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.

In a recent speech, Michelle Obama stated, “I am sick of all the chaos and the nastiness of our politics.  It’s exhausting and, frankly, it’s depressing. I understand wanting to shut it all out.”  She said this at a rally to get out the vote for the upcoming elections.  Of course, when she is trying to encourage people to get out and vote, she is really saying she wants people to go out and vote for Democrats.

But I want to particularly focus on her statement about “the nastiness of our politics”.  She is correct that politics is quite nasty. She has insinuated at other times that the nastiness and divisiveness is coming from Trump and his hardcore supporters.

I think everyone has to be realistic and realize that the nastiness of politics didn’t start on November 8, 2016 when Trump was elected president, or on the day after the election.  It didn’t start when Trump took office in January 2017.  It didn’t start when Trump started running for president.

You could say that Trump’s election was a symptom of the divisiveness of politics.  Some people were tired of the status quo, and Trump was their option to revolt against the status quo.  Others chose Bernie Sanders.

There are probably almost as many Americans who couldn’t stand Obama during his time as president as there are Americans currently who can’t stand Trump.  The difference is that things were a lot quieter during the Obama years.  Sure, if you turned into conservative talk radio, or Fox News, or certain websites, then you could hear opposition to Obama.  But most of the establishment media sources did not oppose Obama in any meaningful way.

With Trump, it is non-stop opposition on almost everything.  It isn’t just the news shows either.  Stand-up comedy has been wrecked by Trump.  Or better stated, stand-up comedians have wrecked themselves with their Trump Derangement Syndrome (TDS).  I can’t even tune into any of the late night shows any more.  And Saturday Night Live just ceases to be funny when any politics are involved.

Saturday Night Live has always made fun of presidents and other politicians.  But the show tried to at least have the appearance of being somewhat even-handed, and it was at least funny some of the time. When the show tries to make fun of Trump, it just comes across as overbearing and trying too hard to make him look bad.  Their number one priority has shifted from making people laugh to trying to make Trump look evil or like a buffoon.

Why Politics is Divisive

Politics has always been nasty and divisive.  That is because politics involves the obtainment of power.  It involves being able to use force or the threat of force against other people in order to tell them how to live their lives.

I’m sure you have had arguments over politics, whether it is with a friend or coworker, or with someone on Facebook.  Sometimes these arguments can be quite nasty.  Relationships have been broken due to disagreements over politics.

Unfortunately, this is largely because there is so much at stake.  Nearly everyone is trying to tell everyone else how they should live their life.  They are trying to dictate what they are allowed to earn, what they are allowed to keep, what they are allowed to put in their body, with whom they are allowed to associate, and with whom they are allowed to trade.

Think about other areas in your life that don’t involve government or the use of force. You might like to drink Coke. Your friend might like to drink Pepsi.  Another friend may prefer water over either of them.  You can all peacefully disagree.  You probably aren’t going to argue about it on Facebook.  If you do, it will likely be a friendly disagreement of personal taste and will not lead to any strain in relationships.  It is because there is no force involved. You can choose whatever option you want.  Your choice is not being imposed on you by your friends or anybody else.

Politics is nasty because people are vying for power that they want to use against others. Some may say they want the power just so that it is not used against them.  But this is rare, and when someone does gain the power, it becomes almost irresistible not to use it.

This is what happens when there is great power to be gained.  This is what happens when people look to use the violence of government instead of the peace of the marketplace.

The only answer to greatly reducing this nastiness and divisiveness is to drastically reduce the state power.  This means drastically reducing budgets.  This means drastically reducing the size and scope of government at all levels.

Given that we do live in a world of big government, we should be thankful that there is nastiness.  This means that we still have the ability to speak out and tell the truth.  We don’t want to live in a place where the nastiness is hidden.  This is a totalitarian society.  Perhaps there was little nastiness, at least on the surface, in places like the Soviet Union, Cuba, NAZI Germany, or today’s Venezuela.  For anyone who openly rebelled, it likely meant severe punishment, which could include death.  In terms of the freedom to speak against government, the United States is probably the best place to live on the planet.  I would rather nastiness than quiet being enforced at gunpoint.

Michelle Obama can talk about the nastiness of politics all she wants, but she and her husband are part of the problem.  They pursued power over others, so what should she expect?  When you force people to do things, some people aren’t going to like it.  She wants to silence these people.  Her version of getting rid of the nastiness isn’t reducing the power of the state.  Her version is silencing the opposition.

The Federal Open Market Committee (FOMC) released its latest monetary policy statement.  As expected, the FOMC raised the federal funds rate, which is the overnight lending rate for banks.  The new target range will be from 2% to 2.25%.  You can see the changes made from the last statement here.

More interesting than the FOMC statement itself is the implementation note.

First, in order to raise the target federal funds rate, the Fed must raise the interest rate paid on bank reserves.  It cannot easily raise the interest rate any other way barring a massive deflation in the money supply or a massive hike in reserve requirements for banks. Neither of those things is going to happen, at least to the extent that would be necessary.  Therefore, the Fed must pay interest to banks to hike its target interest rate.  This is more bailing out of the banks, although we do not generally hear this policy referred to in those terms.

The implementation note reads:

The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on required and excess reserve balances to 2.20 percent, effective September 27, 2018.

The rate paid to banks is actually slightly below the upper limit of the target rate.  This was also done in the previous hike in order to achieve the targeted range.

The second interesting thing in the implementation note is regarding the Fed’s draining of the balance sheet.  They are allowing some maturing assets to mature without rolling them over.  This is basically the equivalent of selling off assets, at least in terms of the size of the balance sheet, which is the base money supply.

The implementation note reads:

Effective in October, the Committee directs the Desk to roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $30 billion, and to reinvest in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion.

Therefore, starting in October, the Fed will not be rolling over up to $50 billion per month in maturing debt.  Broken down, this is $30 billion per month in Treasury securities and $20 billion per month in mortgage-backed securities.  It is still not completely clear on what the Fed does with non-performing mortgage-backed securities.

Overall, the Fed is in monetary deflation mode.  This is after an unprecedented growth in the base money supply from 2008 to 2014.  The balance sheet will never return to anywhere near what it was in early 2008.

We don’t know what will happen to the massive excess reserves built up by the commercial banks. We should expect them to go down with the Fed’s deflation of the base money supply.  The excess reserves actually look to be going down faster, which could offset some of the Fed’s deflationary policy.

However, they did trick us on the way up.  When the Fed was creating money out of thin air like crazy starting in late 2008, many people were predicting severe consumer price inflation.  We have gotten some high asset price inflation (particularly in stocks and housing), but consumer prices have been relatively tame in comparison to the digital money printing that happened.  One of the reasons for this was that banks held on to the new money and did not lend out a lot of it.  The fractional reserve lending process did not multiply the effects of the Fed’s loose monetary policy.

After the FOMC released its latest statement and people digested the words of the Fed chair, long-term rates on U.S. Treasuries went down a bit.  The short-term rates were relatively flat.  For the month of September, the yield curve stopped flattening and actually steepened a little.  On September 26, 2018, this slightly reversed.

I still think that the yield curve is our best source of data right now.  A flat or inverted yield curve is the best predictor of recessions, and I see no reason why it would fail us this time.

If we are to believe the Austrian Business Cycle Theory, then there should be a liquidation of the bubble activity that sprang up on the back of the Fed’s loose monetary policy. While the Fed’s target interest rate is still historically low, it is going up.  And in terms of the monetary base, the Fed is currently deflating.  This means that the artificial boom activity that relied on loose money and artificially low interest rates should be exposed in the somewhat near future.  We don’t know how long this thing can play out. I have to admit that the boom has lasted longer than I would have thought.

The boom is only a boom for those who have been able to benefit from the asset price inflation. For the average guy who doesn’t own a lot of stocks, and especially for those who don’t own a house, there isn’t much of a boom.

When the boom finally goes bust, the people hurt the most will be those who lose their job, and those who own a lot of assets, especially if they are leveraged.  For most everyone else, the bust may not be that bad.  In fact, it may help make life a little bit more affordable once again.

We hear stories about people winning the lottery and then losing all of their money within a relatively short time period.  It is no coincidence that this is a frequent occurrence.  People who are poor and don’t know how to handle money still don’t know how to handle money if they happen to stumble upon some of it.

The majority of people who play the lottery on a regular basis are not good with money.  If they were good with money, they probably wouldn’t be playing the lottery.  I am speaking in generalities.  There are exceptions.  There are people who are good with money who also throw a couple of bucks each week towards the lottery, whether it is buying a couple of tickets or contributing to the office pool.

There are stories about people winning the lottery who handle their money quite well. These are people who probably already had some accumulated wealth, or at least would have likely accumulated some in the future.

There are self-identified socialists and welfare statists out there who think we need more equality.  The problem is that they are not talking about getting rid of the Federal Reserve, which disproportionately hurts the poor with the inflation tax.  They are not talking about getting rid of government regulations that keep the poor from competing against businesses.

The socialists and welfare statists want more equality of outcome through wealth redistribution. Whether they know it or not, they are advocating that everyone be poorer.  They can get more equality by making everyone equally miserable, except of course for the elite running the show.

Nobody is equal in this world.  You probably heard it from your parents that life is not fair.  We are all born with different looks, different talents, different skills, and a different environment.  LeBron James was lucky in that he was born with DNA that gave him great size and extraordinary basketball talent.  That’s not to say that he hasn’t worked hard.  It’s just that there is almost nobody else on this planet that could have been as good of a player as LeBron James, even if they devoted every free second to working on basketball.

The fact that we are all different is actually a great blessing.  I have no idea how to build a car and don’t know much about fixing a car.  Yet I drive one almost every day.  I am lucky that there are people in this world who do know how to make cars and fix cars.  If everyone were the same, we wouldn’t be blessed with the division of labor that we have that makes us so wealthy.

Why the Rich Get Richer

We could take all of the wealth in the world and divide it up equally amongst the 7 billion plus people on the planet.  This would be impossible, but let’s just say that it was possible.  It would be quite devastating just in the shifting of resources.

But let’s just say this could be pulled off, but it was a one-time socialist policy.  If the policy continued that everyone would stay equal, then it would be a typical socialist disaster such as the Soviet Union, or, more recently, Venezuela.

If all of the resources were divided up equally just one time, what would happen after about 5 to 10 years?  While not everything would return exactly back to the way it was, it is easy to predict that most people who were previously wealthy would once again be wealthy, at least in comparison to everyone else.  Those who were previously poor (before the one-time redistribution) would find that they become poor again.  Just as with the lottery, there would be exceptions.

This would occur from country to country, and it would occur within countries.  The U.S. would become a relatively rich country again because of a relative respect for property rights and entrepreneurship. The people of India would find themselves poor again.

Within the United States, the people who were previously wealthy would largely become wealthy again. They would find ways to make and keep money.

There is a reason for this.  Wealth is largely a reflection of people’s mentality.  People who get wealthy and stay wealthy tend to have long-term outlooks. They tend to work hard. They tend to work smart. They also do things consistently.

Think of someone who goes to his or her job during the day and does the bare minimum.  They get home and watch television the rest of the night.

Then think of someone who goes to his or her job and puts in extra effort.  They work a little overtime to make sure their work is done and of high quality.  They get home and relax a little, but then they spend some time reading and learning a new skill.  They pay attention to their finances.  Maybe they even start a small side business.

The person that puts in extra effort and does it consistently is going to end up further ahead.  Maybe this person only does 5% more every day, but this compounds over time.  It pays dividends in the form of more opportunity, higher income, more savings, and other ways.  And again, it compounds over time.

Luck plays a big factor in life.  Your health can be subject to luck.  Your childhood was subject to luck.  There is no question you were lucky if you were born into a family with two loving parents.  Your looks are an element of luck.  Your talents are an element of luck.

At the same time, there is an issue of drive and good decision-making.  If you have drive and good decision-making, then maybe you could say that you are lucky that you were born with that.  But no matter how you look at it, those are major factors in life.  If you have a lack of drive and a lack of good decision-making, then you probably aren’t going to be successful in life. You probably aren’t going to get much fulfillment.  Ultimately, you probably won’t find much happiness.

In terms of wealth redistribution, it doesn’t solve anything.  It makes everyone worse.  It causes more poverty.  It causes resentment from both ends.  It certainly doesn’t give anyone drive or better skills at decision-making.

Wealth redistribution is a recipe for misery, whether it is done out of jealousy, envy, or truly caring about the poor.

We are not meant to be equal.  We all have different talents and different goals in life.  Some people are content with working less and enjoying a more modest lifestyle.  There is nothing wrong with this as long as they aren’t trying to force anyone else to subsidize them.

We should celebrate our inequality.  Our diversity is what makes our world go around.  And if you want to get rid of poverty, then you should advocate for less wealth redistribution, not more.  We need to create more wealth, not forcefully redistribute it.

I recently attended an event featuring Jordan Peterson.  He is on tour promoting his book 12 Rules for Life.  Peterson is a clinical psychologist, an author, and something of a YouTube star.  He was also a university professor.

At the event, there were actually a few protestors outside holding up signs and doing a few chants. I didn’t even understand their message or what they were protesting.  My guess is that most of them have never listened or read 10 straight minutes of Peterson.  If they have listened to him at all, it was probably out of context.

Peterson became somewhat well known when he refused to obey the dictates in Canada that he use gender-neutral pronouns.  In other words, Peterson did not want to eliminate the words “he” and “she” from his vocabulary. This is what our world has come to.  He took a stand based on free speech implications.

I really don’t find Peterson controversial at all.  Although he is more favored by the political right because of his refusal to give in to ultra political correctness, Peterson does not really identify with any particular political group.  He generally favors the free market, but that is no different than many people out there.  And even when it comes to politics, it tends not to be the arena that gets emphasis from him.

Most of what Peterson said at the event is common sense.  He talks about taking responsibility, being honest and courageous, and being a productive individual.  He is known to use some big and fancy terminology, and I wonder how much of a sensation he would be without it.  It’s hard to say if he would be more effective or less effective if you spoke more simply.

Peterson’s message is negative to a certain extent, but also positive in another.  He said if you find happiness, then you should enjoy it, because it isn’t going to last.  He basically says that the basic state of humans is misery and that we should find ways to better our lives and make them less miserable. He pointed out that we are in the top 1% in terms of history.  Even in today’s world, many Americans are in the top 1%, or at least in the top 10%.  I would say that most Americans are better off than more than a billion people living in China and more than a billion people living in India.  And those aren’t the worst places on earth.

I think his basic message is what has helped many young men get on their feet and take responsibility for their lives.  Sometimes you have to get back to the basics.  Even professional athletes, during times of struggle, have to remind themselves of the basics.

It makes sense that struggling people would be helped by Peterson’s message.  They already have a negative outlook on life.  Peterson is acknowledging that life is hard, which I think they appreciate.  It is just acknowledging the truth.  But then he says that you can take steps to lessen the misery and maybe actually get to a point of contentment, at least for some time periods.

There was a short little interview session at the end.  He was asked if he would consider running for president if the laws in the United States were changed.  (He is Canadian and would currently be ineligible to run.)  Peterson may not have directly answered the question, but he believes he is more effective in preaching his message.  On this, I believe he is correct.

He was also asked about wealth redistribution.  He spoke about how amazing it is that extreme poverty has largely been eliminated.  He said that if we want to eliminate starvation and extreme poverty, then we should be seeking less wealth redistribution.  We should allow the rich to get richer because it produces more wealth, even for those at the bottom.  He also spoke about people who are actually better off without money because they are self-destructive when they have money.  He used an alcoholic as an example.

Peterson’s message on wealth redistribution was right on point, and I appreciated it as a libertarian.  I am glad he said it. At the same time, from a personal standpoint, I tend to like his self-help content better just because it is different.  I travel in some libertarian circles, so I understand the benefits of free markets and have basically heard all of the arguments.  I know it is a point missed by the majority of people, so they do need to hear it.  But for me personally, I get more out of his material when he talks about human nature, happiness, and other deep thoughts that can help me think and reflect on my own life.

My one major criticism of the show is that I think Peterson talked too much (over an hour) in his monologue.  I thought it would have been better if he had just talked by himself for about a half hour and then spent an hour or more taking questions in more of a discussion format.  If he does another tour in the future, I hope he will consider this, or something similar.

I am a libertarian. I am also an advocate for good financial decisions and money management.  I sometimes tie these two things together.  At the same time, I also have to wear two different hats at times.  Let me explain.

Let’s say that I am chatting with someone and they say something along these lines: “I just don’t have very much money.  I can pay my bills each month, but that is it.  If I take one nice vacation each year, I don’t really have anything left.  I’ve been stuck in the same job for a while.  It pays the bills (barely), but it isn’t fulfilling and I don’t know how to get off this treadmill.”

These types of stories are common in America.  Admittedly, they are first-world problems.  Someone in a third-world country would be thrilled to have a job that pays the bills and allows them some luxuries as well.  They would be even more thrilled if they only had to work that one job at about 40 hours per week.

In the U.S., I have said that we live in contradictory times.  “It was the best of times; it was the worst of times.”

We have luxuries that were unimaginable even a couple of decades ago.  Compared to a century ago, it doesn’t even compare.  We have transportation in the form of cars, airplanes, and other things.  We have electricity.  We have air conditioning.  We have refrigeration.  We have these little devices we carry around in our pocket in which we can almost instantly communicate with other people, as well as use it to look up billions of pieces of information.

At the same time, middle class America is struggling, and I don’t think libertarians should ignore this fact.  Most aren’t struggling to put food on the table.  Most have a roof over their head, although the tens of thousands of homeless people in Los Angeles alone run contrary to this.  It’s just that, compared to, say, the 1950s, we aren’t completely better off.  There have obviously been some cultural declines.  But even in terms of living standards, not everything is up.

I know that most of us would not trade places with someone in the 1950s or the 1970s.  They didn’t have smartphones and some other luxuries we enjoy today.  But the prototypical family seen in Leave it to Beaver is not completely off the mark. The husband went off to work, while the wife stayed home.  She raised the children to a large extent.  When the children went to school, she took care of the house and made sure that dinner was ready and the laundry was done.  This may sound like a stereotypical example, but it was the truth to a large degree.

The wife/ mother didn’t have to work.  The husband/ father could work and make enough income to support the whole family.  They had a house. They probably had one television set, although this was still somewhat of a luxury that was not widely available yet in the 1950s.  When a child got sick, the doctor would typically make a house visit, and it didn’t cost an arm and a leg.

In today’s world, there is a far greater percentage of women in the workforce.  I know that many women choose to work.  But even here, we have to realize that the choice is more of a tradeoff.  I believe there are many working mothers who would choose not to work, or not work full time, if their husband’s income was adequate to support the lifestyle they want.  Since the family wants their smartphones, and they want to be able to take one nice vacation per year, and they want a decent sized house, they send the wife/ mother to work.  Such a lifestyle often requires two working parents.

The problem is that we should not be faced with this.  Stated differently, we would not be faced with this if we had a relatively free market.

The reason we have to work more in order to enjoy the new luxuries of life is because government has made our lives so expensive.  If you add up government spending at the local, state, and federal levels, then about 40% of your income is being consumed (misallocated) by government. For some people, their share might be above 50%.  And that isn’t even counting all of the regulations that inhibit voluntary transactions especially in some areas such as medical care.

It shouldn’t be like this.  We should be able to enjoy a much greater living standard over time without having to send the second parent off to work.  In fact, we should be able to work less while still enjoying higher living standards.  We should be able to get our smartphones and big screen televisions without having to work more and without having bigger expenses in other areas.

Wearing Two Hats

This is where I sometimes have to wear two hats.  I want to sell people on libertarianism by pointing out that much of their hardship is because of government.

At the same time, I don’t want to give them the impression that they are virtually helpless in changing their situation because of the government.  In other words, I don’t want to give them an excuse for not bettering themselves.

In the example I used above, I want to point out that the struggling person would not be struggling so much if it weren’t for big government.  If the government, particularly at the federal level, were a fraction of its current size, then each individual would have more resources at their own disposal.  This is a libertarian argument.

But I would also want to point out that this should not be an excuse to not change.  If you aren’t saving any money, then you have to adjust at least one of two things.  You either need to make more money, or you need to spend less. There is also the combination of the two things, which is often the best remedy.

If you need to raise your income, then look outside of your current job to see if you are missing something.  Don’t sell yourself short.  Or find ways to serve your employer better so that you are seen as more valuable.  There is also an option of exploring entrepreneurship or some kind of gig on the side.

On the spending side, see if there are ways you can cut back.  This isn’t about deprivation so much as it is about prioritization. Figure out what really matters the most to you and focus on those things.  Go through your budget for one month and see if you are spending money on things that just aren’t really worth it to you.

Even though big government is holding us back, we shouldn’t use that as an excuse to not move ahead. We have to play with the cards we are dealt.  I don’t think you should do anything immoral.  As a libertarian, I don’t think you should be in a position where you feel compelled to advocate for big government.  But after that, you have to play ball in the ballpark that they’ve put you in, even if you don’t like everything about the ballpark.

In conclusion, sometimes it is important to wear two hats when advising people.  But it is ok to point out that you are wearing two hats.  For their own good, and for the good of society, they should advocate more liberty.  But at the same time, don’t use the current situation of big government as an excuse not to better your position in life.

The 2018 mid-term elections are coming up in November.  We call them mid-term elections because we are using presidential elections as a base point.  They are often seen as a referendum on the president.

It must be realized that the mid-term elections tend to go against the party that occupies the presidency.  Since Trump is a Republican, the Democrats seem to be favored to gain seats in this year’s election.

In the case of Trump, I don’t think many, maybe even most, Republicans in DC like Trump.  But since the Republican grassroots tend to like Trump, the Republicans in Congress are forced to go along with Trump’s agenda.  They can’t be seen as opposing him too much, or else they risk their job, particularly in Republican primaries.

I don’t think the mid-term elections are completely a referendum against the president, even though they are viewed this way.  It is just that some voters want balance.  They don’t want one-party rule.  They want some opposition against the most powerful person, or at least whom they view as the most powerful person.  Some of this is conscious, while some may just be instinctively voting this way without deeply thinking through it.

In this respect, the voters are not completely wrong.  We typically are better off when there is not one-party rule across the presidency and Congress.  When Bill Clinton was president with a Republican Congress, there was actually some spending restraint.  On the other hand, when we had Bush and the Republicans controlling Congress, we got massive spending and deficits.  We also got massive entitlement expansion (Medicare prescription drugs) and war under Bush, but that was more of a bipartisan effort. Under Obama and the Democrat Congress, we got Obamacare.  Once the Republicans took over Congress, we didn’t get any more massive expansions in spending.

This certainly isn’t a perfect science, and the government can easily expand under any combination. But there is a tendency to have a little more gridlock when there is not one-party rule.  I view this as positive.

There have been some good things with Trump domestically so far.  The cut in taxes, particularly corporate taxes, is positive.  The repealing of regulations is positive.  However, the spending and deficits have exploded that much more under Trump, and his tariffs are a disaster.  On foreign policy, he has made some peace motions toward Russia and North Korea, but he has been bad in many other ways, including the continuation of wars in the Middle East.

For the mid-term elections, there are basically three possible outcomes.  One, the Republicans maintain control of both houses of Congress.  Two, the Democrats win both houses of Congress.  Three, the Democrats win a majority in the House of Representatives, but do not win enough seats to gain a majority in the Senate.

It is technically possible that the Democrats could win the Senate and lose the House, but this is highly unlikely.

Perhaps the best-case scenario for liberty is that the Republicans lose the House but keep a majority in the Senate.  This would provide some opposition to Trump, although the opposition might come on all the wrong issues.  Keeping the Senate for the Republicans would likely ensure better potential candidates for any more Supreme Court openings, but even here we can’t be certain.

So what about the economy?

In short, I don’t think it is going to make much of a difference what happens.  If Trump and the Republicans want to get more tax cuts through, they better do it now.  If the Republicans somehow are able to hold a majority in the House, I think it will be a slim majority.

Trump likes to take a lot of credit for the booming economy.  Many voters will credit or blame the president for the economy. I think this is incorrect on all fronts, as the Federal Reserve has a much bigger impact than the president. It also has to do with luck and the timing of the boom-bust cycle.

I understand why Trump is taking credit for the economy, especially given his ego.  But he is really going to regret it if the economy tanks.  It will be really hard for him to deflect the blame because he is trying to take credit for everything good now.

The mid-term elections may add some uncertainty, which the markets (i.e. investors) tend not to like.  But they can also get over uncertainty quickly, just as they did with the election of Trump in 2016.

I think whatever happens with the economy is basically baked into the cake at this point.  There have been malinvestments from the Fed’s loose monetary policy, particularly from 2008 to 2014.  Sure, little things can impact the timing of when the downturn finally comes and just how big of a downturn it is.  If Trump keeps piling on tariffs, it isn’t going to help the economy.  Still, I maintain that the Fed’s policy is the most important.  And even there, the Fed cannot necessarily prevent a recession, even if it reverses course on interest rates.

I may do another post about the mid-term elections before they happen, and maybe a post after the results.  But this is more of a curiosity.  I don’t think it will have a deep impact on the economy.  For that, I’d rather watch the yield curve.

When the Federal Reserve sets its monetary policy, it is looking in the past more than it is looking in the future.  The Fed is trying to predict the future (and possibly change the future with its policies) by looking at statistics in the past.  Fed members will look at the price inflation rate, the unemployment rate, interest rates, the yield curve, and other factors in trying to predict what is on the horizon.

It has now been 10 years since the onset of the financial crisis.  The recession actually started officially in December 2007, but this was backdated.  We didn’t know we were in a recession in early 2008, or at least we don’t know officially.  The big dominos started to fall in September 2008, even though there had been certain events prior to that.  Housing was already falling from the peak of its bubble, and some lenders were already failing. But it wasn’t clear that we were in a major financial crisis and recession until around September 2008.

I recently looked at a chart of the federal funds rate.  This is the rate targeted by the Fed when it sets monetary policy.  It is the overnight lending rate for banks. Since late 2008, this rate has had less meaning because commercial banks have piled up massive amounts of excessive reserves. Therefore, the banks have little need to borrow overnight money to meet reserve requirements since they already easily meet reserve requirements.  The Fed controls the federal funds rate these days by paying interest on bank reserves.  This sets a floor below the federal funds rate.

Prior to 2009 though, the federal funds rate was largely controlled by the Fed’s buying and selling of assets – specifically U.S. Treasuries.  If the Fed wanted to lower the federal funds rate, it would buy U.S. government debt.  This would be done by essentially printing money, or its digital equivalent.  It was monetary inflation.

If the Fed wanted to raise the federal funds rate, it would do the opposite.  It would sell some of its U.S. Treasury debt.  It would reduce its balance sheet as necessary.  It would be deflationary in most cases, unless the rate was naturally rising without any Fed action.

The interesting thing, when looking at a chart of the history of the federal funds rate, is that the Fed was actually lowering the rate prior to the recession. It actually started to lower the target rate around September 2007, which was even before the official recession began.  The Fed kept dropping its rate throughout 2008.  Again, this was before the worst of everything became apparent in September 2008.  It was in December 2008 that the Fed finally lowered the target rate to near zero.

You can view the history of the targeted rate here.

The key point here is that the Fed correctly saw that there was economic weakness.  They tried to react to this by lowering the target rate, which would have also been mildly inflationary (although nothing compared to what was seen from late 2008 to 2014).

In other words, maybe Fed members saw a recession coming.  They would just never publicly say so.  They will use terms such as “lower growth” or “suboptimal conditions”, but they never say that they see a recession is coming. Otherwise, they would get the blame for “talking down the economy” when the recession actually does hit.

But the biggest takeaway from all of this is that the Fed was unable to prevent the biggest financial crisis and recession since the Great Depression, even though they likely saw something coming.  They were already lowering the federal funds rate.  They were loosening monetary policy, and it wasn’t enough to stop it.  At that point, the damage had already been done.  The loose policy from the Greenspan years was already over.  There was already massive malinvestment that needed to be corrected.  The market correction was going to take place regardless of what the Fed did at that point.  The damage had already been done.

I say this to make the point that it may not matter what the Fed does in the next couple of years. I’m not saying that what they do is completely irrelevant.  But when the misallocated resources are ready to be corrected by the market, the Fed isn’t going to be able to stop it.  They probably won’t even be able to delay it, barring some unlikely move towards hyperinflation.

In fact, if the Fed puts a halt to its balance sheet reduction, that will be a warning sign. If the Fed puts a halt to its rate hikes (of the federal funds rate), this will also be a warning sign. If the Fed actually starts lowering rates and/or starting monetary inflation again, then this is probably not going to prevent anything.  It will just be a further warning that things are likely to get bad really fast.

We’ve already got the yield curve as a warning indicator of a coming recession.  While the Fed’s monetary policy is not quite as reliable, it may add confirmation when the time comes.  The Fed was actually right to a certain degree in 2007, but it was helpless to correct its previous bad policies.