So when I woke up this morning and checked out Facebook, I was pleasantly surprised to see that Frederic Bastiat was getting some abnormal attention from all of the free-market pages that I “Like.” It turns out that, today (June 29, 2015), he would have turned 214 years old!
Bastiat happens to be my favorite political thinker. His classics include The Law, That Which is Seen and That Which is Unseen, and many more. You can cheaply pick up a copy of his collected writings from the Mises Institute HERE.
In my most recent post, I explained why the CPI hasn’t jumped to record highs yet, despite many economists’ predictions that the Fed’s policy of low interest rates and quantitative easing would severely devalue the dollar. I presented data which, according to my understanding, contradicts Ben Stein’s remark that “economic laws have been turned upside down.”
Basically, although the Fed has dramatically expanded the monetary base since 2008, most of the new money has been stored as reserves at the Fed.
I thought a “Supersize Me” analogy was fitting in this situation.
Suppose a relative of yours wants to get on the “Supersize” diet. You might warn him that his decision will result in a fatal heart attack at some point in the future.
Nevertheless, he proceeds to purchase extra-large meals from McDonald’s every single day. You are stunned to learn that, three months down the road, he has kept up his daily purchases of McDonald’s meals and seems to be in relatively good health. You conclude that all of the laws of nutrition have been turned upside down, and people can, in fact, eat all of the junk food they desire.
However, what you didn’t see is that he has been eating just a few meals from McDonald’s per week, leaving a majority of the food he purchased in other people’s refrigerators. Thus, your relative hasn’t disproved the laws of nutrition, because he hasn’t physically been eating the food.
In the same way, the Fed hasn’t overturned the laws of economics, because most of the money hasn’t physically been placed in the hands of the consumers…
During a recent interview with Neil Cavuto, Ben Stein claimed that “All of the laws of economics have been turned upside down… It turns out that government can print money– all they want– and it doesn’t create inflation.”
In fact, from September 2008 until the present, the Fed has increased the monetary base by a whopping 351 percent, yet during the same time period consumer prices have jumped by a total of only 9.8 percent.
If the Fed has printed all of this money, shouldn’t the CPI be rising? Dramatically? Or is Ben Stein correct to conclude that economic laws have been suddenly turned upside down?
To the level of my understanding, the answer is pretty clear: Stein is incorrect. Nothing since 2008 shows that “government can print money– all they want– and it doesn’t create inflation.”
The reason is because most of the money the Fed printed hasn’t even circulated into the economy yet. Remember that since 2008 the monetary base has increased by 351 percent. But if you look at the graph below, during the same time period you will note that currency in circulation has increased by 64 percent, a significant jump in itself but a long cry from 351 percent!
The rest of the newly printed money supply has laid dormant in the Fed’s vaults. In fact, since September 2008, reserve balances with Federal Reserve Banks have increased from just over 1 percent of the monetary base to making up more than 67 percent of it today! The quantity of these reserves has increased by 29,327 percent!
The Fed has been on a printing spree, but as long as the money remains locked up as reserves at the Fed it remains unavailable for consumers to spend, and that’s why the CPI hasn’t jumped like many economists predicted.
Bottom line: Most of the money the Fed has printed since 2008 has been stored as reserves instead of circulated to consumers. If all of that money was suddenly taken from the vaults and made available to consumers, Stein would look like a complete fool because the CPI would soar.
The burger chain that put “supersize” into the American vernacular is slimming down: For the first time in more than 40 years, and perhaps ever, McDonald’s says the number of U.S. restaurants it has is shrinking.
McDonald’s plans to close more restaurants in the U.S. than it opens this year, according to the world’s biggest hamburger chain. That hasn’t happened since at least 1970, according to an Associated Press review of McDonald’s regulatory filings.
Becca Hary, a McDonald’s spokeswoman, declined to provide a specific figure but said the reduction would be “minimal” compared with its total of about 14,300 U.S. locations.
Still, the contraction is symbolic of troubles under the Golden Arches and how it’s trying to regroup.
Last year was rough for McDonald’s. A Wall Street Journal column reported that “In the U.S., with more than 40% of McDonald’s 35,000-plus global locations, sales at restaurants open at least 13 months have been flat or falling for most of the past year.”
The common explanation I have seen for their slowdown is that more people are choosing to eat elsewhere, such as Chipotle, Panera Bread, or Five Guys. It also can’t help that, during a period of stagnant growth, politicians around the country are doing everything they can to increase labor costs and help get employees unionized.
However, the beauty of the market economy is that McDonald’s has to adjust to changing circumstances. The stores that were the most unproductive will be shut down, and the land, labor, and equipment will be freed up for other, more valuable uses. Meanwhile, McDonald’s will have to figure out how to make the most efficient use out of its current resources.
2015 Just continues to get better and better for me!
I was very excited to find out tonight (June 18th) that I’ve been accepted to attend the 2015 Young Americans for Liberty Convention in Washington, D.C. from July 29th to August 2nd. It seems like a great opportunity to become a better advocate for liberty and to meet tons of like-minded people who are equally enthusiastic about these ideas!
In the past year, I’ve been fortunate enough to attend International Students for Liberty Conference in Washington, D.C., CPAC, a FEE Summer Seminar called “Communicating Capitalism” at Clemson University, and now a YAL Conference!
My internship at FreedomWorks was so valuable. I worked in the policy department and was so blessed to learn from a brilliant individual, Josh Withrow. I learned the nuances of policy debates all the way from healthcare to monetary policy. I also met so many interesting individuals who have been so influential for the liberty movement, including Gary Johnson, Mike Lee, Rand Paul, Tom Woods, Judge Andrew Napolitano, Matt Kibbe, and so many more.
So far 2015 has been an incredible year for me, and I can’t wait for YAL and for the fall semester of college to be an activist for liberty on my campus.
This has been a great year, and I’m so excited for the future!