Ezra Taft Benson’s Remarks at FEE Headquarters in New York, May 1977

In 2001-02, I served as president of the Foundation for Economic Education (FEE), the oldest free-market educational institution in the United States.

When I arrive I felt at home immediately when I saw the photographs of three members of my faith who had served as members of the FEE board – Ezra Taft Benson (former Secretary of Agriculture), J. Reuben Clark, Jr. (former ambassador to Mexico), and Ernest L. Wilkinson (president of BYU).

Here is the story when Ezra Taft Benson came to FEE headquarters in May, 1977, and addressed supporters and then the board members.

Ezra Taft Benson

In May 1977 Ezra Taft Benson addressed the board of the prestigious Foundation for Economic Education (FEE), of which he had previously served on the board of trustees (as had J. Reuben Clark, Jr. and Ernest L. Wikinson).  He warned that while America had become the world’s richest nation because of free enterprise, today’s citizen was learning to depend on the state, thus jeopardizing personal freedom.

The following day he was invited by the president of the foundation, Leonard E. Read, to attend a trustees meeting.  “The first question [they asked me] was on the Church, and they never left that theme,” President Benson wrote that night, “so I spent an hour answering questions, telling them about the Church, bearing my testimony to them and telling of Church policies and my experiences in the Cabinet.”  One board member lingered afterwards and told him, “I want what you have.  When we go home, I’m going to look up your church.”

Shortly thereafter President Kimball received a letter from Leonard Read, who wrote, “Last evening we had some 160 freedom friends to hear President Benson’s lecture, ‘The Productive Base of Society.’ Imagine the audiences and lectures I have arranged during…more than 31 years as President of FEE….Well, last evening was the best of all.  Never have a witnessed such interest, approval, esteem.  This forenoon, however, even topped last evening—this being an hour’s discussion with 26 of our Trustees and many guests.  All were profoundly moved by Ezra’s economic, intellectual, moral and spiritual insights.  Among my acquaintances in this and 22 foreign nations, I have never come upon his equal.”

President Benson sent an engraved copy of the book, Meet the Mormons, and a copy of the Joseph Smith story to each trustee of the foundation.

–“Ezra Taft Benson, A Biography,” by Sheri L. Dew (Deseret Book, 1987), p. 451.

Elder Ezra Taft Benson Speaks in Communist Russia

 

Ezra Taft Benson in Russia

Elder Ezra Taft Benson Speaks at the Central Baptist Church in Communist Russia, October, 1959

 

“It was the most heart-rending and most inspiring scene I’ve witnessed.”  –News reporter

From the time he arrived, Ezra Taft Benson repeatedly requested that he be taken to visit one of the two Protestant churches in Moscow.  Finally, as his party was taken to the airport for their departure, he again asked to stop at a church.  Reluctantly, his driver swung into a narrow alley behind an old stucco building – the Central Baptist Church.  It was raining, but the chill left as the Secretary’s party entered the church which was filled to overflowing with mostly middle-aged and elderly people.  Ezra understood that Soviet citizens attended these services at some risk; anyone who looked to a career of any kind avoided the slightest suspicion of belief in Christianity.

The American group caused an immediate stir in the old church.  A newsman present described the scene: “Every face in the old sanctuary gaped incredulously as our obviously American group was led down the aisle.  They grabbed for our hands as we proceeded to our pews which were gladly vacated…Their wrinkled old faces looked at us pleadingly.  They reached out to touch us almost as one would reach out for the last final caress of one’s most-beloved just before the casket is lowered.  They were in misery and yet a light shone through the misery.  They gripped our hands like frightened children.”

Surprisingly, the minister invited Secretary Benson to speak.  Knowing there was some danger, Ezra turned to Flora and asked if she thought he should do it.  Without pause she answered, “You bet, T!”  And he made his way to the pulpit.

Never had he stood before an audience like this.  As he scanned the crowd of anxious faces, it took some moments for him to control his emotions.  These were good people, he felt immediately, subjected to a society that deprived them of unrestricted worship.  The emotional impact was almost more than he could bear.  Then he began to speak about hope and truth and love.  As he talked about the Savior and the hope of life after death, tears flowed freely throughout the church.

“Our Heavenly Father is not far away,” the Secretary promised.  “He is our Father.  Jesus Christ, the Redeemer of the World, watches over this earth…Be unafraid, keep His commandments, love one another, pray for peace, and all will be well.”

Women took out their handkerchiefs and nodded vigorously as they moaned “Ja, ja, ja!”  He looked down at one elderly woman, her head covered by a scarf and with a shawl about her shoulders, and spoke as though directly to her: “This life is only a part of eternity.  We lived before we cam here…We will live again after we leave this life…I believe very firmly in prayer.  I know it is possible to reach out and tap the Unseen Power which gives us strength and such an anchor in time of need.”  He concluded, “I leave you my witness as a church servant for many years that the truth will endure.  Time is on the side of truth.  God bless you and keep you all the days of your life.”

By this time teams were streaming down Ezra’s face.  When his entourage finally filed down the aisle, men and women waved handkerchiefs and grasped the visitors’ hands in an action that spoke more than words.  Spontaneously they began to sing “God Be With You Till We Meet Again.”  The language was foreign, but the tune and meaning were unmistakable.  The Americans entered their cars with not a dry eye among them.  Finally, a newsman broke the silence, commenting, “I believe they were the only really happy people we saw in Russia.”

“I shall never forget that evening as long as I live,” Elder Benson later wrote.  “Seldom, if ever, have I felt the oneness of mankind and the unquenchable yearning of the human heart for freedom.”  Others felt similarly.  Cynical newsmen who had complained about “going to church with Ezra” (and who had skipped out on LDS services in West Berlin) stood and wept openly.

Tom Anderson, editor of Farm and Ranch magazine, wrote, “Imagine getting your greatest spiritual experience in atheistic Russia!….The Communist plan is that when these ‘last believers’ die off, religion will die with them.  What the atheists don’t know is that God can’t be stamped out by legislated atheism….This Methodist backslider who occasionally grumbles about having to go to church, stood crying unashamedly, throat lumped, and chills running from spine to toes.  It was the most heart-rending and most inspiring scene I’ve witnessed.”

When they reached the airport, nearly all of the newsmen traveling with Ezra told him it had been the greatest spiritual experience they had ever had.

–“Ezra Taft Benson, A Biography,” by Sheri Dew (Deseret Book, 1987), pp. 342-344

10 LESSONS FOR 10-10-2020

This article was originally published on the FreedomFest Forum on October 10, 2020.

lessons

The year 2020 has been anything but a year of seeing clearly. It has been characterized by uncertainty, divisiveness, and conflicting views. In the January prediction issue of my newsletter, “Forecasts & Strategies,” I stated, “The outlook for stocks, gold and the dollar is positive as we enter 2020, but beware of a ‘black swan’ event that could derail the longest running bull market in history.” Indeed, the coronavirus not only derailed the bull market, but the entire economy and our society. Today, on 10-10 2020, I thought it would be appropriate to publish my top ten lessons learned from 2020.

  1. “Trust the science but not the scientists.” We quickly learned that medical experts are subject to biases and weaknesses just like the rest of us. As Steve Forbes says, “You can’t always trust the experts.” In early 2020, prominent epidemiologists in the UK and the US published convincing articles predicting that the new virus would kill “millions.” Indeed, people began dying at alarming rates. Other medical experts dissented from the alarmists, saying that the coronavirus was far less lethal than previous influenzas such as the Hong Kong flu of 1969. As doctors have learned more about the virus, treatments have improved and death rates have dropped. But the panic continues.
  1. “The cure turned out far worse than the disease.” Sir Harry Schultz has said, “Never underestimate the size of a panic or the power of a politician.” Government leaders overreacted to the virus scare by shutting down schools, sports, theaters, tourism, travel, churches, and business.   To use a metaphor from John Maynard Keynes, “We used a sledge hammer to crack a nut.” Only now are we finding out the devastating unintended consequences –bankruptcies and job losses, depression and suicides, domestic abuse and alcoholism, and permanent changes in our lifestyle and culture. Some studies suggest that more people are dying from the shutdown than from the disease itself. As I’ve traveled across the country over the past several weeks I’ve seen business after business closed down— whole areas of towns shuttered— no public bathrooms or places to eat— and I am appalled by what has happened to our country. What a tragedy! Sadly, none of the governors or mayors who imposed these draconian restrictions have apologized or taken responsibility for their blunders. Meanwhile, Sweden was one of the few countries that did not succumb to the scaremongering, and the virus is virtually finished there. It is becoming more and more apparent that locking down was the worst choice.
  1. “Technology made the lockdown easier to impose.” How it was possible for the government to shut down the economy and society so quickly? Why were Americans so compliant? Fear about the unknown properties of the virus were the initial reason, of course. But the months long shutdown was made more palatable because e-commerce and online technology made it easier for many to transition to working from home. College and university officials could shut down schools because it’s now possible to teach online and for students to be educated and entertained at home. White-collar workers could do their jobs online. Most products, even food and drink, could be delivered to people sequestering at home, largely because blue-collar jobs (manufacturing, retail and delivery) were deemed “essential” and the risk of the disease was deemed warranted.
  1. “How quickly we lost our liberties.” Milton Friedman said, “Freedom is a rare and delicate flower.” Despite the safeguards guaranteed in the Constitution and Bill of Rights, within days of the lockdown, we saw our First Amendment rights abridged, including the freedom of speech, peaceful assembly, worship, travel, and commerce. Education went online and borders were closed. In the past, quarantines were imposed on those who were actually sick and thus posed a threat, but now everyone was restricted by the fear that anyone could be a carrier, even without symptoms. Government officials in other countries imposed even more severe limitations on their citizens’ freedoms of movement and behavior. At the same time, certain groups were allowed to engage in mass protests without any limitation. But those who protested the lockdowns were cited, fined, and surveilled. Most law-abiding citizens were reluctant to defy the State and engage in civil disobedience, even when their new rules defy common sense.
  1. “The Rise of Irrational Behavior.” I am amazed how willingly citizens conform to State mandates and prohibitions, giving up their liberties so quickly in order to be safe. Masks and physical distancing are the most obvious examples. I can understand why many people wish to protect themselves; let them make their own decisions about safety and risk. But the government and the media have been so effective in scaring people that we see people wearing masks inside their cars when they are driving, walking alone on the streets, and exercising in the gym (which is downright unhealthy). Jokes have been made about how intelligent the virus is, avoiding people while they’re sitting in a restaurant but attacking when they’re standing. The governor of California seriously suggested that people put on their face coverings in between bites when eating at a restaurant. The chief medical officer in Canada said with a straight face that partners should wear masks during sex, or try positions where they aren’t facing each other. Meanwhile, most Swedes have adopted sensible distancing protocols, but they don’t wear face coverings everywhere they go, and their businesses have remained open.
  1. “Government at the federal and state level is out of control.” As a result of its own hysteria in shutting down the economy, governments at all levels face the worst financial crisis Americans have experienced in peacetime. States have used up their “rainy day” funds and many face bankruptcy if Washington does not bail them out. Of course, many municipalities were facing insolvency before the pandemic, but the shutdown has sped up and intensified the crisis as tax revenues lessen and demands for welfare and unemployment benefits increase. Major corporations and small businesses face the same dilemma. Lost revenues and increased spending have resulted in alarmingly high deficits. Central banks like the Federal Reserve are engaged in virtually unlimited buying of Treasury securities and other assets, generating fears of higher taxation and inflation in the future. In sum, Washington is like Humpty Dumpty – the egg has cracked, and it can’t be put back together again. As a result, socialism is on the march.
  1. “Government executives have been given way too much emergency power.” George Washington is alleged to have said, “Government is like fire, a dangerous servant and a fearful master.” Over the years, the president, governors and mayors have been granted almost unlimited power to use “executive orders,” powers intended to be used sparingly, only in times of war or natural disasters. In 2020, they began using executive order to impose virtually any prohibition or mandate they wish. As Jorge “Tuto” Quirado, the former president of Bolivia, once said, “Now more and more everything is either prohibited or mandated.” In 2020, we see that representative democracy has been replaced by dictatorship. A few states limit these emergency orders to 30 or 60 days, during which time the governor must consult with the legislature to get their approval before continuing their mandates, but many have simply issued new orders after the expiration date. The courts have started to rule against these overreaching mandates, notably in Michigan and Pennsylvania, but the damage has been done.
  1. “We need to encourage healthy living.” It seems the entire focus by medical and government authorities is to deal with the symptoms of the disease — to develop a vaccine to prevent the virus or medicines and treatments to make you better if you contract it. But the evidence is overwhelming that healthy and young people are not likely to get the virus. The most vulnerable victims are the elderly who suffer from obesity, diabetes, heart disease, or other diseases. Adding insult to injury (or hypocrisy to mandates), much of the rise in these conditions is a result of misguided and misleading federal nutrition guidelines since the 1980s, when fats were demonized and sugars were quietly substituted to create texture and flavor. The increase in sugar and processed carbs has weakened immune systems. It’s time for teachers and other leaders to encourage healthy living at all ages through proper diets, exercise, and a positive mental attitude. During the lockdown people have done more walking and biking, but the stay-at-home orders, coupled with the closing of gyms, parks, beaches and sporting events have led to a more sedentary and less healthy population. If herd immunity is the goal, having a healthy society is the best road to surviving this crisis.
  1. We have begun to live in fear, not faith.” In today’s Brave New World, masks have become a religious talisman, imbued with magical powers to ward off evil viruses even when they are often dirty and ill-fitting. Meanwhile, religious men and women who go to church are required to wear masks and not socialize—just hurry in and hurry out. Their pastors seem to have more faith in science and government leaders than they do in God. It saddens me when I see children recoil in fear as they pass strangers on the streets or in a store. What kind of message are we sending to our future generations when children are told that anyone could be a carrier—anyone could potentially kill them? Moreover, physical distancing requirements are repressing children’s ability to develop social skills and exercise their natural tendency toward play. Oh, ye of little faith!
  1. “Know the signs of the times.” Bertrand de Jouvenel wisely said, “A forecast is never so useful as when it warns of a crisis.” The pandemic scare offers an important lesson in how we conduct our lives, our friendships, our businesses and our investment portfolios. We need to be alert and prepared for the unexpected. The coronavirus not only derailed the bull market, but the entire economy, politics, and our society. However, forecasting is a difficult business. It’s easier to prepare than to predict. I urge all to save regularly, avoid unnecessary expenses, build a strong cash position in their portfolio and retain earnings and reserves in their business.

Admittedly, many people have learned different lessons during this pandemic—they’ve resolved to spend more time with family and less time away from home, even after the pandemic ends. They’ve reconsidered career choices and school options and reevaluated how they spend money. I applaud those who have chosen to use this time productively. But for many hundreds of thousands of people, the loss of freedom and livelihood has been devastating. Both sets of lessons must be learned so that we don’t permanently lose our freedom to choose our paths.

GO-Day Celebration

Dear friends,

Good news!  For the first time, the federal government (BEA) has released the “top line” gross output (GO) at the same time as the “bottom line” GDP.  For years, publicly-traded companies have simultaneously posted the top line (sales/revenues) and the bottom line (earnings/net income) every quarter.  Now finally the government is releasing GO and GDP every quarter in national income accounting.

Economics finally caught up with accounting and finance!

GO_DAY Celebration

I call GO the missing piece in the macroeconomic puzzle.

Several events mark the GO-Day Celebration.

1. The Wall Street Journal published my op on this milestone in national income accounting on Saturday, October 3. The WSJ op ed is published on line and in the print edition. This is the third time they have carried my articles on GO. See the article in full below.

2. Steve Forbes released his 3-minute “What’s Ahead” podcast on “Gross Output vs GDP: Which Measure is Better?” — it’s the best summary of GO I’ve ever watched. Watch it here: https://www.youtube.com/watch?v=WoYF-ous_mU

3. My press release offers more detail and useful charts at www.grossoutput.com.

4. In celebration of this special occasion (the first time the government has released GO and GDP on the same day), I hosted a 1-hour webinar on GO Day with panelists Steve Forbes, Sean Flynn (Scripps College and primary writer of the McConnell Brue Flynn textbook), David Ranson (chief economist, HCWE, Inc.), and Steve Hanke (Johns Hopkins University). The webinar was courtesy of Chapman University.

You can watch it here: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

More economic analysts are now using it the forecast economic growth and the stock market, including David Ranson (HCWE, Inc.) and Jerry Bowyer, CEO of Bowyer Research. To read how they use GO in their forecasting models, go to “What Others Are Saying” at www.grossoutput.com.

New Stat Augurs Well for Covid Recovery

Gross output measures business confidence better than GDP. It’s fallen less than in past recessions.

By Mark Skousen
WALL STREET JOURNAL, Oct. 2, 2020

Wednesday was a big day for anyone with an eye on the economy. For the first time, the Bureau of Economic Analysis (BEA) released the “top line” gross output, or GO, at the same time as it published the “bottom line” gross domestic product. And the GO data brought a welcome surprise: It shows the economy is much more resilient than it looked.

Analyzing GO and GDP simultaneously is an essential way to know what is really going in the economy. The key is that GDP accounts for final output only: the finished goods and services bought by consumers, business and government. In contrast, GO measures total spending at all stages of the supply chain.

Steve Forbes offers a useful metaphor: “GDP is like an X-ray of the economy; GO is like a CAT-scan.” GO reveals a deeper level of economic activity and is therefore helpful in predicting the direction of growth, not only its current state.

GO is especially significant during downturns. In past recessions, GO declined much faster than GDP and gave an earlier view of the depth of the recession. During the financial crisis in the fourth quarter of 2008, GO fell 6.6%, compared with a 2% drop in GDP—more than three times as fast. The GO decline showed that even while consumer sales held up, businesses were slowing investment in future production.

In 2020, that trend is clearly reversed. In both the first and second quarters, GO fell slightly less than GDP. In the second quarter, real GO declined by 8.4% while real GDP decreased by 9% (in quarterly, nonannualized terms). GO didn’t collapse by multiples of GDP as it has in past recessions. The decline was close to 1-to-1, rather than 3-to-1.

What does this tell us? It’s clear that consumer spending dropped sharply in 2020 as a result of the lockdown, but businesses looked toward the long term, expected a recovery, and adjusted accordingly.

Jerry Bowyer, CEO of Bowyer Research, described the trend to me: “The lockdown was focused on sectors which were skewed towards final stage consumption, such as retail, entertainment and travel. Seeing that the shutdown was disproportionately skewed towards GDP world as opposed to the phases before that phase (GO), showed how the economy would be able to be more resilient in bouncing back than many anticipated.”

That’s good news, suggesting the recovery from this recession will be faster than most analysts thought. The sooner states open up their economies, the faster we will see a return to a dynamic American economy.

I do have one suggestion for the BEA: They need to report GO even more quickly each quarter. Have it come out the day the first estimate of GDP is released, not the third. Information is power.

Mr. Skousen is a presidential fellow at Chapman University, editor of Forecasts & Strategies, and author of “The Structure of Production.”

Online: https://www.wsj.com/articles/new-stat-augurs-well-for-covid-recovery-11601678216?mod=opinion_lead_pos7″>https://www.wsj.com/articles/new-stat-augurs-well-for-covid-recovery-11601678216?mod=opinion_lead_pos7

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved.
Appeared in the October 3, 2020, print edition.

40 Year of Forecasts & Strategies

Dear friends,

My publisher, Salem Eagle, has just posted my special 40th Anniversary Report, “Seven Golden Lessons:  An Editor’s Perspective After 40 Years.”  It contains all the valuable lessons I’ve learned in 40 years on Wall Street.  Since starting my newsletter, “Forecasts & Strategies,” in 1980, I’ve seen it all — boom and bust, bull and bear markets, the thrill of victory and the agony of defeat, and have survived and prospered through it all.

 

You can read it here:  https://www.markskousen.com/seven-golden-lessons-learned-on-wall-street-an-editors-perspective-after-40-years/

 

There is no charge for this report.  Feel free to circulate among your friends, family and colleagues.

 

Thanks, AEIOU,

Mark Skousen

Presidential Fellow, Chapman University

Newsletter:  www.markskousen.com

Free weekly e-letter:  https://www.markskousen.com/signups/skousen-investor-cafe/

Personal website:  www.mskousen.com

Annual conference:  www.freedomfest.com

THERE’S MUCH RUIN IN A NATION: MODERN MONETARY THEORY

By Mark Skousen
Chapman University
[email protected]

“Today, as in the past, a sound money system is the condition of man’s freedom and the key to his future.”

 — Jacques Rueff[1]

Three heterodox economists William Mitchell and Martin Watts (both University of Newscastle, Australia), and L. Randall Wray (Bard College, New York) — hereafter referred to as MWW — have written a textbook entitled Macroeconomics, co-published this year by Macmillan International and Red Globe Press.  They promise a “comprehensive, university level study course in Macroeconomics from a Modern Monetary theory (MMT) perspective…grounded in real world institutions…and starts by putting the currency-issuing government at the forefront.”[2]

Having analyzed economics textbooks in my career, I found it a valuable exercise to determine what this textbook includes and what it ignores in making the case for MMT.[3]

In the introduction, they acknowledge that MMT grew out of the financial crisis of 2008 and the “cult of austerity” accompanying it.  They criticize the “neo-classical” economists for failing to “see it coming,” and wrongly predicting that inflation would accelerate after the monetary crisis due to quantitative easing.  MMT “rejects the main precepts of the orthodox neoclassical approach to macroeconomics” (13) and the self-interested “invisible hand” in microeconomics (6).

Thus, MWW see the need for a new Weltanschauung based on the heterodox theories of Marx, Veblen and Keynes.  They endorse the United Nations Universal Declaration of Human Rights, including the right to work and protection against unemployment, equal pay for equal work, and a minimum standard of living (9-11).

At times the authors appear nihilistic:  “…there is no single ‘right’ way to do economics….…the responsible social scientist is not seeking to establish whether the theoretical model is true, because that is an impossible task given there is no way of knowing what the truth is anyway” (3, 8).  And, they assert, “there is no scientific basis for the claim that ‘free markets’ are best” (pp. 3, 9).

 

“There are no financial constraints”

Despite this caveat, their conclusions are dogmatic:  “The most important conclusion reached by MMT is that the issuer of a currency faces no financial constraints.  Put simply, a country that issues its own currency can never run out and can never become insolvent in its own currency.  It can make all payments as they come due.  For this reason, it makes no sense to compare a sovereign government’s finances with those of a household or firm” (14).

For MWW, the budget and debt constraints that operate for an individual and household do not apply to the government.  They reject Adam Smith’s refrain, “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”[4]  To the contrary, “the household budget analogy is false” (124) because unlike households and businesses, government has the power to tax and to print money (318).

They reject the “cult of austerity” (14).  Now that advanced countries are no longer constrained by the gold standard or fixed exchange rates, “currency-issuing governments such as those of Australia, Britain, Japan and the USA can never run out of money…for most governments, there is no default risk on government debt” (14, 15).

Furthermore, if a nation operates with a sovereign currency and avoids incurring debt in foreign currencies (a big if), “the national government can always afford to purchase anything…” (16).

 

The Principal Policy Goal:  Full Employment

To what purpose should the government run deficits and monetary inflation?  Fiscal policy should aim for full employment of labor and resources and guarantee everyone a job, either in the private or public sector.  They call it a Job Guarantee (JG) program.  In chapter 19, MWW “elaborate on why full employment should be the key macroeconomic policy goal” (291).  Not controlling inflation, not economic growth, not maximizing freedom.  But job guarantees for all, the “right to work” at a “living wage” (292, 295, 302).

Figure 1 below illustrates the classic Keynesian case of increasing aggregate demand (AD) to achieve full employment.

MODERN MONETARY THEORY

If there is chronic unemployment, “the government [can] always put them to productive use…to hire them to perform useful work in the public interest” (16), involving “direct job creation by government” (295).

But there’s more.  “There is no financial constraints to stop a currency-issuing government providing first class healthcare and/or pensions in the future” (127).

“An MMT frame considers the $x in the fiscal papers to be of little interest” (130).

They don’t mention it, but how about using government revenues to finance military adventures abroad?  At the beginning of World War II, ten million unemployed were suddenly employed as soldiers in the US armed forces.

Does this fiscal nirvana sound dangerous and irresponsible?  Is there method to their madness?

In a 5-page section on “mainstream fallacies,” they list eight myths of political economy, including a denial that fiscal deficits cause crowding out of private investments, higher taxes, inflation, or big government, or the need for a balanced budget rule or a “rainy day” fund (124-128).  They go out of their way to belittle any government leaders who speak out against “living beyond our means”… “spending like a drunken sailor”… “welfare dependency”… “burdening our grandchildren with the public debt”… or “national bankruptcy” (124).

 

Three Ways to Pay for Government Spending

There are three ways to finance a new government program.  MWW put it in the form of an equation:

G +iB = T + ΔB + ΔM

where

G = government spending
iB = interest payments on public debt
T = tax revenue
ΔB = new borrowing selling government bonds
ΔM = new base money creation

The most burdensome and politically unpopular method is direct taxation (T).  For them, the best policy is to “spend first, tax later” (323).  They ask, “Why not just eliminate taxes altogether?”  MWW reject that suggestion because it makes it more difficult for the government to borrow money without the threat of taxation (323), and progressive taxation helps reduce inequality (324).  Ideally, according to MWW, taxes should be “countercyclical,” increasing during an expansion and falling during a recession (323).

 

Deficits and the National Debt: “We Owe It Ourselves?”

The second way to finance government is to borrow the funds to pay for the program (ΔB).  It postpones the pain of paying directly through taxation.  But there is a price to pay down the road — the government has to pay back the principal to the bond holders and it has to pay interest, usually every six months (iB).

MMT proponents claim that government deficits are self-financing because sovereign nations can issue more debt, raise taxes, or print money.  Moreover, government borrowing is also an asset in the form of government bonds held by investors.  “The government’s deficit is always mirrored by an equivalent surplus in another part of the economy,” states Stephanie Kelton, economist at Stony Brook University.[5]

This statement is, in essence, the old “we owe it ourselves” argument.  Robert Shiller calls it a “half truth.”  He states, “The claim would have been accurate only in an extreme, theoretical case:  if everyone had identical bond holds and paid identical taxes to cover the interest and principal that were paying themselves.  But we are never going to be in that situation in the real world.”[6]

Libertarian economist Murray Rothbard debunked the “we owe it ourselves” argument:  “The crucial question is: Who is the ‘we’ and who are the ‘ourselves’?”  The bondholders (who tend to be wealthy individuals and institutions) are not the same as the taxpayers (who tend to be middle class.”  “For we might just as well say that taxes are unimportant for the same reason.”[7]

 

National Bankruptcy: False Fear?

Advanced economies have been able to borrow huge amounts of money, more than most economists thought possible.

MWW claim, “The government can consistently spend more than its revenue because it creates the currency” (15).  Technically bankruptcy is impossible.  “Treasury cheques never ‘bounce” due to insufficient funds” (327).

There is some truth to their statement.  American conservatives have cried wolf time and time again about the dangers of deficit spending, that it will lead to national bankruptcy.  I’ve heard it all my life, even now that the US federal debt is now over $21 trillion.

Murray Rothbard set the record straight when he debunked this myth about the national debt.  He wrote:  “Many opponents of public borrowing…have greatly exaggerated the dangers of the public debt and have raised persistent alarms about imminent ‘bankruptcy.’  It is obvious that the government cannot become ‘insolvent’ like private individuals–for it can always obtain money by coercion…by increasing the tax and/or inflation in society.”[8]

 

Japan as an Example?

MWW point to Japan as an example of a nation where a country can engage in persistent fiscal deficits (pushing the national debt to an astonishing 235% of GDP) without igniting a sharp rise in interest rates or higher unemployment (27-31).  Interesting that the authors ignore the fact that accompanying these massive deficits is Japanese’s anemic economic growth rate since 1992 (an average real 0.9% a year) when they started to run massive unproductive federal deficits.

You can also look at the United States in this regard.  It is extraordinary that in a world where the largest economy in the world can run deficits of $1 trillion or more a year during times of full employment and strong economic growth and see interest rates continue to decline to historical lows.  I don’t know a single economist who predicted it.

 

Surprise, Surprise!  Governments Run Budget Surpluses!

The authors are also correct when they say, “Government deficits are normal, surpluses are atypical” (130).  The Keynesians used to favor a countercyclical “balanced budget” policy over time, running deficits during recessions and surpluses during boom times.  But as Milton Friedman commented, “Unfortunately, the balance wheel is unbalanced.”[9]

But there are quite a few robust fully-employed economies that are running budget surpluses in an apparent reject of MMT, including:

Country Surplus (% of GDP)
Macau 25.20%
Qatar 16.10%
Norway 9.10%
United Arab Emirates 5.00%
Singapore 1.30%
Denmark 1.30%
South Korea 0.90%
Hong Kong 0.80%
Sweden 0.30%

Source:  https://www.worldatlas.com/articles/countries-with-the-top-budget-surplus.html

The third way is the easy way out but also potentially more dangerous in destabilizing the economy — printing money.

 

How to Deal with the Threat of Inflation

MWW are opposed to “inflation targeting” because it imposes a high price of persistent high unemployment in order to keep price inflation in check (297-98, 315).  Instead, they propose an “employment buffer” policy, so that when private demand for labor declines, the federal government increases its job guarantees, and when private demand for labor increases, the government reduces its available job offers.  “This targeted approach to sustaining full employment is a powerful stabilizing force for aggregate demand, output, and prices” (302).

 

MWW introduce the “buffer employment ratio” (BER), defined as:

 BER = JGE/E,

 where

 JGE = Job Guarantee employment (by the government)

E = Total employment in the economy.

Thus, “BER rises when the JG pool expands and falls when the JG pool contracts” (304).

Why does this “buffer employment” policy control inflation?  When inflation threatens, MWW advocate tightening fiscal and monetary policy “to reduce the level of private sector demand.  Labour is then transferred from the inflating private sector to the fixed wage JG sector and the BER rises.  This will eventually ease the inflationary pressures arising from the wage-price conflict” (304).

Thus, full employment is achieved at all times while price inflation is held in check.

But will it work?  There are several potential problems.  First, how will labor productivity be affected in a managed economy where unemployment is virtually outlawed?  What incentives are there for workers to be efficient when they know they will be hired by the government if they are laid off by the private sector?

Second, wouldn’t workers in the private sector use the JG to demand higher wages?  MWW claim, “That would be unlikely,” because “the JG lowers the cost of hiring for firms because the JG workers do not experience the dislocation of unemployment and retain most, if not all, of their general and specific skills” (304).  Really?  Who’s to say the shifting from the private sector to public sector employment doesn’t involve dislocations and loss of skills?  And how easy would it be to shift back from public to private employment when the economy recovers?

Third, MWW assume that inflation is cost-push (wage pressure) rather than demand-driven, a dubious assumption in a managed economy that promises guaranteed employment, a living wage, full medical and retirement benefits.

A sharp rise in BER during a severe recession could create enormous burden on the public sector, as JG soar.  How would the government pay for all these JG?  Tax, borrow, print?

Finally, can inflation be stopped once it starts?  Studies show that once inflation gets started, it’s almost impossible to stop without causing a recession.

 

Fear of Runaway Inflation

MWW are well aware of the critics who fear MMT might lead to “creeping inflation” and ultimately “hyperinflation” (342).

“We acknowledge that the in the absence of appropriate oversight, a government can maintain an excessive rate of expenditure which leads to rising inflation.  But we show that the two popular examples of hyperinflation — the Weimar Republic and Zimbabwe — were the result of increasing aggregate supply constraints rather than being driving by excessive fiscal deficits” (333).

According to MWW, Germany’s inflation problem in the early 1920s was caused by excessive demands of the Treaty of Versailles that could not possibly be paid for out of domestic taxation or exports.  And Zimbabwe’s collapse was due to state mismanagement of the commercial farms, which were confiscated by Mugabe’s ruthless regime and turned over to rebels who had “no background in running commercial agriculture” (345).

Still, there’s reason to be concerned that countries adopting MMT might mismanage the economy in other ways.  In response to a severe recession, the government would dramatically increase their JG program, which in turn might result in unproductive “make work” public projects.  The central bank would be pressured into printing more money even as the real economy shrinks.

Sebastian Edwards of the Hoover Institution did an in-depth study of four Latin American countries (Chile, Peru, Argentina, Venezuela) that had adopted varying aspects of MMT (financing large fiscal deficits and “job guarantee” programs through monetary expansion).  He concluded:  “The four experiments ended up badly, with runaway inflation, huge currency devaluations, and precipitous real wage declines.”[10]

 

No Chapter on Economic Growth 

One of the surprising sins of omission in MWW’s Macroeconomics textbook is a chapter on growth theory.  I don’t know a single other textbook that ignores the importance of economic growth these days.  For years, the Keynesian influence after World War II was so strong that the focus in textbooks was on full employment and taming the business cycle based on Keynes’s “General Theory” of unemployed resources and aggregate demand failure.  Economic growth theory was a “special case” relegated to the back chapters.

Harvard professor Greg Mankiw created a counterrevolution in the early 1990s by putting the growth chapter up front in his Macroeconomics (Worth Publishers, 1994), and relegating Keynes’s theories to the back pages as a “special” case.[11]

Now MWW want to go back to the good old days of Paul Samuelson “paradox of thrift” and Abba Lerner “functional finance“ theory of “crude” Keynesianism.

 

Real-World Alternatives to MMT

MWW contend that their textbook Macroeconomics is “grounded in real-world institutions,” yet I was surprised by their failure to cite real-world economies that have achieved strong economic growth and full employment without inflation using more classical economic principles.

Countries can achieve full employment and higher economic growth without inflation by encouraging greater productivity on the supply side, by cutting taxes and regulations, privatizing government-owned businesses and services, and championing saving, capital investment, technology and entrepreneurship.

Figure 2 demonstrates how the supply-side stimulus (AS) can achieve full employment with less inflation.

MODERN MONETARY THEORY

Note the difference between the Keynesian AD policy (figure 1 above) differs from the Supply-Side AS policy (figure 2 above) — the Keynesian deficit spending model increases output and inflation, while the Supply-Side productive model increases out and reduces inflation.

Here are several case studies that adopted the Supply Side Model (not discussed in MWW’s textbook):

Sweden:  In 1992, Sweden suffered a real estate banking crisis, credit crunch, and monetary crisis.  In response, the government guaranteed bank deposits and ran significant deficits.  After the crisis abated, they engaged in a series of reforms to reduce the size of a bloated welfare state by privatizing various government programs; converting their state pension to a defined-contribution plan; adopting school choice in education; cutting corporate and other taxes; and overall reduced the size of government while maintaining its generous welfare system.  Today Sweden has a modest budget surplus.  The average real economic growth in PPP (Purchasing Power Parity) terms in nearly 3% a year.  Price inflation is low.  The unemployment rate is 6.7%, largely due to a generous immigration policy.  Sweden’s Economic Freedom Index has risen to #19 most free in the world.

Canada:  In 1994-95, Canada suffered from an oversized government, resulting in a budget deficit and currency crisis, with Moody’s downgrading Canadian debt.  The Liberal and Conservative parties agreed to severe budget cuts and federal layoffs, despite strong opposition by Keynesian economists.  Two years later, the budget was balanced, and the Canadian dollar made a strong recovery.  Then Canada adopted a series of supply-side tax cuts.  Today the corporate tax rate is only 15%.  The size of government has been reduced, economic growth is over 3% a year, inflation is less than 2% a year, but the unemployment is relatively high at 6.7%.  The budget did fall into deficit during the 2008 financial crisis, but none of the top five banks suffered serious losses.  Canadian budget has improved since then, although the Canadian dollar is weak.  Today Canada (#8) is ahead of the United States (#12) in the Economic Freedom Index.

Singapore:  Economic growth has averaged 3.5% in the past five years, inflation is less than 1%, and unemployment rate is 2%.  Singapore has accumulated substantial budget surpluses ($17.9 billion over the past three years), although it will run a deficit this year.  Singapore has the world’s best medical care system, a combination of health saving accounts (Medisave) and universal coverage of catastrophic illnesses (healthcare represents only 4.5% of GDP).  They have a flat maximum tax rate of 22% for individuals and 17% for businesses.  Singapore has a free-trade zone.  Though it is not a democracy, it is ranked #2 in the world’s Economic Freedom Index.

Chile:  Since Gen. Pinochet stepped down as dictator and Chile adopted democracy in 1990, Chile’s economy continues to do well.  Real economic growth is 2.2% over the past five years, and inflation is at a low 2.2% a year.  The unemployment rate is 7%, largely due to the slump in copper and commodity prices.  After running a surplus budget in 2011-12, the deficit returned but is a manageable 2.5% of GDP.  The maximum tax rate is 44% on individuals and 25% on businesses.  It is the highest rated country in Latin America in the Economic Freedom Index (#18 in the world).

These examples demonstrate that countries can achieve reasonable full employment, good economic growth, and low inflation without resorting to risky MMT policies.

 

Conclusion

There aren’t many cases where a broad range of economists, from Keynesian to Austrian, can agree on something, and MMT is one of them.  Vocal critics have included Paul Krugman, Robert Shiller, Kenneth Rogoff, Larry Summers, Steve Hanke and Robert Murphy.  All agree that MMT is a bad and even dangerous policy.

It seems that MMT advocates are determined to test the validity of Adam Smith famous refrain, “There is a great deal of ruin in a nation.”

I began with a quote from French economist Jacques Rueff.  I will end with his warning:  “No religion spread as fast as the belief in full employment, and in this roundabout way, allowed governments that had exhausted their tax and borrowing resources to resort to the phony delights of monetary inflation.”[12]


[1]   Jacques Rueff, The Age of Inflation (Regnery, 1964), translated by A. H. Meeus and F. G. Clarke, p. xiv.

[2]   William F. Mitchell, L. Randall Wray, and Martin J. Watts, Macroeconomics (Macmillan International and Red Globe Press, 2019), preface.

[3]   See Mark Skousen, Economics on Trial (Irwin Publishing, 1991), and my paper, “The Perseverance of Paul Samuelson’s Economics.” Journal of Economic Perspectives (1997), 11 (2): 137-152.  https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.11.2.137

[4]  Adam Smith, The Wealth of Nations (Glasgow Edition, 1982), Book IV Chapter II, pp. 456-7, paras. 11-12.

[5] Stephanie Kelton, “How We Think about the Deficit is Mostly Wrong,” New York Times, October 5, 2017.

[6] Robert J. Shiller, “Modern Monetary Theory Makes Sense, Up to a Point,” New York Times, March 2, 2019.  He concludes, “Though increased spending on infrastructure, education, social welfare and the environment may be wise, and rising deficits may make sense some of the time, we really cannot borrow ceaselessly without risking real harm.”

[7] Murray N. Rothbard, Man, Economy and State, 2nd ed. (Mises Institute, 2004 [1962]), p. 1027-1028.

[8]   Ibid., p. 1028.

[9]  Milton Friedman, Capitalism and Freedom (University of Chicago Press, 1962), p. 76.

[10] Sebastian Edwards, “Modern Monetary Theory: Cautionary Tales from Latin America,” Economics Working Paper 19106, Hoover Institution, April 25, 2019.  https://www.hoover.org/research/modern-monetary-theory-cautionary-tales-latin-america

[11]  See Mark Skousen, The Making of Modern Economics, 3rd ed. (Routledge, 2016), pp. 445-448.

[12]   J. Rueff, “La Fin de l’ere keynesienne”, in ´Oeuvres completes de Jacques Rueff, vol. 3, Politique ´economique I (Paris, 1979), 178. This article, originally a lecture delivered to the Mont Pelerin Society, appeared in ` Le Monde on 19 and 20–21 Feb. 1976.  See also https://dailyreckoning.com/homage-to-jacques-rueff/

Steve Forbes on the GO: I Make the Forbes 400 Richest Issue!

I’m mentioned on page 22 for my gross output (GO) model. (Sorry, I may be worth several million, but not several billion!)

Steve Forbes endorses my GO model, saying GO is a “far more comprehensive, realistic and enlightening picture than gross domestic product (GDP). It is like the difference between an X-ray and a CAT scan.” GO measures spending at all stages of production, including the all-important supply chain, and GDP only measures final output.

GO is a leading economic indicator. It has slowed considerably in 2019, suggesting a slowdown, not a recession.

Forbes

 

In his column, Forbes takes federal officials at the Bureau of Economic Analysis (BEA) to task for not releasing GO on a timely basis. He stated, “President Trump should immediately order the BEA to get off its duff and issue GO at the same time it does GDP.”

Indeed, I’m pleased to announce that Brian Moyer, the BEA director, informed me that the agency plans to release both GO and GDP at the same time by next September 2020… not unlike publicly traded companies issuing “top line” (sales) and “bottom line” (profits) reports every quarter. Economics finally has caught up to accounting and finance in the 21st century!

Steve Forbes’ column on GO is now available to read here.

For more information on GO, go to www.grossoutput.com.
Best wishes, AEIOU,
Presidential Fellow, Chapman University
www.mskousen.com

 

MY SCHEDULE AT FREEDOMFEST 2019

FreedomFest
by Mark Skousen
Editor, Forecasts & Strategies

 

Dear FreedomFest friends,

Welcome to another great FreedomFest, “the world’s largest gathering of free minds.”

Every FreedomFest, the first thing I do is get the printed program and circle all the breakout sessions I want to attend.  You should do the same.  You can get started now by going online to freedomfest2019.sched.com, and see the entire up-to-date program.  There are over 260 sessions to choose from, including my wife’s Anthem film festival.

Order the MP3 Recordings!  Since I can only attend about 10% of all the sessions, the first thing I do is buy the recordings of the entire conference — order forms can be found at the Registration Table.

Here are the sessions I have chosen to attend this year:

 

WEDNESDAY, JULY 17 — PRE-CONFERENCE EVENTS

12 – 12:50 pm. Champagne 1. “Meeting at High Noon:  The Insider Guide to This Year’s FreedomFest: Plus the Book the New Socialists Fear the Most.” 

This is an introduction to this year’s events, highlighting my favorite sessions. I will also talk about the incredible response to my full-page ad in The Economist (over 1 million subscribers), “The Making of Modern Economics: The Lives and Ideas of the Great Thinkers,” third ed. now published by Routledge.

1-1:50 pm. Bordeaux.  “My Favorite Western Actors: John Wayne, Clint Eastwood, Jimmy Stewart” by Marc Eliot, Hollywood #1 biography.  He has written full-length biographies of all three.  Glad to have Marc Eliot back.

I’m also interested in attending in Champagne 1 the session entitled “Building Zion: Mormons and the American West,” with BYU Professor Daniel Peterson, a regular at FreedomFest.  Prof. Peterson will speak of the Mormon pioneers settling of the West, their practice of polygamy and socialism (“United Orders”), their attitude toward the native Americans, and the Book of Mormon as American scripture.

2 – 2:50 pm.  Bordeaux.  “Confucius, Lao Tzu, and Lin Yutang:  What the West Can Learn from Eastern Philosophy.” I’ll be on a panel with Keli’i Akina, president of the Grassroot Institute Hawaii and Doug Casey.  Keli’i will claim that Confucius, considered the most influential Chinese philosopher in history, was actually a libertarian; Doug Casey will discuss “the first libertarian” Lao-Tzu and the father of Taoism; and I will make the argument that Lin Yutang, who lived in the East and the West, is the greatest Chinese philosopher of the 20th century.

3 – 3:50 pm.  Burgundy.  “Best of Western Lit: What We Can Learn Today from Dante’s Inferno,” by Daniele Struppa, president of Chapman University.  I’ll be introducing him.  Abandon hope, all ye who enter here!  He will make the case that we should still study Western civilization, and then explain how Dante is relevant to today.

 

WEDNESDAY — OPENING CEREMONIES AND COCKTAIL RECEPTION

4:45 – 7 pm.  Opening Ceremonies in Rivoli Main Ballroom.  Lots of fireworks with Wayne Root on “Go West, Young Capitalists (to Texas, Nevada, but Not California!)….My interview free-market environmentalists Terry Anderson and P. J. Hill on “Anarchy and the Long Arm of the Law: How Wild Was the Wild West?”….Leonore Skenazy on “The Free Range Life of Raising Children”…Hollywood’s #1 biographer Marc Eliot on “Why the Western Captured the Imagination of America”…Actor Kevin Sorbo on “The Liberty Life, Hollywood-Style”…Herman Cain on “A Life in Business and Politics”…and finally Elizabeth Ames interviews Cain and Stephen Moore on “What I would Have Done at the FED.”

We will then be escorted into the Exhibit Hall with a music performance by Mark Lee Gardner and Rex Rideout playing an upbeat version of “Ghost Riders in the Sky,” the #1 Western song of all time.

7-8 pm.  Gala Opening Cocktail Party in the Exhibit Hall. I look forward to greeting each other and the exhibitors, what John Mackey calls “The Trade Show for Liberty,” and join in the autograph sessions at the FreedomFest bookstore.  Here’s a chance to buy one or more American eagle silver dollars from our coin dealers…and see if you can solve my daily “white mates in two” chess problem.  Hopefully you will encounter our libertarian card magician, Peter Studebaker, and meet up with Western musicians Mark Lee Gardner and Rex Rideout.  What fun!

Be sure to have a photo taken in front of the historic Wells Fargo Stage Coach.  I’ll be there.

I’m always amazed at the buzz you feel entering the opening cocktail party as friends see old friends and make new ones.  There’s nothing like it.

As the late Nathaniel Brandon said at his first FreedomFest, “I feel an electricity here I haven’t felt in years.”

 

THURSDAY, JULY 18

We’re start the day’s session at 8 am with a welcome from our new MC Jason Stapleton.  I will make some general announcements about this year’s FreedomFest, including our “Wild West on Wall Street Summit,” and my wife Jo Ann will talk about this year’s selections in the Anthem film festival, which runs throughout the conference.

8:20 – 8:50 am.   Rivoli Main Ballroom.  Global Economic Summit with Veronique de Rugy (moderator), Peter Schiff, Magatte Wade, Olav Dirkmatt, and Barbara Kolm discussing Trump trade wars, Latin America’s turning socialist/Marxist, European nationalism, China’s future, and corruption in South Africa.

During the morning general sessions, we will also hear from our many financial sponsors.  One is Michael Sheppard of Treasurer Investments, who will announce a silent auction of a beautiful bronze American Eagle sculpture.  You can bid on it throughout the conference.

9:10 – 9:30 am.  Rivoli Ballroom.  Libertarian media personality John Stossel on “Calling Out the Politicians,” highlighting his encounters with the Powers That Be in Death Star (Washington DC).

9:50-10:00 am.  Rivoli ballroom.  I will interview Michael Lathigee, president of Investment Club of America, which specializes in investing in successful private business.  I’m an investor, and the Club has made a lot of money.

11 am – 12 noon.  Rivoli ballroom.  This is our big debate this year, “Conscious Capitalism vs Pure Greed,” between John Mackey, CEO of Whole Foods Market, and Kevin O’Leary, author of “The Cold Hard Truth” about business and investing.  I serve as the moderator.  Hold onto your hats!

Mr. O’Leary is so enthused about this debate that he did a 2 min promo for us.  Watch it here:  https://vimeo.com/344196186

12 noon – 1:00 pm.  Champagne 2. Special luncheon (ticket required) with Kevin O’Leary, who will speak on “The Inside Story of Shark Tank.”  Kevin tells me that people have a ton of questions about Shark Tank — he’s ready to reveal all, and said he’s willing to stay longer to answer people’s questions.  Limited seating!

1:10 -1:35 pm. Vendome A.  “How Not to Get Rich:  What You Can Learn from the Financial Misadventures of Mark Twain” by Alan Pell Crawford.  I listened to his audio book of the same name, and found it fascinating that the country’s most successful American author ended up broke because of speculative fever.  Join me, as you learn more about your mistakes than your winners.

1:10 – 2 pm.  Champagne 1.  “Investment Strategies that Really Work” with Mike Lathigee, president of Investment Club of America.  I’ll head over to this session after attending Crawford’s talk on Mark Twain.  Lathigee invests your money in successful businesses, and has a great track record.  Become a member!  I did, and am collecting monthly checks.

I’m also tempted to attend Randy Barnett’s interview with attorney Alan Dershowitz in the Rivoli ballroom (via Skype).  He’s my favorite celebrity lawyer.

2:10-3:00 pm.  Champagne 1.  “God or No God” Debate:  “The New Atheists:  Are They Right about God?”  Hyrum Lewis, BYU-Idaho professor and author of “There is a God: How to Respond to Atheism in the Last Days” will take on Michael Shermer, founding publisher of Skeptic magazine and prolific author.  Alex Green will moderate.  Can’t wait for this one!

3:10 – 4:00 pm. Vendome A.  “Investing in Private American Businesses:  Democratic Capitalism at its Best” with Vince Foster, chairman and founder, Main Street Capital.  Since its inception in 2007, Foster’s private equity fund has outperformed the stock market and even Warren Buffett.  He will reveal his secrets to his 98% success rate investing in private companies — unheard of!  This is my #1 stock recommendation (up 25% this year alone).  After his talk, we will have a meet and greet.  See you there!

4:30 – 6:30 pm.  Rivoli ballroom.  General sessions with Rich Lowry, editor of National Review; Kevin Williamson on his new book, “The Smallest Minority”; an all-women’s panel on “After Ayn Rand: The Power and Vision of Libertarian Women,” with Naomi Brockwell, Jennifer Grossman, Terry Kibbe, Stephanie Lips, and Jenny Beth Martin.  Moderated by Valerie Durham.  And “The Battle for the Hearts and Minds of Millennials:  Will Liberty or Socialism Win?” hosted by John Stossel.  He will be asking tough questions to the presidents of fourth youth organizations.

8:00-9:00 pm.  Champagne 2.  FreedomFest Square Dance & Show, with professional caller Vern Vernazzaro and the Mama Wranglers. Join us, whether single or couple.  This will be an unforgettable evening.  My wife and I have been looking forward to this square dance for months!

 

FRIDAY JULY 19

8:30 – 10:30 am.  Rivoli Ballroom, General Sessions.  Judge Douglas Ginsburg (President Reagan’s original choice for the Supreme Court) on “Constitution Day,” sponsored by Free to Choose; Pitch Tank, where the top 4 growing businesses will compete for the top prize — always fun to watch.  (John Mackey and Kevin Harrington, among others, will be the judges.)  We will also hear from some of our financial sponsors.

10:30 – 11 am.  Coffee break in the Exhibit Hall.  Autograph sessions at the FreedomFest bookstore, brose over 100 exhibitors.  Get a picture taken at the Wells Fargo Stage Coach.  C-SPAN will be doing interviews at their booth on Thursday and Friday.

11 – 11:50 am. Chablis.  “Billy the Kid and Jesse James: American Robin Hoods or Wild West Psychopaths?” with Mark Lee Gardner and Rex Rideout.  They will play some ballads of both outlaws.  Not to be missed!

Another tempting session is the big debate in the Rivoli ballroom on “Immigration:  Open Borders or Walls?” between Candace Owens and Wayne Allyn Root (for the wall), and Doug Casey and Rakesh Wadhwa (for open borders).  Rich Lowry of National Review will be the moderator of this angry debate.

12 – 1:00 pm. Versailles 2.  “Eating Meat is Neither Healthy or Ethical — Or is it?” Debate for a full hour or longer between John Mackey (Whole Foods Market) and Bruce Friedrich (The Good Food Institute) and Joel Salatin (outspoken Christian libertarian farmer from Virginia) and Jeff Riley (Fitness Innovations).  Alex Green will be the moderator.  Let the food fight begin — it will certainly build up an appetite for a late lunch.

Another tempting session is the debate in the Rivoli ballroom, “Trump’s Trade War:  Art of the Deal, or No Deal?” pitting Stephen Moore (defending Trump) against GMU Professor Don Boudreaux (pro free trade).  Richard Rahn as moderator.

There are a couple of other events you may want to consider:  The Anthem film festival panel, “Out of Our Minds: Do Patents Foster Innovation or Kill it?” with George Gilder, Jenny Beth Martin, Luke Livington, and Paul Wendee.  In Versailles 3.

I see that bestselling author Tom Clavin is doing a roundtable in the Exhibit Hall on his new book, “Wild Bill Hickok:  The True Story of the American Frontier’s First Gunfighter.” 

1:00-2:00 pm.  Lunch in Champagne 2 with Forbes economist John Tamny, “the Genius of Income Inequality,” sponsored by FreedomWorks.  (Get a free ticket at their booth 401).

2:10-2:35 pm.  I’ll back in the Vendome A financial seminar room for “Top Ten Stocks to Buy Now” with Hilary Kramer, Jim Woods, and yours truly.  Moderated by Roger Michalski, publisher of Eagle Financial Publications.  This session could pay for your trip to Vegas!

Afterwards, I’ll be attending the rest of the session in Versailles 2, “Progressive or Oppressive?  Balancing the History of Manifest Destiny” with historians Tom Clavin, Stephen R. C. Hicks, and John Prevas.  Gary Alexander, moderating.

3:10 – 4:00 pm. Champagne 1.  “3:10 to Yuma:  Hollywood and the Romantic Ideal of the Old West,” with Marc Eliot.  I’ll be introducing him, and will find out why Westerns were so popular, then died out.

Another tempting session in the Rivoli ballroom is “The Dirty Dozen of Federal Laws,” with John Stossel (moderator), Keli’i Akina, Anastasia Boden, and economist extraordinaire Sean Flynn.  I can think of several:  The Jones Act, Ethanol subsidies, federal civil asset forfeiture laws, the drug laws, Social Security and Medicare….It will be interesting what this group of experts come up with.

4:00 – 4:30 pm.  Exhibit hall break.

4:30 – 4:50 pm.  Rivoli ballroom.  “On the Other Side of Race:  A View for the Future,” with Candace Owens, the fiery black conservative.

4:50 – 6:05 pm. Rivoli ballroom.  The mock trial, our most popular event.  This year we are putting “The Second Amendment on Trial,” with prosecuting attorney Michael Shermer and defending attorney John Lott.  Plus star witnesses, and a jury of 12 from the audience.  And for the first time, I will serve as the Judge!  A very controversial subject.

6:05 – 6:50 pm. Rivoli ballroom.  “The Magic of Liberty,” with Penn Jillette of the famed magic act Penn & Teller, followed by Penn & talk show host Glenn Beck:  “An Odd Couple Talks Liberty” and Q&A from the audience.  Fun!

7:00 – 8:00 pm. Champagne 3.  Penn Jillette Reception (ticket required).  Great opportunity to meet Penn and have your picture taken with him.

Afterwards, Conversation Circle with Marc Eliot (on Woodstock 50 years ago), reception for comedian Evan Sayet, yoga with Lauren Williams, Anthem film festival, and karaoke!

 

SATURDAY, JULY 20

7:30 – 8:30 am.  Champagne 2.  Breakfast with the Skousens!  Jo Ann will be speaking on “Investing for Two: How Couples Can Successfully Manage Their Finances,” with my comments afterwards.  We gave this talk at the Las Vegas Money Show and it was very well received.  Hope to see you there.

8:30 – 10 am.  Rivoli Ballroom.  “Freedom v Socialism: Why America Has Always Been Great,” with talk show host and author Glenn Beck.  He will be followed by “Our Wild Ride in Washington,” a panel with Senator Mike Lee, Representatives Justin Amash and Thomas Massie.  Hosted by Matt Kibbe and Free the People (expect a lot of controversy).  We also have a panel on “War and Peace: What is it Good For?”, with top foreign policy experts assessing the dangers in the Middle East and other hot spots around the world.  Moderated by Zilvinas Silenas, the new president of FEE.

9:55 – 10:00 am.  Rivoli ballroom. After this panel, I will present the Leonard E. Read Book Award to Cato’s Christopher Preble for his excellent new book “Peace, War and Liberty.”  This is our annual book award to authors who promote liberty.  It suggests “Read This Book!”  Chris will sign books during the 10:30 coffee break.

10- 10:30 am. Rivoli ballroom.  Before the coffee break, we have one more panel, “How to Argue Against the Socialists of All Parties” sponsored by the Reason editors Matt Welch, Katherine Mangu-Ward, and Nick Gillespie.  Reason has its tradition “Reason Day” sessions on Saturday.

10:30 – 11:00 am. Coffee break in the Exhibit Hall.  Be sure to pick up a signed copy of Christopher Preble’s new book, winner of the Read Book Award.

11-11:50 am.  Versailles 2.  “Funding Libertarians on Campus:  Hostile Takeover or Academic Balance?” with Daniele Struppa (Chapman U.), Jim Gwartney (FSU), and Don Boudreaux (GMU).  Gary Alexander moderating.  Marxists are famous for taking over departments.  Should libertarians do the same?

You might also want to see Charles Murray and his wife Catherine Cox talk about their book “Apollo” in celebration of the 50th anniversary of the landing of the moon.  They are going to be interviewed by Ed Hudgins on the topic “The Final Frontier:  Moon Landing, Star Wars, and Space Exploration.”  The interview is via Skype satellite in the Rivoli ballroom.  Perfect for this occasion.

 

12:00 – 12:50 pm.  Rivoli ballroom.  Closing Panel with Senator Mike Lee, Congressman Justin Amash, Jennifer Grossman, John Fund, and Magatte Wade.  I’ll be moderating.  We will discuss what we have learned at this year’s conference, and we talk about what we can expect in the next year.  I will also announce theme for FreedomFest 2020, and our controversial celebrity speaker for next year.  We will announce the winner of the $1776 prize, or two free tickets, to next year’s FreedomFest, donated by Valaurum.  Treasure Investments will announce the high bidder in the silent auction for the beautiful Eagle sculpture.

12:50 – 1 pm.  Group photo in front of the Wells Fargo Stage Coach in the Exhibit Hall for all those who have a silver dollar.  Not to be missed!

1-2 pm.  Lunch – Kiosk open in the Exhibit Hall, or sign up for a hosted luncheon.

2:10 – 3:00 pm.  Versailles 2.  “The Wild in the Wild West was RIGHT!  The Case for Anarchy” with Jeff Berwick, Doug Casey, and Katherine Mangu-Ward.  I will be the moderator and will challenge these crazy anarchists.

3:10 – 4:00 pm.  Loire.  “Call of the Wild West: Jack London, Socialist or Rugged Individualist?”  I will be presenting my views of America’s most popular writer of Western fiction.  I’ve been a lifelong reader of his books and short stories.  What is the true meaning of his classic “Call of the Wild”?  The answer may surprise you.  I will also read you my favorite short story by Jack London.

4:10 – 5 pm.  Versailles 2.  One final “Showdown in the FreedomFest Corral:  Which is Better, Democratic Capitalism or Socialism?”  John Mackey will take on a hard-core Marxist professor, Barry Eidlin (McGill University in Montreal).  I will serve as moderator.

6:00 – 10:00 pm.  Rivoli ballroom.  Saturday evening reception and banquet (ticket required) with the Amish Outlaws rock n roll band and Loop Rawlins, the cowboy entertainer.  Dinner, desert, the Anthem film festival awards, and much more.  Musicians Mark Lee Gardner and Rex Rideout, as well as libertarian magician Peter Studebaker will be making the rounds during the cocktail reception.

 

After a long four day event, it feels great to get out on the dance floor.  See you there!

 

This is also my opportunity to thank everyone who has worked so hard and put in countless hours or work and creativity to make this year’s FreedomFest and Anthem Film Festival an incredible success — Valerie Durham, our conference director; Autumn Bennett, Norann Dillon, Nathan Williams, Harold Skousen, our registration team, and of course my wife Jo Ann. 

 

And see you next year!  Dates are July 13-16, 2020, at the Paris Resort, Las Vegas.  Details to be announced soon at www.freedomfest.com.

 

Yours for peace, prosperity and liberty, AEIOU,

Mark Skousen

Producer

 

If GDP Lags, Watch the Economy GO

‘Gross output’ reflects the full value of the supply chain, and it portends much faster growth.

Reprinted from THE WALL STREET JOURNAL.

 By Mark Skousen

The Bureau of Economic Analysis will release its preliminary first-quarter growth figure on Friday. According to the Atlanta Fed consensus tracker, economists are predicting gross domestic product to have risen at a meager 2% annual rate. But a powerful behind-the-scenes indicator suggests the real rate may turn out to be significantly higher.

“Gross output,” or GO, reflects the full value of the supply chain—the business-to-business spending that moves all goods and services toward the final retail market. Based on my work and research by David Ranson, chief economist at HCWE & Co., changes in the supply chain are a strong leading indicator of the next quarter’s GDP.

The supply chain, which the BEA calls “intermediate inputs,” took off in the fourth quarter of 2017, growing at a 7.5% annualized rate. That’s more than double the rate of real GDP growth and the fastest pace since before the Great Recession. Real GO, which includes both GDP and the supply chain, rose at a 4.7% rate. The growth was broad-based, with strong numbers in mining, manufacturing, utilities and construction. The fourth quarter 2017 GDP growth rate of 2.9% did not reflect the dramatic increases in intermediate outputs because GDP by definition measures only spending at the end of the economic chain.

The GO model is more in keeping with the Conference Board’s list of 10 leading economic indicators, which are linked to manufacturing and capital markets. For three quarters in a row in 2017, GO accelerated, probably due to the anticipated tax breaks and deregulatory environment. The boom in intermediate business activity should translate into higher economic growth soon, barring international instability, trade wars, or tighter-than-expected monetary policy.

As I noted in these pages in 2014, measuring gross output is a breakthrough in national income accounting. By reporting GO as well as GDP, the BEA has helped economists catch up with the accounting and finance professions. Public companies have long reported the top line (revenue) and the bottom line (profit) at the same time each quarter. For a national economy, GO corresponds to the top line (total activity) and GDP to the bottom line (final product). As the economists Dale Jorgenson, J. Steven Landefeld and William Nordhaus wrote in a 2006 book: “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

GO also dispels the popular Keynesian myth that consumer spending is the driver of economic growth. For example, the New York Times recently warned: “With personal consumption accounting for nearly 70 percent of all economic activity . . . the administration will be hard pressed to lift growth substantially if consumers remain cautious about opening their wallets.” But GDP is an incomplete measure of economic activity. It overlooks the value of all goods-in-process, which amounted to more than $14.7 trillion in 2017.

The broader-based GO highlights the reality that business spending is actually substantially larger than consumption. Consumption is 69% of GDP but just 39% of GO, while business spending is 17% of GDP but 52% of GO. This model therefore better recognizes the vital contributions of entrepreneurship, capital investment and innovative technology. As Larry Kudlow, the new director of the National Economic Council, wrote in 2006: “It is business, not consumers, that is the heart of the economy. When businesses produce profitably, they create income-producing jobs and thus consumers spend. Capital formation is the key to worker productivity and consumer prosperity.”

The first-quarter 2018 GO release won’t come until July 20, but BEA director Brian Moyer says the agency plans to release both GO and GDP at the same time within the next year or two. Hopefully by then the media will catch on to this advance in supply-side national accounting and leading indicator of robust economic performance.

This article appeared originally on wsj.com and in the April 24, 2018, print edition of the Wall Street Journal.


About the Author

Mark Skousen is a Presidential Fellow at Chapman University.  He introduced gross output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990).

GO Slow: New Leading Indicator Predicted Slowdown in GDP

by Mark Skousen
Presidential Fellow, Chapman University
Editor, Forecasts & Strategies

For the previous two quarters (Q2 and Q3, 2017) Gross Output, the new broader measure of the economy that includes the supply chain, was growing at a slower rate than GDP.  According to my research, that suggested a slowdown in GDP.

Today the Bureau of Economic Analysis released the advance estimate for Q4 2014 GDP.  After two consecutive quarters (Q2 & Q3) of 3%-plus growth in real terms, the GDP grew only 2.6% in Q4 — just as GO predicted.

For some time now, I’ve been arguing that gross output (GO), the top line in national income accounting, is a more accurate measure of total economic activity.  Because it includes business-to-business (B2B) transactions in the earlier stages of production, GO can anticipate changes in GDP (the bottom line) as much as 12 weeks in advance.

Since the first quarter of 2017, GO has been growing at slower rate than GDP.  In Q2, real GO rose at a tepid 1.7%, substantially less than 3.1% for GDP, and in Q3 2017, real GO accelerated at 2.7% growth rate, but still less than the 3.1% real GDP growth for the 3rd quarter.  I concluded in November, “Second quarter GO suggests potential slowdown in the economy, despite the currently rising GDP.”  Please reference the 2017 Q2 and 2017 Q3 press releases for more information.

The following chart provided by David Ranson, chief economist at HCWE & Co., shows the relationship between GO, II and GDP since the third quarter of 2016.

GO

Data: Quarterly seasonally-adjusted chain-type quantity indices of intermediate inputs, gross output and gross domestic product (Bureau of Economic Analysis).

 

As David Ranson comments:  “In this chart we compare the growth of gross output (GO) and intermediate output (II) with the growth of GDP over the past year (all in real terms). The chart begins with the third quarter of 2016 because, prior to that, all three variables were moving in close parallel. At that point a substantial divergence opened up, as the growth of intermediate output (and GO) raced ahead of GDP growth. That implied an acceleration in GDP growth which we have been experiencing. Now, just-released third-quarter figures for GO and II suggest that a re-convergence has begun: in the second and third quarters of 2017 growth in GO and II has fallen below the growth rate of GDP. That implies that GDP will stabilize and possibly decelerate later in 2018.”

 


For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”: http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economic Watch, July 24, 2017. HCWE, Inc. http://www.hcwe.com/guest/EW-0717.pdf

Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015:  http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

To interview Dr. Mark Skousen on this press release, contact him at [email protected], or Ned Piplovic, Media Relations at [email protected]