 did an interview. So as you know, Powell is the chairman of the Federal Reserve. He was appointed by Trump. He is not an economist by training. I'm not sure what he is by training kind of a business guy by training a finance guy maybe, but not an economist by training. He just did an important speech at Jackson Hole. Now they didn't do it literally at Jackson Hole because they couldn't be there, but once a year there is a conference at Jackson Hole that the Fed holds, and the Federal Reserve chairman always gives an important speech about monetary policy and about the Fed policy at this event. And this year, Jerome Powell basically gave the speech saying that they're changing the way they look at inflation. This is price inflation. So mostly I'm going to use inflation as price inflation. When I'm not, I will differentiate. I will tell you that I'm speaking about monetary inflation, which is the proper use of inflation. But since everybody, including the Fed, talks about inflation as price inflation, it's just easier to use their terminology for now. So he basically announced that instead of targeting 2% inflation, which is what they've been doing unsuccessfully, by the way, because according to their measures, we have not reached 2% inflation for really since the financial crisis and even before that inflation wasn't a 2%. And I think the last time inflation was at 3% was, I don't know, in the 1980s or something. It's been a long, long time since we've had price inflation, at least in the way that the Fed measures it. They have now shifted where they're measuring inflation to, well, not the way they measure inflation, but the way they're targeting inflation to some kind of average inflation. So that indeed what he's saying is that we're actually shooting for more than 2% inflation. And as long as over time the average is 2%, that's fine. And if we overshoot 2%, it's no big deal. We just want inflation. Please, please give us some price inflation. That's what we want, which is interesting because often with these kind of topics, when you want something, you actually get it. Psychology does play a difference. And if people are convinced that the Fed really wants inflation, they'll start pricing that in. And that could have pretty interesting consequences in the economy. Anyway, a few days ago, Joe and Paul gave an interview to NPR, which Daniel Weishard, thank you, Daniel, sent me and asked for me to comment on. And it is a actually really interesting interview because it shows the thinking kind of in a little bit. I found the speech that he gave to Jackson Hole just gibberish and difficult to follow and stuff. Here I think it's clear about what he means. It's still gibberish in a sense, but at least it's clearer in terms of what his intentions are, what how he thinks about the economy. And I think that's really, really interesting. This is the most important, at least politically, the most important economic voice in the country. More important, I think, than Trump, more important, I think, than minutiae in terms of setting the economic policy of the United States. I think that what the Fed does can tank the economy faster or can elevate the economy faster, well, cause damage in a variety of different ways and in more interesting ways than even the federal government can. And it's usually hidden. That is, the damage they do is usually hidden for most people. Whereas if taxes go up, you feel it. If regulations go up or down, you feel it. If taxes go down, you feel it. When the Fed does stuff, you don't know that what you're feeling is caused by what the Fed has done. So it is a stealth operator that has a profound impact on the economy. Probably bigger than anything a president does or the Treasury does. Now, maybe not bigger than what a president could do because, you know, you could really deregulate on scale or change the attack codes dramatically on scale in a way that would have a profound impact on the economy. But most presidents, what they do is at the margins, what Trump has done, but even for the bad, what Bush and what Obama did, was all at the margin, all negative at the margin. But nobody's done anything positive, big, maybe ever, ever. Closest we came was Jimmy Carter and Reagan, who did a lot of interesting stuff on regulation, and then Reagan did some stuff on taxes that was beneficial. And cutting taxes is not necessarily it. Cutting taxes is not necessarily beneficial. Spending is what matters. But anyway, I don't want to go there. I want to go to Jerome Powell. So I thought I'd go over this interview. Unfortunately, I didn't find it like a video because then we would have done a commentary section. So I'll just have to read what Jerome Powell actually says, and then comment on it that way. So I know it's a little less entertaining and less efficient, but we'll do that. Okay. So, oh, let me give you a little bit of background. There is in the history of economics, a famous curve called the Phillips Curve. And the Phillips Curve basically suggests a relationship between unemployment and inflation. And the idea is that when unemployment is low, inflation is high. And when unemployment is high, inflation is low. And if you want to reduce unemployment, you need to increase inflation. That is, it assumes not just a empirical relationship, but also a causal relationship. That's called the Phillips Curve, right? It's a relationship between unemployment and inflation. And for many, many, many years, it was considered like the gospel. And it was always criticized by people like Milton Friedman by the by the Austrian School of Economics. Everybody said, no, no, no, no, this is wrong. The Phillips Curve is not true. Here's the economic theory to show it and it doesn't work. There is no tradeoff between inflation and unemployment. Those are not two things that you trade off. There's no economic world in which that really happens, that that is, that's the causal mechanism. You're misunderstanding unemployment and you're misunderstanding inflation. Anyway, the Keynesians, the traditional economists didn't pay attention and they followed the Phillips Curve. Now, in the late 1970s, we had what seemed like a empirical refutation of the Phillips Curve. Because in the late 1970s, we had both inflation, high inflation over 10% and high unemployment over 10%. That's not supposed to happen. If you have high inflation, unemployment should be low. And if you have high unemployment, inflation should be low. That's what I said, right? If you have high inflation, unemployment should be low. The other way around. So we had stagflation, stagnation, low economic growth, high unemployment and high inflation. By the way, the causal mechanism supposedly is this. If the economy does well, when the economy does well, wages go up. There's no discussion about how wages go up. But wages go up. When wages go up, people have more money to spend. People spend more money. People having more money to spend and spending that money drives prices up, which causes inflation. That's supposed to be the mechanism, right? So then in order to reduce inflation, you raise interest rates, which slows down the economy, which then reduces people propensity to spend because they then are unemployed. You slow down the economy, people lose their jobs. And that way, inflation goes down because the demand for the goods goes down. And that is a mechanistic view of economic growth. It is the view that economic growth is driven by interest rates and really nothing else. Though it drives economic growth, there's low interest rates. And when you have low interest rates, the economy grows dramatically. It's partially why Europe has had negative interest rates because the idea is that negative interest rates do what? Well, if low interest rates drive the economy higher dramatically, the negative interest rates should drive the economy dramatically higher. So they're trying to get economic growth by having low interest rates, negative interest rates. It's not succeeding. Japan, by the way, has tried that since the early 1990s. Low, low, low interest rates. Try to get economic growth. The economy doesn't grow. So we've had stagnflation. We had high inflation, low economic growth, high unemployment. Now we've had low interest rates, low economic growth, low unemployment. So we have had over the last 50 years massive amounts of empirical evidence that disprove the Phillips Cove. The Phillips Cove is wrong. Why is it wrong? Because it doesn't understand economic growth. And this is stunning to me. It's truly stunning that economists, mainstream economists have no conception of where economic growth comes from. They have no conception of what drives an economy. Because what really drives an economy, you cannot model mathematically. And I think, by the way, this is true of even some free market economists who think that everything's kind of mechanistic because everything is driven by levers and poles and levers. So if you follow this number, then that number has an impact on this number, you can understand everything just by doing that. But the economy is not mechanistic. What actually drives the economy? And I'll get to Jerome Paul's quote in a minute. What actually drives an economy is entrepreneurship and innovation. Entrepreneurship and called it ingenuity. Entrepreneurship and ideas. Entrepreneurship is, as I would define it, the application of that ingenuity, those ideas to the problem of production. Because Navarro says that what drives an economy is human action, no. And I think this is where prexology gets it all wrong. I don't think it's just, I don't think it's human action in the sense of prexology or in the sense of without explaining. It's not because consumption is also human action and consumption does not drive the economy. It contributes. But what really drives economic growth is a particular activity, a particular form of human action. And that particular form of human action is entrepreneurial, you know, Israel Kurtzner called it entrepreneurial discovery. I would call it entrepreneurial ingenuity, entrepreneurial innovation, creating, making, figuring out, discovering new better ways to do things, to make things, to advance things. It's not just about interest rates. That's a mechanistic view where you lower interest rate, capital becomes more available. We deploy more capital to a particular problem. That increases production. No, it doesn't increase production if there were no ideas, if there are no entrepreneurs, if there's no creation, if there's no ingenuity, if there's nothing new being made, if there's no thinking. What drives production is thinking, but a particular kind of thinking. A thinking as applied to production that expands the boundaries of human knowledge, that expands what is possible for us, expands what we can do. And it's individuals doing that thinking. This is what I think libertarian economists miss it. Even the Austrians don't quite get the entrepreneur. I mean, Mises is the one who comes closest. Israel Kurtzner comes close, but they all miss it because they don't recognize the value at the end of the day of innovation. And of the innovator, even Matt Ridley, who comes really, really close because he recognized the importance of innovation because that's really what drives economic growth. Doesn't recognize fully the individual, the importance of individual in that equation. Individual thinker. So what drives an economy is not any particular thing that government does. The only thing that government can do to drive an economy is get out of the way, that is, allow people the freedom, the freedom of thought and the freedom of action to have the ideas and to test them in reality. That's it. It's not about interest rates. I mean, it is indirectly because interest rates distort and pervert the pricing mechanism, which is an important signal in the economy, but that's not the essential. It's not about taxes, although again, has a huge impact. It's primarily more than anything else about control, about regulations, about controlling business and entrepreneurs. If you want to get the economy going, you got to take the shackles off, the shackles off. Now some of the shackles are taxes and interest rates, but the primary shackles are controls and regulations at all levels of government and it's everywhere and it's insidious and it's, that's why the industries that have the most shackles grow the least. The industries that have the least shackles grow the most. You can tax the industries that have the least shackles more and they'll still grow the most because the shackles are what are really important. It's not even the incentives and you can see this in places like Scandinavia. People say, how does Scandinavia do so well in spite of the fact that they have very high taxes? They do so well because they're less regulated. They're less controlled. They're taxed heavily, but the taxation is not what drives economic growth, the lower taxation. What drives, and this is what Republicans will never understand, what drives it is the freedom of the mind to think new thoughts, to innovate and to apply those in action. And now you need, and you saw that in the late 19th century, early 20th century, when government was the least regulatory that it's ever been, you saw the biggest innovations, the fastest progress, the fastest economic growth in all of human history because the human mind was free to build, to create, to make. But what is truly astounding is that economists now, this idea of innovation, this idea that innovation is important to progress, this idea that there is a factor there that needs to be considered, has only been introduced into the profession of economics 20, 30 years ago by a guy named Roma, an economist by the name of Roma, who won a Nobel Prize for this. He introduced into the production function innovation of the economy because it's all mathematics, right? But you can model it mathematically. And the fact is it's still not truly in the models, not at the Fed. Never, I've not heard, you know, maybe a little bit on the green span, but certainly not from power. Any discussion of technology, innovation as responsible for growth, all you hear about is money. It's all they can understand is the flows of money. It's all they care about. It's all they can model. It's all they can project. So they think that by pulling this level, by pulling that level, by using interest rates this way, moving interest rates that way, they get economic growth and they don't understand why it doesn't happen. So for example, one of the things he doesn't understand is they had low interest rates since the financial crisis. And yet inflation was low and unemployment was low and economic growth was low. And again, that's something that can happen in their model. If unemployment is low, it must mean the economy is doing well. If the economy is doing well, there must be inflation because everything is driven by money. So here's the quote. And he's complaining about they don't understand why unemployment is so low. Unemployment can be even lower than we thought because we used to think unemployment couldn't go like below 5%. Then we thought and not result in troubling levels of inflation because they because they viewed the relationship between unemployment and inflation is crucial. They didn't understand why did unemployment under Obama and then under Trump go way down all the way down to under 3.5% and there was no inflation. How can that be? Why didn't employees demand an increase in wages and then use that increase in wages to go buy stuff which would drive prices up? He says we had 3.5% unemployment which was sort of the lowest period of sustained unemployment in 50 years and we didn't see inflation. If you go back 50 years, inflation would have reacted very strongly to low levels of unemployment. No, it's not how it works. It never has been how it works. What has happened? Oh, wow. I can't pronounce your name. Thank you for that contribution because it's all in Greek letters but the question is relevant. So I'll use it here. It's $100 question. So definitely. Would it be safe to say the comprehensive deregulation of the economy would cause deflation which would be counterproductive to the Fed's mandate? Yes. And I'm getting to that. And not only that, but I would argue that we have seen massive deflation, deflation, good deflation in a sense of prices going down. We've seen that over the last 30 years partially as a result of deregulation under Jimmy Carter and Ronald Reagan. I like to give Jimmy Carter credit for a lot of deregulation because he did do a lot of deregulation and nobody else other than myself gives him credit for that. Friend of Avastado, I like that name. Friend of Avastado. Thank you for the contribution and thank you for the question. So the reason we have seen low unemployment, in other words, people employed across the board is because actually the economy of the United States over the last since the 1980s has done well. I know that's incredibly counter to everything that everybody says because if you look at the wage numbers and you look at everything else, it doesn't look like we've done well, but we have done well. I'd say the last 10 years have been weaker under Obama and Trump, but even then the economy, the standard of living quality of life actually grew faster than the numbers suggest. And again, the way economists measure everything in economics is flawed dramatically. And the reason we have done well is because of this effect that friend of Avastado mentions. Deregulation in the 70s and 80s brought about dramatic increases in efficiency, in productivity, and dramatic decline in prices. Just think about air travel. Now, this is hard to comprehend that air travel today suddenly in inflation adjusted dollars, but even in just dollars is dramatically not a little bit dramatically cheaper than it was in the 1960s and 70s. The availability of air travel. And now I'm not talking about COVID, let's talk about pre COVID. The availability of travel, the ability to go anywhere in the world at unbelievably low prices with unbelievably few constraints other than TSA, was a massive increase to the quality of life of Americans that is not measured by any economic statistic. And the decline in prices of airlines because of improved technology, but primarily because of the deregulation of the airlines that had it under Jimmy Carter, the improvement and the cost reductions massively increased quality of life, standard of living, and reduced inflation as measured by like the Federal Reserve. Prices went down. And even over the last 30 years, and it's not just, let me just say this, it's not just the price. It used to be that there were only certain airports you could go to, but now there are thousands of airports you can go to, and there are dozens of airlines you can use. So the availability of getting to particular places has increased dramatically. To go to certain places, they might have been once upon a time one flight a week. Now there's a flight every day, maybe three flights every day. How do you measure that availability from an economics perspective? How do you measure the availability of hourly flights to the place you want to go, the convenience of that? How do you measure that as an economist? Well, there is no number that you can use to measure it. There is no number you can use to measure it. So deregulation and innovation, innovation, the hub and spoke method, I mean, not just innovation technologies, but innovation in management, in processes, in distribution. I mean, think about what Walmart did. So one is deregulation. But the second is lower trade barriers. The fact that tariffs since World War II, but certainly since the 1980s have been declined dramatically across the board, across the world, including in China, tariffs has gone down dramatically until Trump. That created an entire industry. First, there was the innovation of shipping, the container, which is a massive innovation. They reduced the cost of shipping dramatically, dramatically. The ability of ship things in containers is so cheaper than shipping things in crates and away. And then you build container ships, just built for containers. And these ships, you can build them standardized. And all the containers are standardized. And all the cranes are standardized. And everything is standardized. That reduced the cost of shipping dramatically, just at the same time as tariffs were coming down, just at the same time as production in China, in Thailand, in Taiwan, in South Korea, in Taiwan, in Hong Kong, in Singapore, was ramping up. We call that globalization, by the way, was a massive impact on quality of life and standard of living. A massive impact on cost reductions. We can focus on computers. And computers are essential even for that, the logistics, the networks. You need computers to manage all that. But even more impactful is the invention of the container, which had profound dramatic impacts on the world. And then the deregulation of trade, which allowed us to import cheap products from China, had a profound impact on the standard of living of Americans, a profound impact on inflation being lower, trucking deregulation within the United States and the ability to ship stuff from Mexico because of NAFTA. Again, lowered the cost of goods, trucking deregulation again, happened under Jimmy Carter. So you get lower and lower and lower costs because of innovation, because of deregulation. And that's not captured in wages. Because the wages can actually buy more. The wages can actually buy more. Even when it comes to food, we went from a period in which I grew up in the 60s and 70s, where we were assured we were heading towards famine, and where every few years there was famine somewhere around the world, to an era, relatively quickly, where the problem is obesity, where the problem is abundance, where the problem is too much food. Again, what does that mean? Technology, innovation, in this case, what's called the Green Revolution, made food abundant all over the world. And that has to do with corporate farming, the fact that the fact that the fact that the family farm died is a good thing because you brought in the ability to grow food on scale, which was done. So the value of deregulation, of innovation, of ingenuity, of increased productivity, of entrepreneurship, that is what resulted in an economy that grew actually faster than the numbers would suggest. That is the reason we had record unemployment, record low unemployment. It's not because of interest rates. Interest rates are a factor that influence, but mainly what the Fed does can cause damage. They're not what drives the economy, they're not what drives production, they're not what drives success, economic success. But all the Fed can think about is interest rates. All the Fed can think about is this relationship between inflation and unemployment which doesn't exist. Sometimes it does, but not because there's a relationship there, cause a relationship, because other factors are playing into it. So thank you, Noel. The invention of the container is massive. You can read about it, just look it up online. It is one of the great contributors to human prosperity in the late 20th and the 21st centuries. But the Fed, an economist generally, cannot comprehend this. They cannot, they don't know how to deal with it. They don't know what to do with it. They can't model it mathematically. They can't put it into a formula. It doesn't fit the mechanistic view of economics. So in my view we have had improvement in standard of living for the last 50 years for many in the population, not everybody, and it's uneven. The way this happens it's very uneven. It creates all kinds of distortions because the Fed is still manipulating interest rates. The federal government is still taxing in bizarre kind of ways. The federal government is still regulating and regulating heavily some industries and less heavily other industries and so on. So it's uneven in terms of how it happens, but it has happened and even though wages have been stagnant for some people, this standard of living quality of life has actually gone up even if they won't admit it. And the fact that unemployment has been so low is partially a feature of globalization. Americans didn't lose jobs because of China. America gained jobs because of China. There are many, many more jobs in America because of trade with China. There are many, many more jobs because of trade with Mexico, because of NAFTA, because of trade with Canada, because of trade with everybody. Thank you, yes sir. Trade is a job multiplier, not a job destroyer. So economists don't get this stuff now. What we need today, what I call the new intellectual would be any man or woman who is willing to think. Meaning any man or woman who knows that man's life must be guided by reason, by the intellect, not by feelings, wishes, wins, or mystic revelations. Any man or woman who values his life and who does not want to give in to today's cult of despair, cynicism and impotence and does not intend to give up the world to the dark ages and to the role of the collectivist roads. All right, before we go on, reminder, please like the show. We've got 163 live listeners right now, 30 likes. That should be at least 100. I figure at least 100 of you actually like the show. 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