Author: Warren Coats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon. I live in National Landing Va 22202

Econ 101:  Money

My Ph.D. in economics from the University of Chicago dealt with a monetary policy issue. My five years as an Assistant Professor of Economics at the University of Virginia allowed me to lecture extensively about monetary policy and my 26 years at the International Monetary Fund were largely devoted to providing technical assistance to member (primarily post conflict) county central banks (including Afghanistan, Bosnia, Croatia, Egypt, Iraq Israel, Kazakhstan, Kenya, Kosovo, Kyrgyzstan, Moldova, Serbia, South Sudan, Turkey, West Bank and Gaza, and Zimbabwe). In case you didn’t know, central banks issue the currency (money) of their respective countries. So, I know a lot about “money” and like talking about it.

And it’s not that I haven’t already written a lot about the subject. For a few examples see: “Econ 101-the Value of Money”   “Money”  “A Libertarian Money”

A lot of interesting things are happening these days in the monetary area, but they pertain to payments (transferring money from one person to another via PayPal, Venmo, Zelle, Visa, etc.) rather than money itself. I want to talk to you about “money” (not payments) as I might with my granddaughter. Money is what is transferred in payment.

Money exists because none of us are self-sufficient and must trade what we produce with others who produce the other things we want. I will skip the presumably well-known story of barter trade and its challenge of the double coincidence of wants (you have what I want, and I have what you want so we trade). Giving you a commonly accepted asset, that you can hold until you want to buy something from someone else and can “pay” for it by passing that asset on to the next seller is the essence of money. In addition, it becomes the unit of account (the unit for stating prices). Thus, money is a unit of account, means of payment and store of value.

But now dear granddaughter, lets dig deeper to discuss where this money comes from and its key features in today’s modern electronic (digital) world. First of all, I can’t pay you with any old asset equal in value to your sale price (the barter problem). I must pay you with “money,” an asset universally accepted within the country. To cut to the bottom line, money is the asset issued by our central bank (any of our twelve Federal Reserve Banks) or creditable claims on the Fed’s monetary liability—the U.S. dollar. Until 1933 these dollars could be redeemed for gold at $20.67 per once. Now the U.S. government accepts them in payment of our taxes denominated in dollars, which insures their ultimate value.

Federal Reserve notes (dollar bills) are the most direct manifestation of our money. But almost 90% of our money (the asset with which we can pay for things) is in the form of deposits at American banks, and credit unions. These figures can be a bit misleading because over 60% of our currency is held abroad.

When you pay someone with cash, they receive a direct claim on the Federal Reserve. When you pay with your bank deposit, your bank’s deposit with (claim on) a Federal Reserve bank is transferred to the payee’s bank, which credits the payee’s bank account with the designated amount. The asset paid and received is still ultimately a claim on the Fed.

But our demand deposits with our banks amount to 15.9 trillion dollars, while the reserves that our banks keep with the Federal Reserve Banks amount to only $3.3 trillion reflecting our “fractional reserve” system. What is going on here? How did banks create more of our money (ultimate claims on the central bank) than it backs with its reserves at the Fed?

When teaching money and bank at the U. of Virginia I loved walking the class through the money/banking multiplier that resulted from our fractional reserve backing system. It has become fashionable for some to claim that banks create deposits (money) by making loans. When you received a mortgage loan from your bank, they say it creates the deposits placed in our deposit account. This is sort of true and sort of not true. Your bank actually pays your mortgage loan to the account of the person selling their home and their account is almost surely in another bank. That means that your bank must have sufficient reserve balances at the Fed to transfer to the seller’s bank.

I will leave the details of the bank money multiplier to the Money and Banking class you will hopefully take when you go to college, but the fact that your deposits are only partially backed with reserves at the Fed (the rest of the backing being the bank’s loans and other financial assets, is what lies behind the occasional bank runs we saw in the movies before deposit insurance was introduced to assure depositors that they could get the money back even if their bank failed. If enough bank borrowers default on their loans, the bank could become insolvent. Only the first to withdraw their deposits will be able to get their money back. The potential risk of such runs on a bank only partial backing your deposits with reserves at the central bank motivated the Chicago Plan of 100% reserve banking. “Protecting Bank Deposits”

If bank deposits of US dollars are money, what about cybercurrencies? What are they ultimately claims on? Bitcoin, as you hopefully know, is not a claim on anytime. They can’t be redeemed for anything. It is not unit of account or means of payment for hardly anything—it is not money. It is a speculative “asset” for those who like to speculate (gamble). “Cryptocurrencies-the bitcoin phenomena”  “The future of bitcoin exchanges”  “Bitcoin-Cybercurrencies and Blockchain”  “The difference between bitcoin and FTX”

But there is a class of cryptocurrencies that claim to be redeemable for money, such as US dollars—so called stable coins. The validity of this claim, as with your bank re your deposits there, depend on the details of its contract and the faithfulness of its adherence to that contract. Tether and USD Coin are the most popular US dollar stable coins.

But to use a stable coin for making payments, the person or firm you are paying must have the software or card reader needed to use the cryptocurrency you want to use. You might remember (probably not you, dear granddaughter) when not so many stores could accept visa, or MasterCard (or the Shell Oil, or Texico gas cards). Payment technology has continued to evolve and improve, but if it is not transferring money (US dollars in our case)—i.e. an asset ultimately redeemable for the Federal Reserve’s liability, it will not get you very far.

Other than handing someone cash, paying with your bank account requires a messaging and authorization system. Do you still write checks occasionally—so sorry. A check both indicates the amount to be paid and authorizes its transfer. Almost all payment instructions and authorizations are made electronically these days. Many central banks are considering introducing digital cash in place of or along side their currency notes (Central Bank Digital Currency). When offered through a bank, a CBDC would have the advantage of 100% reserve backing (it would be a direct claim on the Fed). On the other hand, modern electronic means of payment leave little room for further improvement as might be offered by CBDCs. “Econ 101-Retail Central Bank Digital Currency-CBDCs”

To make payments, or send money, abroad, your money must be exchanged for the money of the recipient. I regularly send dollars to Afghanistan, which are received as Afghani. A massive foreign exchange market in which the exchange rate of one currency for another is determined exists for that purpose. Such payments can be made more quickly and cheaply if both parties are willing to use the same currency. Thus, the US dollar is rather widely accepted for cross border payments. “The Dollar Again”  The Special Drawing Right (SDR) of the International Monetary Fund serves this purpose for governments but is not widely used. “What are SDRs?” Stable coins redeemable for gold provide another promising potential unit given golds historical importances. The best existing example is e-gold by Global Standard (to which I am an advisor).

But not all monies behave the same. The behavior of the value of each (its inflation rate) depends on how its issuing central bank manages its supply. Some central bank’s supply whatever their government needs, generally resulting in high inflation rates. Some, such as our Federal Reserve, regulate its money’s supply in an attempt to maintain an inflation target (in the US the target is 2%). Others follow currency board rules that leave to the market the determination of a supply that keeps the currency’s value consistent with that of another currency (The Euro in the case of the Bosnian dinar or the Bulgaria lev). So dear granddaughter there are many interesting things to study about money.

Why don’t you pop over and let’s discuss it more over lunch? Oh, I forgot that you are in the West Coast Washington (state) while I am near the East Coast Washington (DC). Well at least we can meet on FaceTime or Zoom (or even the old fashion telephone). But I would love to meet one way or the other.

P.S. In 2002 as Patrick Honohan and I were finishing up the Bank-Fund Financial Stability Assessment of Egypt (Patrick led the World Bank team and I led the IMF team) I said in an email “Patrick, why don’t you just come across the street and discuss this over tea?” Patrick replied: “Warren, I am in Dublin. I moved here several months ago.” He later became the Governor of the Central Bank of Ireland.

Trust but Verify

Trust in our institutions and each other is a hugely important factor in a society’s wellbeing. The lack of it can cost billions of dollars and inconveniences in airports and other security measures and in the extreme can lead to physical attacks on our government such as the January 6 attack on the U.S. Congress.

Russia has produced and helped disseminate fake news about U.S. government responses to recent hurricanes (“Russia amplified hurricane disinformation to drive Americans apart”,  “Covert war on American minds”) and destruction of mail-in ballets for next week’s elections (“Pennsylvania ballots video by Russia”). Donald Trump continues to deny that he lost the 2000 elections despite knowing otherwise according to his staff. “Indictment claims Trump knew he lost”  

Responding to government incentives, pharmaceutical companies developed COVID vaccines in amazingly quick time during Trump’s administration, which then lost public trust as a result of Anthony Fauci’s lie about the lack of need for face masks (“Noble lies-covid-Fauci-CDC-masks”) and mixed messages from the American public health establishment. While the government’s understanding of the COVID virus and how best to protect ourselves from it evolved as more information was analyzed, their communications with the public did not give confidence that they were sharing what they knew and what they didn’t. Temporary lock downs might have been justified as the government geared up to respond, but each of us should have been given more freedom thereafter to make our own risk assessments based on the best available information. School closings have done permanent harm to a generation of children.

America has flourished because we are free and relatively unrestrained to live and innovate as we please within public institutions we trust. These facts—President Reagan’s “Beacon on the Hill”—have attracted the admiration of much of the world. But our record is not pure and the more we depart from these principles the more the world will come to distrust us. The current example is America’s complicity with Israel’s genocidal wars in Gaza, West Bank, and Lebanon.  “Warnings of Israel’s UNRWA ban will collapse aid efforts in Gaza”   The UN has condemned Israel’s attacks and blocking of food and medical aid to Gaza, and bombing schools and hospitals. “List of United Nations resolutions concerning Israel and the annexation of Jerusalem”. U.S. law forbids providing aid to countries guilty of such acts, but we continue providing it none the less.  “Two governments linked by lies and bloodshed”

But our complicity with Israeli atrocities is not the first or only example of such behavior. Our ally, then enemy, Iraq used chemical weapons (nerve gas and mustard gas) during the Iran-Iraq War, starting in 1983 and continuing until the war ended in 1988. We closed our eyes and said nothing.

Even the Reagan administration, whose détente with the Soviet Union helped end the cold war, violated its principles and public trust with the Iran-Contra Affair. “Iran Contra Affair”

Such violations of our principles damage public trust at home and abroad. Beyond being despicable in their own right, they undermine trust in our institutions at home and abroad and threaten the life we have always expected to enjoy. This is not something Russia is doing to us, we are doing it to ourselves.

Be sure to vote next week and happily or graciously accept the outcome.

Palestine

Starting in July 1995, I led IMF technical assistance teams to Israel and the West Bank and Gaza to help implement the provisions in the Oslo Accords to establish a monetary authority (Central Bank). These visits were at the invitation of the Israeli government and began and ended with briefing meetings with officials at the Bank of Israel in Jerusalem. I later led the IMF’s Financial Stability Assessment of Israel. The last of my eleven visits was in December 2013.

Following Israel’s occupation of the West Bank and Gaza Stripe (WBGS) in 1967, it allowed Palestinian skilled workers to fill labor needs in Israel. In the mid 1980s 40% of the Palestine workforces was employed in Israel. But prior to my first visit Israel closed that door and began importing workers from North Africa to fill the resulting shortage.

Looking back, in light of Israels on going attacks on Gaza, West Bank, Lebanon, Syria and Iran, (what a Financial Times article headlined as “Israel’s Spiraling Offensive” https://www.ft.com/content/cbe18019-752f-4770-be40-fe4b2dc5abd7?d )  I am surprised at what we close our eyes to officially and unofficially.

We knew that Jewish settlements in the West Bank (and earlier in Gaza) on land stolen from Palestinians were in violation of the Fourth Geneva Convention, which prohibits the transfer of an occupying power’s civilian population into occupied territory. But in our Financial Stability Assessment of Israel, we ignored the financial implications for Israeli bank loans to setters on the grounds that the Israeli government would bail them out for any loses incurred. Looking back, I don’t really know where this judgement came from, but we understood that we were to ignore the Settlements.

During one of my missions we saw a new Jewish settlement being born before our eyes. A few dozen Jewish families had parked their trailers on Palestinian land. When Palestinians protested the theft of their land, the Settlers call on the Israeli Army for protection. Subsequently they would build permanent houses on this property.

On most of my missions to the WBGS we stayed in the famous American Colony Hotel in East Jerusalem (Laurence of Arabia had stayed there as had Peter O’Toole while later filming the movie). From there we had to drive each day to Ramallah, the headquarters of the Palestine Authority and future home of the Palestine Monetary Authority we were helping create.  Two features of our daily drive confronted us with how Israel was treating the Palestinians in the territories it occupied.

Israel was building separate Jewish only highways through the West Bank and to Gaza. Most Palestinians working in Ramallah commuted each day on their own roads.  There were separate entry check points for Palestinians and for Jews (and the international community such as us). We sailed through the Jewish entry, where our UN passports were quickly reviewed, while it took an hour or two for most Palestinians lined up at their check point to enter every day. I was amazed that Palestinian anger at such treatment was so subdued and seldom expressed.

Our several trips to Gaza and my meeting with Yasser Arafat and near abandonment in the desert are a fascinating story in their own right that you can read in my book:  “Palestine-Oslo Accords – My Travels to Jerusalem” Hearing the explosion of a terrorist attack on a Jerusalem bus while eating breakfast in the American Colony Hotel and subsequently fleeing to Jordan across the tiny Allenby Bridge over the Jordan River are also discussed in the same book.

Should the US Still Police the World?

This was a debate between Bret Stephens and Jamie Kirchick for the affirmative and Matt Taibbi (without his baseball cap) and Lee Fang for the negative. You can and should watch it here: https://open.substack.com/pub/bariweiss/p/a-free-press-live-debate-on-foreign?r=1n8osb&utm_campaign=post&utm_medium=web

The affirmative side (Jamie and Bret) only seemed to understand policing in military terms. The idea that there might be good and bad policing never seemed to cross their minds. Bearing in mind that I was a member of the Coalition Provisional Authority in Iraq for its final two months and made 22 visits to Afghanistan from 2002-2013 (not to mention my years of work with the IMF in Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Serbia, and South Sudan), my experience has been that when led by our military, which is quite good at fighting, our policing is generally inept (to understate it considerably). Warren Coats life and travels

Jamie and Bret’s blindness sadly reflects the single-minded understanding of neocons of what our leadership role in the world should look like (military involvement and wars).  This blindness is shockingly visible in the debate. America must and should be involve in the world we are part of. We should promote the values of peace and freedom that have America the envy of the world. That means actively working to be a good neighbor and to help fashion the rules and norms of cross border cooperation (for the cross-border movement of goods, people, digital messages and value, etc.). We potentially have a lot to offer in such a role in our own self-interest and for the betterment of the world.

But when we have led with our Army, our “leadership” has been rotten for the world and for us. We are bad colonial rulers as I have seen first hand. These points were made by Matt and Lee who mopped the floor with Bret and Jamie. By the vote of those listening, Matt and Lee won the debate but were still supported by a minority of those voting. God help us.

More recently, our unconscionable support of Israel’s vicious slaughter of its neighbors in Gaza and the West Bank and now its invasion of Lebanon, has destroyed any remaining respect we had as a world leader.  https://wcoats.blog/2024/10/05/score-card/

Score Card

Three weeks ago, Israel detonated pagers and walkie-talkies in Syria and Lebanon that killed 37 people (including two children) and injured thousands. A week ago, Israel bombed Hezbollah headquarters in Beirut, killing its leader, Hassan Nasrallah, much of its senior leadership and thousands of Lebanese civilians. Israeli soldiers entered Lebanon on September 30 in a limited ground offensive against Hezbollah forces.

In retaliation Iran sent 200 or so missiles to Israel “targeting military installations and critical infrastructure.” While most were intercepted a few struck military airbases and killed one person.

Israel promises to retaliate for this vicious attack. “Donald Trump has said that Israel should ‘hit the nuclear first and worry about the rest later’ in response to an Iranian missile attack on Tuesday.” https://www.newsweek.com/donald-trump-says-israel-should-hit-irans-nuclear-first-1964268

Need I say more???

Collateral damage (deaths of innocent bystanders) is unavoidable in war. But Iran seems to recognize that taking some care to minimizing it is not only humane but also wise for not creating more enemies to fend off in the future.  On Oct 7, 2023, Hamas killed about 1,200 Israelis in their attack from Gaza. In retaliation Israel has killed over 40,000 Palestinians according to the official reports of Hamas authorities many of whom were women and children. However, some aid works claim that the true number is much higher. Around 670 Palestinians, including 150 children, have been killed by Israelis in the occupied West Bank over this period.

According to Israel’s Finance Minister, Bezalel Smotrich, this is not carelessness on Israel’s part, but rather the deliberate policy of removing Palestinians (one way or another) from the River to the Sea. One way or the other, Israel is committing suicide. Anyone who cares about the future of Israel should demand an immediate end to this fighting. Anyone who cares about the standing of the U.S. in the world, and how our tax dollars are being spent, should demand the same.

More than 13,000 immigrants convicted of homicide are living outside immigration detention in the U.S., ICE says

The above headline of an NBC News article on September 28 is technically correct but grossly misleading. “13000 immigrants convicted of homicide living freely in US”  For example, “many of the 13,000 migrants may have entered the U.S. decades ago, and also that some may be in jail or prison.”  Say what?

Alex Nowrasteh, a careful Cato Institute scholar, unpacks this headline and explains that “There are not 13,099 Illegal Immigrant Murderers Roaming Free on American Streets.” “There are not 13099 illegal immigrant Murderers…”

For example: “the migrant murderers included in the [ICE] letter are overwhelmingly in prison serving their sentences.” What is going on with the word play? Read Alex’s careful unpacking of these figures.

Propaganda

The arguments I present at the dinner table to convince you of my position/proposal, will succeed or fail depending on their merits and the skill with which I present and defend them. My freedom to make my case at home or your home or in the public square (Kiwanis Club, Facebook, X, etc.) and yours to challenge it and/or to make your own, is an essential feature of our free and flourishing society. It is a right guaranteed in the First Amendment to our Constitution. The give and take and challenges of such debate improve the prospect of adopting better policies and proposals and of their broad public support.

The Woke movement to prevent, shout down, or otherwise silence hate speech (at least in the eyes of some) violated our freedom of speech and the virtues of its protection. It was rightly opposed and seems in retreat, last year’s measures by Columbia and many other Universities to prevent pro-Palestinian demonstrations notwithstanding. Demonstrations that violate or threaten the rights and/or safety of others are not protected speech and should be banned.

The anti-free speech virus has spread to elements of the right wing as well. According to Jacob Mchangama in “Reflections on right-wing cancel culture”:

 “’The Left started it.’

“That was the common retort from right-wing X accounts like Libs of TikTok and their supporters, who attempted and often succeeded at getting people fired for making tasteless social media posts about the assassination attempt on Donald Trump back in July. 

“Most of their victims weren’t public figures but regular Americans like Home Depot employees, firefighters, chefs, and school counselors. This was fine and good, many argued, because it constituted sweet revenge for cancel culture excesses driven by the Left.” 

Constructive civil discourse is a valuable skill some have forgotten or never learned. Efforts to strengthen such skills by Braver Angles and other groups are encouraging.

On the other hand, measures by an increasing number of governments to ban speech they disapprove of seem to be growing. It is not all together surprising that the governments of Russia, China, Pakistan, Hungary, Brazil have banned unfriendly news sources and reporters. Measures in the U.S. to remove what our government considers false information for social media is shocking. Mark Zuckerberg, CEO of Meta the owner of Facebook, recently expressed regret for the company’s past decisions regarding content moderation, particularly concerning COVID-19. In a letter to House Judiciary Committee Chairman Jim Jordan, he revealed that senior officials from the Biden administration pressured Facebook to censor certain content, including humor and satire related to the pandemic. Zuckerberg stated, “I believe the government pressure was wrong, and I regret that we were not more outspoken about it”

More shocking still, Scott Ritter, a former UN weapons inspector and US Marine Corps intelligence officer, had his home searched by the FBI, potentially due to allegations related to his failure to register as a foreign agent. It is more likely that the real reason is our governments anger at his attacks on its efforts to suppress “disinformation” in the press. He recently participated in a discussion titled “Free Speech & The DOJ attack on Independent Journalism,” highlighting concerns about governmental interference in free speech and press freedoms. Ritter has been vocal on social media, urging authorities to respect the Constitution and stop restricting free speech and press activities. This interview of Ritter is well worth watching: Scott Ritter interview

If that doesn’t shock freedom loving Americans, surely this will. Pavel Durov, the CEO and founder of the messaging app Telegram, was recently arrested in France. He was detained as part of an ongoing judicial investigation into alleged criminal activities facilitated by Telegram, including the spread of child pornography, cyberscams, and organized crime. Durov has criticized the charges as “surprising” and “misguided,” arguing that it is unreasonable to hold a platform or its CEO accountable for user-generated content. He emphasized that Telegram complies with European Union regulations and has robust content moderation practices. The arrest has sparked discussions about the balance between free speech and the responsibility of social media platforms in moderating harmful content.

And then there are evil people who deliberately lie and deceive for the purpose of doing harm? Russia, for example, might judge it in its interest to weaken the United States by undermining America’s public trust in our institutions thus diminishing our effectiveness as a nation. “The Russian government’s covert efforts to sway the 2024 presidential election are more advanced than in recent years, and the most active foreign threat this political season, U.S. intelligence officials said Friday.” “Russia-election-covert-disinformation” But which way would Russia’s interests be best served. Ritter argues that Russia’s interest in the outcome of the American Presidential election is for a President whose policies will be predictable. That hardly describes Donald Trump.

A more challenging question is what to do about those unknowingly spreading false information believing it’s true (e.g. Antivaxxers).  In which of these boxes should we put someone like Tucker Carlson—deliberately deceiving –unknowingly deceiving—or sometimes right? These are not easy questions. I urge you to read Damon Linker’s exploration of Tucker Carlson’s diabolical motives: “The anti-liberal right builds a usable past”

So, what should we do? Defending our freedom to speak should be a top priority. “Do we really need free speech?”  Where should we look for the facts and to expose fake information? Social media and fake news”. What role should government play?

At the end of the day, it is what each of us believes that matters. It is in our own interest to evaluate the reliability of various sources of information. The government can help by being such a source, but it must earn our trust for the objectivity of its research and disclosure. It must never censor the information provided by others.  Government can require and promote the transparency of the information provided by others (e.g, who has paid for it).  This role for government will minimize the incentive for private parties to exert pressure on the government to support one version of the truth and suppress others. We must decide for ourselves, but our institutions can and should contribute to our filtering fact from fiction and help expose liars.  Freedom isn’t free.

Econ 101 – Price gouging

The good news is that the Presidential campaign has moved on to the presentation of policy positions—at least on Kamila Harris’s part–Trump’s response at a Pennsylvania campaign stop over the weekend was that “she’s gone “full communist.”

The bad news is that in addition to continuing some of Trump’s bad economic policies (tariffs, buy American protectionism, etc.) some of Harris’s economic policies are bad. Here I will take a closer look at her promise to ban “price gouging” by grocery stores.

In March of 2020 US. Broad Money (M2) growth jumped from its usual 5 to 6% per annum growth to over 25% a year later. As a result, U.S. Inflation (CPI) began to increase rapidly above its 2% target at the beginning of 2021. The Federal Reserve did not begin to tighten monetary policy until a year later when inflation had already reached 8% per annum. In addition, federal government deficit spending exploded over the same period. To fight this inflation the Fed’s policy interest rate was increased from almost zero from March 2022 to 5.3% by mid 2023 where it remains, thus ending M2 growth.

Since its disastrous late start in monetary tightening, the Fed’s management of the return of inflation to its 2% target has been as good as I could hope. Inflation has fallen below 3% without (yet) causing an economic slowdown. My guess is that the Fed is slightly behind the curve and should have started reducing it policy rate earlier this month.

So what is Harris’s ban on price gouging all about? “Perhaps Harris’s most surprising policy announcement was her plan to ban “price gouging” in grocery and food prices. While details were sparse, the measure would include authorizing the Federal Trade Commission to impose large fines on grocery stores that impose “excessive” price hikes on customers, her campaign said. Grocery prices remain a top concern for voters: Even though the rate of increase leveled off this year, grocery prices have jumped 26 percent since 2019, according to Elizabeth Pancotti, director of special initiatives at the Roosevelt Institute.” https://www.washingtonpost.com/business/2024/08/16/kamala-harris-2024-policy-child-tax-credit/

In an excellent editorial last Friday (I urge you to read it) the Washington Post asked: “‘Price gouging’ is not causing inflation. So why is the vice president promising to stamp it out?”   https://www.washingtonpost.com/opinions/2024/08/16/harris-economy-plan-gimmicks/

Stores only offer goods for sale when they can be sold for more than their cost to the story by enough to pay for their own employees, cost of their store and its maintenance and “normal” profit (return on the investment made by the store’s owners). The erratic economic events of the last few years create disruptions in these normal relationships that can produce temporary losses and/or usually large profits.

The supply and demand for a good can be matched by its price or by some other form of rationing. If a pandemic suddenly spikes the demand for facemasks, it will take a while for manufacturers to increase the supply. Until that happens demand will exceed supply.  Dr. Fauci and the government can ban sales to us common people in order to reserve the existing supply for doctors and nurses, or the market will increase the price such that only those with the most pressing need (or desire) will pay the higher price of the available supply. Rationing by prices has two big advantages. The first is that each individual (rather than government bureaucrats) determines whether their need is strong enough to pay the higher price. This makes it MUCH more likely that face masks will go to those with the highest need. Second it maximizes the market incentive to increase production and supply faster.

It the supply (relative to demand) shortage is not rationed by price, some other rationing mechanism and criteria must take its place. One is first come first served until the shelves are empty. During the wage and price freeze imposed by President Richard Nixon starting on Aug 15, 1971, gasoline was rationed by long lines of cars waiting for their turn at gas stations. It is not surprising that freely determined market prices have served us so well.

From the River to the Sea

The subtitle of my memoire is “From the River to the Sea, All should be Free.” I deliberately chose this potentially provocative statement to warn readers to expect to encounter my political views and to refuse to allow the English language to be twisted by the political views of others. In the same spirit, I always stated that “All Lives Matter” rather than the more restrictive “Black Lives Matter.”  I have always defended the rights of All people to peace, justice and equal rights.

I asked my AI search engine the following:

What different groups chant “From the River to the Sea “ and what does each group mean by that?

The reply was:

The phrase “From the River to the Sea” is used by various groups with differing interpretations:

  1. Pro-Palestinian Activists: For many, it symbolizes the aspiration for Palestinian liberation and equality across the region from the Jordan River to the Mediterranean Sea, often seen as a call for peace and justice.
  2. Jewish and Pro-Israel Groups: Many perceive it as a threat to Israel’s existence, viewing it as a call for the elimination of the Jewish state, especially when used by groups like Hamas.

“When someone says from the river to the sea, Palestine will be free, I question, ‘Where do you see the Jews going?'” said Yair Szlak, president and CEO of Montreal-based Federation CJA. ‘That is hate speech, right, because it is into the sea that they seek to send the Jews.’”

Take a close look at this amazing statement. Mr. Sziak implies that the only way Palestinians can be free is by getting rid of the Jews!!  Aside from being a absurd statement, it is sadly revealing of the thinking of some Israelis.

“Yousef Munayyer, head of the Palestine-Israel program at the Arab Center Washington D.C., has written extensively about the meaning of the slogan before and since Hamas’s attacks on Oct. 7, which led to Israel’s current bombardment of the Gaza Strip. 

“Munayyer says today, the phrase is used to reference the lack of freedoms Palestinians have in the territory between the Jordan River and the Mediterranean Sea, which includes the state of Israel as well as the Gaza Strip and the occupied territories of the West Bank and East Jerusalem. 

“’That’s what has to change. That doesn’t mean that there should be any violence against Israelis,’ Munayyer said.” https://www.cbc.ca/news/world/from-the-river-to-the-sea-palestine-1.7033881

Labor Unions

To maximize a company’s market value, it must maximize its expected profits over time (its current market price reflects the discounted present value of expected future profits). To do so it must offer products or services that the public wants at prices they are prepared to pay that exceed the cost of supplying them. These products must be produced with the quality desired and as cheaply as possible. But that requires hiring workers of appropriate skills and providing them with appropriate tools (investments in equipment and other inputs) while paying them no more than is required to attract and retain them. “Appropriate” in these contexts means cost effective (best output at lowest cost).

Unions can help a firm’s management find, train, keep and manage the most appropriate workers. The general work environment is part of what attracts workers in addition to wages and related benefits. The optimal mix of the “right” capital and the “right” labor to produce market demanded products, produces the biggest pie to split between labor and shareholders (i.e., maximizes profits). So, both labor and owners share an interest in getting it right (maximizing). When unions deal with management in this positive sum, win-win frame of mind both they and shareholders benefit. But unions that see the process as zero sum and simply seek to maximize their share of the pie, reduce the size of the pie (loss-loss). American unions too often fall into this trap.

My personal experiences with American unions have not been good. I will share the experiences of my parents and myself that have influenced my views.

During the summers of my undergraduate studies at the U of California at Berkeley, I worked in the oil fields of Kern County for Shell Oil. Children of Shell employees like my dad were given preference for such jobs (typical profit maximizing behavior). A typical summer day in Kern County was dry, with temperatures ranging from 105 degrees to an occasional 112. This was more comfortable than a typical humid day of 95 degrees here in the Washington DC area. The first summer I worked in the fields north of Bakersfield, and the second summer at the ten-section refinery fields where my dad had worked in the refinery west of Bakersfield.

The full-time Shell employees I worked with, along with two other summer hires, were all pleasant and talked about their families and such things during our lunches together in the “doghouse,” as they called it. I had no idea whether they were union members or not. Digging up leaky pipes as a roustabout in such heat was a challenge.

My second year I was promoted to working on a well pulling rig. The traditional rocker-arm wells that you have surely seen in pictures are fairly shallow and push the oil up a pipe as the rocker moves up and down. The pump is attached to the bottom of this pipe and opens to let the oil in, and then closes as it pushes it up the pipe with each rock. We pulled the pipes, with their pump on the bottom end, out of existing wells for repair.

Every now and then the pump at the bottom failed to open to allow the oil to flow out as our rig pulled it up. Those were called wet wells as rather than draining out, the oil spouted out the top and rained down on the rig platform. The first time I encountered a wet well, the guys recommended that I put on a wet suit to keep the oil off me. As I recall it was 110 degrees that day and I turned down the wetsuit. However, as I become covered in oil my sweat stopped evaporating and I almost passed out. I had to sit out the rest of the day in great embarrassment.

My third summer I was paired with the full-time employee in the supply yard behind Shell’s Kern County headquarters that provided all the parts needed out in the fields. We rode around in a forklift to load needed supplies onto trucks that delivered them to the fields. My “partner” was a union member, All he could talk about was how Shell was exploiting us. I hated it and hated him and his antagonistic rather than cooperative attitude. This added to my dislike of American unions.

Many years earlier when Shell workers went on strike, my dad had to strike as well, as he had to belong to the union to work in the refinery. After a month or two, when it was clear that the strike was about to end, several union guys came to our house and threatened my pregnant mother (with my seven-year younger brother), that it would be unhealthy for her if my dad went back to work already.

Many years later, when my mother had become an elementary school teacher, she disliked the teacher’s union as having little real interest in the kids, but spent their time protecting the jobs of mediocre teachers.

It seems to me that unions are helpful or detrimental (good or bad) depending on whether they see their negotiations with their companies in positive sum or zero-sum terms. Mandatory union membership is more likely to result in the latter, detrimental relationship.