Watch my interview in NTD News on 1/31/2025.
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2024 Recap: Election Insights, Policy Wins, and Sound Money Solutions | This Week's Economy Ep. 9212/30/2024 As 2024 ends, let’s reflect on a year filled with significant progress and challenges. From the election results to bold policy initiatives and much-needed conversations about sound money and inflation, this year has highlighted the ongoing need for fiscal conservatism and economic freedom. Here’s an overview of the year’s biggest stories, key wins, and essential reads to carry us into 2025. Watch the episode on YouTube below, listen to it on Apple Podcast or Spotify, and visit my website for more information. Good as Gold: Reviving Economic Freedom with Dr. Judy Shelton | Let People Prosper Show Ep. 12712/19/2024 In this compelling episode of The Let People Prosper Show, Judy Shelton and I discuss her latest book, Good as Gold: How to Unleash the Power of Sound Money. We dive into the state of capitalism, the inefficiencies of government bureaucracy, and the vital role of fiscal and monetary policy in driving sustainable economic growth. From historical lessons like the peso crisis and Bretton Woods to the promise of gold and cryptocurrencies, the discussion provides a roadmap for reclaiming economic stability and fostering global prosperity.
Join us as we explore actionable steps to reduce government overspending, enhance monetary stability, and inspire a renewed commitment to free-market principles worldwide. Welcome to This Week’s Economy podcast! In this episode, we explore the Federal Reserve’s interest rate decision, President-elect Trump’s ambitious early agenda, the potential fallout from a looming TikTok ban, and new state tax competitiveness rankings. Join me as I unpack these pivotal developments, their economic implications, and the actions needed to secure prosperity for all Americans. Watch the episode on YouTube below, listen to it on Apple Podcast or Spotify, and visit my website for more information.
In this Let People Prosper Show episode, I welcome back Dr. Alex Salter for his fourth appearance. He is the Georgie G. Snyder Associate Professor of Economics in the Rawls College of Business at Texas Tech University and the Comparative Economics Research Fellow at TTU's Free Market Institute. We explore the economic landscape following the recent presidential election and dive into the challenges of fiscal responsibility facing Congress, the influence of the Federal Reserve in managing inflation, and the Biden administration's impact on the cost of living. We also discuss how economic policy shapes national prosperity, emphasizing the need for growth-oriented reforms, ethical considerations, and accountability in monetary policy. Join us for a critical look at how pro-growth policies can create a brighter economic future for Americans.
Originally published at KTRH Local Houston and Texas News
Will The Fed Repeat 1970's Policy Mistakes? By B.D. Hobbs Oct 9, 2024 Last month, the Federal Reserve lowered interest rates just in time for the election. But beyond November, many economists fear that we could be heading for a repeat of the same mistakes the Fed made in the 1970's. "Bad decisions then, seem to be reminiscent or very similar to what we are seeing today" said Texas based economist, Dr. Vance Ginn, "And my concern is, is that we may repeat those past failed mistakes of the 1970's and see inflation go up even higher because they're not taking the necessary steps to bring down inflation." So what are those bad decisions? Basically taking their foot off the brake, and hitting the gas too fast. "When they pushed back on the gas (in the 1970's) with all of this money creation throughout the economy, that pushed inflation back up" Ginn told KTRH, "In fact, inflation went up higher and then we had a double-dip recession after that." The reality is, we are at a critical moment for the economy. Originally published at AIER.
The Federal Reserve’s recent decision to cut the federal funds rate by 50 basis points to a range of 4.75 percent to 5 percent, despite inflation still exceeding its 2 percent target, bears alarming similarities to the monetary policy missteps of the late 1970s. Back then, under pressure to stimulate economic activity, the Fed loosened monetary policy too soon. What was the result? Inflation soared as high as, if not higher, depending on the inflation measure. This culminated in Fed Chairman Paul Volcker reining in the money supply, which drove interest rates even higher. The result was necessary though painful double-dip recession before inflation persisted at a lower rate and the economy expanded during what’s been called the “Great Moderation.” The recent Fed decision comes when inflation, though moderating, remains elevated. According to the latest Consumer Price Index (CPI) data, inflation increased by 2.5 percent year-over-year in August, with core inflation (less food and energy) rising by 3.2 percent. The Personal Consumption Expenditures (PCE) price index, the preferred core inflation measure for the Fed, showed a 2.6 percent year-over-year increase in July, further confirming that inflation is well above the 2-percent average inflation rate target (FAIT). The risk is clear: repeating the premature rate cuts of the 1970s could ignite inflation once more, forcing even harsher corrective measures later. The Fed’s Balance Sheet Problem The Federal Reserve’s balance sheet expanded dramatically during the COVID-19 pandemic, nearly doubling from $4 trillion in February 2020 to nearly $9 trillion in April 2022. While the Fed has made some progress in reducing its balance sheet, which now stands at $7.1 trillion, this figure remains 75 percent higher than its pre-pandemic level, with potentially risky assets. This massive increase in the money supply has distorted the economy, contributing to inflationary pressures by artificially boosting demand as supply hasn’t kept up. Rather than relying on interest rate cuts, the Fed should be focused on aggressively reducing its balance sheet. Milton Friedman’s insights remain as relevant today as ever: inflation is “always and everywhere a monetary phenomenon.” The rapid expansion of the Fed’s balance sheet and the excessive money printing during the pandemic era are key contributors to the inflation we are battling now. Shrinking the balance sheet would help reduce the excess liquidity in the system, curbing inflation more effectively than rate cuts alone. Distortive Power of Government Spending and Policy While monetary policy is one part of the equation, we cannot overlook the role of fiscal policy in the current inflationary environment. Government spending has exploded since 2020 during the pandemic lockdowns, with the gross national debt soaring by nearly $13 trillion since 2019 to $35.3 trillion. The House of Representatives, rather than addressing this spending crisis, is set to pass another spending bill ahead of the September 30 deadline. As currently designed, this bill includes little in the way of meaningful spending restraint. Kicking the can down the road without addressing the structural imbalance in government finances only weakens the economy. When the government spends recklessly by redistributing productive private resources to fund politically determined provisions, this contracts the potential supply of goods and services. And with the Fed printing so much money over the last few years, we have a clear explanation for the persistent general price inflation that reached a high of 9 percent in June 2022. But the inflationary pressures remain in the economy. This creates a vicious cycle, where excessive government borrowing leads to higher interest payments, necessitating further borrowing and money printing by the Fed to keep interest rates near its target. The only way to break this cycle is through fiscal discipline — capping government spending, reducing the deficit, and removing unnecessary programs — and more economic growth. The government’s heavy-handed interventions in the form of taxes, regulations, and excessive spending distort market signals, stifle entrepreneurship, and create inefficiencies. These interventions raise business costs, leading to higher consumer prices and reduced economic growth. Rather than focusing on rate cuts and temporary relief, policymakers should aim for long-term solutions addressing inflation’s root cause: excessive money printing. The Fed’s Mixed MessagesThe Federal Open Market Committee’s (FOMC) latest statement signals an optimistic view that inflation is making “further progress” toward the 2 percent target. The Committee also highlights that it has “gained greater confidence that inflation is moving sustainably” toward its goal. However, this confidence is misplaced, given the persistent inflationary pressures evident in the data. The energy index has declined 4 percent over the past 12 months, but core inflation remains stubbornly high, and key services sectors continue to experience rising prices. Cutting rates under these conditions risks reigniting inflation, just as the Fed’s premature monetary policy, including rate cuts, in the late 1970s exacerbated inflation and led to economic instability. The FOMC’s decision to reduce the target range for the federal funds rate while signaling its commitment to further rate cuts, if “appropriate,” creates uncertainty in the markets. This mixed messaging signals that the Fed is willing to sacrifice long-term price stability for short-term gains, which could lead to more aggressive corrective actions. Given the double-dip recession in the early 1980s, there is reason for concern. The Path Forward: Fiscal and Monetary Solutions The Fed’s dual mandate is to ensure price stability and maximum employment. With inflation still above target, its focus should be on controlling inflation–its balance sheet and inflation are the only two things it can control. This highlights the need to make it a single mandate to ensure price stability rather than trying to stimulate economic growth. History teaches us that premature rate cuts — like those in the 1970s — lead to higher inflation, more aggressive rate hikes, and economic contraction. A more prudent approach would involve reducing the Fed’s balance sheet more aggressively, which would help soak up the excess liquidity, fueling inflationary pressures. Moreover, Congress must confront the spending crisis head-on. A balanced approach to fiscal policy, with spending limits tied to a maximum rate of population growth and inflation, would help stabilize government finances and reduce the deficit. Even better is Sen. Rand Paul’s Six Penny Plan, a “federal budget resolution that will balance on-budget outlays and revenues within five years by cutting six pennies off every dollar projected to be spent in the next five fiscal years.” Without these structural reforms, inflation will continue to threaten the purchasing power of Americans. Furthermore, the government should remove barriers to productivity by cutting excessive regulations and taxes that stifle growth. Allowing the free market to operate efficiently without the distortive effects of heavy-handed government policies will promote sustainable, long-term growth. Conclusion: A Critical Moment for the Economy The Federal Reserve and Congress are at a critical juncture. The Fed’s decision to cut rates prematurely risks repeating the costly mistakes of the 1970s, where loose monetary policy fueled inflation, leading to severe economic instability. Simultaneously, Congress’s reluctance to tackle deficit spending driving the ballooning national debt only exacerbates the underlying issues plaguing the economy. Now is not the time for short-term fixes. The Fed should focus on reducing its balance sheet and controlling inflation, while Congress must enact serious spending reforms to prevent further economic deterioration. If we fail to act now, we risk plunging into an inflationary spiral reminiscent of the 1970s — a government-induced failure the American economy cannot afford. I joined Don Ma on NTD News to discuss whether the Fed should cut interest rates. Don’t miss it!
Originally published at Washington Examiner.
Government intervention in markets is back in vogue after Vice President Kamala Harris proposed price controls on groceries and food. But this isn’t the only price control the government is eyeing. The Federal Reserve is picking sides in a fight between banks and big-box retailers concerning who pays what when a customer makes a purchase using a debit card. The proposed regulation, known as Regulation II, limits the amount that large banks can legally charge merchants to process a debit transaction. It was first enacted in 2011 as required under the Dodd-Frank Act. At the time, retail lobbyists tried to justify this price cap by arguing that lower debit card interchange rates would translate to savings for consumers at the register. Surprise, surprise: Those savings never transpired. Only about 2% of large retailers reduced consumer costs after the initial implementation of Regulation II, per research from the Federal Reserve Bank of Richmond. Instead of passing on savings, these large merchants often pocketed the difference, undermining the very premise of the regulation. Letting large companies such as Walmart fight their own battles seems like a no-brainer in a free market economy. Companies come together, negotiate a contract, and, if they don’t like what they’re paying, find an alternative provider. Yet, retail lobbyists have somehow convinced the Federal Reserve to tip the scale in their favor by further lowering the legal limit that large retail stores have to pay to process debit transactions. Meanwhile, banks and card networks such as Visa and Mastercard will be forced to cover the cost. This change could have serious consequences for consumers and small financial institutions, but it also sets a bad precedent for the government’s role in the marketplace. Should the Federal Reserve’s mission be to pick winners and losers when it comes to the activities between private companies? The answer is no. The Federal Reserve isn’t oblivious to the politics here. It knew it would be controversial, therefore, it only applied Regulation II to institutions with over $10 billion in assets. That way, it wouldn’t also have to justify the changes to frustrated community banks and credit unions. Yet, the regulation had unintended consequences hitting even these exempt institutions. Between 2011 and 2021, debit card interchange revenue for exempt issuers fell by 13% for single-message network transactions, a clear sign that the ripple effects of price controls extend far beyond their intended targets. Moreover, the proposed regulation’s stricter routing requirements could further strain smaller banks by limiting their flexibility in negotiating better terms with networks. This could reduce their ability to offer competitive pricing and services to consumers, stifling innovation and increasing operational costs. In 2014, a survey found that 73.3% of exempt banks reported that the policy hurt their earnings, indicating that even institutions not directly subjected to the cap suffer from these market distortions. Given these harms, it’s unsurprising that groups representing community banks, credit unions, and minority depository institutions oppose the Federal Reserve’s proposed changes. By imposing these price caps, the Fed is not leveling the playing field but rather tilting it in favor of bigger firms, leaving financial institutions, especially smaller ones, at a disadvantage. Government intervention in pricing inevitably leads to market distortions. Whether it’s rent control, wage control, or debit card fees, price fixing creates artificial shortages, misallocates resources, and stifles innovation. When the government dictates prices, it disrupts the natural balance of supply and demand, leading to unintended consequences that ripple through the economy. The Fed’s willingness to cave to retail lobbyist demands ignores the lessons of the past decade. Instead of fostering competition or benefiting consumers, these price controls have distorted the market, harmed smaller institutions, and failed to deliver on their promise of consumer savings. It’s a textbook case of the government picking winners and losers, propping up large retailers while putting additional strain on institutions that are the backbone of many communities. The reduced debit card transaction fee revenue for smaller, exempt banks directly affects their ability to offer competitive services and maintain profitability. As these institutions struggle, the services they provide, often vital to underbanked or rural communities, could diminish, leading to fewer options for consumers. This contradicts the goal of financial inclusivity and broad access to banking services. The reality is that government price setting rarely benefits the average consumer. While lower costs are appealing, the savings seldom materialize where they’re needed most. Instead, the benefits accrue to large retailers while smaller banks, credit unions, minority depository institutions, and their customers bear the brunt of the costs. As the Fed considers its next steps with Regulation II, it should be wary of further entrenching these market distortions. The path forward should focus on enhancing competition and innovation in the payments ecosystem, not embracing failed price controls and doing the bidding of corporate lobbyists. If the goal is to create a more equitable financial system that benefits all consumers, the Fed should reconsider its involvement and allow market forces, not government mandates, to determine prices.
Fox News contributor Gary Kaltbaum and former Trump Office of Management and Budget chief Vance Ginn on the latest economic developments coming from the Federal Reserve and White House.
More here. How the Fed Destroys the Economy with Dr. Robert Gmeiner | Let People Prosper Show Ep. 1016/17/2024
Join me for Episode 101 of the Let People Prosper Show, where I discuss with the insightful Dr. Robert Gmeiner how the Federal Reserve's actions affect our economy. Dr. Gmeiner is an Assistant Professor of Financial Economics at Methodist University.
We Explore: 📉 How the Federal Reserve distorts market activity and creates inflation. 📊 How the Fed’s actions harm economic growth and manipulate interest rates. 💡 Why fiscal policy is not the primary cause of inflation. 🔮 How you should plan to deal with elevated inflation for years to come. Like, subscribe, and share the Let People Prosper Show, and visit vanceginn.substack.com for more insights from me, my research, and ways to invite me on your show, give a speech, and more. In “This Week’s Economy” episode 55, I discuss the following and more in 11 minutes:
Originally this article with my quotes ran by KTRH News in Houston.
Under the Presidency of Woodrow Wilson in 1913, the Federal Reserve was born. The goal of it was simple, to help avert depressions and inflation, while preventing wealthy Americans from controlling financial markets at lower class expense. For the majority of its lifespan, it has sat mostly unimpactful, until the 1980s. With inflation raging out of control, then-Fed Reserve Chairman Paul Volker gave us tough love, and raised the rates along with restricting the money supply. This led to some hard time initially, especially within the first 6 months, but it eventually helped quell inflationary pressures on the economy, and we transitioned into the economic prosperity of the Ronald Reagan days. But in the last two decades, the Fed has gradually sought to destroy the American dollar, releasing endless money into the economy all while their balance sheet balloons to outrageous levels. It has culminated now in lower-to-middle class Americans struggling to make ends meet and buy basic necessities. Economist Vance Ginn says the many 'band aids' that the Fed has put on the economy, like monetizing debt, have hurt Americans more than ever. "Everyone's cost of living has dramatically increased...and the Fed has directly contributed to that by how much they have manipulated interest rates through their balance sheet, and by increasing the money supply," he says. For the longest time, the Fed kept interest rates has artificially kept he rates low to finance the dramatic government overspending. Then when the pandemic hit in 2020, the Fed created trillions to give away in stimulus checks, and to try and boost the economy, which has now essentially ruined it. As mentioned above, the old chairman Paul Volker's ways were about creating a brighter long-term future, instead of short-term fixes. That, according to Ginn, is what we desperately need again. "We need that style...he used to dramatically cut the money supply, which helped heal the pressures on the economy...so far, current Chairman Jerome Powell has not wanted to do that," he says. "Sometimes you need to have short term pains for long term gains." Current chairman Jerome Powell was a Donald Trump appointee, but the former President has since grown weary of Powell, criticizing him more and more. Trump has made a living on the campaign trail bashing the Biden economy, which he has vowed to fix if he wins office again. But to fix the situation might mean taking a hard look at Powell, and potentially replacing him. "We need someone who understand the economy, and the influence the Fed has on our lives," he says. "We need to make sure there is a sustainable path forward...that will be pivotal for the first part of a Trump Administration in 2025." As for who Trump would tab as a new Chairman is anyone's guess. But the parameters for what is needed are there. "In order to have the Fed come in and make those needed major changes...you have to give someone the leeway to do that, whether Trump like it or not," Ginn says. Trump would very much not like having to cause financial pain for Americans, considering how much he prides himself on winning at all costs. But he may not have a choice. "I think he will be able to sell it to the people though...he can just blame it on Biden," he says. But until then, as with just about every other aspect of our lives, the Biden Administration will continue keeping their thumb down on lower to middle class Americans. Originally published at AIER.
ohn Cochrane’s The Fiscal Theory of the Price Level examines the relationship between fiscal policy and inflation, which many consider to be the increase in the price level of a basket of goods and services. An influential and accomplished economist at the Hoover Institution, Cochrane is one of the most forward-thinking economists today. His approach challenges conventional wisdom and presents a compelling case for reevaluating our understanding of the economy. I learned much from reading the book and while interviewing him about it on my Let People Prosper Show podcast. I highly recommend reading this extensive book, though I have reservations about fiscal policy trumping monetary policy when considering the influence on inflation. Cochrane begins by laying out the foundational principles of his theory. He emphasizes the roles of government debt, taxes, and inflation expectations on prices. He argues that traditional economic models, which focus primarily on the role of central banks in controlling inflation through monetary policy, such as those by Milton Friedman, overlook the substantial effect of fiscal variables on prices. By uniquely integrating fiscal considerations and the public’s expectations about those factors into economic analysis, Cochrane aims to provide a more robust framework for understanding and predicting inflationary trends. He delves into various theoretical and empirical aspects of fiscal theory, drawing on a wide range of literature and evidence to support his arguments. He explores the implications of government budget constraints, the role of Ricardian equivalence that assumes a balanced budget over time, and the potential limitations of conventional monetary tools in controlling inflationary pressures. His thorough examination of these issues provides readers with a comprehensive understanding of the complexities of studying the relationship between fiscal policy and inflation. Cochrane’s arguments are persuasive and well-supported, but some aspects of his analysis warrant scrutiny. One area of contention is Cochrane’s emphasis on the primacy of fiscal policy in driving inflationary dynamics, particularly his assertion that the Federal Reserve plays a secondary role compared to Congress in shaping inflation outcomes. While Cochrane makes a compelling case for the importance of fiscal variables, the penultimate creator of inflation is the Fed when it creates more money than the goods and services produced. Milton Friedman, who extensively studied the role of the Fed in economic activity and inflation, said: “Inflation is always and everywhere a monetary phenomenon. It is a result of a greater increase in the quantity of money than in the output of goods and services which is available for spending.” The Fed controls what’s called “high-powered money” of various assets on its balance sheet. These assets include mostly Treasury securities from the tens of trillions of dollars in debt issued by the federal government. It also includes mortgage-backed securities, lending to financial institutions, federal agency debt, and other lending facilities. I agree with Cochrane that federal deficits give ammunition to the Fed when it purchases Treasury debt, grows high-powered money, contributes to more money chasing too few goods and services, and results in inflation. But other assets on the Fed’s balance sheet also matter, especially since the Great Financial Crisis in 2008 when the Fed started quantitative easing. Cochrane’s framework overlooks the significant role of monetary policy in influencing inflation expectations and shaping the broader economic environment. While fiscal policy can play a role in determining long-term inflation trends, as the debt distorts interest rates in the market, the Fed’s control of the money supply to target the federal funds rate and influence other rates along the yield curve remains a potent tool for managing expectations. While we should challenge Congress to adopt a fiscal rule for sustainable budgets to relieve excessive spending that drives up the national debt, this does not undermine the source of inflation: the Fed. But if Congress could balance its budget, which hasn’t happened since 2001, it would remove a bullet the Fed could shoot at the economy. In other words, a sustainable fiscal policy, wherein Congress passes balanced budgets by limiting government spending — the ultimate burden of government and the source of budget deficits — would help control inflation. While this could mitigate the assets available for the Fed to add to high-powered money, it would not solve the inflation problem because of many other available assets. Another issue that arises from considering fiscal policy the prime mover of inflation is how it works in practice. Fiscal policy is not directly expansionary or contractionary, as it is just taking funds from some people to give to others, with many of the takers being politicians and bureaucrats in government. These actions move money around in the economy without increasing productive activity that creates goods and services. There are roles for the federal, state, and local governments, but those should be limited to those outlined in constitutions. If Congress would abide by the Constitution, whereby it funded only limited government instead of the bloated federal government today, then fiscal policy would not be so burdensome. Fiscal policy would also not fall into the Keynesian trap of trying to “stabilize economic activity,” as the only thing that governments typically stimulate is more government because of the created failures due to the limited knowledge and rent seeking by politicians and bureaucrats. The underlying problem is usually government failures that cannot be resolved by more government. When Congress returns to its limited, constitutional roles, the federal budget will be drastically cut, resulting in lower taxes and opportunities to pay down and retire the national debt. This would also help reduce the massive distortions throughout the economy from government spending, taxes, and regulations. It would also decrease the Fed’s influence on the economy, but not entirely because of the other assets available for its disposal. The Fed also distorts economic activity through its ability to influence each stage of the production process with the assets on its balance sheet and its effect on interest rates. When the Fed purchases Treasury debt and increases high-powered money, the new money does not go to everyone simultaneously. Instead, the money trickles down from the financial sector to other sectors based on credit availability and other factors, in what is called the Cantillon effect. The manipulation of different markets throughout the production process of goods by the new money and the influence the purchase of assets by the Fed has on interest rates create boom and bust cycles. There is ample evidence about these economic steps, especially from the Austrian business cycle theory. Fiscal policy influences many steps in the production process through subsidies, tax breaks, and regulations, which hinder the voluntary production of individual goods and services through a well-functioning price system. But Congress cannot increase the money supply, which only the Fed can do, nor influence the general price level nor the resulting inflation. All things considered, Cochrane’s comprehensive exploration of fiscal theory and extensive analysis of its implications for the price level riveted me. His methodical dissection of economic concepts and pragmatic approach to examining fiscal policy offered a fresh perspective on economic dynamics. In conclusion, the Fiscal Theory of the Price Level offers a valuable contribution to the ongoing debate surrounding the determinants of inflation and the role of fiscal policy in the economy. While I’m sympathetic to Cochrane’s arguments, it is essential to recognize the importance of a central bank’s monetary policy in causing inflation through its balance sheet. Additionally, we should acknowledge the distortions caused by government policy, whether fiscal or monetary, and recognize the secondary role of fiscal policy compared to monetary policy in addressing inflationary pressures. To ensure sound economic outcomes, it is imperative to establish strong fiscal and monetary rules that provide an institutional framework limiting the burdens of government actions on our lives and livelihoods. Despite my dissent on the emphasis placed on fiscal policy’s role in inflation, the book’s productive discourse on the delicate dynamics of key economic elements make this an important contribution to inflation studies. Originally published at AIER.
Congress hasn’t done its primary job of passing a balanced budget or even a full-year budget in decades. This must change soon before the fiscal crisis gets worse. But that’s unlikely because few seem to care. Congress recently passed the third continuing resolution for fiscal year 2024 in the amount of $1.7 trillion. This budget legerdemain kicks the federal budget to March, when members will repeat the same omnibus process, one fraught with hijinks and grandstanding. Instead of an actual debate about what we should or should not spend on a department and agency basis, we get calls to “shut down the government” if any number of demands aren’t met. Now, there’s a “bipartisan tax deal” that could add more than $600 billion to the debt over a decade. Democrats don’t seem to care about the debt much, and some who adhere to the ideology of modern monetary theory even think it is helpful for economic growth. But the Republicans also seem to have little, if any, courage to restrain spending, so they just keep cutting taxes and spending us into greater levels of debt. The late, great economist Milton Friedman said, “I am in favor of reducing taxes under any circumstances, for any excuse, with any reason whatsoever because that’s the only way you’re ever going to get effective control over government spending.” But spending is the ultimate burden of government on taxpayers and must be addressed first. The Republican agenda has prioritized border security, rightly or wrongly, over everything else to deal with a humanitarian crisis along the border with Mexico. Former president and top GOP presidential contender Donald Trump has insisted on prioritizing this issue. Events at the border continue to boil with the fight between Texas Governor Greg Abbott and President Biden after a recent Supreme Court decision. The decision has limited reach as it “temporarily allows the Border Patrol agents to continue cutting and moving the razor wire installed by Texas. However, since the ruling came through the emergency docket, the case is now passed back down to the lower court, who will hear the case with oral arguments.” The Republican pursuit of an aggressive border security deal as the number one priority risks further inflating bloated spending as the issue gets subordinated. While some argue that illegal immigration costs far more than border security, compelling studies indicate that immigrants, when provided opportunities, make substantial contributions to society, enriching the economy. The more aggressive approach to border security during Trump’s term contributed to extravagant federal deficit spending. There has also been a high cost to Texans in the state’s budget to address border security issues of more than $5 billion in the current budget and at least $5 billion more since 2016. Addressing illegal immigration issues and averting an impending fiscal crisis requires substantial debate about these issues rather than the current partisan-fueled fire drill over continuing resolution funding. With budget deficits expected to be at least $2 trillion per year over the next decade and net interest payments recently surpassing $1 trillion, every scarce taxpayer dollar must be used wisely, if at all. This could be done with market-based reforms that would foster better fiscal, economic, and border situations. Economist Richard Vedder and others proposed an immigration approach that would create an international market for visas whereby the government issues some of them for refugees, and the rest are auctioned off to people willing and able to purchase them. The government could use this money to pay down deficits, and there would be better accountability for those with visas while providing necessary resources along the border. The biggest national threat continues to be Congress’ profligate spending, which the primary drivers are so-called “entitlements” and must be swiftly reformed with market-based approaches. But right behind it is the Federal Reserve’s bloated balance sheet, which must be addressed. Despite a 14 percent reduction since its peak of about $9 trillion in May 2022, the Fed’s balance sheet remains a staggering 85 percent higher than pre-pandemic levels. Lingering issues of the Fed running losses of $116.4 billion last year, propping up struggling financial institutions with its costly bank term funding program, and the ongoing cost of trying to artificially hold down market interest rates as federal budget deficits soar exacerbate a fiscal-monetary crisis. Manifestations of the underlying economic malaise are evident in falling real wages down 1.3 percent since Biden took office, inflation surpassing set targets, unattainable housing affordability, and families grappling with saving money. These symptoms, rather than isolated issues, indicate the pervasive consequences of unchecked government spending and money printing, casting a long shadow on Americans’ well-being. The latest efforts by Congress to pass the continuing resolution and propose the latest tax deal will make the fiscal situation worse. While the latest idea of a fiscal commission could do what is good in theory, there are already calls to raise taxes, which will be detrimental to the economy and the fiscal picture. The path forward must be fiscal sustainability. This includes a long-term solution of a spending limit. The limit should cover the entire budget and hold any growth to a maximum rate of population growth plus inflation. This growth limit represents the average taxpayer’s ability to pay for spending. Doing so would have resulted in just a $700 billion increase in the debt instead of the actual increase of $20 trillion from 2004 to 2023. The spending limit should be combined with a monetary rule that removes much of the discretion of central bankers. This will support sound money. It can be achieved by moving to a single price stability mandate and preferably a high-powered money growth rate rule of the Fed’s assets. Other rules include the Taylor rule or nominal GDP targeting. While each of these rules has pros and cons, the money growth rate rule advocated for by Milton Friedman is the simplest. It’s simply a rule based on how fast currency plus bank reserves grow. This would be the easiest for the public to understand, to hold officials accountable, and to tie the Fed’s balance sheet directly to inflation. John Taylor proposed what’s been coined the Taylor rule that estimates what the federal funds rate, which is the lending rate between banks, should be based on the natural rate of interest, economic output from its potential, and inflation from target inflation. Scott Sumner most recently popularized nominal GDP targeting, which uses the equation of exchange (MV=Py) to allow the money supply times the velocity of money to equal nominal GDP. There are different variations of it, but the key is that velocity changes over time, so the money supply should change based on money demand to achieve a nominal GDP level or growth rate over time. Rules over discretion, at least until we can rightfully end the Fed, should hold those in Congress and at the Fed in check because their limited knowledge will always result in bad outcomes for people in the marketplace. Such measures are pivotal in preventing further debt accumulation, safeguarding America’s credibility, and preserving the economy’s stability. The choices made today will reverberate into the future, shaping the economic landscape for future generations. This call to action is for policymakers to tread carefully, adopt prudent fiscal and monetary sustainability through a rules-based approach, and prioritize the long-term well-being of the country with market-based reforms over short-term politics. Failure on these issues will prevent us from addressing the humanitarian crisis along the border, China, or other concerns. These efforts will be challenging, but they’re essential for freedom and prosperity. |
Vance Ginn, Ph.D.
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