My Report from the American Economic Association Meetings
I finished a productive trip to San Diego for the American Economic Association (AEA) meetings, where I met with several top economists, including Nobel Prize winners. One of the most popular sessions was a panel on the 100th anniversary of the Federal Reserve. The most shocking graph was presented by Ken Rogoff, a Harvard economist.
As the graph indicates, from 1775 until 1913, there was virtually no price inflation other than during brief periods of war, which caused temporary inflation. What happened in 1913? The Federal Reserve was created and we ultimately went off of the classical gold standard.
Professor Rogoff noted that since the Fed was created, prices have skyrocketed 30-fold, or 3,000%! This data confirms Murray Rothbard’s contention that the Fed was created to remove the barriers to inflation, not to control it.
There was another “public policy” session in San Diego on a new survey of top professional economists to see if there was any consensus on international, labor, education and macro issues. The survey showed a surprising conclusion: economists agree 70% of the time on policy positions, such as “vouchers help kids.”
Ironically, economists amassed only 100% consensus on one issue — they disagreed with the statement “The gold standard should be adopted.” Not a single professor said “yes.” I guess economists aren’t really serious about taming inflation.
Despite the fact that the Fed engineered all of this inflation, caused the Great Depression and failed to regulate the mortgage banks prior to the 2008 crisis, all of the panelists gave high marks to the Fed! When I asked if any of the panelists would have fired Ben Bernanke as Fed chairman for his failure, none expressed interest in doing so. (You can bet that situation won’t be the case at our special panel on the 100th anniversary of the Fed at FreedomFest, July 10-13 in Las Vegas.)
Another telling sign at the AEA meetings was the fact that the sessions with Keynesian Paul Krugman were standing-room only, while monetarists including Michael Bordo, Allen Meltzer and Nobel laureate Bob Lucas had a small turnout. They were held at the same time on Sunday morning. Speaking before a packed crowd, Krugman made his case for greater deficits, more inflation and higher taxes. He, Robert Shiller and other Keynesians argue that “monetarism” has been discredited. In their book “Animal Spirits,” Shiller and Ackerhof don’t even mention Milton Friedman’s monetary explanation of the Great Depression.
The other session was in celebration of the 50th anniversary of monetary bible, “A Monetary History of the United States,” published in 1963 and written by Freidman and Schwartz. All of the speakers praised the work as a classic. Berkeley Professor Christina Romer, former chair of the Council of Economic Advisors under President Obama, called it “one of the greatest economics books ever written.” But the panelists contended that the 2008 financial crisis had little to do with monetary aggregates — M2 rose 8% in 2008 — but rather with bad regulatory policies in homeownership and government-guaranteed mortgages from Fannie Mae and Freddie Mac. But Friedman and Schwartz are still relevant, the panelists said, because their work demonstrated that “monetary shocks,” such as bank failures, can have serious adverse effects in the global economy.
Meanwhile, M2 is now growing at a 10% rate, taxes are rising and government is expanding.
“You Blew It!” Congress Newspeak on Taxes
President Obama and the Republicans finally came together New Year’s Eve to raise our taxes and postpone cutting spending (not surprising). Guess what they called the new tax legislation: The American Tax Relief Act of 2012! Talk about Newspeak. The tax “relief” act actually raised taxes on all working Americans when it failed to renew the 2% temporary cut on payroll taxes. I think they should have called it the “Congress Relieves Your Pocketbook Act of 2012.”
Speaking of taxes, the Sunday edition of the UT newspaper in San Diego had the headline “Wealthy Feel Pinch of Trio of Tax Hikes,” referring to the new 39.6% federal tax rate on wealthy Americans, the 3.8% ObamaCare surtax and the new 13.3% income tax on wealthy Californians. Robert Shillman, chairman of Cognex Corp., responded, “The increase in the already-high tax state is a strong disincentive for people who live and work in California. I have friends who have already left for Florida and for other states that either don’t have the personal income tax or that have ones that are far lower than California’s.”
Then he added the clincher: “The reason this is happening is very clear: There are more ‘takers’ than ‘makers’ in our society, and this is leading directly to the decline in free enterprise and capitalism, and this will inevitably lead to the decline in the standard of living….not only in California, but also in the entire country.”
Well, the “makers” are fighting back, judging from the number of investors who are moving to low-tax states like Nevada, Texas, and Florida — and who are attending our Global Summit in the Bahamas. We just confirmed tax attorney Jeffrey Verdon, who recently moved from California to Nevada. He will be speaking on new ways to avoid the new tax hikes on wealthy Americans (as Larry Abraham always said, “There has never been a tax law without legal loopholes”). Go to www.freedomfest.com/gfs for details.
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