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Now that Javier Milei won an important election in Argentina, let’s see what his options are on fiscal policy. We looked at monetary policy earlier. I agree with Nicolas Cachanosky and Steve Hanke that full dollarization would be the best option for Argentina at this time. This would have a few complications, but it looks doable to me. November 12, 2023: A Quick Look at Argentina I don’t really know much about Argentina, but let’s take a look at some basic indicators. Government debt/GDP is pretty high. It has come down recently, mostly due to rising commodity prices (and thus GDP), and maybe, due to the devaluation of domestic currency debt. I assume the remaining debt is basically USD debt. The government’s budget situation is not too bad. The problem is, they have been funding it with the printing press, since nobody wants to buy bonds from Argentina. The corporate tax rate has come down, which I am sure has helped. The personal income tax top rate is 35%, which is not too high by itself. The problem with countries with a lot of “inflation” is that middle class and lower middle class people get pushed into top brackets intended for the wealthy. But, Argentina has had so much currency depreciation over the years that I would imagine (I am obviously doing a lot of guessing here) that the income tax system is pretty well indexed to at least the CPI, ameliorating some of these issues. The “Sales Tax” or VAT is high at 21%. Payroll taxes are also very high, in the European socialist model. But, this has come down too. This payroll tax is split into a Corporate share of 20.4%, and an Individual share of 17%. There are also some other goofy taxes, such as a 0.6%

This poem by Rudyard Kipling was first published in 1919. It has its own page at Wikipedia. Britain, before WWI and certainly afterward, had taken a huge lurch toward Marx-inspired Socialism. This began with the introduction of the “graduated” income tax — one of Marx’s Ten Pillars of Communism — in 1910, following 70 years of “uniform” tax rates (one rate for everyone). The top tax rate rose from 5% to 60%, and, unlike in the US where income tax rates fell in the 1920s, in Britain they stayed at high levels. (See Chapter 5 of The Magic Formula.) Plus, socialistic programs expanded everywhere. Kipling saw where this was going and … he was right. A “copybook” was a notebook to practice penmanship. Students would practice by copying the “heading,” typically a short moralistic phrase. *** As I pass through my incarnations in every age and race,I make my proper prostrations to the Gods of the Market-Place.Peering through reverent fingers I watch them flourish and fall,And the Gods of the Copybook Headings, I notice, outlast them all. We were living in trees when they met us. They showed us each in turnThat Water would certainly wet us, as Fire would certainly burn:But we found them lacking in Uplift, Vision and Breadth of Mind,So we left them to teach the Gorillas while we followed the March of Mankind. We moved as the Spirit listed. They never altered their pace,Being neither cloud nor wind-borne like the Gods of the Market Place,But they always caught up with our progress, and presently word would comeThat a tribe had been wiped off its icefield, or the lights had gone out in Rome. With the Hopes that our World is built on they were utterly out of touch.They denied that the Moon was Stilton; they denied she

Here at Heritage, we have an article: “Inflation: Who’s Really At Fault?“ Since Heritage basically consists of followers of Milton Friedman, of course we get that “reckless money printing causes inflation.” This is true. Reckless money creation (we don’t really “print” it anymore but it is still a nice metaphor) does cause “inflation.” But, how can you tell if money creation is “reckless”? Because it causes inflation, duh. Money has to come from somewhere. It has to be created. Also, the need for money (technically the “demand for money”) tends to grow as the economy grows. The US base money supply (notes and coins) grew about 160x between 1775 and 1900. One hundred and sixty times more money was in existence. Was this “reckless”? There was no inflation during that time. The value of the dollar was almost the same in 1900 as in 1775. Let’s look at the pace of monetary base expansion (“money printing”) in recent years: As we all know, there has been a lot of monetary base expansion not only recently, but since the financial crisis in 2008. In 2008, the monetary base more than doubled. Was this “reckless”? Some people thought it was. Seems obvious, don’t you think? But, the outcome of that was the CPI “inflation” was among the lowest of recent decades. The Federal Reserve, not very long ago, was actually complaining that “inflation” was falling short of its 2% target! We talked a lot about how a major change in banking practice, in Basel III, resulted in a need for banks to hold much higher levels of bank reserves at central banks. Basel III series In essence, the big increase in supply was mostly absorbed by banks, which had increased demand. The match was not perfect, but that’s the broad story. Compared

“This is why we wrote a book about inflation” has become a bit of a cut phrase for me on Twitter. One of the points in the book, which probably seemed pretty simple and innocuous at first, is that we can divide influences on “inflation” (in practice, official CPI statistics) into “monetary” and “non-monetary” categories. The first has to do with the (mis-)management of the currency by the central bank, leading to a change (decline) in currency value. The other category is everything else — which also, I might point out, includes all the actions of the financial system. In other words, the supply and demand of currency, leading to changes in currency value; or the supply and demand of goods and services, leading to changes in the prices for goods and services, independent of changes in currency value. To illustrate today the usefulness of this device, I will introduce two descriptions of “inflation” from reputable parties, coming after two solid years of intense discussion about the topic. Let’s see what they say. The first is from Harvard Business Review, December 2022. This is the basic Keynesian stance, where broad changes in the supply and demand (mostly the demand) for goods and services, in other words Aggregate Supply and Aggregate Demand, lead to changes in broad price measures like the CPI. A currency of unchanging value is assumed. Alternately, we have the Monetarists’ description, where changes in the Supply of Money (Demand is ignored, or assumed to be equivalent to NGDP) lead to inflation, now ignoring all Non-Monetary factors. Here’s the Heritage Foundation: Note that we have the usual “too much money chasing too few goods,” and no mention of changes in currency value. “We all know the driver of the quantity of money is government spending priorities …” Oh

The ambitious high-schooler should aim to read about thirty to fifty good novels. I did. But, I didn’t have much guidance as to what these novels should be. I mostly went on vague reputation. In general, it is best to concentrate on the nineteenth century (and earlier) classics, adding 20th century novels only as a supplement to a foundation built on pre-1914 literature. Just as with Modern Art, the orchestral music of the 20th century, or the architecture of the 20th century, the Novel of the 20th century was generally corrupt, degenerate, and not nearly as good as that of the glorious 19th. This was particularly true of those novels that are “canonized” today. I think there were probably a lot of pretty good novels, that are not remembered. There were some noteworthy accomplishments during the century, however. It was a great time for children’s literature, including the Little House, Little Britches, and Narnia series; and also science fiction and fantasy. I’ve broken the list into twenty novels from the 19th and early 20th centuries, before 1914, and ten afterwards. I tried to hold back on the Monster Novels of more than 600 pages, leaving out noteworthies including Tom Jones, Vanity Fair, and Les Miserables. I also left out a lot of books that are of more “historical” interest, such as Robinson Crusoe or Frankenstein. I am skipping some well-known books intentionally, including Wuthering Heights, which should be avoided, and Jane Eyre, which is not as bad as Wuthering Heights, but has significant degenerate tendencies. In the 20th century, I am also skipping some noteworthies that, in retrospect, are not really worth reading (Ulysses), and also much too degenerate (Portnoy’s Complaint, Lolita). I also skipped several novels that you should definitely read, although not necessarily for their “literary” content but

There is apparently some debate about whether Argentina can “dollarize” given its present foreign exchange reserves. Here at AIER, Nicolas Cachanosky argues that the Argentine Central Bank only needs to replace physical banknotes, requiring about $6 billion. Others argue the figure is $40 billion, well in excess of the present $20 billion in foreign exchange reserves. Foreign exchange reserves were actually in excess of $60 billion, before the most recent episode of dumbassery. But, so what else is new. (I wrote about this, and what to do about it, in great detail in Gold: The Monetary Polaris.) The peso has been collapsing of course. But, it is still a controlled rate. Let’s look at the Central Bank’s balance sheet, available here. So, we have 5,902 billion pesos of banknotes, coins and bank reserves, the Monetary Base. Also, we have 13,740 billion pesos of “LELIQs,” which are short-term notes sold by the central banks to commercial banks. Basically, it is equivalent to bank reserves, and thus part of the Monetary Base which is why it is alongside here, but since (I assume) bank reserves pay no interest, banks want to make a little interest on 7-14 day paper (LELIQs), especially since rates on these have been in excess of 100% per annum. All together, that is 19,642 billion pesos of base money liabilities, or about $54.56 billion. So indeed, it appears to me too that there are not enough dollars around to “dollarize” using existing foreign reserves, in a simple and straightforward way. Here is another look, from the Daily Monetary Policy Report. Now, you may say, where is the full Balance Sheet? I don’t see any Assets. This makes sense. The Assets are basically government bonds sold directly to the central bank, which are basically worthless since nobody would buy

(This item originally appeared at Forbes.com on November 7, 2023.) This has been a great year for fans of gold-based money. As part of their migration away from the fiat dollar-based international financial system, Russia has reportedly introduced widespread “gold-based checking accounts” at major commercial banks — a simple and effective form of “digital gold” — while the government of India has begun issuing gold-based government bonds. International megabank HSBC just said that it is launching a “tokenized gold” platform, making gold-based transactions possible among HSBC’s many clients worldwide. Of course there is no evidence that the Federal Reserve is going to jump on this bandwagon anytime soon. However, at the State level, many US States — actually, most of them — are tiptoeing toward creating an alternative gold-based currency platform. Following the lead of the Utah Legal Tender Act of 2011, already 43 US States have adopted legislation that simplifies the use of gold and silver coins as money. This comes straight from Article I Section 10 of the Constitution, which states: “No State shall … make any thing but gold and silver coin a tender in payment of debts.” Mostly, in practice, this has meant removing taxes on gold transactions at the State level, including sales taxes or capital gains taxes. Since Federal taxes remain, it has not led to revolutionary changes. However, some recent efforts go beyond this. Citizens for Sound Money has been developing a legislative platform that creates State precious metals depositories (as Texas has already done), and even goes so far as to create the basis for new State-issued currencies — mostly on digital platforms, but nevertheless linked to gold coin as the underlaying asset. These are all promising developments, and play a part in the “feeling our way in the dark” pattern that

Last week, I participated in the Hillsdale College Free Market Forum, a gathering of talents from academics and business. It was really a splendid event, with excellent speakers and quite an array of extraordinary people among the audience. I thank Hillsdale for asking me to speak at the event. After decades of laboring in obscurity, this has really become Hillsdale’s moment. They have stepped up to their role admirably, with a standard of excellence (displayed with their online courses for example) that really shows, in comparison, how dismal most education has become these days. This is not a matter of big promises and mediocre-or-worse execution, as you get with most colleges — rather, the execution is often better than even hopeful expectations. Among other things, Hillsdale has been busy starting a string of affiliated K-12 academies, and as you can imagine they have been very popular. This is accompanied by a lot of online resources, for homeschoolers and others in the K-12 range. This includes a whole curriculum for grades 6-12, the 1776 Curriculum. K-12 education resources from Hillsdale College I talked with some Hillsdale people about also expanding into new undergraduate colleges, especially since college campuses have been coming up for sale for very attractive prices these days. They said that they have even been offered some campuses to take over. The main difficulty is apparently finding professors that fit Hillsdale’s model. I think this may reflect the difficulty of imitating the “Hillsdale model,” that I remarked on earlier. It is not easy to find fifty good professors from a dead start, with which to construct a whole series of Departments in the Prussian University model, with a dozen different Majors. Rather, they should look into starting with five good professors who, between them, can teach a unified program,

(This item originally appeared at Forbes.com on October 6, 2023.) In 1860, the Pony Express began delivering mail between St. Joseph, Missouri and Sacramento, California. It took about ten days, with riders switching horses every 10-15 miles. It cut communication time by 50%, but it only lasted 18 months, until Western Union opened its transcontinental telegraph in 1861. Today, this task is performed by fiber-optic cables that carry 4K videos of grandchildren and stupid pet tricks. Comparing today’s Internet backbone to the Pony Express would be interesting, but perhaps not very useful. George Gilder, in his new book Life After Capitalism: The Meaning of Wealth, the Future of the Economy, and the Time Theory of Money, instead compares the Internet of today to the Internet of 2004. The ability of these glass fibers to carry 4K videos of stupid pet tricks is measured in “Lambda-bit-kilometers.” This is simpler than it sounds. “Lambdas” are wavelengths that can carry information. Think of different radio stations, at different wavelengths. Over time, the amount of information (”bits”) that can be carried by each “lambda” has increased. Also, the distance that this information can be carried without an electronic repeater (analogous to how far you can ride a horse before switching it for another, i.e., “kilometers”), has also increased. The 2004 Internet backbone used state-of-the-art gear from Corvis that transmitted 280 lambdas, each bearing 10 gigabits per second, over 3,000 kilometers. Wow. It was actually an 11,000-times improvement from 1995. But, today’s Internet backbone, using multiple fibers, carries about four million times more data than in 2004. “Aha,” you might say. “That’s amazing, but information is massless, so you can accomplish things that are impossible in the realm of real-world molecules. Once you get off TikTok, and you just want to drink a beer, then

We’re looking into Gold, The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder (2019), by Thomas M. Humphrey and Richard Timberlake. September 10, 2023: Gold, The Real Bills Doctrine, and the Fed: Sources of Monetary Disorder (2019), by Thomas M. Humphrey and Richard Timberlake September 17, 2023: Gold, the Real Bills Doctrine, and the Fed #2: Let’s Review September 24, 2023: Gold, the Real Bills Doctrine, and the Fed #3: Systemic Issues You can say a lot about what was going on with US banks during the Great Depression, or specifically the downturn of 1929 to the end of 1933 when, with a combination of the RFC and Deposit Insurance, things stabilized. Almost none of this is in the book we are talking about — a little odd, since that is supposed to be its subject — so let’s take a look on our own. This is from the Federal Reserve Banking and Monetary Statistics, available here: Federal Reserve Banking and Monetary Statistics, 1914-1941 In those days, banks were classified as National Banks, all of which appear to also be members of the Federal Reserve System; State Banks that were also Fed Member Banks, and a large number of very small State Nonmember banks. There were a lot of State laws against branching etc., which led to a large number of basically one-shop banks, a single storefront. At the end of 1928, there were 15,866 Nonmember Banks, 1,208 State Member banks, and 7,629 National Member Banks. By the end of 1933, 2011 National Banks had closed, 380 State Member banks, and 7049 Nonmember banks. More than half of the National Bank closures were in 1933, probably related to the Bank Holiday and restructuring. A lot of banks also merged, with the weaker selling out to the stronger. At