Ep 54 – EPIC RANT: The Fed’s Demand Destruction is Immoral

Demand Destruction

CEO Keith Weiner goes on an epic rant debunking the idea of a soft landing through demand destruction, the inflation-unemployment trade-off, and how most economists are not doing real monetary science.

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Will Interest Rate Hikes Fix Inflation? Cartoon

Demand Destruction Article


00:0000:16 Intro

00:1600:38 Demand Destruction

00:3801:32 Immoral Repression

01:3203:50 Say’s Law

03:5004:38 Dirigistes

04:3806:01 Court Economists

06:0106:25 Real Economic Science

06:2508:28 Employment and Supply

08:2809:28 Welfare and Consumption

09:2810:41 So-Called Theories

10:4111:06 Outro

11:0611:45 Monetary Metals


Benjamin Nadelstein:

We’re here at the New Orleans investment conference. I’m Benjamin Nadelstein and I’m here, as always, with the founder and CEO of Monetary Metals, Keith Weiner. Now, Keith, we’ve been talking a lot about the idea of interest rate hikes to curb demand, this idea of demand destruction to lower inflation. What do you think about that?

Keith Weiner:

So I really want to go off on this because I think, first of all, the idea is just morally reprehensible and that really needs to be said. There’s something unjust, there’s something monstrously wrong with this idea that, hey, you know, all these other consumers are competing against me at the grocery store or at the BMW dealership. And so if the government can somehow wave its magic wand and render all these people unemployed, then they won’t have the money anymore and therefore they won’t outcompete me to buy what I want to buy and the prices will be cheaper. I mean, that idea of suppressing somebody else or repressing somebody else in order to get a gain, there’s just something wrong with that. And I hope that everybody listening. This gets the moral point first. But having said that, there’s an economic point. And of course, most of my writings and most of my talks focus on the economic point informed by a moral view. But really I’m an economist, not a moralizer a moralist, but an economist. And that is, I think most people would be aware of Say’s Law proposed by Jean Baptiste Say in the 19th century.

And he said, and this is totally misunderstood, and the Keynesians, I think, deliberately misunderstand it. Supply is demand. And what he’s trying to say is something in essence, very simple. You come to market to buy stuff, but your ability to buy stuff depends on stuff you bring to sell. At market, whatever it is you produce is sold. And that is your purchasing power. Your purchasing power is your production power. Or saying another way, what people purchase from you, that is precisely the measure of what you can purchase from others. It’s done indirectly. It’s not a direct barter. It’s really obvious. If there’s only two of us on an island and I produce coconuts and you produce fish, then the amount of fish I can buy from you is determined by how much coconuts you buy from me. You buy the coconuts from me by giving me fish. I buy the fish from you by giving you coconut. That’s really obvious. Now you add a third person and a fourth person and a 30, you know, 3,000,000th person and a 4,000,000th person, a 300,000,000th person and a 4,000,000,000th person, it becomes so much more indirect and therefore abstract and therefore harder to see.

And therefore a lot of clear things slip through the cracks and disappearance into the fog. But at the end of the day, what you can purchase comes from what you can produce. So this idea that we’re going to render people unemployed to reduce demand, the only way to reduce demand, which is the same thing as saying unemployment people, we’re reducing supply. The idea that we reduce demand without reducing supply and therefore get lower prices is a contradiction in terms. It’s an absurdity that you’d have to be a central planner or an apologist. So I think there’s this is another one of my rants. I think there’s three kinds of people running around this gold calling themselves economists. And the first type either works for the Fed or some other central planning agency, the Soviet Union. They called the Gosplan, but every socialist dictatorship has it. And these are the dirgigistes, which is the French word. These are the central planners. Their interest in so-called economics is nothing more than what are the formulas by which they can determine how to centrally plan, how much we to grow and where to distribute it and what prices to set and so forth. And as Mises had pointed out in 1922, economic calculation is impossible. If you have full and consistent central planning, you don’t have a price system anymore.

The second kind of person running around calling himself an economist, I call them the Court economist, that is, they’re not really interested in studying the truth. They’re interested in finding the propaganda, finding the message that sells to the victim. So if you’re the guy who’s about to be rendered unemployed, how do I sell you on the idea of lessening demands? Right. So I have to have a whole song and dance to give you to get you to say, yeah, I’m okay with that. And it’s like all the motorists stuck in traffic jams hearing on the morning commute show of why the city government is going to spend $10 billion to put in a light rail system and the guy in that car is thinking, I’m of course not taking a light rail system. I wouldn’t have my car. It doesn’t go to convenient place. I have to drive 3 miles to a parking ride to get on the light rail. But all these other schmoes on the road, they’re going to take the light rail, they’re going to be out of my way and they’ll have a clean shot.

It’ll only take me ten minutes to get downtown.

Benjamin Nadelstein:


Keith Weiner:

It’s the same thing. Well, yeah, other people are going to be rendered unemployed.

Benjamin Nadelstein:


Keith Weiner:

And so the court economists are selling people on the story. There are very few economists that are actually interested in studying the science of how the economy actually works, what’s really going on. And those tend to be the more free market people that are at places like this that are really interested in loop. It’s not what you wish that will happen it’s? What’s going to happen and why is it going to happen? And so there’s a lot of interesting presentations here in New Orleans about that. But anyway, getting back to economics and unemployment, it should be self evident that every person who is employed, unless it’s a make-work job like a government regulator, or on the private sector side, compliance, which is the counterpart to the regulator making work for each other. The compliance person says or the regulator says you have to do this. The compliance person says, here’s this. The regulator says, now I need to hire more people to read the thing that you’ve just produced, which I demanded you produce. But most people working in the productive sector are producing something, right? If you lay them off, then they’re not producing anymore.

So by cutting employment, you’re cutting supply. And which John Baptiste said very elegantly 200 years ago, approximately, supplies demand. The idea of cutting demand to cut consumer prices is an absurdity. That’s a contradiction that I think people should be able to see. And if you see that, you realize that the Fed isn’t just pursuing the wrong policy. They’re not even wrong. The theory isn’t even wrong. And that expression comes from Wolfgang Pauli, 20th century physicist. Somebody gave him a paper and he read it and he crumpled it up and he threw it in the waste paper basket and he says, this isn’t even wrong. It doesn’t rise to the level of being wrong. And an objective of philosophy, there’s the concept of true, false, and arbitrary. And an arbitrary proposition is one that doesn’t have any connection to reality, not even the negative one of being wrong. That isn’t saying anything about reality at all. If I say this statement is true, or this statement is false, referring to my own statement, well, my statement is self-referential. It’s not referring to reality, it’s referring only to itself. And therefore it’s an arbitrary proposition to be dismissed out of hand.

The Fed’s idea of let’s lay everybody off to reduce prices is just such a thing. And then, of course, the final thing is that even if it were true, let’s say the turn of the last century, 1900, that unemployed people don’t buy consumer goods because they don’t have any money, we have a massive welfare state today. There are so many different welfare programs. The government is going to cover your housing, your food, your health care, and obviously various other things that are deemed to be necessities, and then they’ll put some spending money in your pocket. Plus a lot of these people get on disability and other programs too. The idea that unemployed people will consume less isn’t even necessarily true because of government’s largess. So that’s not a problem with the theory of it, that’s a problem with the practice of it, but an equally severe problem. So I think this whole thing is wrong-headed, wrong-footed, and not going to work out in the way that their so-called theory and I say so-called a theory, is an attempt to explain reality. If you’re interested in forcing reality to meet your whims, which is central planner, or if you’re interested in just finding whatever propaganda will sell to the victims, that’s not a theory.

A theory starts with, here’s the observation. How do I explain the observation? These people don’t even have a theory. So I say their so-called theory will render people unemployed. Isn’t going to work. Isn’t working already. Unemployment is surely rising and going to rise a lot more. But just like the 1970s, we’re going to find that you can have very high unemployment if the Fed wants to push it that far. And you can have at the same time, very high inflation. So the Keynesian idea of the so-called Phillips curve, that inflation and unemployment or trade off is not true. And the 1970s should have debunked it. That so-called theory should have been the dustbin of history, and it’s not. And it’s going to come back and become popular again. Anyway, rant off and but I wanted to say that because this topic keeps coming up in all of our interviews here in New Orleans.

Benjamin Nadelstein:

Well, Keith. Thanks. We always love a good Keith rant! Say’s law, economics, the Fed, 1970s…

Keith Weiner:

Of course, the banana and the wrong trousers.

Benjamin Nadelstein:

The wrong trousers. It’s all good stuff.

Keith Weiner:

I sometimes think that the best thing in life is going around collecting the cool expression.

Benjamin Nadelstein:

Yeah. Right. Well, this is a great spot to collect cool expressions. Absolutely. And some great investing ideas. So Keith, thanks, and we’ll see more of you on the Gold Exchange podcast.

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