The national debt recently topped $20 trillion.  This pales in comparison to the unfunded liabilities, which, by some estimates, are over $200 trillion.

The continual deficits and accumulation of government debt is a major problem.  Unfortunately, many people mistakenly believe that we are just burdening future generations.  In a sense, this is correct.  But they fail to realize that we are burdening ourselves right now.

When the Federal Reserve monetizes the debt (creates money out of thin air to buy the U.S. government debt), then it is a little more obvious for those who are paying attention.  The central bank’s creation of money means there is more money circulating, while it has done nothing to increase the production of goods and services.  This eventually means that our dollars are worth less than they otherwise would have been.

Although interest rates are still near historic all-time lows, the Fed has essentially not been buying U.S. government debt for nearly 3 years.  It has only rolled over maturing debt.  QE3 ended in October 2014.  Since that time, the adjusted monetary base has been relatively flat, or even slightly down.

This means that investors are buying U.S. government debt at low rates.  This could also include foreign central banks, although Japan and China – the two major buyers – have not been big buyers over the last few years.

Whether or not it is smart for private investors to buy U.S. government bonds is a separate issue.  U.S. government debt is still seen as something of a safe haven.  As long as there is no significant consumer price inflation, this will probably hold true.  And although interest rates are low, they could go lower in a recession, which means that the value of the bonds will increase.

But are these investors misallocating resources?  In a sense, they are.  But it is really the government spending the money that is the misallocation.  The bond investors are just helping to fund it at lower rates.

And this is where we are still harmed today.  The government is misallocating resources.  Virtually all government spending is a misallocation of resources unless it is spending money that would have been spent that same exact way anyway.  But if people were voluntarily willing to spend money building statues in a park, then it wouldn’t be necessary for the government to compel it.  Of course, you could make the argument that some people might be willing to voluntarily contribute to building statues in a park if it weren’t already being done by the government.  But we can be sure that not everyone would choose to spend their money in this way.

To be sure, most of the money spent by government at all levels has little to do with defending property and enforcing contracts.  All other spending has to be a misallocation or, at best, moot.  This isn’t to say that some people don’t benefit at the expense of others with certain types of spending.  But on net, we are poorer when government spends money, as it is allocating resources that are not in accordance with the highest preferences of consumers.

When the government accumulates debt, it is spending extra money that it cannot get away with spending through direct taxation.  It is a hidden form of taxation.  But it isn’t just hurting future generations.  It is hurting us economically now.  It is diverting real resources to other uses than what would otherwise be freely chosen by consumers in an open market.

Debt does hurt future generations as well.  But the main way it hurts future generations is that we are reducing advances in production and technology now.  We are reducing the rate of compounding growth.

Imagine if the whole world hadn’t advanced for 2,000 years up until the year 1950.  Even if free markets were introduced at that time with substantial growth, we would be far poorer today.  People would have had to invent electricity, airplanes, automobiles, the telephone, and so many other things after this period.  We would be really poor today if this had been the case.  We build off of previous generations.

In conclusion, it doesn’t matter who is buying the U.S. government’s debt.  The problem is that the U.S. government is spending so much money and misallocating resources.  We are poorer than we otherwise would be.  This accumulation of debt hurts our living standards today.

I live in Florida and am preparing for Hurricane Irma.  Since I am on the east coast and to the north, we expect the equivalent of a strong tropical storm or a low-grade hurricane.

As of now, it looks as though the west coast of Florida is going to get hit the hardest.  I have family that live on the west coast, and some of them have evacuated to my house.

On this Saturday night, about a day before the storm is to hit, we went out.  I made a stop at the grocery store to get a few last-minute things.  The grocery store had given notice that it would close at 6:00 PM, and it would not reopen until the hurricane passes.

After a short trip to the store, we went to a barbecue restaurant and had a delicious meal that was very filling.  There were only a couple of servers for the whole restaurant, but they were working hard to get food to the people who were there.  I don’t expect many places to be open tomorrow (Sunday) right before the storm hits.

On Friday, I was able to fill up my car with gasoline.  It was still a little over half full, but I wanted to top it off.  The first station I went to was out of gas.  The second station I went to had plenty at the time and there was no wait.

Supposedly, the governor lifted trucking restrictions in the state to enable plenty of fuel tankers to go in and out.  Gas has been in high demand, as millions of people have evacuated.  It makes you wonder why there are restrictions at all on truck deliveries.

Despite our world of government interference in virtually every aspect of our lives, people still manage to function.  The elements of the free market that exist are still very powerful in the face of government interference.

The grocery store and restaurant did not have to stay open.  They were trying to balance the needs of their employees with the needs of their customers.  I was quite pleased with the service from both places.  Just the fact that they were open about 24 hours before a hurricane was hitting was a great service to me and many others.

I have written before about price gouging laws and how they hurt people during critical times.  Higher prices tamper demand and tend to bring in new supplies more quickly.  The higher prices are a signal that there is a shortage that needs to be cured.

But despite the price gouging laws, businesses are still able to function to a high degree.   Stores would get in new shipments of water.  While the shelves were certainly empty in some spots, there was still plenty of food that did not require refrigeration.

The fuel situation is even more incredible.  The fact that fuel tankers from all over were able to deliver fuel and mostly meet the high demand is wonderful.  And with another hat tip to the free market, people were using apps on their smartphones to tell them which gas stations had gas available.

Free market economics is voluntary economics.  It means that the market is free from coercion.  It means that people function through voluntary association.  In the free market, businesses can only profit in the long run by pleasing its customers.  Whether this is through pure greed or through some sense of goodness, it doesn’t matter all that much, as long as consumer wants and needs are being met.

I have witnessed much goodwill during this time.  There are also businesses that want to make a profit, which is fine.  Many businesses have a longer-term vision of wanting to please customers now so that they will remember to come back in the future.

Whatever the motivations, the elements of the free market that exist make our lives what they are.  We take for granted everything that voluntary associations provide for us.  They sometimes are more evident during times of turmoil.

Those who talk most about the Fed tend to be critics of the Fed.  If the general public understood the Fed’s real purpose (to fund deficits and act as a lender of last resort), then it would quickly be shut down.  The Fed enables hidden theft of the general public through currency depreciation.

Unfortunately, some of the strongest critics of the Fed (and central banking in general) have been making a mistake over the last few years.  They say that the Fed has a loose monetary policy.  If they were talking in generalities about the Fed’s existence over the last century, then this would certainly be true.  If they were talking about the Fed from 2008 to 2014, this would certainly be true.

However, to say that the Fed currently has a loose monetary policy is somewhat deceiving at best.  I don’t think they are intentionally trying to mislead people on this subject, but it isn’t accurate.

The Fed ended QE3 in October 2014.  From the fall of 2008 until then, the adjusted monetary base rose approximately five fold.  This was unprecedented to say the least.  Since much of the new money when into bank reserves, coupled with the higher demand for money from the deep recession, consumer price inflation has stayed relatively low.  Asset price inflation has not been as low, especially when looking at stocks.

Since QE3 ended nearly three years ago, the monetary base has essentially been flat, or even slightly down.  Therefore, you can’t really accurately say that the Fed has a loose monetary policy or that the government is currently paying for its debts through money printing.  It just isn’t the case.

On October 29, 2014, the monetary base stood at $3.976 trillion.  On August 30, 2017, the monetary base stood at $3.942 trillion.  It has slightly decreased in just under three years.  The federal government may be running deficits, but it is not the Fed buying the debt right now.  Sure, the Fed rolls over maturing debt, but it is not adding anything new in any significant way.  It is investors and foreign central banks buying this debt.

If the Fed had a press conference and announced it would no longer buy U.S. government debt ever again, then certainly the bond market would crash and interest rates would spike.  The Fed’s presence supports the bond market.  But it is misleading to say that the Fed is currently creating new money out of thin air.

Some will point to the ultra low interest rates.  Again, the Fed is not directly impacting this.  If anything, it has tried to raise rates by increasing the rate it pays on bank reserves.  This is a quiet way of continuing to bail out banks.  But the Fed’s control of the monetary base is not keeping interest rates down.  It is not controlling interest rates through the monetary base because of the huge amounts of excess reserves.  It can only control its target rate through other means, such as paying interest to banks.

The Fed’s previous loose monetary policy is still having an impact in keeping rates below normal.  But again, it is not because of its current policy.  The Fed’s current policy is that of tight money.

Janet Yellen has actually been pretty good in this respect.  Then again, Bernanke was pretty good too up until the crash in the fall of 2008.  If the economy tanks again, you can be sure that Yellen, or whoever is the Fed chair, will step in with an aggressive policy of digital money printing.

The Fed should have kept a tight money policy in the face of the deep recession in 2008/ 2009.  Even if it had just bailed out the banks enough to make depositors whole, we would have been better off than having the massive funding of deficits and the bailouts of car companies and others.  We would have far more prosperity today if the Fed had kept a tighter policy since 2008.

The damage was done from 2008 to 2014.  Even though the Fed has adopted a better policy since that time, the damage cannot be undone without some kind of pain.  The misallocations have to be corrected.  The Fed’s current policy makes it more likely that we will see a correction sooner rather than later.  It is not like China where the severe misallocations carry on for a couple of decades.

Overall, this is good.  We don’t want to be like China with ghost cities.  We want resources to be allocated to projects that fulfill the highest priorities of consumers.  Only a free market environment can properly allocate these resources in accordance with consumer demand.

In conclusion, the Fed has not had a loose monetary policy since October 2014.  The major damage in monetary terms was done prior to this.  The federal government continues to do damage all the time by spending too much and regulating too much.

The Fed has adopted the correct policy for the last three years.  But there is still a price to pay for the previous loose policy.  Unfortunately, when the correction happens to realign resources to their proper uses, the Fed will likely make the same mistake over again.  Then we can look forward to QE4.

The dollar price of gold has shot up past $1,300 per ounce, and it has held above that mark for now.  Gold has been a lackluster investment since 2011, while U.S. stocks have been in a bull market.

Is all of this about to change?  And if gold keeps going up, can it go up if stocks fall?

Gold and stocks have a rather strange correlation.  There are times they go up and down together, and there are times that they go in opposite directions.  But they aren’t completely uncorrelated either. There is news that can drive prices for both assets.  This is especially true when it comes to news of the Federal Reserve.

Over the long run, both gold and stocks benefit from a loose monetary policy from the central bank, particularly in nominal terms.  In real (inflation adjusted) terms, this is a lot harder to argue.

If there were no monetary inflation, then it is likely that neither gold nor stocks would rise with any significance over long periods of time.  It wouldn’t necessarily make them bad investments.  In a relative free market, they would both gain purchasing power.  In the case of stocks, you could still own stocks for dividends.  Of course, some individual stocks would do well in terms of capital gains on share prices, but the overall market would likely be relatively flat.  The best companies would get rewarded with higher share prices, as they would have the potential of paying out greater dividends.

In our current world of central banking, we have artificial booms and busts to deal with.  Both assets will tend to overshoot in both bull and bear markets.  Stocks are likely going way above where they should be right now, and they could still go higher yet.  But when the bust comes, they will probably over correct and fall further than they should.  This is mostly due to monetary policy though.  We wouldn’t have these huge bubbles and subsequent corrections if we didn’t have significant central bank monetary inflation in the first place.

Overall, I think gold is a decent investment right now.  And as usual, it is a great insurance policy against unforeseen events in the world.  It is a hedge against disaster.  It is a hedge against big price inflation.

I advocate a permanent portfolio, which consists of 25% gold.  And while I am highly nervous about stocks right now, the portfolio also has 25% in stocks.  If we hit a deep recession, then the other 50% in bonds and cash will hold things up.  As long as it isn’t an inflationary recession, then bonds are probably the best place to be.

Gold is something of a wildcard with a recession.  It would typically go down with other asset prices.  But since it is a hedge against disaster and uncertainty, it might hold up better this time around.  There are a lot of things to make people nervous.

Also, if there is a recession, there will be anticipation of the Fed stopping its hiking of its target interest rate.  There will also be an expectation that any talk of a reduction in the Fed’s balance sheet would cease.  In fact, there would probably be good reason to speculate on QE4, which would be another round of digital money printing (a further expansion of its balance sheet).  Ultimately, this would be bullish for gold.

Until we hit that phase of another round of monetary inflation, I don’t expect gold to spike higher.  Sure, it could easily go to $1,400 or $1,500 per ounce.  But barring a major war or some other world disaster, it probably isn’t going to $2,000 any time soon.  There just isn’t enough fear of price inflation.

If the Fed returns to an ultra-loose monetary policy because of a recession, then perhaps inflation fears will return.  But until that happens, $2,000 gold is not likely in the near future.  This doesn’t make it a bad investment, but just one that you shouldn’t count on for having really high returns.

I have some speculative investments in gold funds right now.  These are funds that invest in gold (and other metals) mining stocks.  They are more leveraged and far more volatile than the price of gold.  But when gold is going higher, as it has in the last few weeks, the mining stocks shine.  I am fully aware that these carry a high degree of risk in the event of an economic downturn.

If economic conditions stay about the same, I expect the gold price to end 2017 somewhere near its current price.  Maybe it will get to $1,400 or pull back to $1,200, but I don’t expect much more volatility than that.

The volatility will come with changing economic conditions.  If stocks fall hard and a new recession hits, then gold investors will react.  I would expect prices to go down, but in today’s crazy economic world, anything is possible.  I like the 25% gold holdings in the permanent portfolio.  It is there for a reason.

Hurricane Harvey, and then Tropical Storm Harvey, did great damage to the people of Texas.  The direct impact was one thing, but the rainfall, and the flooding that came with it, is another.

There are many useful libertarian lessons with this storm, and the lessons are similar whenever a major storm hits, or really any kind of natural disaster.

Houston is similar to New Orleans in that it is almost like a bowl.  It is quite prone to flooding.  It is questionable whether a major city should have ever been built there.  But either way, there are problems (misallocations) created by the state.  The government interferes with the insurance market.

It is not to the same extent as interference in the health insurance market, but it is still significant.  Many homeowners who live in areas prone to flooding are subsidized by the government with their insurance.  There are cases out there where homes are rebuilt three or four times because of flooding.  In a true free market, these houses would be virtually uninsurable.  Or at the very least, the market prices would be much higher and would limit the demand to live in these areas.

Another area of government interference is with the existence of FEMA.  This is a federal agency that is supposed to help in such situations.  To be sure, the agency probably has helped some people who were hard hit by the storm.  But when an agency has billions of dollars to spend, that should be expected.  In the case of New Orleans, FEMA seemed to hamper the situation by actually preventing the victims from receiving help by willing parties.

Another area that gets attention in these situations is that of “price gouging”.  Businesses and people are prevented from charging higher than normal prices, even though there are shortages and higher demand.  We are told that businesses shouldn’t be trying to gouge and make an extraordinarily high profit in such situations, but it is in these situations where the laws of supply and demand are most vital.  If the government would allow sellers to raise prices for such things as bottled water, batteries, and hotel rooms, then it would ensure that only those buyers in high need would buy.  In other words, it decreases demand.

The higher prices also send a signal to suppliers to bring in more supplies.  If you can charge five dollars for a one-gallon bottle of water, then maybe you load up a truck with water that is available 100 miles away and you drive it to the hardest hit areas.  This helps relieve the shortages.

There are many other areas where government interference can hamper recoveries.  The establishment media tends to focus on the government officials who did heroic rescues, but there are many more non-government people who did this while not getting paid.

With all of that said, there is one major lesson that I think we can take away from all of this, but it is a bit harder to see.  It is something that libertarians should point out often.

Since the storm hit, there has been tens of millions of dollars given to charity to help the victims.  And when I say charity, I actually mean charity.  This isn’t government spending taken through the threat of force.

There is certainly plenty of government spending on disaster relief, and this is what gets much of the attention.  It is almost as if it is put in the face of libertarians.  “See, if you had it your way, there would be no government to help these victims.”

But let’s flip it over.  If governments at all levels (federal, state, local) didn’t take nearly half of our money, then we would be able to afford to help these people to a much greater degree, and likely in a much more efficient manner.

Actually, it is incredible that there is so much voluntary charity.  Businesses have donated huge sums of money.  Even if it is just for good public relations, who cares?  It is helping provide disaster relief.

There are many celebrities who have donated their own money and time to help.  Some of them hold fundraisers.

This all happens in spite of the fact that nearly half of our money is taken from us.  Imagine if only one-tenth of our money was taken from us instead.

Rich celebrities and big businesses can afford to donate some substantial money.  Most middle class people cannot afford big donations.  Most of their money goes toward their living expenses, and taxes of course.

If the average middle class family received a raise of 50% in the form of lower taxes and lower inflation, imagine how much more generous people would be.  They could increase their living standards, save extra money, and still afford to be extra charitable.  Plus, people wouldn’t have the excuse that they don’t really need to be charitable because they are already charitable through their tax contributions.

Imagine if the federal government spent $1 trillion per year instead of $4 trillion per year.  Yes, there would be some “benefits” lost to people.  But with an extra $3 trillion per year, that is almost $10,000 extra per American.  That is about $25,000 extra per family per year. That is a huge sum of money.

What would you do with an extra $25,000 per year for you and your family?  I think it is safe to say that you might be a little more charitable.

Whatever numbers you use, the major point is that the government consumes a lot of resources.  When it comes in for the rescue in these situations, it should not be surprising.  If you gave me $13 billion per year to spend, I could make a big impact with that too.

As any good economist knows, we should not just look at the benefits that are easily seen.  We have to look at the unseen consequences.  In this case, if the government didn’t take so much of our money, then people and charitable organizations would be able to help so much more in these situations than they already do.

Warren Buffett, one of the richest people in the world, says that you should invest in low-cost index funds in U.S. stocks.  He suggests a long-term view with a buy-and-hold strategy.

Yet, what Buffett suggests is almost the exact opposite of what he actually did to become so wealthy.  Perhaps it is not the exact opposite, as that might mean doing absolutely nothing in terms of saving, which many Americans are good enough at.

Buffett became fabulously rich by value investing.  It didn’t hurt that he started off in a decent situation as the son of a congressman.  His father, Howard Buffett, was about the closest thing to a libertarian in his time.  He was the Ron Paul of his time.  We have to wonder what went wrong with Warren.

Warren Buffett invested in companies that he correctly saw as having good value and good potential growth.  He became wealthy by not diversifying too much.  This isn’t to say that diversification is not a good strategy, but just that it is not Buffett’s expertise.

I don’t know if Buffett thinks others are simply too stupid to do what he did.  Maybe he is right.  Or maybe he realizes that he probably had a little bit of luck along the way to complement his skills.

I see this so often in the world though.  Somebody is rich and successful, and they tell you to do things that are different from what actually made them rich and successful.  It can happen with other successes besides money too.

For example, you could read someone’s book on how to save money.  Maybe the book has some good advice.  But the author may be well-off financially not so much because he was really good at saving money, but because he was good at making money by teaching others to save.

Dave Ramsey and Suze Orman are really rich.  They have made their money by teaching others through seminars, books, radio, and other outlets.  I have my disagreements with them on investing strategies, but I think their overall advice on debt and living below your means is solid.  But if you really want to be rich, it is not so important to follow their advice as it is to copy what they do.

As the title of this post suggests, if you want to be successful, don’t practice what successful people preach.  Instead, practice what they do.

This isn’t to say that any of these people are hypocrites for saying what they say.  Again, some of the advice is solid.  I am just saying that if you really want to learn from successful people, it is better to be observant about what they are doing.

I subscribe to several online marketers who try to teach others to be rich.  I rarely buy any of their products.  However, I often read the emails because I know they are at least somewhat successful.  I want to see how they write their emails and how they set up their landing pages.  I want to see how they market their material.  I learn more from this than I could probably learn from actually buying their course, or whatever it is they are selling.

There are many motivational speakers today, and you have the gift of YouTube and other media to view these people for free.  I am thinking of people like Gary Vaynerchuck, Tony Robbins, Peter Voogd, Stefan Pylarinos, T. Harv Eker and Tim Ferriss.  You can also find these people on many podcasts.

Many of these people have made a lot of money just by motivating others to do the same.  To be fair, many of them have made a lot of money in other things as well.  Still, there is nothing wrong with this.  These guys are really great motivational speakers, and I think you should largely listen to their advice.  Unlike the examples of Buffett, Orman, and Ramsey, these people do preach what they practice.

Still, even with these motivational guys, you can still observe what they do and how they market themselves.  There are lessons to be learned other than just listening to what they say.  You can follow what they do, and that doesn’t mean you have to be a motivational speaker.

I recommend that you listen and observe these people.  Of course, there comes a time when you have to stop listening, at least for a while, and take action.  If all you do is listen to motivational speeches about getting rich, you aren’t going to become rich unless you actually take action.

In conclusion, look at the successful people in this world and determine if they are preaching what they are practicing.  But this should include what they practice that makes them so successful.  It wasn’t Dave Ramsey cutting up his credit cards or making a budget that ultimately made him so rich and successful.  It is because he learned to communicate what he had learned.  He also took action in doing so.

On Monday, August 21, 2017, Donald Trump addressed the nation regarding the war in Afghanistan.  If you don’t include cold wars, it is the longest running war in U.S. history.  Unfortunately, based on his speech, it is going to go on for longer still.

There was one particular part of his speech that caught my attention and should be of particular interest to libertarians.  It should also be of interest to those who supported Trump because they wanted some real change and some opposition to the status quo.

Trump said the following:

“My original instinct was to pull out, and historically I like following my instincts.  But all my life, I have heard that decisions are much different when you sit behind the desk in the Oval Office.  In other words, when you are president of the United States.”

For many years, and even up until he was elected, Trump spoke out against nation building in Afghanistan and suggested that we were wasting money there and wasting lives.  Now that he is president, things have changed.

This should be no surprise.  George W. Bush campaigned on a humble foreign policy and quickly became a war president, including the occupations of Afghanistan and Iraq.  Barack Obama, the supposed peace president, spoke against war and closing down the prison in Guantanamo Bay.  He not only failed to shut down the prison in Cuba, but he started new wars in Libya and Syria, and continued the wars that were already going on.  He also intervened in other places such as Yemen and Ukraine.

While Bush and Obama both spoke of less intervention, they didn’t do so in a hardcore way.  In other words, they didn’t sound like Ron Paul.  Still, it continually happens that a candidate will say one thing, and then all of a sudden things look different when they get into office.  Voters follow the definition of insanity: doing the same things over and over again and expecting different results.

I had mild hope that things would be slightly better under Trump in terms of foreign policy.  And while I expected the left to oppose Trump, I didn’t expect what has become an unofficial alliance the left has made with the war hawks in the Republican establishment.

While Steve Bannon was problematic in may ways, he was also one of the few people Trump had in a high level that believed in Trump’s nationalist agenda.  While libertarians shouldn’t necessarily cheer nationalism, especially when it comes to protectionism and trade wars, nationalism beats globalism when it comes to foreign policy.  When Bannon exited, so too did any hope of a less interventionist foreign policy.

It is interesting that Trump explicitly stated that things look different when you sit behind the desk of the presidency.  This was his way of deflecting criticism of him flip-flopping.  But in this statement, he told the truth.  But the big question is: Why do things look different?

If anything, I would hope that it would be harder to send people (essentially mostly kids) off to war.  You are making a decision that you know will take people’s lives.  Yet when these people get into office, they almost inevitably are drawn towards more war.

Some people say it is the lobbyists that corrupt politicians.  Perhaps this is so to a certain extent.  In the case of war, you have the military-industrial complex.  But Trump won his election without owing anything to the military-industrial complex, or really any of the major lobbyists.  The only ones that Trump owes for his victory are the actual people who voted for him.  He was vastly outspent, and he raised a small amount of money from big donors in comparison.

You have to wonder if, when you are elected president, you are taken to a private room and told the dark secrets.  Maybe Trump was told what actually happened to John F. Kennedy for opposing the CIA and an escalation of war.  Maybe he was told subtly, or even not so subtly, that he better stay within certain guidelines if he wants to survive.

I really don’t know on this.  It sounds conspiratorial, and I’m sure it wouldn’t go down just like this.  But there have to be pressures that we just can’t understand.

Of course, people don’t like to be ridiculed and continually slammed on a personal basis either.  This comes with the job, but the establishment media can make anyone’s life especially bad.  Even though the Trump voters completely ignored the media (and in many ways delegitimized them), it shows that the establishment media still has a great impact, even if they can’t always decide the election.

I wish Ron Paul had been elected president, if only to see what would have happened.  Would he have been able to resist the establishment, the deep state, the elitists, or whatever you want to call them?  Would Ron Paul, if he had been allowed to take office, have actually followed through on his promise to bring home the troops?

I think he would have followed through, but I also understand that he is somebody who is rare.  You have to have a combination of intelligence, honesty, courage, and strong principles.

Trump had some good instincts, and unfortunately, even as he stated, he has abandoned them.  But Trump never had any firm principles.  That is why, when he talked about foreign policy, he was all over the place.  One minute he wanted to bring the troops home, and the next minute he wanted to bomb the terrorists back to the Stone Age.  Sometimes he had these contradictory positions within the same debate.

Trump’s election was still unique.  He is the first unvetted candidate to get into office since at least World War 2.  Even though the establishment would have preferred someone other than Reagan, they could still tolerate him.  In the case of Trump, he was simply not acceptable at all to the insiders.

If Trump can’t resist the establishment, then it almost seems as if there is no hope.  Trump is not going to drain the swamp.

But it is good to step back and appreciate the fact that Trump was even able to get elected, especially with the hostility of the so-called mainstream media.  This alone is reason to celebrate.

We also have to consider that we don’t have to elect someone good to get some good change.  Just as the Berlin Wall fell and the Soviet Union came crashing down, change can happen rather suddenly and unexpectedly.  There is obviously a lot of dissatisfaction out there.  Maybe the different sides will realize that the only way to move forward is to separate and go their separate ways.  Maybe they will realize that they don’t have to force their views onto others.  Instead of struggling for the reigns of power, it is just a matter of withdrawing and leaving each other alone.

Trump is not going to drain the swamp.  He is now part of the swamp.  But the American people still have the capability to drain the swamp through public opinion.

There is still talk of possible tax reform coming out of Washington DC.  With Trump getting beaten up every day by the establishment and its media, and with Congress in disarray, there seems little chance for any significant tax reform at this point.  Getting rid of Obamacare should have been easier than tax reform, and we have seen the lack of progress on that.

Even if we do end up getting some kind of tax reform passed, it probably isn’t going to make much of a difference.  There will be a slight shifting around of who pays more.  There will be winners and losers, at least as compared to before.  But it won’t be a win-win situation where the economy grows and our livings standards rise.

The biggest economic problem by far coming out of Congress is spending.  Without significant cuts in spending, tax reform is virtually meaningless.

I certainly understand the Laffer Curve and that a cut in marginal tax rates can actually lead to increased tax collections by the government.  But it is not as if tax rates are 90% or 70% as they once were.

If anything, there are going to be middle class tax cuts.  While these are certainly needed, it isn’t likely going to lead to much more in the way of savings and investment.  We aren’t going to see increased economic growth because of tax cuts for the middle class.

And as long as the government keeps spending around $4 trillion per year, this is going to suck resources out of capital investment that would have otherwise gone into satisfying actual consumer demand.  When the government spends money, it is misallocating resources.

Unfortunately, most of the proposals for tax reform are so-called revenue neutral.  In other words, these are not tax cuts.  They are just rearranging the tax code, but promising to keep funneling at least the same amount of money to the government.  If you have a slightly lower tax rate but also get fewer tax credits and deductions, it doesn’t do you much good if you are still paying about the same amount.

Of course, the big problem is the Federal Reserve and the ability of Congress to run massive deficits on a continual basis.  If the government spending isn’t coming directly out of your pocket through taxation, then it is being done indirectly (in a sneaky way) by depreciating the dollars in your wallet and your bank account.

There are some who will claim that tax reform is still important though because it will reduce compliance costs.

First, this is really far-fetched at this point.  We always hear politicians talk about simplifying the tax code.  How has that worked out so far?

Second, compliance costs aren’t that big of a factor in the big picture.  Perhaps it is significant for corporations, but that problem isn’t going to be solved unless corporate taxes are completely abolished.

For personal tax returns, it is a hassle, but not overly burdensome as compared to actually paying the taxes.  If you look at the average amount per household of federal spending, it is over $30,000 per year.  This does not include state and local spending.

Are you really going to worry that much about paying a CPA $500 to do your taxes, or buying tax software for $20 and spending a few hours to figure them out, when you are paying about $30,000 to the federal government?

I would rather do taxes once a month and pay half the amount than have the current situation.

For this to happen, the federal government would have to drastically cut spending.  This would include both the warfare and welfare state.  It would mean massive cuts to the military and major withdrawal of troops stationed (or fighting wars) overseas.  It would also mean huge reductions in so-called entitlement spending.  It would mean the elimination of several departments.

If we are not discussing major spending cuts, then all talk of tax reform is mostly meaningless.  If Congress is going to keep spending huge amounts of money, then it has to come from somewhere, no matter how the tax code is written.

Amazon and the issue of sales taxes has been in the news lately.

First, there is a complaint against Amazon filed by the state of South Carolina.  The state government is claiming that Amazon owes the state a large tax bill for uncollected sales taxes.  Amazon is vowing to fight the allegations.

Second, Trump chimed in with one of his tweets.  While Trump is pilloried by the media for supposedly supporting white nationalists, colluding with Russia, etc., the establishment seems to stay rather quiet when Trump is on the side of big government.

Trump said in a tweet: “Amazon is doing great damage to tax paying retailers.  Towns, cities and states throughout the U.S. are being hurt – many jobs being lost!”

We are back to Trump’s protectionism and his overall ignorance of economics.  Trump is making the claim that since not all Amazon products are taxed, it is hurting physical retailers.  He is saying that this is costing jobs.

This is a stupid argument, as it is simply an argument for higher prices.  He could say the same thing about any company that comes in with lower prices, regardless of whether it is because of taxes.  If someone shows up to sell quality new cars for $10,000, then this will hurt sales for the big car companies.  It will mean that jobs will be cut from those car companies.

But Trump has probably never heard of Frederic Bastiat or even Henry Hazlitt.  He does not understand basic economics and that you have to look at the other consequences that are often unseen.

If Americans could all of a sudden pay $10,000 for the same new car that previously cost $30,000, then this would be a huge benefit to the consumer.  Sure, it would cost jobs at the car dealerships.  But now more Americans would have extra disposable money to invest or save or spend elsewhere.  This means it would lead to job creation in other areas where there is consumer demand.  This is called advancement.  This is how we increase our living standards.

The issue with Amazon is really a state issue and should be none of the federal government’s business.  It is true that some retailers sell on Amazon and do not always collect the appropriate sales taxes (according to the state governments).  Of course, this is partially the fault of state governments that make it so difficult to do so.

It is very complicated right now with Amazon sales.  There are many private retailers that sell on Amazon, and they use Amazon to fulfill their orders.  This is called “fulfilled by Amazon”, or FBA.  While the seller can include an add-on sales tax on their products, it is up to each individual seller to remit the sales tax back to each state.

If you live in Texas and you sell a product in Texas, then you are supposed to collect sales tax and remit it back to the Texas state government.  The problem arises when you sell in other states.  For example, if you have a presence in another state, such as an employee, then you are said to have “nexus”.  If you have an employee in California, or if you just go for a weekend to California for a trade show, then you are doing business in California and you are supposed to pay sales taxes on sales to California.

It gets even more complicated with Amazon.  If you live in Texas but you don’t travel anywhere outside of the state or employ anyone outside of the state, you may still have nexus in California and other states.  Amazon has warehouses throughout the country now in order to make good on promises of quick shipping to Amazon Prime members.  Therefore, if your product goes from Texas to an Amazon fulfillment center in California, then you would supposedly owe taxes to the state of California.

It is also a problem that Amazon can move its inventory around.  If you live in Texas and ship your products to a warehouse in Florida, Amazon may relocate your products to other states to spread them around, especially for large inventories.  Therefore, it is difficult for sellers to even know where their products have been and where sales taxes are owed.

It is a total mess.  It is especially messy for sellers.  While I am an advocate of federalism and states’ rights over centralization, I acknowledge that federal legislation could actually help Amazon sellers.  It would make it far simpler in terms of collecting sales taxes.

Many Amazon sellers take their chances in owing taxes, even though it is somewhat risky.  Imagine having to get a tax ID in 20 different states.  It can take several hours to fill out the appropriate forms for each state.  On top of that, some states will charge you fees to register, just so you can have the privilege of remitting more money back to the state government.

Maybe federal legislation will come out of this whole thing, but we know how politics in Washington DC goes.  They will find a way to mess it up.

For consumers, it is becoming harder and harder to buy products with no sales taxes on Amazon.  Much of that benefit is gone.  The big mess right now is for sellers.  If Amazon merchants did not have to go through so much hassle with sales taxes (for those that bother), there is an argument to be made that prices might be lower, as lower costs of doing business could spur more competition.

Amazon selling can be quite lucrative for those who know what they are doing.  As a side note, if you want to learn more about selling on Amazon, there is a great podcast hosted by Scott Voelker.  It is called The Amazing Seller podcast.

In conclusion, Trump is wrong to attack Amazon.  It is actually none of his business, and he is getting the economics wrong.  If you want to place blame here, it should go squarely on the state governments that have made a complete mess of the tax code.  If the state governments made it easy, then Amazon would make it easy.

If only Amazon could limit its warehouses just to Alaska, Delaware, Montana, New Hampshire, and Oregon.  These states have no sales taxes.

The proponents of Keynesianism believe there is a tradeoff between inflation and unemployment.  If the economy is hot and prices are rising faster than they like, then they might have to sacrifice a little employment to cool things off.  On the other hand, if prices are depressed and unemployment is high, then they advocate for a policy of more government spending and more monetary inflation.

The 1970s basically proved Keynesianism as wrong, but that doesn’t stop them from still advocating it.  During the 1970s, there were periods of high unemployment, high interest rates, high consumer price inflation, and even recession at the same time.

Of course, the reason that Keynesians advocate Keynesianism isn’t because they have read John Maynard Keynes from generations ago.  It isn’t because they have any principles guiding them in economics or otherwise.  Keynesian economics is used as an excuse to justify the policies they want of more government spending, central bank inflation, and economic centralization.

I have said for a long time that if Keynes had never existed, then the statists would have found somebody else to latch on to in order to justify their reckless policies.  The statists can always find some shill for the government that can pose as an expert.

Aside from price inflation and unemployment, most Keynesians will also say there is a tradeoff between recession and price inflation.  After all, recessionary conditions are typically linked with higher unemployment.

To a certain extent, there can be a tradeoff between recession and inflationary policies in the short run.  Inflationary policies can cover up weak economic growth for a while.  The problem is that it is the inflationary policies that ultimately cause the recession.

Easy money and artificially low interest rates lead to a misallocation of resources.  There is typically bubble activity in certain sectors.  When the misallocations are ultimately revealed, there is a bust.  This is the recession.  Then the Fed (or any other central bank) tries to cover it up with more monetary inflation, and the whole cycle starts over again.

In the United States, the early 1980s was probably the last time that malinvestments were allowed to clear.  The Fed let rates rise and stopped inflating, despite a recession (or some would say recessions).  While the Fed did eventually start inflating again, much of the growth of the 1980s was actually real prosperity and not just artificial prosperity created by money creation.

While there can be a tradeoff between recession and inflation in the short run, the tradeoff eventually runs out of room. This is what happened in the 1970s.  Despite a weak economy, the Fed still had to slam on the monetary brakes in order to save the dollar.  If the Fed had just kept on increasing its pace of monetary inflation, there would have eventually been runaway inflation or hyperinflation.

In other words, the Fed can’t maintain its current policies forever without something major happening.  Either we will eventually get higher consumer price inflation or we will get a recession.  Of course, it is also possible to get both eventually.

If the Fed had kept a stable money policy after the fall of 2008, then we would not face such a choice.  But with the Fed approximately quintupling its monetary base from 2008 to 2014, there have to be malinvestments.

We have not seen significant consumer price inflation.  It has stayed around 2% per year, or even a little less at times.  But we can’t say the same for asset price inflation.  Housing is booming in many areas, and U.S. stock markets are hitting all-time nominal highs.  This is actually similar to the late 1920s, just prior to the start of the Great Depression.  Economists largely missed the mark on that one because consumer prices were tame.  But asset prices were in a bubble.

If I had to pick between higher price inflation or recession at this point, I am definitely more on the recession side.  The Fed has had a tight monetary policy since QE3 ended in October 2014.  Unless banks start lending out a lot more money, which isn’t likely given that the Fed is paying higher interest rates on reserves, then we are more likely to see price inflation slow down if anything.  The previous misallocations will be exposed.

If we are going to get significantly higher price inflation, I think it will come after the next major recession.  The Fed will start digitally printing money again, and then we may see prices (aside from just asset prices) take off.  There is no guarantee, but I see this scenario as being the most likely.

Stocks may be able to run higher still, but it isn’t going to go on forever.  In all likelihood, there is going to be some kind of a recession before the next presidential election in 3 years.  It could come quite a bit sooner than that.

The Fed has been enjoying the last several years, as it doesn’t get much blame.  The economy is humming along, even if slowly.  Meanwhile, consumer price inflation, at least as reported by the government, is relatively tame.

The Fed has to do a balancing act between inflation and recession.  The problem is, it is running out of tightrope.  The rope eventually runs out and we inevitably get one or the other.  Or in the case of the 1970s, we can even get both at the same time.