The testimony Federal Reserve Chair and U.S. Secretary Janet Yellen gave this week was one for the ages. Yellen’s duty to please hit new heights and still remains quite beyond belief. Luckily the transcript confirmed her views on the spending bill. When asked:
Secretary Yellen, do you believe that President Biden’s Reconciliation Package proposal, the one with the $3.5 trillion in total spending, will cost zero and be fully paid for?
She replied:
Yes, I do. We have a full program that the President is proposed to raise revenue that would cover the cost of the program.
If true then everyone, especially the rich should prepare for fairly substantial tax hikes in the future. As to how the next bill, and the one thereafter will be funded has yet to be seen.
While amusing, it was Senator Elizabeth Warren (D-MA) who pulled out some big punches, as CNBC reports, saying Chair Powell:
Your record gives me grave concerns. Over and over, you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed, and it’s why I will oppose your renomination.
Nonetheless, a Powell lambaste from Warren doesn’t seem honest. To be clear, this is the same Senator who vehemently opposed Judy Shelton’s nomination, tweeting:
Much could be said about Senator Warren. She’s credited with the creation of the Consumer Financial Protection Bureau (CFPB), an organization which might be even more opaque than the Fed itself, headed by a director who can only be fired by the President for “just cause.”
Per Congressional Research Service Report:
The CFPB is funded through the earnings of the Fed, not through appropriations. The CFPB requests monetary transfers from the Fed to the extent needed to fund its operations, subject to a cap based on a statutory formula.
$517 million was transferred from the Fed to the Bureau of Consumer Financial Protection in 2020! This is impressive as normally we think of the U.S Treasury and the Fed’s stockholders as the entities who receive payment directly from the Federal Reserve.
But let’s humor Warren:
If Judy Shelton is not good because she asks too many questions, and if Powell is not worthy of his job, despite being one of the most accommodative Fed Presidents of all time, then who would Senator Warren want to helm the nation’s central bank?
She doesn’t say, but we can infer from another tweet she made:
It seems she’d want someone more accommodative who will be keen on expanding the money supply and national debt.
On a very serious note, it’s called the Austrian causal-realist approach because Austrian economists concern themselves with the cause and effects of human action; realist because the concern is only for what takes place in the real-world economy. This is very different, if not the opposite, from other schools which concern themselves with purely theoretical ideas that have little to no basis or relevance in reality.
Certainly, we can raise the minimum wage to $15, or even to $25.
And of course, all student loans can be cancelled. More money can go into social security and the government can fund universal child care for everyone in the nation. Nothing is stopping the government from doing this. The question we must ask is: at what cost?
As the tax burden on some doubles or triples, maybe more forms of asset forfeiture would be developed. The national debt would surely skyrocket and the money supply would balloon to unimaginable levels. Even if our central planners were fine with this, there would be some adverse effects to consider.
What happens to all prices, price discovery, savings, production, interest rates, the strength of the dollar… not to mention the infringement on liberty and freedom these policies require?
Someone like Judy Shelton, many laypeople, and any student of the Austrian school would ask these questions, looking for the effects of the action to consider if these are good ideas. Someone like Senator Warren does not. But many powerful people cling to the idea that we can live in a society where debt doesn’t matter and money creation is a public good which carries no consequence.
