions of revenue fluctuations resulting from changes in income and property tax rates. The predictions of shifts in poverty from adjusting the minimum wage. The predictions of job flows as a result of trade protectionist measures.
The list goes on and on. The forecasts are often wrong, and always a waste of time and taxpayer money.
When I tell my students to keep it simple, “because real life will muck things up soon enough,” this is a big chunk of the muck I have in mind.
It doesn’t take a brain surgeon to figure out that forcing employers to pay more for labor will cause them to buy less of it. It’s not rocket science to understand that giving people unearned money will make them less likely to look for work.
You don’t need to be a nuclear physicist to know that bossing productive citizens around and taking their earnings will put a dent in prosperity.
Instead, these “dismal scientists” insist that “if we pass legislation A, with complementary component B, C will result and all will be well.” Somewhere along the way they lost their grounding in the real world, and the rest of us pay the price.
Many in my classes are just a few years older than my daughters, half of whom will be high school graduates by this time next year. Their mother and I have always laid out a few basic ground rules: take care of business in school, have one extracurricular activity, and be respectful of others.
After that, they’re generally free to do whatever they want. Hopefully their generations will appreciate that as the simplest, most efficient and effective approach not only for life in general, but public policy as well.
Is There an Alternative to Central Banking?
There’s a saying on Wall Street referring to the stock market that “all correlations go to one in a crisis.” Perhaps more accurately, all correlations go to one when a single governing body determines interest rates for the entire economy.
Interest rates are the price of money. Virtually all public companies utilize debt to some degree. When the cost of this debt increases, the stock price of each company must decrease.
The Federal Open Market Committee (FOMC) is a board made up of twelve economists who decide how to adjust the interbank lending rate called the federal funds rate (FFR). For roughly forty years, this rate has been on a secular decline, cheapening the cost of money. All major indices have experienced exceptional growth during this same period (with occasional hiccups due to attempted tightenings). Now, as the FOMC has begun its most recent tightening, it’s no surprise that markets have declined precipitously since from their 2021 highs.
The stock market is not the only victim of rising interest rates. As our economy, small and large and public and private businesses, have become accustomed to cheap debt, the rapid rise of rates is taking its toll. Unemployment claims are beginning to rise, mortgage applications have fallen off a cliff, and many public companies are announcing layoffs. The FOMC is intentionally inflicting pain on the economy to combat inflation many would argue it caused in the first place.
When inflation turned out to not be transitory, millions of working class people suffered the consequences at the grocery store and gas pump. Now, the same economists who were mistaken on inflation are rapidly increasing the cost of operating a business and reassuring us it will not spark recession.
It begs the question, do we need central banks? Do these institutions do more harm than good? And if we do need them, how can we better structure them so as not to create such volatile economic conditions?
In a debate on Wealthion, two economists face off on this very issue. One advocates for a more interventionist Keynesian policy while the other a more laissez-faire Austrian policy, yet both vehemently agree that the current model is broken.
Michael Green, portfolio manager at Simplify Asset Management, argues that the establishment of the Fourteenth Amendment and corporate personhood created a need for the State to socialize individual losses. While Yaron Brook, chairman of the Ayn Rand Institute, pushes back emphasizing that bankruptcy and default are ample mechanisms to achieve this function.
Green would limit central Bank powers to being “the lender of last resort” and the underwriter of government expenditures. Brooke would do away with the institution entirely, leaving free market forces to remedy liquidity crises. For a riveting and thoughtful discussion into the matter, listen to the full debate below:
Is Joe Biden the Future or the End of the Democratic Party?
For reasons familiar to any economist, American politics is a permanent duopoly in which neither party can gain a sustainable long-term advantage over the other, but that does not suggest or imply that neither party can collapse; it only implies that any collapsing party will soon be replaced. As we know, American parties come and go – not often, but not never either. The Federalists gave us several presidents, but they vanished; the Whigs the same; are the Democrats next?
Let’s begin by dismissing the most obvious objection: The Democratic Party is too old to disappear. If I told you that my one-hundred-year-old grandma hadn’t died in a century, and, therefore, she won’t die this year, would you believe me or marvel at my stupidity? Let’s face it: the death of the Democratic Party is overdue, so its age, if anything, works against it.
Now, let’s talk about the warning signs. If you were dying, would your base be shrinking geographically or growing? Well, do the Democrats rule – to the extent they rule – by relying on a handful of cities or are they geographically diversified? Is that trend accelerating or slowing down? Is their strength amongst Latinos growing or shrinking? How about Asians? How about African-Americans? Trying to find a group – any group – in which the Democrats are growing is pretty difficult; they win – to the extent they win – by squeezing more and more out of their diminishing base. It’s not like they’re doing better amongst African-American voters; instead, they’ve got to turn out more African-Americans to offset their declining margins, and that’s not a sustainable strategy over the long-term. To put it another way, 2020 was likely the best their current coalition could ever manage, and they scarcely won – the decline and rot hidden by a moment of victory, but unmistakable nonetheless.
Of course, polls and outcomes vary all the time; consequently, such evidence can’t prove anything one way or another, so why do I think this time is different?
Think about what the Federalists were designed to do: they were designed to share power between New England and Virginia at a time that elections were not open to all white male voters; once elections were open to all male voters, Federalists couldn’t hope to win. Sure, they managed one last hurrah, with John Quincy Adams, but they were doomed by a larger change that shattered their coalition and eliminated their potential for victory.
Or think about what the Whigs were designed to do: they were intended to unite anti-Jacksonian voters in the North, many of whom despised slavery, with anti-Jacksonian voters in the South, who wanted to protect slavery. Once Polk’s annexation of Mexico’s territories put slavery expansion on the national agenda, there was no way for the Whigs to hold their coalition together.
Let’s turn, then, to the Democrats. They are designed to unite voters who want to spend government’s largesse on themselves and their pet causes to voters who want to profit from the government largesse via the implied put-on financial assets that the Fed is able to offer via its enormous balance sheet. The problem is that policy of unlimited federal spending coupled to unlimited federal debts is no longer tenable. One can debate how it will end or precisely when it will end, but everyone agrees it’s over. The only question now is how to reverse and decrease government spending, which means some members of the Democratic coalition will be pushed out.
You can raise taxes on the rich, chasing rich people out as they no longer benefit from the Fed’s support of financial assets. Or you can cut spending, chasing those beneficiaries out of the party, but there’s no way to put the coalition back together. For every Democrat who loved Build Back Better, there’s some Democrat somewhere who hated it, which is why Democrats like Manchin and Sinema ultimately defeated it. There’s literally no potential coalition that could elect the Democrats; from now on, it’s just about how many they’ll former Democrats they’ll lose because they used to be able to run against Trump on the promise of unlimited spending, but now they can’t promise unlimited spending, and they simply don’t have the margin to surrender.
Like the Federalists and the Whigs before them, they no longer have any reason to exist. Occasionally, a business finds new life after its reason to exist ceases, but, mostly, they just disappear in the process economists call “creative destruction.” I suspect that’s what we’re seeing now – the creative destruction of the Republican Party’s opposition.
In short, I struggle to believe that the Democrats can find a new reason to exist after spending decades running on how to spend the limitless sums of government money that they believed they could spend. Are they going to abandon Social Security? Medicare? Obamacare? If they don’t cut, they’ll lose their sacred cows and, thus, their voters; if they do, they’ll lose their voters. If they raise taxes, they’ll lose their donors (and voters). There are no good options; their current business model simply doesn’t work.
But the most damning proof of their impending demise is their own conduct: do you think they elected Biden because they wanted to hamstring themselves? Maybe you think their focus on pronouns and other divisive social issues is a sign of strength? They’re trying to squeeze the last vote out of their declining base precisely because they know there’s no way to grow their base; their current strategies are simply the best of their bad options. Like any declining business, they’re doubling down, rather than pivoting, because that’s what people typically do when their businesses are dying. In theory, word processing manufacturers like Wang can start making computers, but they don’t; instead, they tend to “improve” their product even as its market is vanishing. How many typewriting or word processing manufacturers made the leap to computers? That’s how many politicians will survive – the real winners will join whatever comes next first; they won’t try to save this version of the Democrats.
One suspects that the coming disaster of 2024 will be the moment the Democratic Party’s death becomes apparent, but I think we’re already hearing the proverbial aria that signals the end. It’s simple economics: a party built to spend America’s unlimited wealth cannot survive the end of that delusion.
Inflation and the Rule of 72
In the world of investing, there is a well-known concept referred to as the Rule of 72. It states that because of compound interest, 72 divided by your rate of return will always yield the number of years necessary to double your initial investment. The simplest math to do it with would be that it takes 10 years to double your investment at a 7.2% interest rate (72 / 7.2 = 10). However, below is an excel sheet drawing out the rule with rates of one through ten percent.
Because inflation detracts from your return, the most accurate way to find how often the real value of your investment doubles is to actually measure 72 divided by rate of return minus the inflation rate. Forty years ago, to achieve a fairly large real rate was fairly feasible even in the face of what was considered fairly high inflation. In 1982, exactly forty years ago, the average CD was a little over 14%. So even though inflation was over 6%, all it took to earn an 8% real return was a simple short term CD. At that difference of about 8%, it would only take 9 years to double your money!
Times have changed. Inflation today is right about 8.6%. However, artificial interest rates being held low by the federal reserve has led to the average CD rate sitting below one percent. As a result the real return is between negative seven and eight percent! Which means that it would take between nine and ten years not for your money to double, but rather it would take less than a decade for your investment to cut in half!
Even this is only telling part of the story. This is because between 1982 and today, we’ve also changed the way in which inflation was measured. By the old metric, inflation would actually be sitting at about seventeen percent. Plugging that into the Rule of 72 would give us 72 / (0.73 - 17), which tells us that it will take under five years for your investment to be cut in half!
Realistically speaking, it’d be all but impossible to maintain this 8.6% (or 17% by the old metric) inflation for ten years or even five years. Such prolonged inflation would either have to snap into a recession or snowball into hyperinflation as Americans gave up all faith in the dollar. However, it is an important lesson in just how impactful inflation really is. It’s not always the most exciting, front page topic, but inflation is so much worse than the brutal gas and home prices we are dealing with - though those are already crippling. It is on a high speed track to crippling and most literally halving the real return of your savings.
No matter what we’re facing, inflation like this is never worth it. As Ludwig von Mises has said:
No emergency can justify a return to inflation. Inflation can provide neither the weapons a nation needs to defend its independence nor the capital goods required for any project. It does not cure unsatisfactory conditions. It merely helps the rulers whose policies brought about the catastrophe to exculpate themselves.
It’s Beyond Time for a National Divorce
It’s been about six years since Michael Malice wrote his article “The Case for American Secession,” for the Observer. Since then, the talk of a disuniting of the American Empire has been discussed by people on the right, left, and the middle. There has always been a multitude of cultures in the USA, however recently the cultures on the right and the left have bubbled over into the political sphere. Everything from BLM protests gone violent, to January 6 protests entering the Capitol, shows that the political discourse is at a tipping point.
Every four years, a portion of American citizens go out and vote for who will sit in the White House and dictate many aspects of their lives. The right calls whoever is running on the left a commie, and the left calls whoever is running on the right a fascist. The political divide is getting deeper, you can see it at your Thanksgiving dinner table, in the media, and in national research polls. The question I ask, and asked by Michael Malice six years ago, is why should we remain as one country?
What is holding us together anymore? For those on the left, why would you not want to separate from the racist, fascist, hillbillies that you despise so much? You could have a much more left leaning country, where you could have UBI, universal healthcare, etc. You could adopt a model like the Nordic states in Europe. For the right, why would you not want to separate from the evil baby killing, commie, uppity yankees that you hate, and who don’t want you to be able to carry a firearm to protect your family? You could have a country where you could have constitutional carry, the Bible taught in schools, and outlawed abortion.
When I speak with my family and friends on the right side of the culture, their adverse reaction to a national divorce is usually about either what would some foreign powers do, or what about the idea of America. Well first, the idea of America is dead. We are a debtor’s economy now, with a global empire that is vastly overstretched and we are paying for it here at home. Inflation, caused not just by Biden, but by all those in congress that have voted for decades to keep the money printer going burr. And on the foreign power, such as China? The paper tiger economy of that quasi communist state is surrounded by enemies, and would have trouble mounting the largest amphibious assault in the history of earth on Taiwan, let alone America.
Any friends I speak with on the left that are against the idea of a peaceful national divorce, they’ll just say things like, “Well what would happen to all those minorities in the new conservative country or countries?” I don’t know, they’d likely go about their daily lives, with a better chance of affecting their government with it being smaller. The arguments I generally get from the left are all about what the left generally wants, power. They want you to submit to their drag queen story time hour for toddlers, and if you reject that, then you must be put in your place.
There are many valid questions to ask when discussing national divorce, what would happen to the nukes, federal government property, national debt, etc. This can all be done peacefully and without bloodshed. Look at the dissolution of the Soviet Union not long ago. A couple months after I turned one, the Soviet Union fell, and if you would have asked experts in the decades leading up to that, most never saw it coming. That was done mostly peacefully, and nuclear weapons were not spread out across the world and used in dirty bombs like you would see in Hollywood movies. Federal property, the national debt, and other issues are all something that will have to be negotiated by lawyers and politicians, but I repeat myself, if and hopefully when states begin to secede.
Recently the Libertarian Party, the third largest party in the USA, had sweeping victories for the Mises Caucus, who then proceeded to add secession to the planks of the party. It is time for Republican parties in each state, to do the same. Add secession to the planks of your state party, and fight like hell for it. I don’t see state Democratic parties adding this to their planks, but if you are involved in your state democratic party, you should really consider the opportunity this would give you.
I have looked at countless different national divorce scenarios, from two different countries to ten different countries. When the dust settles from the breaking up of the world’s largest empire in the history of the world, we would see a peaceful and more prosperous America, or Americas I should say. You may ask, what about my favorite sports teams, yes, they can play other teams from other countries, it happens in most major sports already with teams in Canada, or throughout Europe. You may ask, what about defense? Well, we’d likely see mutual defense pacts form for the new countries, so that if any foreign powers, as unlikely and disastrous for them as it would be, decided to invade the former borders of the USA, then they would have a defensive pact.
If you need any other motivation to entertain the idea of a national divorce, just look at the national debt, the skyrocketing prices for everything from food to homes. I’m in my early thirties with a stable good paying job, and it’s still hard for me to purchase a home. Multiple debt bubbles are ready to burst, social security running out in the next fifteen years. The US government has troops in over seventy countries worldwide, with about eight hundred bases! The global empire is just not sustainable, it never was, and our politicians in DC used it to enrich themselves and their friends. It’s time we broke away from the corrupt DC swampy empire, that has done nothing but destroyed our economy and our culture.
National divorce is a scary proposition. Just as anything you do in life that will better yourself or your family will likely be a scary decision. Can we afford a house at this mortgage rate, another car, school, etc. Just as on an individual level, we make the decision for being better in the long term or short term, we must make that decision on a national level as well. I fear that if we do not have peaceful votes at state levels to secede and join new forming nations, we are all headed down the path of most other falling empires. Ruin, and death.
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