After much speculation, Donald Trump has officially been elected president.  While the important vote was held on November 8th, the official vote happened on December 19th when the electors voted (mostly in line) to represent their states.

Since Donald Trump won the presidency, yet Hillary Clinton won the popular vote, there are once again calls for the elimination of the Electoral College.  Many people – some for political reasons and others naively – ask why we simply don’t use the popular vote.

As a libertarian, I am not a big fan of the U.S. Constitution.  The Articles of Confederation was a better document in terms of liberty. The Constitution centralized power, and centralized power we have gotten.  I don’t think the advocates of the Constitution could have imagined what a behemoth our national government would become.

Still, the people who drafted and installed the Constitution were not dumb either.  While they sought to add more power to the national government, most still wanted relatively strict constraints on its power.

The United States came into being as a federation of states.  We still have a federation of states in a sense, but there is no longer much separation.  The states were supposed to be like little countries with a common goal of mutual defense and free trade.  Most of the laws were supposed to be at the state and local levels.

As a side note, the United States used to be referred to in the plural.

“The United States are a great place to live.”

“The United States is a great place to live.”

This slight difference in verb usage is huge.  The United States “is” one entity now because of the dominance of Washington DC.

The states are supposed to be different.  There are different cultures and different needs.  And they are meant to compete in a sense.  A state can experiment with a new law.  If it seems to be working well, then maybe other states will follow.  If it doesn’t seem to be working, then the damage can be limited to that one state.

It would have been a lot better if Obamacare had just been enacted in a place such as California.  Romneycare was already in effect in Massachusetts.  325 million people did not need to be subjected to this disastrous experiment.

So why all of this discussion about states?

This is why the Electoral College is so important.  Each state is supposed to have its say in who is elected president.  Back when the Constitution was drafted, there were debates about representation based on population or states.

The smaller states didn’t want it based on population or else they would have virtually no representation.  On the other hand, the bigger states didn’t want equal weighting because a state with a much larger population should have a bigger say than a small one.

The compromise was the House of Representatives and the Senate.  Each state would have at least one member in the House, but the number beyond that was based on the census.  In the Senate, every state would get two representatives, meaning that every state would have an equal say.

The number of electors in the Electoral College is determined by adding the number of representatives in the House and Senate for each state.  Therefore, every state gets at least three.  In addition, the District of Columbia gets three electoral votes.

While states’ rights have largely been violated, they aren’t completely obsolete.  Many crimes are still prosecuted at the state level.  There is also a lot of spending and other regulations that are decided by the state governments.

If you abolish the Electoral College, then you essentially eliminate federalism.  It would be one more step in eliminating the entire concept of states.  In fact, just imagine how unfair it would be if everything weren’t completely nationalized at that point.

If you think the unrealistic promises by politicians are bad now, imagine how bad it would be with a national popular vote.  The presidential candidates would be making most of the promises for a handful of states (California, Florida, New York, Texas).  They would be promising beach restoration projects because a large portion of the population lives on the coast.  They would be making specific promises to specific states.  And most of the campaigning would take place in the big cities.

It would quickly make a joke out of states’ rights, and it would likely just eliminate (officially or not) the whole concept of the states.

Of course, the whole idea of majority rule is bad enough.  It becomes a game of Bernie Sanders politics of who can make the most promises of “free stuff” to the most people.  A national popular vote would just exaggerate this whole process.

To understand the necessity of the Electoral College requires an understanding of states’ rights and decentralization.  While the Constitution itself was a centralizing document, this mechanism within it was meant to prevent too much centralization.

There is one other important argument against a national popular vote that is not grounded on libertarianism.  I don’t know if the people who drafted the Constitution thought of this, but it is still a big reason anyway.  The Electoral College is a major guard against fraud.

Can you imagine a recount of votes nationwide?  It was bad enough in Florida in 2000 with the hanging chads and everything else.  Imagine recounting 120 million or more votes.

If you have widespread fraud in one big city, at least it is confined to that one state.  Or think about California where non-American citizens were being encouraged to vote.  At least it was limited to California.  In fact, if there were a national popular vote, then the U.S. government would then have to set the same standards everywhere.  It just opens everything up for more corruption.

Having each state represented with the Electoral College does not eliminate the possibility of fraud deciding the election.  But at least it would have to be close.  At least the fraud is limited to certain areas.  If there is massive fraud with a national popular vote, then it would become much more likely that a candidate wins based on fraud who otherwise wouldn’t have won.

Most of the people currently calling for the Electoral College to be banned are just bitter.  They don’t like the results.  If the Electoral College really mattered that much to them, they should have been talking about it before.

Luckily, I don’t think the Electoral College is going anywhere any time soon.  The U.S. government has centralized power a lot over the last 2 centuries.  But there are still some remnants of liberty and decentralization left.

Donald Trump is still over a month away from taking office, but we can already get a sense of how things will be.

I have no illusions that Trump is a libertarian or even sympathetic to many libertarian positions.  With that said, there are many things about Trump that libertarians can cheer.  We can start by cheering on the fact that he was elected and Hillary Clinton wasn’t.  This shows there is a shift in public opinion and a healthy distrust of the establishment.

I am very realistic about the chances that Trump will be able to make significant changes.  If he can expose some of the lies out there, along with having a less interventionist foreign policy, then I think we can celebrate.

Since the recounting of votes in certain states failed miserably for the establishment, now they are going with a big fat lie that the Russians hacked computers and threw the election in favor of Donald Trump.

On the extremely remote chance that this were true, who could blame Putin and Russia for doing this?  Hillary Clinton, during her campaign, was playing war games with Russia while the two countries have nuclear missiles pointed at each other.  Clinton was part of the establishment trying to overthrow Assad in Syria and further kick down the Russians.

While I don’t believe that Hillary Clinton or the establishment players want a nuclear war (because they themselves likely wouldn’t survive that war), it is still dangerous to play these games that could easily lead to an “accident” that leads to an all-out war.

With Trump set to take office, the CIA is making up stories about Russia without providing any evidence other than hearsay.  CIA officials are a bunch of liars.  If there is anyone honest at the CIA, they are likely put on lower level projects.  The CIA is probably the most corrupt and evil organization within the government.

If top officials from the CIA say anything, you can almost assume that the opposite is the truth.

The most likely reason that these emails were sent to Wikileaks is because there was a Democratic insider with a conscience.  Perhaps somebody got into a higher position of power, but considered himself to be a Democrat just because he believed in government welfare, global warming, or other causes.  But maybe the person, while misguided, was honest and wanted to expose the rotten corruption of the Clinton campaign and the Democratic establishment.

Regardless of what happened, I think Trump needs to address this whole issue more formally and try to nip it as soon as possible.

Trump seems to be opposing the CIA, which liberty lovers should see as a positive sign.  I see parallels between John F. Kennedy and Trump.  I know this will bother many Democrats.

While Kennedy also had his moral indiscretions with women, I believe he was a good man in the sense that he generally wanted to be truthful to the American people.  At the very least, he said he wanted to rip up the CIA into a thousand pieces.

Of course, we know how that turned out.  And I firmly believe that the CIA and other insiders (probably Lyndon Johnson) planned his assassination.  For this reason, I hope Trump is being very careful.  I hope he trusts his Secret Service people.

Just based on this whole showdown with the CIA, I think Trump really does want to take a swing at the establishment.

In terms of Trump’s cabinet, I think it is a mixed bag.  Again, I am under no illusions that Trump is a libertarian, so I didn’t expect libertarian appointments.  Trump has put in some Goldman Sachs people, which isn’t good, since Goldman Sachs is the face of the financial establishment.

Still, I think libertarians should be somewhat optimistic.  Trump is picking people for his cabinet that most people have never heard of.  This is positive.

If Trump had picked Mitt Romney, Rudy Giuliani, or John Bolton as his Secretary of State, then I would have thrown my hands up and given up on him.  Since he picked somebody that we don’t know, this is as good as we should have expected.

It was also reported this past week that Trump spoke with Judge Andrew Napolitano of Fox News.  Napolitano is a libertarian.  If Trump nominates him to the federal bench, that would be reason to cheer.  If by some miracle Trump nominated Napolitano to the Supreme Court, then we can really celebrate, even if the Senate does not confirm the appointment.

Overall, it is nice to see somebody who is potentially honest taking the presidency.  I don’t know if the insiders will simply keep Trump out of the loop on some things.

Trump is going to have trouble draining the swamp.  There are hundreds of thousands of bureaucrats working for the alphabet agencies who make up the thousands of new pages of rules and regulations every year.  This is a major piece of where our liberty is lost.

Still, if Trump can make a dent, and also sway public opinion to further distrust the establishment and its media, then this is all for the better.  The swamp may not be drained, but the scum in the swamp can at least be exposed.  This situation was hard to imagine just a few years ago.  We live in interesting times.

The Federal Open Market Committee (FOMC) released its latest statement on monetary policy.  The Federal Reserve, as expected, hiked its target rate by 0.25%.

From late 2008 to December 2015, the target rate was in a range between zero and 0.25%.  Last year, the range was hiked to 0.25% to 0.50%.  With this latest hike, the range is now 0.50% to 0.75%.

We say that the Fed raised rates, but it really only raised one rate.  This is the interest rate paid on reserves to commercial banks.  Banks will now get paid 0.75% to park their customers’ deposits at the Fed.  This is the bank bailout that nobody wants to talk about.

The banks are getting paid to not lend.  This is deflationary in a sense, as it keeps the Fed’s base money from multiplying through fractional reserve lending.

The hike in the federal funds rate is not deflationary in terms of the monetary base.  It is essentially neutral.  In previous and more normal times, the Fed would likely have to sell assets in order to raise its target rate.  This would be nearly impossible today, as the banks have piled up trillions in excess reserves.

That is why the Fed has to pay a higher interest rate to the banks.  It essentially sets a floor on the federal funds rate, which is the overnight borrowing rate for banks.  Most banks don’t need to borrow overnight because they already easily meet the reserve requirements.

If this is not clear, just know that the Fed’s hike in its target rate (the federal funds rate) is mildly deflationary.  In terms of the adjusted monetary base, the Fed has already kept that stable (or mildly deflationary) over the last two years.

With the FOMC statement came the projection that the Fed expect economic growth of 1.9% in 2016 and 2.1% in 2017.  These are really lackluster numbers when compared to historical data in the United States, but even these estimates may be way too optimistic.

It is also projected that the Fed will increase its rate three more times in 2017.  I would be very surprised if this actually happens.  Any indication of negative growth or a significant downturn in stocks will quickly wipe away this prediction.

While this quarter-point hike was widely expected going into the meeting, there have been expectations of hikes for the last two years.  The Fed was originally supposed to raise rates 4 times in 2016.  Instead, we got just one at the very end of the calendar year.

Did Janet Yellen and company at the Fed do this because Donald Trump is set to take the presidency?  After all, Trump was quite critical of Yellen during the few times he talked about the Fed during the campaign.  Is the Fed trying to send Trump a message?  Is the Fed trying to purposely implode the economy?

Overall, I don’t think this is likely.  Even if Yellen and several other Fed officials don’t like Trump, they aren’t going to purposely shoot themselves in the collective feet.  If the economy implodes, it brings into question their own legitimacy.  Trump will just hit at them harder too.

I think this rate hike likely would have happened even if Trump had not won the election.  And most people aren’t thinking this far ahead, but Yellen may be doing Trump a big favor by hiking its target rate now.

What are the chances that there isn’t going to be a recession within the next 4 years?  I would say the chances are quite remote.  And if that is the case, it is better to have a recession sooner rather than later, particularly from Trump’s perspective.

If the economy goes into recession now or sometime in 2017, Trump will get a pass.  There will always be critics no matter what happens, but the majority of people won’t blame him.  If a recession happens in 2018, it becomes more questionable.

If a recession happens in 2019 or 2020, then Trump is toast in the next election in all likelihood.  The Republican majority in Congress will also be finished.

If there is going to be a recession with a big drop in stocks, it is better for it to happen soon from Trump’s point of view.

During the press conference, Yellen stated, “So I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment.”  This is actually proper Keynesian economics, as opposed to modern-day Keynesians who support more debt and spending no matter what the economy looks like.

The original position of Keynes was that the government should cut back on its debt during the good times.  At least Keynes and the original Keynesians got it somewhat right part of the time, as opposed to the Paul Krugmans of today who get it wrong almost all of the time.

Yellen’s position that we do not need stimulative fiscal policy now is in opposition to Trump.  While it may be for the wrong reasons, perhaps Yellen is more correct on this front, at least in terms of government spending.

In conclusion, we have to remember that Yellen probably possesses more power than Trump right now in terms of impacting the economy.  She will continue to have more power in this respect as long as she is the Fed chair.

Meanwhile, if there are any signs of economic turmoil with falling stocks or lower-than-expected GDP numbers, then expect the Fed to back off of further rate hikes.  And then don’t be surprised if the possibility of “QE4” starts to get thrown around in conversations.

2017 will quickly tell the American people whether the Republicans are at all serious about any significant fiscal changes in Washington DC.

I don’t expect any significant cuts in the federal budget.  Maybe Trump will find some of the really excessive waste and go after that.  But I’m afraid, even there, that it will be too little.

Trump has been pointing out some of the wasteful spending, but it is on relatively little things.  I hear critics of Trump say that it will cost the American taxpayer extra money because the Secret Service will have to guard Melania and family in New York City because she plans to spend most of her time there with their son.

Of course, these same critics never spoke about when Obama would take a vacation that would cost 10 million dollars or more.

But the point is that this is all a drop in the bucket.  Ten million dollars, or even a billion dollars, is basically nothing when compared to a four trillion dollar federal budget.  It is mostly symbolic.

The military budget, Medicare, Medicaid, Social Security, and interest on the debt comprise about 80% of the federal budget.  As much as I would like to abolish the Department of Education and the Department of Labor, it would not make a big dent in the overall budget even with complete elimination.  The main benefits would come from the reduction in regulations and bribery.

So I don’t expect federal spending to be reduced.  That is the best thing the government could do to improve the economy.  It would mean that fewer resources would be misallocated.

With that said, regulations are a significant drain on the economy.  Health insurance and medical care has been a huge burden on the American people, particularly on the middle class.  That is part of the reason that Trump won the election.

Health insurance premiums have been rising at a far greater pace than overall price inflation for several decades now.  This you cannot blame on Obamacare.  The Affordable Care Act (Obamacare) was the opposite of its name though.  It made everything that much more unaffordable.  It made the already bad trend even worse.

In terms of Trump’s presidency, I think foreign policy is where he can have the greatest impact and make the most changes for the better.

On the domestic front, I don’t expect much from Trump.  In fact, I think he is mostly a disaster when it comes to economics.  He does not understand the benefits of free trade, or he at least does not let us know that he does.  I agree with him on opposing TPP and these other managed trade agreements, but he gets things wrong when it comes to free trade and outsourcing jobs.

In terms of the economy, the one thing Trump needs to get right, and I hope he gets right, is repealing Obamacare.  Of course, for several years now, we have heard Republicans talk about “repeal and replace”.  Why can’t they just repeal, and not replace?

This is as much of a test for the Republicans in Congress as it is for Trump.  Obamacare was somewhat unique in that is was a major piece of legislation that was opposed with near unanimity by one party.  Yet, the Republicans will still find it difficult to repeal.

Most Republicans, including Trump, say that they like certain aspects of Obamacare.  They agree with the provision that insurance companies should not discriminate based on pre-existing conditions.

But as I wrote quite a while ago, this is why the mandate is necessary.  If you can just wait to get sick and then buy insurance, premiums would go through the roof more than they already have.  Insurance companies would be covering mostly sick people.

Why would you buy really expensive insurance if you are not forced to, and if you can just buy it after you become seriously ill?

The mandate to buy insurance was put in place in order to have relatively healthy people buying insurance.  They need this to subsidize the sick people.

Obamacare really is a package deal.  While the Republicans were correct to oppose it in the first place, the Democrats are actually a little more consistent.  If you mandate that insurance companies admit people with pre-existing conditions at a somewhat comparable rate to everyone else, then you have to have a mandate to buy insurance so that it won’t just be sick people buying it.

If the Republicans repeal the individual mandate without repealing the provision of pre-existing conditions, then it will just drive up health insurance premiums that much higher.  It is a ticket straight to fully nationalized healthcare.

The Republicans should completely repeal Obamacare.  Trump should enact his plan that would allow people to buy health insurance across state lines, just as you can do with other insurance. There are a lot more free market policies that need to be put in place, but at least this would be a start.

If the Republicans can’t even repeal Obamacare, they really are mostly useless.  The only positive thing you could say about them at that point is that they are not Democrats.

Middle class America is hurting in a big way.  Health insurance premiums are a big chunk of this.  I think even many Democrats would say that Obamacare hasn’t worked out too well.  Trump and the Republican Congress could easily repeal this without much backlash.  Of course, the establishment media would be up in arms, but that doesn’t mean anything.  Trump already defeated them.

On the domestic front, Obamacare is the big test.  I am afraid the Republicans are going to fail miserably.

The European Central Bank (ECB) announced on Thursday that it would extend its own version of quantitative easing through the end of 2017.  The ECB was previously scheduled to buy assets (create money out of thin air) through March 2017.

After March, the ECB will reduce its rate of purchases from 80 billion euros per month to “just” 60 billion euros per month.  The euro has not reached parity with the U.S. dollar yet, so in terms of dollars, the net purchases will still exceed $60 billion per month using today’s conversion.

Mario Draghi, the president of the ECB, stated: “There is no question about tapering.  Tapering has not been discussed today.”

This is just a matter of semantics.  The term tapering was used in 2013 and 2014 when the Fed gradually reduced its rate of monthly monetary inflation.  QE3 eventually ended in October 2014 under Janet Yellen, but there was a lot of concern, at least in the financial media, about the possible effects of the taper.

The ECB was quick to say that it could further extend its buying program or ramp things back up if economic conditions warrant it.  In other words, inflation is always on the table as an option.

The level of buying is still massive by modern Western standards.  The Fed seemed to get away with it from 2008 to 2014, as much of the newly created digital money went into excess reserves at the banks.  The lack of lending helped keep consumer price inflation in check.  Perhaps the ECB figures the Fed got away with its massive monetary inflation, so it can do the same.

But the Fed has had a tight policy for 2 years now, despite having a low target for the federal funds rate.  It has not significantly hurt the Fed yet.  The Fed’s monetary inflation for 6 years, coupled with its policy of low interest rates, did its damage.  But it has been somewhat concealed because of the relatively low consumer price inflation.

Still, resources have been misallocated, and it has helped Congress spend more money than it otherwise would have.  We have not felt the full effects yet from the previous monetary inflation.  There are a lot of distortions in the economy, including in stocks.

Western Europe is an even bigger disaster than the United States.  It is a deeper welfare state.  The ECB’s purchases of debt includes negative yielding bonds.  The Fed never went this far.  There is going to be a bigger economic disaster in Europe than in the U.S., but we shouldn’t minimize the potential of major problems in the U.S.

As of this writing, the euro trades at around $1.06.  We should expect parity in the somewhat near future.  I think it will come in 2017.

The U.S. dollar is the least bad currency right now.  The Fed is not inflating, and the dollar is still the world’s reserve currency.  The yen has recently weakened against the dollar as well.  The euro and the yen are the only other major players on the open currency exchange markets.

The global economy really is a ticking time bomb.  Europe, Japan, and China are all worse off than the United States, but that isn’t saying that much at this point.

Donald Trump is a successful businessman, regardless of what anyone says.  His many failures have helped make him a success.  And while I don’t agree with his use of eminent domain, most of the rest of his success is market oriented as far as we know.  It doesn’t rest on government funding.

Just because Trump has been successful in business doesn’t mean he will be a good president.  We often hear that the government needs to be run more efficiently like a business, but that is something we really shouldn’t hope for.  I certainly don’t want the IRS or the other alphabet agencies running efficiently.

You also can’t run the government like a business.  In the marketplace, the signals of profits and losses will allocate capital.  They tell entrepreneurs on whether to continue with any particular venture.  This includes Trump.  Imagine how many Trump products would be out there if the government bailed him out every time something failed by market standards.  In the marketplace, the losses told Trump to stop selling certain products.

One area where Trump has been particularly successful is in real estate.  But will that translate into him favoring a strong real estate market overall in the economy?

The kind of real estate Trump has been in is different from the real estate that most individuals deal with.  Trump didn’t make his money off of 4-bedroom houses.  However, you shouldn’t discount these as investments.  There are many millionaires (probably not billionaires) who made money buying middle class single-family homes.

In terms of middle class housing, I don’t think Trump is going to make much of a difference one way or another.  As I have said with many other aspects of the economy, it will still be the Federal Reserve that has the greatest impact.

If Trump really wanted to help the economy, he would seek to repeal as many federal regulations as possible, and he would seek to reduce federal spending as much as possible.

Interest rates have risen since Trump’s election.  The 10-year yield, as of this writing, is around 2.4%.  This has not been enough to fully take the steam out of the housing market yet, but higher rates from here will likely have an impact.

I don’t think it will be higher rates that will ultimately lead to lower housing prices.  If anything, we will see an economic downturn that will be accompanied by lower long-term rates.  This could send housing prices lower.

There are a lot of mixed opinions out there about real estate.  Some see a major housing bubble ready to implode.  However, I don’t think we will see anything like 2008.  Housing prices had already started to drop in 2007, but the financial crisis triggered a huge drop from there. (Or was it the other way around?)

The housing market is more local this time.  There is not a nationwide housing bubble like there was in the mid 2000s.  In many areas, prices are still not nearly as high as what they were during the peak.

Now, when it comes to San Francisco, that is a major bubble ready to burst.  The prices are naturally high because it is a big city with big money and strict zoning laws.  Many Chinese investors have gone to California to park their money.  But it really is a disaster waiting to happen.  If you live in an area like this, then you really should sell your house.

For most areas, it really comes down to common sense right now.  Do you have a comfortable mortgage payment?  Are you planning to sell your house in the next few years?  If prices drop by 10 to 20 percent, would it have any impact on you in the short term?

These are questions we should ask regardless of whether we think there is a housing bubble.  They are questions that people should have been asking in 2005.

Overall, I don’t think Trump is going to matter much to the real estate market over the next four years.  He can’t stop a recession.  Perhaps he could delay one with more Keynesian economics in the form of artificial stimulus.

If there is an economic downturn, expect housing prices to fall in many areas, particularly in the big cities.  However, I don’t think it will be as bad as the previous housing bust in most areas of the country.

On November 8, 2016, the Indian government announced the withdrawal of its two highest denomination currency notes.  The 500-rupee and the 1,000-rupee (about $7.35 and $14.70) were instantly banned with no notice.

People supposedly have until the end of the year to trade in their old currency for new currency being issued.  This has caused long lines at banks and many headaches to go along with it.

The corrupt prime minister (Modi) and the corrupt Indian government essentially banned over 86% of the currency in circulation in India.  In the name of cracking down on corruption and black market activity, the government has quickly destroyed what little economy there is in India.  Like most government programs, it is hurting the innocent people more than the guilty, if you can even call anyone guilty.

If anyone is guilty, it is the corrupt government and those who support it.  Every national government on the planet is corrupt, but some more than others.  Considering the corruptness and bureaucracy of the U.S. government, the Indian government is probably ten times worse.

There are certainly some who are speculating about something similar happening in the U.S.  What are the chances that the government and/ or Federal Reserve would pull something similar in the United States?

My guess is that there is very little chance of this happening in the U.S. anytime soon.

First, the U.S. dollar is still the world’s reserve currency, even if it has slipped a little.  The dollar is in high demand, so the Fed would not ruin this by playing these types of games.  In fact, the Indians would be wise to use the U.S. dollar as a form of currency instead of the even worse piece of junk issued by their own central bank.

Second, the U.S. government does not have as much need to crack down on black markets.  They certainly exist in the U.S., but the big money is digital in the banking system.  U.S. currency is mostly used for small transactions and for immigrants to send to relatives in their home countries.  The U.S. government already has widespread compliance with taxation.

Third, I don’t think it is politically possible to do something similar.  If the Fed were to ban 20-dollar bills and above, you might see lineups at the banks similar to what is now seen in India.  But you would see even bigger lines in Washington DC and the Congressional offices.  The people may or may not carry pitchforks.

I understand that Nixon closed what remained of the gold standard in 1971.  But this did not have an immediate impact on most Americans.  They could just continue to use their money at the store as they did before.  It was damaging long-term because it meant virtually all limits had been removed from the central bank’s ability to inflate the money supply.

If something happened in the U.S. similar to what just happened in India, there really would be a revolt.  Americans don’t like to be told what to do.  That is why Trump won the election.  There are still a lot of rebels out there.

The U.S. economy is enormous compared to India’s.  U.S. workers don’t have hours to stand around at a bank waiting to exchange their currency.  They really would revolt with such a measure.  You would quickly see the responsible parties held accountable, which could include impeachment.

While Americans have certainly enslaved themselves, it is to a much lesser degree than much of the world.  The culture in India is different.  The people enslave themselves to a great degree.  They consent to their corrupt government and all of its actions.  They just sit there and take it.  I don’t understand the mentality, but it is a different culture.

The Indian people do have a penchant for gold.  That is one positive thing I see with the culture.  It shows a hint of distrust for the government.  But overall, they act as serfs.  The more creative and free thinking people leave the country.  They go to the U.S.

Anything is possible in the future.  The U.S. economy could get hammered, and we could see desperate measures.  When things aren’t going well, many people become more accepting of things they wouldn’t have accepted before.  Still, I think we are a ways off from having anything similar happen in the U.S.

Meanwhile, the Indian economy will be an even bigger basket case than it was before.  It will mean even more poverty, if that is possible.  The Indian people will likely increase their demand for gold and for U.S. dollars, since their currency can’t be trusted at all any longer.

The higher demand for dollars is bad for U.S. gold investors.  The higher demand for gold is good for gold investors.  Overall, the Indian people are so poor that it may not have that great of an impact either way.  It is sad to see for them though.

The Consumer Price Index (CPI) rose 0.4% in October from the previous month.  The more stable median CPI stayed steady, rising at 2.5% annually.

With the slight uptick in the CPI and the election of Donald Trump, I think it makes more likely that we will see the Fed hike its target rate on December 14.  It also helps that the stock markets are hitting all-time highs.

I don’t find the CPI numbers all that reliable.  One of the main reasons that Trump was elected was because he came across as an advocate for the struggling middle class.  And the middle class has been hammered with much higher health insurance premiums, partially due to Obamacare.

If you ask most middle class families, they will probably disagree that consumer prices have risen just 1.6% over the last year.  That is the number given by the Bureau of Labor Statistics.

Any raise in wages that people see are getting quickly eaten up by higher health insurance premiums.  And that doesn’t factor in the subtle increases at the grocery store and in other facets of our lives.  Unfortunately, most things are not like the electronics industry, where prices gradually go down with higher quality, despite the monetary inflation from the Fed.

The slight uptick in the CPI is just one month, so we will see if the trend continues.  It is a significant statistic to watch though, despite its unreliability.  That is because Fed officials watch this statistic.

If consumer prices begin going up at a faster rate, it makes it more likely that the Fed will hike the federal funds rate and pay a higher rate on bank reserves.  The Fed has already kept a relatively stable monetary base since October 2014.

I am not sure how much longer the Fed can keep this policy while also keeping the economy out of recession.  I am afraid that Donald Trump is being set up to take a hard hit.  He should hope that a recession comes sooner rather than later.

Politically, it will be worse for him if it takes at least another year before there is an economic downturn.  If it happens in late 2017 or beyond, he will take a lot of the blame.  If it happens in the first half of 2017, the media will try to blame him, but most Americans will know better.

The president does not have that much of an impact on the economy, unless he plans to significantly reduce regulations and government spending.  Otherwise, it is mostly monetary policy that dictates things.

There are a lot of moving parts.  The CPI is a key statistic because if it goes much higher, the Fed will be forced to hold back on any further stimulus and likely raise its target rate further.  This will likely result in a recession.

Even if the CPI doesn’t go any higher, we could still see a recession.

The Fed is maintaining the correct policy right now in that it is not engaging in monetary inflation.  But it did quintuple the monetary base from 2008 to 2014.  We may still have significant consequences to deal with from this prior policy.

I recently read an economics article discussing Frederic Bastiat, the 19th century French economist.

I happened to read some of the comments below the article and I was struck by one particular commenter and his claims.  The commenter said that Bastiat operated under the labor theory of value.

When challenged on this, the commenter stated: “He (Bastiat) argues, for example, that products imported from places where natural conditions are more favorable would be less expensive because less labor is required to produce them, with nature doing more of the work…”

When someone responded that this still does not imply that Bastiat subscribed to the labor theory of value, the commenter responded, “When he claims that products requiring less labor have lower prices, what would you call that?”

A few of the responses were pretty good, but I would just like to point out how wrong this commenter was.

The labor theory of value argues that the economic value of a product is determined by the total amount of labor required to produce it.  The Austrian School of economics has gone to great lengths to debunk this theory.

Anyone who works in a large office setting, or really any work environment with a large number of employees, probably understands that some people do more work than others.  Some people produce far more than others.  The amount of time someone spends on a product doesn’t tell us how much that product is worth.

Even if everyone were equally skilled and motivated, it still wouldn’t make sense.  You can spend hours or days to complete a painting of the sky with clouds.  But if nobody wants to buy a painting of the sky, then your long work doesn’t mean anything to the potential consumers.  If you spend a lot of time to produce something that consumers don’t value, it does you no good.  It doesn’t mean they will all of a sudden want it just because you worked hard and long to produce it.

Ultimately, it is consumer preferences that determine the price.  It is whatever they are willing to pay.

But – and this is a big but – it doesn’t mean that the input costs don’t matter.  If people are willing to pay $10 for a particular rug (but no more) and you can’t produce such a rug for under $10, then it won’t be produced.  But if it can be produced for $5 and sold for $10, then it becomes worth it to the entrepreneur.

In addition, competition between sellers matters.  Let’s say that people are willing to pay a high price for Coke or Pepsi, but most people are willing to switch to the other if there is a large price differential.  Let’s say that the input costs for Pepsi increase substantially, while Coke does not see the same increase.  If customers can buy Coke for significantly cheaper than Pepsi, then more consumers will turn to Coke.

Let’s say the government implements a 10% tax on revenues on the seller of soda products.  Before, Coke and Pepsi were both selling the same sized bottle for $1.00.  With the added tax, it is not profitable to sell these bottles at $1.00.  Coke and Pepsi both raise their prices to $1.10 per bottle.  Many people may just continue to buy as they did before.  Maybe a few will switch to water.

The point is that input costs matter.  If a foreign country can grow vegetables with minimal labor as compared to here, then it will probably make sense to import these vegetables, assuming the shipping costs are reasonable and the vegetables can be kept fresh.  If it costs a lot to produce those same vegetables at home, then the price would have to be higher in order to be profitable.

So why I am saying all of this?

Aside from the economics lesson, this is a great example of where a little bit of knowledge can really hurt you.  The person who made these comments has obviously done a little reading on the labor theory of value, and I think he meant well.  He understood a little bit of it, but he does not grasp the whole concept.  He made assumptions that are simply wrong.

Most people have no idea what the labor theory of value is.  Most people also wouldn’t have made this basic mistake that this person did, who is mildly educated in Austrian economics.  Most people who don’t study any economics would probably understand that the price of a product would likely be cheaper coming from an area where significantly less (or cheaper) labor is required to produce it.

I see this often when it comes to investing.  I read people who have a somewhat decent grasp of some economic and financial issues.  They are very well read as compared to the general populace.  Yet, they often make errors within their analysis that completely throws off their conclusions.  They often get things completely wrong because of these errors.

Sometimes it helps to take a step back and to ask yourself if what you are reading really makes sense.  And if you don’t understand some of the analysis or points made by the writer, then you shouldn’t assume their conclusion is correct.  It doesn’t mean that the writer is necessarily smarter than you because you don’t understand everything he has written.  It more often means that the writer is confused, or else doesn’t know how to relay his message.

A little knowledge really can be a dangerous thing.  If you are going to go deep into a subject, make sure you understand it and that you don’t use it as a springboard to jump to all of the wrong conclusions.

Donald Trump is slowly announcing nominations for his cabinet.  He just announced his nominee for Education Secretary (Betsy DeVos) and Ambassador to the United Nations (Nikki Haley).  As of this writing, it is also expected that Ben Carson will accept the nomination for Secretary of Housing and Urban Development (HUD).

I don’t want to discuss the individuals who are being announced or considered here though.  In general, I think it is better when you haven’t heard the person’s name before, because then there is a chance that the person is not too embedded in the establishment.

But from a libertarian perspective, it will be hard to get too excited over any of Trump’s picks, unless he really surprises us with a libertarian, or at least someone with heavy libertarian leanings.

Assuming this doesn’t happen, and even if it does, there is something else that would get me excited over a cabinet announcement.  This announcement would have nothing to do with any particular individual.

With the HUD Secretary and Education Secretary positions in the news, this provides a great example of why things are not headed in the right direction on the domestic front.

These departments should not exist.  They are unconstitutional.  These functions are not listed in Article I, Section 8, which spells out the enumerated powers for Congress.  The federal government should not be involved in developing housing or urban environments.  The federal government should not be involved in educating children or anyone else.

From a libertarian perspective, these departments should be abolished immediately.  I understand that is highly unlikely right now and is probably not politically feasible.

However, aside from the existence of the Federal Reserve, there are two main things that are severely hampering the economy: regulations and total government spending.

I know many will point to taxation, but the taxation goes hand-in-hand with government spending.  You can only have real tax cuts when government spending is reduced.

If Donald Trump really wants to make America great again, which would presumably include the health of the American economy, then many of these major agencies and departments need to see significant budget cuts.

So here is an announcement that would get me excited.

When Trump makes an announcement for a major nomination, he should say that he met with various candidates for the position and that he required the candidates to pledge to accept a 10% reduction in their total budget for their department for each year that they are there.  If the candidate does not accept this budget cut or does not promise not to fight the administration on these future cuts, then the candidate is automatically eliminated from contention.

Actually, Trump could have made this announcement prior to any of his nomination announcements.  He could have announced right away that if you are not willing to accept a 10% per year budget cut, that you need not apply.

This is what would get me excited.

The alphabet agencies and various departments strangle us with regulations and make life more expensive.  With reduced budgets, hopefully they would have fewer resources for enforcement.  And with the reduced government spending, it would reduce the misallocation of resources and drive more capital into wealth generating activities.

Maybe Trump could make a few exceptions for certain agencies or departments for political purposes.  But most everything really should be fair game.  The Department of Education and HUD should be easy ones to start with.

Now don’t get me wrong.  It wouldn’t be easy politically.  But if anyone knows how to take getting beat up by the media, it is Trump.  That is why voters put him there.  They expect him to fight.  Unfortunately, I am afraid they may be disappointed.

Of course, none of this is likely to happen.  If the federal budget goes down at all, it would be reason to celebrate.

Spending cuts were barely ever discussed during the campaigns and various debates.  It came up briefly in a couple of the Republican debates.  There is almost no will to cut spending.  The voters complain about the debt, but they don’t want the spending cuts.

In order to significantly improve the economy, budgets have to be cut.  Unfortunately, because there is little political will anywhere to do this, it will be forced on us through the laws of economics.  At some point, it just won’t be possible to keep running massive deficits and continually increasing spending.