Trade-offs
Prepare for Higher Unemployment?
“…for society as a whole money is just a device to get real things done. Otherwise, the government could make us all rich by simply printing more money. It is not money but the volume of goods and services which determines whether a country is poverty stricken or prosperous.” -Thomas Sowell, Basic Economics
In the seminal text Basic Economics, Thomas Sowell - Senior Fellow on Public Policy at the Hoover Institution at Stanford University - discusses both the dangers of excessive money printing as well as the notion that economics is centered around the idea of trade-offs.
We don’t hear much about trade-offs in the mainstream media, so - you guessed it - I’m going to discuss it here today.
BUT! Before I begin, I wanted to point out a big typo/mistake I made in the last edition of the newsletter. In it, I wrote:
“Having a strong welfare state is the same as being socialist.”
What I meant to write was:
“Having a strong welfare state is not the same as being socialist.”
You may have picked up on the fact that this was a mistake based on the context in which I wrote it, but I just wanted to clarify.
Back to trade-offs…
Now, when Sowell discusses trade-offs in Basic Economics, he’s discussing something a bit different than what I will discuss below. I wanted to mention Sowell, though, because I want to continue with our text ed “classes”. (Basic Economics should be required reading for every high school student in America.)
Sowell discusses trade-offs more in the context of the true cost of something being the value that it has in alternative uses. (Read it again; you can do it! )
Sowell gives the following example in the book:
“The cost of watching a television sitcom or soap opera is the value of other things that could have been done with that same time.”
This is an example of trade-offs at the micro level.
The concept of trade-offs applies to economic situations on many different levels, though. Let’s take a look at how it applies to the Fed’s actions as it attempts to bring us in for a soft landing.
And let me start with a little context…
I saw this tweet this morning while breaking my rule of not scrolling through Twitter while lying in bed.
Most Warren supporters will probably read this and maybe tweet a response to the tune of “Yeah! Thanks for fighting for us Senator Warren! We know you care!”
And that makes me sad. Because the above is such a disingenuous statement, and Senator Warren probably knows it.
It’s disingenuous in that Warren probably understands that the Fed has put us in a situation in which it allows inflation to continue to run hot - or it starts inadvertently doing damage to the labor market.
As I recall, Warren didn’t protest the Fed’s excessive money printing in 2020 and 2021, and I remember her wrongfully blaming entities other than the Fed for the inflationary woes we’re currently experiencing.
So, either 1.) she’s being disingenuous, 2.) she doesn’t want to admit she was wrong or 3.) she just knows that it’s difficult to explain the reality of the current predicament we find ourselves in.
Warren likely knows that it’s difficult for most people to understand the role that the Fed plays in our society. I’ll speak for myself and say that I don’t remember learning about it in school, and that I didn’t understand it for most of my adult life.
But now that I’m beginning to grasp it, I like trying to explain it to others. And today I’m going to use Travis Web’s work to help me do so.
In short, the Fed overdid it with the money printing at the beginning of COVID and now it’s overdoing it with the quantitative tightening (raising interest rates) after COVID.
(I won’t get into the Fed saying it will run down its balance sheet, because it’s been saying it’s going to do that for months now and still hasn’t really begun to. If it does begin to, both the financial and real economy would likely suffer greatly.)
Why is the Fed overdoing it?
Well, it has to look like it’s doing something to help everyday consumers who are overburdened with the prices of consumer goods.
Truth is though that inflation in the prices of consumer goods can’t come down overnight, though. It took a while for inflation to work its way into these prices, and it will take some time to work its way out.
The problem now, though, is that in the process of the Fed tightening monetary conditions, the real economy is starting to feel pain. This will likely translate to significant layoffs in the near future.
This is the trade-off for being way, way, way, way, way behind the curve in fighting inflation. Elizabeth Warren likely knows this, but it’s much easier for her to play her bleeding heart populist role than to try to explain what’s really happening.
The lesson here is that money and monetary policy isn’t just a social construct. There are real implications to printing money, and the labor market may feel those implications soon.
Here’s How the SEC is Spending Your Money
Some months back, the SEC made the following video, punching down at retail investors:
The real kicker here though is that it spent $450,000.00 of taxpayer money to do so.
And people wonder why faith in public institutions is at a low.
Bonus “Lose Faith” Video of the Day
Hopium
You might be seeing tweets like the following, indicating that this might be a decent opportunity to scoop up some BTC:
However, please keep in mind the following:
Because the Fed is out for blood right now, the “generational support” that Scott Melker mentions above could break.
Conservative dollar-cost averaging (DCA) is a smart way to go in situations like this. It’s the smart way to go in most situations. (Not financial advice.) Don’t try to be a hero.
We Stand with the Women of Iran
(I like using the word “we” when I reference the “staff” of this newsletter, pretending like it’s not just me writing and publishing these things in my apartment alone; I prefer to imagine I’m speaking on behalf of a whole staff of righteous writers busily hacking away at their typewriters behind me as I make statements in support of oppressed groups amongst the din. My brain is truly broken.)
Women and others are protesting in Iran right now in response to 22-year-old Mahsa Amini’s being killed by Iran’s “morality police” for not wearing her hijab.
While this is obviously a deeply saddening event, I admire the courage of Amini and women like the one in the tweet below:
Important commentary/context from Taleb:
I admire this courage much like I admire the courage of the Russians who protested the invasion of Ukraine.
These people truly have something to lose in the process of defying their governments in public, but they do it because they know it’s right. True bravery.
And that’s all for tonight, folks. Until next time…
Best,
Frank
Twitter: @frankcorva
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