The other day, I was on Facebook trying not to waste too much time, and I saw a particular post I want to discuss.

I have several friends who could be considered politically leftist.  Some would use the term liberal, but that isn’t really accurate, unless you use the term only in its modern-day usage of meaning a leftist. Likewise, the term progressive isn’t really accurate.  They may be making progress in their own view, but pushing for big government and central planning is not my idea of progress.

Anyway, one of my Facebook friends, whom I haven’t seen in person for probably 20 years or more, is a far leftist to say the least.  He is a self-identified socialist, as the term socialist has become acceptable again in some circles.  It was abandoned for environmentalism when the Soviet Union fell, but now they call it democratic socialism or some variant.

My Facebook friend has major Trump Derangement Syndrome (TDS), and I would also consider him to be a cultural Marxist.  I’m not even sure how to define that term, but if I had to describe it, that would be this one Facebook friend.  As hard as it is, I do find some common ground with him on foreign policy. To his credit, he has been critical of Barack Obama and Hillary Clinton for their wars and bomb droppings.

At the same time, perhaps my biggest frustration with him isn’t his socialist views, but the fact that he will tend to place more emphasis on special rights for transgender people than he does on innocent people being killed in foreign countries from U.S. bombs.  In fact, he would probably place a higher priority on reining in corporate greed (by having more government, of course) than on stopping U.S. wars.

The other day, he posted a picture of Donald Trump’s approval ratings.  It showed that Trump’s job approval stands at 47%.  My Facebook friend said, “One of the hardest things about being smarter than most people is not acting like it.  But man, I live in a country of f***ing morons.  Of course I’d be one too if I placed absolute faith in polls after 2016.”

It was something in line with Hillary’s comments on the deplorables, except this was perhaps even more arrogant because he was explicitly stating how smart and enlightened he is.  He tried to add both a little skepticism and humility with the last sentence.

I did not make a comment on the post, as I didn’t feel like getting into an argument, but the thought crossed my mind that I should post a picture of the percentage of people who favor socialism – because to me, favoring socialism is completely moronic.

Give Me the Shirt on Your Back

Those who preach socialism generally have no clue about economics.  They probably can’t properly define socialism, which is the state’s ownership of the means of production.  I am willing to accept some variations, but you can’t just flippantly say that we should have socialism because the Scandinavian countries have socialism and they seem like nice places to live.  Countries such as Sweden and Norway are not socialist countries.  They are welfare states and certainly have many government interventionist measures in their economies.  But at the same time, they do have a system that still uses English common law as a basis, which means that property rights are still respected to a large degree, absent the somewhat high taxation.

If you really want to see socialism, then Venezuela is a clear-cut example, where the government really is nationalizing industries and controlling virtually all aspects of the economy that it is able to.

Even for the self-identified socialists who just want redistribution and equality, they are still mostly hypocrites.  If we live in a society with no property rights, then that means I can just walk up to you and rip the shirt off of your back.  Why should you be able to wear a shirt that I want? You don’t really own anything, so it is really up for grabs.

It is also noteworthy that my Facebook friend, along with most other leftists in the United States, probably lives better than 95% of the world’s population.  If they want equality, they should start donating most of their stuff to Africa and South America.

Socialism, as it is advocated, is a system of violence.  If you don’t actually see the violence, it is only because one party is obeying the dictates of the other.  If someone robs a bank and walks out with a bunch of money without shots being fired, would you say there was no violence just because the bank employees and customers obeyed the dictates of the robber?

Humble Pie

When my Facebook friend made this comment, I don’t think he understood how foolish he was making himself look.  He certainly surrounds himself with a disproportionate percentage of other leftists.  The world he lives in confirms his world-view for the most part.  He can’t fathom that someone would vote for Donald Trump, even though he does see some of the faults of Hillary Clinton.

He really thinks he is better than almost everyone else.  And when it comes down to it, this is really the view of leftists. Maybe it is the view of some libertarians too, but libertarians don’t want to control people, even if they do think that others are dumber.  Leftists think they are so smart that they should mold the world, and the people should listen and obey for their own good.  If they don’t obey, that just means they are that much stupider.

There are many things I don’t like about Trump and his policies.  But I can at least try to understand why some people would support him.

I think one problem with leftists in particular is that they translate being smart in some areas to being smart in everything.  If someone gets an advanced degree and is really good in English and history, they might start to think they know everything.  Even though they can’t have a coherent conversation about economics, they think they just know best.

When it comes to politics and economics, I really do believe that I know more than the vast majority of the population.  But in this, I recognize that people can make better decisions for themselves than I can make for them, especially at the point of a gun, which is government.

I also don’t think I am necessarily smarter than someone just because I know more about economics, or the Federal Reserve, or libertarianism.  There are many smart people who have little interest in these subjects.  I know little about fixing cars.  I am a terrible artist.  I am not a great public speaker.  I have a lot of weaknesses in areas where people are far better than me.

There are people I look up to in particular areas, and they aren’t necessarily libertarians. There are many entrepreneurs, and marketers, and even athletes, whom I admire for what they are able to do in their profession.  I think I am smarter than these people when it comes to defending liberty, but I fully recognize that they are far smarter or better than me in other areas.

And I think this is an important distinction that my Facebook friend fails to realize. He thinks that if nearly half the population approves of Donald Trump, then that whole group of people is just stupid.  He should have at least been self aware enough to say that they are stupid when it comes to politics.  Unfortunately, I believe that he really does think these people are completely stupid overall.

In today’s world, we are bombarded with experts.  We are told by the establishment that something must be true because the experts told us it is true.  They want people to conform and to not question authority.

And that leads to my last point, which is that political beliefs are not just about how smart you are.  There are other aspects.  I would say the most important is morality.  Maybe you really do think you can remake society by using government force to make a better place.  But is that the moral thing to do?

And what if someone just doesn’t want to conform to what they are being told to do?  What if they want to be free to make their own choices, even if some of those choices will be viewed later on as mistakes? Does that make someone less smart just because they want freedom to make choices?

In summary, I was able to get a good honest view from a hardcore leftist.  I don’t know if he will ever change his mind with his radical socialist views.

As Mark Twain supposedly once said, it is easier to fool people than to convince them that they have been fooled.

It has been a tough October for stock investors, unless those investors were shorting the market. As I write this, October still isn’t quite over, and we don’t know if Halloween will be a trick or treat.

October has historically been a tough month for U.S. stocks.  Crashes and recessions seem to come to fruition in October more frequently than any other month.

The S&P 500 dropped more than 10% below its record peak set in September, which officially puts it in correction territory.  But a 10% correction in stocks doesn’t necessarily mean that we are in a recession, or even that the bull market is officially over.

I can recall other bubbles such as silver in 2011 or technology stocks in late 1999 and early 2000.  When you look at a graph of these bubbles before they burst, they go parabolic.

That is why I am hesitant to say that stocks have already peaked and are now in the early stages of a bear market.  While it wouldn’t surprise me if this were the case, it also wouldn’t surprise me if we see one more grand move upward.

Things got rocky back in January 2018.  It became a roller coaster, and the higher volatility did not look promising for those holding stocks.  But then things calmed down, and stocks resumed their climb.

I have been watching the yield curve carefully.  On the big down days this week, there is no question that long-term rates went down.  Short-term rates were more mixed.  But overall, the yield curve has only slightly flattened for October.  The 10-year yield is right about where it started the month, and the 3-month yield is about .10% higher than where it started.

While the yield curve has flattened quite a bit over the last year, it is still not yet inverted.  If it inverts, I think there is little question that a recession is imminent.  The only thing is, it might already be apparent by the time it inverts. If stocks keep falling and go down another 10 to 20 percent, then things aren’t looking good for the short-term economy.

To be clear, I think we need a major correction/ recession to clear out all of the malinvestment. It is not something I am wishing for in terms of the short-term pains that go with recessions.  But the damage has already been done, and a recession is the best way to repair that damage and reallocate resources in accordance with consumer demand.  Life is too expensive, particularly for middle class America, and a correction will help alleviate that if the Fed and the federal government do not react too drastically to the inevitable correction.

Bonds are Safe for Now

In a post I wrote on October 10, 2018, I said that the cure for higher yields is higher yields.  When the 10-year goes up too high too fast, stock investors react negatively and we see a sell-off in stocks.  Then when stocks sell off, the 10-year yield tends to fall back.

I said that, “the fact remains that most investors view U.S. government bonds as a safe haven investment.  As long as price inflation is seen as contained, then bonds will continue to be a refuge for those seeking safety.”

That was basically confirmed to me the last couple of weeks since I wrote that.  There is no serious threat of price inflation right now, or at least very few people view it as a threat.  Therefore, when stock markets crash, people look for safety, and U.S. government debt is viewed as safe.  There is a small inflation premium and virtually no premium for risk.  The U.S. government is highly unlikely to default any time in the near future (not counting the hidden default of inflation).

Therefore, whether the bear market just started, or it starts in 6 or 12 months, we should expect investors to flock to long-term government bonds.  Yields will fall, and bond prices will rise.

This is a reason that I recommend the permanent portfolio, and it also illustrates why holding long-term government bonds is an important aspect.  Even though libertarians tend to hate holding bonds, they are there in the portfolio for a purpose.  In a recession and stock market crash, the permanent portfolio, which is made up of just 25% stocks, should fare rather well. The people who are heavy in stocks are going to pay a big price, while permanent portfolio investors may just see a slight decline.

Gold Rises

The one other interesting aspect of the last few weeks is that gold actually rose in terms of U.S. dollars.  It has been a tough market for gold investors.  There is just very little interest in gold by individual investors.  Some foreign central banks still like gold, but it hasn’t been enough to keep the price up.  After gold fell below $1,200 per ounce, it actually had a good couple of weeks in the face of the downturn in stocks.

It is interesting to look at the Dow-to-gold ratio.  There is nothing that says this ratio has to stay in any particular range or return to its long-term average.  But it is still useful in looking at what is possible.

The Dow-to-gold ratio is currently about 20 to one.  It takes about 20 ounces of gold to buy the current price of the Dow Jones Industrial Average.  In early 1980, this ratio actually was briefly close to one to one.  In other words, it took just over one ounce of gold to buy the Dow.  This was a time when stocks were down and gold was in its biggest bubble ever, so I am not saying we should necessarily expect to see this ever again.

However, if we did see a return to a one to one ratio, even if briefly, we would have to see a huge rise in gold, or a huge drop in the Dow, or some combination of the two.

If the Dow lost 50% to about 12,500, then the price of gold would have to rise from its current level just about $1,200 per ounce to $12,500.

Again, I am not predicting this, but just stating what is possible.

In the 2008/ 2009 financial crisis and downturn in stocks, gold went down for a brief period of time with stocks.  Gold does not tend to do well in recessions, unless there is a threat of high price inflation as was seen in the 1970s.

I have no idea what will happen to gold in the next recession.  But in the last couple of weeks, gold went up in the face of crashing stocks.

Again, this lack of correlation just shows the strength of the permanent portfolio, particularly in tough economic times.  It has been a boring and rather lackluster portfolio for the last several years, but you will be glad to have it when things get tough.

There was one winner in the Mega Millions lottery that gained nationwide attention.  The winning ticket was sold in South Carolina and is worth over $1.5 billion. If the winner decides to take a lump sum, it will still be worth $877.8 million.

The government – in this case, at multiple levels – will get its take.  Of course, the lottery itself is sort of like a voluntary tax, so the state makes out quite well with it.

The top income tax rate in South Carolina is at 7%.  The U.S. federal rate is 37%.  So when all is said and done, nearly half of the payout will go to government at some level.

We don’t know yet whether the winning ticket was bought by one individual person, or whether it was bought by a group of people.  It is common to have office pools.  With this jackpot, even if it were split 20 ways, the winners would be making out really well.

Or so we think.

I heard a statistic that one-third of lottery winners end up in bankruptcy.  I’m not sure what qualifies as a lottery winner. There is a big difference between winning $100,000 versus $5 million.  Also, there are many lottery winners who don’t actually file for bankruptcy, but end up near broke.

The lottery really is like a tax on the poor and those who tend not to be future oriented.  I think it is ok to play to dream a little, but I find that most people dream a little too much, while taking too little action in their lives.  Going to a convenience store and buying lottery tickets is not taking action. It is gambling with extremely low odds.

Before the last two drawings of this mega jackpot, I was asked if I was going to buy a lottery ticket, or if I wanted in on a group pool.  I don’t mean to be a party pooper, but I really didn’t want to play. I responded to someone that I really didn’t want to win that much money.  It really does ruin lives.  Either you hand out money to everyone who comes knocking on your door, or you keep your money really tight and probably ruin some relationships. When someone wins the lottery, you really hope that they already have a good set of friends in place.

The other thing that has puzzled me for a long time (I actually remember commenting on this when I was an older child) is why suddenly everyone feels compelled to play the lottery when the jackpot gets up so high.  What, was the $5 million jackpot last week not good enough for you?

I suppose it could make sense for a large group of people playing.  If you have 20 people in a group and you win $3 million total, that is “only” $150,000 each.

I don’t play the lottery and haven’t for quite a while.  I did participate in an office pool a long time ago for a few dollars per week. But if I did play the lottery, I would rather buy a ticket for a scratch-off or for my state’s lottery where you win at least $3 million.  The odds are far better than the Mega Millions because you don’t have to pick a powerball.  I’ll take the better odds and the lower payout.  For me, $3 million would be life changing.  Even if it were $1 million after taxes, that would still be quite significant (although not enough to retire forever, even though I wouldn’t retire anyway).

You Can’t Handle the Money

With great power comes great responsibility.  When you win, say, $500 million, that gives you great power.  You have to be quite responsible.

One of my most popular posts ever on this blog was about the television show My Lottery Dream Home.  I observed that some lottery winners were spending a good chunk of their fortune on buying a house.  It was bad decision making, at least from what I could observe.  You never know for sure if someone already had a lot of money, but it was doubtful in the cases that I saw.  If you are living in a small rundown place and then are all of a sudden buying a mansion, you probably didn’t have much money before winning the lottery.

I have continued to watch that show on several occasions, and I have seen the decision making get better.  I have seen people win multi-millions and then look for houses in a range of less than $500,000. I have seen some really conservative people even looking at houses in the $200,000 or less range.

If you ask people their number one reason for wanting to win the lottery, I think the number one answer by far is that they want to quit their job.  In other words, they want more freedom with their time, and this money could buy them their freedom.  Yet, curiously, some people go out and start buying stuff with it.

If you win $5 million and then buy a $1 million house (and all of the major expenses that come with it), then you are losing your financial freedom.  The rest of the money will likely disappear within a few years time.

This usually happens to people who were already poor, which happens to be a lot of the lottery winners.  If someone was already accustomed to making money and saving money, then that person is going to be more responsible with it and know how to handle it better.

I said that I wouldn’t want to win the jackpot that will probably be about $500 million after payout and taxes.  But if I started a business and grew it into a huge successful business that sold for $500 million, then I wouldn’t have any issue with it.  My name wouldn’t be plastered everywhere. My friends and family would have already known that was my line of work.  It isn’t like working an office job for a middle class salary and then all of a sudden quitting the next day because you struck it rich.

If you do happen to strike it rich with the lottery or some other way, such as an inheritance, my best advice is to find some continuity and grounding.  Maybe it is best not to quit your job right away. It is best not to move right away, unless you are in really miserable living conditions.  Take things slow and be methodical with where your money goes.  And don’t make any promises to anyone.  If you want to help out any friends or family members, then don’t tell them. Once you have decided you want to help and the amount you want to give after careful thought, then can just do it.

There will be a tendency to treat the money with less respect because you didn’t really earn it or have to work for it.  You just bought a lottery ticket.  This would be a mistake.  And if you can’t avoid feeling this way, then you are better off giving it all away so that it doesn’t ruin your life.

If you really can’t stand your job, then I think you should still find work that is meaningful to you.  As human beings, I think it is best when we are productive, at least to a certain extent.  It is good to have goals.  Sometimes it is good to have a routine.  This will give you grounding.

Immigration continues to be an issue in the forefront.  Trump won the presidency for several reasons, including good timing, but there is no question that his stand on immigration resonated with many conservatives, and even some libertarians.

Immigration is a tough issue to deal with for libertarians.  It is probably the one issue where libertarians disagree even more than abortion.

The reason it is a tough issue is because we live in a state-dominated world.  When the government has an interventionist foreign policy and a massive welfare state, immigration becomes more contentious. In a more decentralist society with stronger property rights, I believe immigration would be an easier issue for libertarians to deal with.

It is like asking a libertarian if he favors prayer in public schools.  Someone can have a personal opinion on the matter, but libertarians agree (or should agree) that schools should not be funded or run by the government.  In a free society, it would be up to each individual school whether they want prayer in their school.  It might depend on the opinions of their customers.

And so it is with immigration.  We are dealing with government borders and massive intervention in terms of foreign policy and state welfare.  How is one supposed to take a position on immigration in this non-libertarian world?  This is why some libertarians will argue that we can’t allow open immigration as long as we have a welfare state, while others will argue that we shouldn’t have to wait for an end to government welfare before allowing people into the country.

Regardless of where you come down on this issue, I don’t think immigration to the United States is going to stop, and I don’t think most Americans, including conservatives, will have the willpower to stop immigration.

The first thing you have to realize is that the government is not capable of stopping immigration with its current resources.  It can perhaps slow things down.  But even if a wall were built on the border with Mexico, people will find a way around it (or over it, or under it, or through it).

Considering that the federal government is running trillion dollar deficits with massive unfunded liabilities staring everyone in the face, I don’t see where the extra money is going to come from to stop immigration.  It is one thing to build a wall, and it is another thing to actually station guards all across the border to make sure the barriers are not breached.

Conservatives Love the Welfare State More

It is easy for conservatives to talk about stopping immigration just the same as it is easy for the left to talk about socialism.  When push comes to shove, they have bigger priorities.

The massive unfunded liabilities are mostly made up of Medicare and Social Security.  It is going to be impossible for the federal government to keep its promises to senior citizens (and residents). There is going to be a major haircut for these programs.  It will likely be a combination of raising the eligible age, reducing payouts, and tax hikes.  We can also be certain that the powers-that-be will try to use inflation as a means of hidden default, which it has already been doing to a certain extent.

The government is going to need workers paying taxes, and the government can’t control birth rates easily.  One way to increase the number of workers as compared to retirees is to allow more immigration. If seniors – and this includes politically conservative seniors – are given a choice between more immigration and cuts in Social Security, which one do you think most of them are going to choose?

One of the complaints about immigrants is that they come here and collect welfare.  I have always found this puzzling because if government welfare actually did help people, then it is more appropriate that some poor Mexican guy with no money and few skills gets welfare instead of an American who has just been too lazy to find good work for many years. I’m not saying that there aren’t struggling Americans who work hard.  But when it comes to the very basics of putting food on the table, you would think there would be more sympathy for someone who literally has almost nothing and has never had much opportunity.

Even still, I rarely hear conservatives suggest that we eliminate all welfare for immigrants. But what if an immigrant would prefer the choice of coming to the United States with no government welfare over the choice of not being allowed across the border at all?

Although I believe we should eliminate the welfare state for everybody, I would be in favor of eliminating it just for immigrants in the meantime.  But this leads to a slippery road for any non-libertarians.

Are we going to deny welfare to the point that hospitals don’t have to take care of immigrants when they show up at the emergency room?  Are we going to deny their kids going to public (government) school?

Of course, hospitals could still voluntarily take care of immigrants who show up with no money. Private schools could still help the children of immigrants by offering discounts or scholarships.  And the immigrants can certainly pay for these or any other services out of their own pockets.

But it puts all non-libertarians in a predicament.  It points out that the government schools are welfare. It would show that immigrants are able to survive without government handouts.

Whether conservatives will admit it or not, they favor the welfare state.  They just want it to be their version of the welfare state. And that is why they aren’t going to stop immigration.  If they truly wanted a reduction in immigration and for only hardworking individuals to immigrate here, then they would be calling for a massive defunding of the welfare state.

The big internet media companies have made some headlines, at least on the internet, with their censorship of certain content.  Google has been accused of favoring certain sites in its search engine to promote its leftist political agenda, while pushing other sites down the ranking list that go against the agenda of the people running the show.

Social media sites, particularly Facebook, have also gained much attention in banning certain content that is best described as anti-establishment.  It isn’t just conservative and libertarian content being banned, as there is some leftist content that also goes against the establishment line.

As with almost everything, the government has its hand in the jar.  Congress will pull the CEO of Facebook to be grilled, but they don’t seem to give the same treatment to the intelligence agencies that are supposed to be under its domain.  Let’s remember that Congress is responsible (or is supposed to be responsible) for funding all government spending.

We also don’t know just how much the government is pressuring these social media companies to censor content.  There are several recent articles, such as this one, that describe how the government is involved in banning this content.

Unfortunately, many conservatives – and even worse, some libertarians – are calling for the government to stop this social media censorship on grounds of free speech. They justify it because they say these are not really private companies.

But is this really the solution?  First of all, why would people who criticize the government then expect the government to go in and solve the problem?  This is the dictator syndrome, where people say what the solution should be (with more government control), and they expect the law to pass just as they describe it.

The whole nature of government is gaining power, corruption, lobbying, cronyism, and backdoor deals. Why would this be any different in this scenario?  We can demand that the government go in and stop Facebook from censoring certain content, but then that gives full reign to the government to control everything dealing with social media, including other companies.  And why wouldn’t the same people in government who are encouraging Facebook and others to censor content continue to rig the game when they are given even more power?

As a side note, it is interesting that these social media companies supposedly censor content for promoting violence.  If that were true, it should only be the libertarian content that is allowed. Unless you are just stating pure facts – such as, “Donald Trump signed legislation today” – then virtually every political post is advocating violence because that is what government is. Virtually all government involves the initiation of violence.  This is what differentiates it from most of the rest of society.

Cut Budgets

It is not that conservatives and libertarians should not be critical of what is going on.  It’s just that the solution is not more government.  The solution is less government.

This is an opportunity, especially for libertarians, to criticize what is going on and to call for massive budget cuts.  It is wrong that any government-funded company is teaming up with Facebook. It is wrong for people in Congress to threaten, intimidate, or even question the CEO of Facebook or anyone else in private business.

Libertarians should propose defunding any organization that is receiving government funds and in any way involved in “helping” social media companies or controlling them in any way.

Some will say that Facebook, Google, Twitter, and other companies are like monopolies.  But just because they happen to dominate their markets now, it doesn’t mean that will always be the case.  There are competitors, and if the censorship gets bad enough, they will lose business.  It can happen a lot more quickly than one expects.

We need these choices though.  We need for the government to stop interfering with what these companies do.  It is economic fascism.  We need a free market.  If the head people at Facebook still want to delete content just because it goes against their political beliefs, then that is their choice.  It is also the choice of the shareholders on whether they want to throw out the Board of Directors and get people in there who prefer profits over politics.

Again, we don’t know how much of this is based on coercion and how much of this would happen in a truly free market.

There will always be decisions made by individuals and individuals running businesses that we don’t agree with.  But it is their business.  You can criticize it, and you can choose not to do business with it, assuming a relatively free market.

I may not like the way my local grocery store stocks its shelves.  When they advertise good sale prices, I wish they would order more inventory so it doesn’t run out.  There are many places I criticize for certain things, yet I still do business with them.  There are others that went too far in not pleasing me, so I don’t do business with them.

As libertarians, we must favor property rights, which includes the property rights of business owners and the managers they hire.  If the government is involved in controlling that business, we should demand that government power be removed.  We certainly shouldn’t advocate for even more government control.

The way to remove government power is to cut budgets.  Unfortunately, we are not hearing much noise for budget cuts or the defunding of entire agencies.

Libertarians, and some on the political right, sometime refer to those in the green movement as watermelons.  They are green on the outside and red (communist) on the inside.  They advocate environmentalism to cover for their socialism.

When communism/ socialism fell out of favor with the fall of the Soviet Union, the proponents of this violent philosophy needed some cover, so they turned to environmentalism. After all, who can argue with wanting a clean environment?

Of course, with the modern-day green movement, virtually everything they advocate involves more government control and intervention.  It is an excuse to bring us socialism under a different name.

This past week, one of the winners named for the Nobel Memorial Prize in Economic Sciences was William Nordhaus.  To quote Wikipedia about the prize, “As it is not one of the prizes that Alfred Nobel established in his will in 1895, it is not a Nobel Prize.”  Still, it is highly regarded by many.

The prize is mostly an award given by the establishment.  It has typically gone to Keynesians or other types who advocate big government.  There are exceptions.  The most notable exception was when it was awarded to F.A. Hayek in 1974.  While I prefer Ludwig von Mises to Hayek, Hayek had many great contributions as a member of the Austrian School of Economics.

Nordhaus won the prize for “integrating climate change into long-run macroeconomic analysis”. In other words, he is a watermelon.  He has helped to justify government intervention into the marketplace by using so-called climate change as a basis.

This is typical of the establishment.  They will always find some “expert” to validate what they want validated. I have said before that if Keynes hadn’t existed, then they would have found someone else to justify the economic interventions of the 1930s and beyond.  They would have found some other “expert economist”.

You will find the same thing with any other topic involving state intervention.  Whether it is foreign policy, or healthcare, or monetary policy, or education, the establishment will find some “expert” – as chosen by the establishment – to present what they want presented.

Nordhaus is Leaky

Nordhaus is the co-author of the textbook Economics.  Paul Samuelson – another Nobel Laureate – wrote the original editions.

One of the quotes pulled out of the Economicstextbook is as follows:

“The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.”

How did that theory work out for them?

That was just before the collapse of the Soviet Union.  It really was like Bangladesh with missiles.

No matter how hard the watermelons try to cover up their radical violent beliefs (because communism and socialism require extreme violence), they can’t help themselves sometimes.

Sometimes the red leaks out.  They are leaky watermelons.  William Nordhaus is a leaky watermelon.

He will promote his green agenda and tie it into his socialist economics, but sometimes he can’t help himself and his socialism is fully exposed.  It becomes obvious that he cares more about his socialist command economy than he has ever cared about the environment.

This is the kind of garbage that will get you the title of Nobel Laureate.  If you can help justify the command economy based on environmentalism, then you have a place in the establishment.

It is sad that someone can be an advocate of the Soviet command economy, yet receive this prize, let alone be respected at all in the field of economics.  The communism of the Soviet Union produced great poverty and misery.  And the system could only be enforced at the point of a gun, which resulted in tens of millions of deaths.  That is quite a record.  It’s no wonder the socialists need to find some cover.

There is a saying, at least amongst economists, that the cure for high prices is high prices. In a market that is allowed to function at least somewhat freely, higher prices will generally lead to more supply and less demand.

For example, let’s say that the price of bananas goes up significantly.  As a result, some people who marginally like bananas cut back on their consumption.  And since the price is higher, it serves as a signal to suppliers to grow and sell more bananas.  As people cut back consumption and more bananas are sold in the marketplace, the price should go down (with the typical economic caveat of “all other things remaining the same”).

Oil is also a good example.  If the price of oil goes up, then many people will reduce their consumption (such as driving less). It also becomes more profitable for suppliers to enter the market or increase supplies.  This serves to drive prices back down.

This does not always hold true because there are other variables.  In other words, all other things do not remain the same. If the price of bananas went up because of an overall general increase in consumer prices, then it may not be profitable for suppliers to produce more bananas.  If it becomes more expensive to extract oil from the ground, it may not be profitable to drill for more oil, even with higher prices.

Still, the general rule that higher prices is a cure for higher prices is useful.  We can also apply it to interest rates, which is essentially a price on money.  When interest rates go up, it can become more attractive for investors to buy bonds.  Without any other considerations, a bond that pays 3% interest is more attractive than a bond that pays 1% interest.

There are some major differences though between bonds and bananas.  Beside the obvious that you can’t eat a bond (or at least I don’t know of anyone having done so), I see the major difference being that interest rates are far more significant.  Virtually every transaction involves money, and virtually every loan involves interest rates.  The bond market is humongous and impacts just about every other market there is.

10-Year Yield Spikes, Stocks Crash

Interest rates move in the opposite direction of the bonds.  If interest rates go up, the price of the bonds go down.  So far in the month of October, the 10-year yield has spiked higher.  As I write this, it is above 3.2%.

I write this on the evening of October 10, 2018.  Stocks were clobbered today.  The Dow went down over 830 points.  The Nasdaq went down 315 points, which is over 4%.  Many think this is a reaction to the higher long-term yields.

The yield curve had been flattening, which indicates a possible recession.  In October, the long-term rates have been rising faster than the short-term rates.  In other words, the yield curve has slightly steepened.  Yet, it was this steepening, with higher long-term rates, that is supposedly spooking investors.

The 10-year yield finished essentially flat for the day.  I don’t expect this to continue if the down stock market turns into a bear market.

I am not saying that this is the beginning of a bear market in stocks.  I really have no idea.  We were faked out earlier in the year with some major down days. What I am saying is that when the bear market in stocks does come – and it will come – then the long-term interest rates are likely to fall back down.

I know that libertarians see the disaster of the bloated federal government and the ever-growing national debt.  It is almost hard to believe that the government could be running trillion dollar deficits during supposedly booming times, yet interest rates are still relatively low by historical standards.

But here we are, and the fact remains that most investors view U.S. government bonds as a safe haven investment.  As long as price inflation is seen as contained, then bonds will continue to be a refuge for those seeking safety.

That is why, if we hit a major downturn in stocks, investors are going to seek safety in long-term bonds.  If the bond investors are as smart as they are made out to be, then bond prices should start going up before stock prices collapse, or they should at least rise simultaneously with falling stocks.  In other words, long-term interest rates should fall with a falling stock market.

I don’t put too much weight into one day.  Stock investors likely see this as a one-day selloff from an overheated market.  Most are not predicting an imminent bear market.  The people who think a bear market is coming and coming soon are mostly out of stocks already, at least to a large degree.

If we see more down days where the board stock market is falling 3 to 4 percent or more, I fully expect the 10-year yield (and higher) to start moving down again.

The cure for high long-term yields is high long-term yields.  We may be seeing that this week.  Once the 10-year yield spiked up in just a few trading days, stock investors started to get nervous of the prospect of significantly higher rates.  This likely contributed to the selloff we saw.  But if stocks keep selling off, then this should move rates back down.

It may all seem confusing, and it is to a certain extent.  Regardless of what should happen, we are dealing with the decisions of millions of people (buyers and sellers).

I think there are bubbles in both stocks and bonds.  But I think the stock bubble will collapse first.  The bond bubble has slightly deflated in the last couple of years, but I expect it to be blown back up again when stocks go down and investors seek safety.

We aren’t going to see a full-blown collapse of the bond bubble until we see significantly higher consumer price inflation.  Otherwise, the Fed will just print more digital money to prop it up if the Fed members don’t have to worry about high price inflation.  The Fed will allow rates to rise, but not too far if there are few worries about price inflation.  I don’t think investors, at least for the time being, are going to let rates rise too far either.

Suze Orman recently made an appearance on the Ask Anything podcast hosted by Paula Pant.  The interview was about an hour long, and it largely focused on the FIRE (financial independence, retire early) community.

I listened to the whole interview, but the parts I discuss below are not necessarily exact quotes from the podcast.  I encourage anyone to listen to the whole podcast if you want to hear exactly what Suze Orman said.

The interview started off with Paula asking Suze if she has heard of the FIRE community and what she thinks of it.  Suze quickly responded that she hates the idea of FIRE (she didn’t say she hates the people pursuing it).

For those who have listened to Suze Orman in the past, you probably know that she tends to hit on a lot of the same points over and over again.  I think Suze gives a lot of good advice, as does Dave Ramsey. I wrote on this topic a long time ago.  One major exception is that I generally don’t agree with their investment advice.  I recommend something similar to a permanent portfolio setup.  I certainly don’t advocate putting most (or all) of your investment money into a broad market index fund.

On personal finance matters, I think many people would be well served listening to Suze Orman (and Dave Ramsey as well).  They are very good about telling people to get out of debt (with the possible exception of mortgage debt).

The problem here is that the FIRE community tends to be a little more advanced than the general population in the subject of personal finance.

The FIRE community is still relatively small, but growing rapidly.  It is also a very passionate community.  The problem, if you want to call it that, is that there are a lot of varying opinions within the FIRE community.  My biggest disagreement with the FIRE community is on investing, as many people advocate the “buy-and-hold index funds” theory. But even here, there is some diversity of opinion.  In a financial independence forum, I recently saw a few people speaking of a major stock bubble and warning of a possible crash in stocks.  One even referred to stock investing as gambling.

When Suze said she hated the concept of FIRE, it was not about investing.  She said that most people should have at least $5 million if they want to retire (or possibly $10 million).  She said if you are like Bill Gates or Warren Buffett or her, then it is probably ok to retire.  If you have $20 million or more, then you should be fine as long as you aren’t reckless.  Of course, very few people on this planet have $20 million or more.

Throughout the episode, Suze kept hammering on the fact that things go wrong in life. Unexpected things happen, and even insurance can’t necessarily cover all of these things.  She kept pointing out disaster after disaster that could happen.  She said that she has basically seen it all and that anyone looking to retire early is testing fate. She thinks most people should work until they are at least 70.  She did add that you should find something you love to do so that work is not miserable to you.

Prepare For What’s Possible

The podcast episode was likely very interesting to anyone who is interested in personal finance. It has received a lot of feedback, particularly from the FIRE community.  I have seen many discussions on forums, as well as comments directly on the platforms where the podcast episode was published (such as YouTube).

Some comments really took Suze to task.  With anything on the internet that generates a lot of interest and discussion, there were a few nasty things said about her, although the majority of what I saw was at least respectful, if disagreeable.

There were a few comments that said Suze made many good points and that they were even reconsidering some of their own thoughts on the overall subject.

A lot of the comments I saw though were largely in between.  They disagreed with Suze on many points, but also conceded that she brought up some valid concerns that should be considered.  For this reason, I think it was a successful podcast episode.  You don’t have to get everyone to agree with what you said.  But if you get people thinking and reflecting on their own situation, then it should be considered a success.

I do with investing what Suze Orman does with personal finance.  She talked about all of the things that can go wrong.  It’s not that they will go wrong.  I say the same thing about investing.  I often refer to a Japanese investor who put all of his money in the Japanese stock market in 1989.  Three decades later, he is still down.

It’s not that it will happen again or that U.S. stocks will do the same thing.  It is just that it is possible.  I am not saying to invest for this scenario.  I am saying to prepare for this scenario because it is a realistic possibility.  Instead of asking what will happen or whether something can happen, just ask if you are prepared for it if it does happen.

The Misnamed FIRE and the Nuances of FI

After the interview, Paula Pant talked about the conversation.  She simply said that she does not think Suze understands FIRE. She said that Suze doesn’t understand the nuances involved.  I think Paula is correct.  I had been thinking the same thing throughout the interview.  I’m not sure why Paula did not bring this point up during the interview.  Maybe she thought it would seem disrespectful, but I still think it could have been brought up in a devil’s advocate kind of way so as not to sound disrespectful.

The misunderstanding is not all Suze’s fault.  Perhaps her only fault is that she has not listened or read more varying opinions the subject.

The reason I say it is not all Suze’s fault is because I think the name FIRE does not represent everyone in the community.  It may not even represent the majority.  That is why I prefer “FI” to “FIRE”.  It should just be financial independence, without the retire early portion.  The people at Choose FI got this right when picking a name.

As Paula said after the interview, many people are not looking to retire.  They just want choices.  There are people who love their job who are pursuing FI. They want options in case something changes in their life.  What if the nature of their job changes and they no longer like it?

To many people, pursuing FI is more about having “FU Money”, for lack of a more eloquent term.  This doesn’t mean you are going to walk into your boss’s office and tell him to shove it.  It just means that you have the option of quitting and still being fine for a while.

Many people pursue FI so that they can do exactly what Suze recommended.  They can find a job they love.  Most people (not all) are not pursuing FI so that they can sit around on the beach for the next 50 years of their life.  They will still have goals, and they will likely still make money.  But having a relatively frugal lifestyle, coupled with significant savings, allows flexibility.  Instead of working at the corporate job that pays $100,000 per year, they can do something they love that pays $40,000 per year.

And as many have pointed out, there are people who consider themselves to have reached FIRE, yet they are still saving money.  They are still working and living frugally, and they are not drawing down their savings.

Praise and Warning are Appropriate

I do see some people who are pursuing FIRE who are a disaster waiting to happen.  It is probably this minority that Suze thinks is representative of the whole community.  Regarding these people, I think her warnings are highly appropriate, and I do think there are going to be some disaster stories in the future.

I have seen some people who say they can live on $40,000 per year.  At 25 times this (4 percent withdrawal rate), it is a million dollars.  I have even seen some people say they are going to retire with just $500,000 and live frugally. One major setback, such as a big medical expense, could completely shatter these plans.  These are the people who need to listen to this episode and take Suze to heart.

But for the group that is living relatively frugally, or who at least have a high savings rate, and are still planning to work for a while, they should be praised.  Now this group can also benefit from listening to this interview with Suze, but they will recognize where she goes wrong.

Let’s say someone has amassed a net worth (not including home equity) of $500,000 by the time they are 40 years of age.  But this person is still working and not drawing down the savings.  Even if they have to walk away from their job and find another one, that $500,000 in savings is quite a cushion.

In this discussion, we have to remember the comparison with the average person, or even the average American.  The average American who is 40 years old has nowhere near $500,000 saved up.  If he is lucky, he might have a retirement account with $100,000 and home equity of $100,000.  But even this might be stretching it.

A large percentage of the American population would not be able to afford an unexpected $5,000 expense without going into debt.  If Suze wants to hate a particular concept, she should direct her ire at the average American who barely has two pennies to rub together.

Even the irresponsible FIRE person seems to be in a much better situation than the average American.  If someone retires early with $500,000 and is hit with unexpected expenses, or inflation ends up being higher than what was accounted for, then this person will know they are in trouble before their bank account balance hits zero.  If this person goes down to $200,000 and realizes at that point that the situation is unsustainable, then they can go back to work.  They are still better off going back to work with $200,000 in savings than the person who has been working all along and still has close to zero with a more expensive lifestyle.

In the interview, Suze brought up a scenario several times of a person getting sick or incapacitated and being unable to work.  She stated this as a reason people should keep working until they are at least 70.  But again, compare the FIRE person to the average American.  Think of a guy who is 50 years old and is “retired” with $500,000 in the bank.  Then think of a guy who is 50 years old and working with $100,000 in the bank.  Let’s say they both get sick and are unable to work.  Which one is better off?  Sure, maybe the guy who retired early would have been better off in retrospect if he had kept working up to the age of 50 when he got sick, but he is still much better off than the other guy.

So while Suze brought up many great points in the interview, her message is even more appropriate for the rest of the American population who have never considered (or heard of) FIRE.  But it is only the FIRE community that will listen to her message and consider some of her points. Most other people are living in a different world and probably don’t spend one hour a month thinking about personal finance.

Therefore, the FIRE community deserves some praise, even if some people within it may not be making the wisest decisions.  The FIRE community is many leaps ahead of the average person when it comes to personal finance, and this should be recognized.  Now we just need to change the name by dropping the RE (retire early).  It is not about retiring early.  It is about having more freedom and choices.

When it comes to looking at the big picture of the economy, I appreciate some of the writings by Terence Jeffrey.  I was glad to see that the Drudge Report headlined his recent article on the U.S. national debt.

Jeffrey pointed out that the federal debt increased by over $1.2 trillion in fiscal year 2018. If anything he may have understated the numbers, and he certainly didn’t include the unfunded liabilities that will become the biggest drag on the economy.

This was the eighth year (of the last 11) that the government ran an annual deficit that exceeded the $1 trillion mark.  Unsurprisingly, it was 2008 when everything started to go downhill. The major recession and financial crisis forced states and cities to tighten their belts, at least a little bit.  The federal government went the other way, with spending exploding.  The bailouts were bad enough, but the overall spending has remained elevated since then.  We are supposedly in prosperous times, yet the federal government is running a deficit that is over $1 trillion.  What will happen when the next crisis hits?

Where I really appreciate Jeffrey is that he breaks down this unfathomable amount into something that is understandable to the layman.

He states, “According to the Bureau of Labor Statistics, there were 155,542,000 people with jobs in the United States in August. That means that the $21,516,058,183,180.23 in federal debt at the end of fiscal 2018 equaled approximately $138,330 for every person in this country who works. The $1,271,158,167,126.72 increase in the debt in fiscal 2018 alone equaled approximately $8,172 per worker.”

Please understand that this is just the deficit.  The figure of $8,172 is just the on-budget deficit for one year. This does not account for all of the other federal spending that was done through the collection of actual taxes.  It also doesn’t account for all of the spending done at the state and local levels.

In fiscal year 2019, the federal government is projected to spend about $4.4 trillion.  This comes out to about $28,288 per worker. Consider that some families have more than one worker.  And again, this is just the federal government.  It doesn’t account for state and local spending.

The Middle Class Pays a Lot

There is not an even distribution as far as taxation goes.  It is impossible to figure out exactly how much each person is paying.  The poor do pay some taxes, but they also receive state welfare benefits to a greater degree. In many cases, these things probably cancel each other out (without looking at the longer-term picture).

Some people will respond that government spending is not the proper measure and that we should look at individual taxation.  But there are problems with looking at just taxation.

First, virtually all taxation is ultimately borne by the individual.  You can call something a corporate tax or an employer tax, but it is eventually coming out of the pocket of some individual.  This can come in many forms such as reduced shareholder values, higher consumer prices, and lower wages.

Second, government spending is a much more proper measure of overall taxation because it factors in debt and inflation.  When the government spends $4.3 trillion in a year, it doesn’t matter if the government collected “only”, say, $3.1 trillion.  It is still spending – or perhaps more accurately, consuming – $4.3 trillion in resources.  The $4.3 trillion is using up real resources that are now unavailable to anyone else.  At best, this spending is a misallocation of resources.

This is why overall government spending is the number one factor of why the American middle class is struggling so much, despite the supposedly strong economy.

If federal government spending were half of what it is now, then the average worker would have about $14,000 more to spend each and every year.  Per family, the amount would be even more than that.  What would you do with this extra money?  That sure would go a long way towards helping pay the bills, saving for the future, helping the family, doing house repairs, etc.

There are certainly many causes for the high government spending.  The Federal Reserve makes it possible for the federal government to run these huge deficits without interest rates spiking up.  There is obviously a lot of lobbying and corruption going on in Washington DC.  And ultimately, the American people are responsible for allowing this to happen and for being tricked into thinking there is such a thing as a free lunch.

In many ways, we live in great times.  Our living standards are high, and the technology we are able to enjoy is incredible.  But then on the other hand, many families are working a lot and still struggling to pay the bills. It doesn’t have to be this way.

The number one thing we need from an economic perspective is a drastic reduction in government, particularly when it comes to overall spending.  We need for the federal government to stop consuming such vast amounts of resources.  Until we see a significant reduction in government spending, the middle class is going to continue to have significant struggles.

The state of California continues to lead the way in statist policies.  It has become the first state that will require women to be placed on corporate boards.

Publicly traded companies headquartered in California will be required to have at least one female director.  They will eventually be required to have two female directors if there are five directors on a board, and three females if there are six or more members.

This is wrong on so many levels, but let’s start with a basic libertarian premise.  This legislation is wrong because it violates property rights.  The shareholders of the company supposedly own the company, yet they are being told how to run their company.  Therefore, the state of California is acting as part owner. It is not fully socialist, as the government is not taking over ownership of companies.  It is economically fascist, as the state dictates how each company will be run.

It is also against libertarian principles because it violates freedom of association. Companies are already prevented by law from discriminatory hiring practices.  Now, to go along with not being allowed to discriminate, they are also being required to discriminate – in this case, against men.

One of the state senators who sponsored the bill, Hannah-Beth Jackson, stated, “We are not going to ask any more.  We are tired of being nice.  We’re tired of being polite.”

Well, at least she is being honest.  They are not asking any more.  Instead, they are using the threat of violence.  Instead of asking companies to hire more women, they are pointing a gun telling them to do so.  They don’t explicitly point the gun unless it is absolutely necessary.  But you can be certain that if any companies disobey the law and they don’t pay the necessary fines, then the guns will eventually come out in full force.  That is the nature of socialism and the caring political left.  If persuasion doesn’t work, then bring out the government guns.

Aside from the abhorrent immorality of the law, there are certain to be unintended consequences. While this law by itself is not likely to cause a major company to pick up and leave the state, it is another bureaucratic straw on the camel’s back.  Eventually the camel collapses.  Or eventually Atlas will shrug.

What is a company supposed to do if there are no qualified women who want the job?  Are they supposed to beg somebody to take the job who isn’t qualified?

Men and Women Are Different

Other than the obvious differences, it is hard for the politically correct crowd to acknowledge that men and women are different.  In fact, they are trying their best to demonize anyone who does acknowledge that there are significant differences.

Of course, every individual is different.  But anyone who says there is no difference between men and women is just not being honest.  There are some women who like math and engineering and who are good at those things.  But in general, there are more men drawn to these fields.  There are also more men drawn to playing chess.  This isn’t sexist to recognize these things. It is being a realist.

At the same time, many women have absolutely no desire to be on the board of directors of a major company.  There are some men who would never want this either.  But in terms of percentages, there are more women who probably don’t want this. Many want to have children. Some mothers want to stay home with their children.  Some mothers want to have a flexible job where they can pick up their children from school.  They don’t want to get home at 6:00 PM or later to only see their children for a short time before bed.  Women tend to be more nurturing.  It isn’t sexist to say so.  It is a biological fact.

The state of California is trying to force this onto people who may not want it forced.  Is the “liberal” left really that determined to make sure mothers go off to work in a full-time job in order for the state to raise their children?  It would appear that way.

There will be many other unintended consequences from this legislation.  If unqualified women are forced into these positions, will they get paid the same as the men?  And if not, will that just exacerbate the so-called wage gender gap that the left continually complains against?

What happens when there is a female who has transitioned into a man?  Will that person count as a man or a woman?  If you had one spot left to fill, and the spot had to be filled by a woman, would this be discrimination against a transgender person?

And what if a man puts on a wig and identifies as a woman?  Would he/ she be eligible to fill the spot for a woman, or would there be forced discrimination against this transgender as well?

We can already see the politically correct left getting trapped in its own web.

This is just more big government trying to mask itself as being modern and caring.  In reality, it is more threats of violence being employed in society in an attempt to solve a social problem – regardless of whether or not it is a real problem.

Initiating violence doesn’t solve anything.  It ends up causing more violence, regardless of the stated ends it is supposed to achieve.  It divides our society, and it also makes us poorer than we otherwise would have been.