Government, money, and jobs
In a July 2011 episode on jobs, the economy, the deficit and the debt ceiling, Bob Zadek framed the relationship between government policy and employment as the issue on which President Obama was perhaps most vulnerable, noting that unemployment remained above 9% and that there had been pressure on government to “create jobs” The Second American Revolution – NOW (2011). Zadek called that an impossible concept to fathom, and offered two illustrations of what he meant: government could double the number of jobs by cutting the minimum wage in half, or hire 10,000 men to dig a hole and another 10,000 to fill it in, creating 20,000 jobs if job creation were the goal in itself. He also cited former Governor Granholm of Michigan, who said that morning on television that people wanted government to focus on jobs rather than default. Zadek’s own conclusion was that government does not create jobs; all it can do is create an environment in which businesses create jobs.
Don Boudreaux, a professor of economics at George Mason University, agreed and generalized the point to monetary policy. He called it a myth, and a widely believed one, that government spending and government monetary policy create jobs. Entrepreneurs create jobs, he said, and they create jobs the freer they are; the jobs are worth more and the wages workers receive are worth more the freer the economy, because what ultimately matters is how much a worker can purchase with what he owns. Boudreaux granted that government can “create jobs” by reducing regulation, but compared that to saying government has stopped destroying jobs. Hiring people to dig holes or to fight in a war employs them, he said, but not to produce anything directly that they or other consumers can purchase to make their lives better.
Bitcoin’s capped supply and the depreciating dollar
An January 2018 episode with Stan Larimer, described on the show as the Godfather of BitShares, turned on the supply of money. Zadek observed that money kept in a mattress is not the safe store of value it appears to be: a dollar bill says it is worth a dollar, but a dollar does not always buy the same quantity of goods, so the value of the dollar itself goes down relative to the commodities one can buy with it The Basics of Bitcoin & Blockchain with Stan Larimer (2018). Holding one’s net worth in dollars, he said, is itself a decision to forego yield and to suffer possible depreciation in value because of government action, inflation and the like. He then asked Larimer what controls the amount of Bitcoin, given that the supply of dollars is controlled by government.
Larimer answered that the value of Bitcoin is limited for all time to 21 million coins, of which about 16 or 17 million had been issued, with the rest issued at roughly 12 and a half coins every 10 minutes — a process that would take perhaps 100 years to finish as the last coins gradually leaked into circulation. He described this as a contract made with all the holders of Bitcoin, enforced by the robots that run the system so that no coins can come into existence except at that slow trickle rate. Bitcoin, he said, is slightly inflationary — not as bad as the dollar, but a tiny bit of new coin is coming into existence and will taper off to nothing; that leaked-in money is what pays to operate the system, one of the main incentives for people to run the software.
Asked about Bitcoin’s dollar value, Larimer recounted that when Bitcoin started, its inventor Satoshi Nakamoto introduced it as a system for keeping track of tokens — little electronic receipts for value — and said it could be a digital currency someday. His mere suggestion that it might be worth money was enough that some of the geeks testing the software wanted to save some, and they began trading among themselves, selling 100,000 Bitcoins for $5 or something. As more people found out and wanted some, they bid the price up gradually over the roughly nine years Bitcoin had existed, and as more people used it for real purposes, such as sending money to the other side of the planet, demand became more than speculative. That had led to a point where Bitcoins recently almost hit $20,000 apiece, back down to $15,000 or something at the time of the conversation; their value, Larimer said, is driven by market demand, similar to gold and silver.
Volcker, commodity prices, and the Fed’s tools
A March 2019 episode with David Henderson, Professor Emeritus at the Naval Postgraduate School and a research fellow at the Hoover Institution, opened with a blog post about a monetary economist the show had recently hosted, George Selgin, and an op-ed by Steve Moore David Henderson on Trumponomics, Deficits, and Immigration (2019). Moore had written that the Fed was a threat to growth, and had claimed that Paul Volcker, the person who broke the back of inflation, looked at commodity prices as his signal for monetary policy. Henderson said Selgin, a careful economist who digs into the weeds, worked his way back to find that Moore got the idea from something Art Laffer had said, and that when Selgin looked into what Laffer said and what Laffer wrote in the early ’80s, there was a pretty big contradiction: Laffer seemed to imply he had met with Volcker in the early ’80s and even that he persuaded Volcker to look at commodity prices as his signal, while something Laffer wrote in 1983 in Reason magazine said something very different. Henderson called it kind of made-up history, to put it not mildly but not extreme either, somewhere in the middle.
Charlie Deist, filling in for Bob Zadek, asked Henderson to explain commodity price targeting — paying closer attention to a bundle of prices such as oil, copper and other minerals, the basic inputs of production — and noted deflation in that bundle over the several months since the Federal Reserve began to tighten, or at least the conventional wisdom that it had started to tighten with interest rate hikes. Henderson declined to explain why Moore might have thought Volcker used such a measure, warning that he was not Mr. Monetary Policy and would answer many questions with “I don’t know.”
Later in the same episode, Henderson turned to Moore’s suitability for the Federal Reserve Board. He said he and Moore were not friends but friendly, and that he did not think Moore should be appointed to the Fed; he compared the situation to loving his sister who had died recently without thinking she should be on the Federal Reserve Board. His stated reason was that Moore does not know enough about monetary policy. Henderson said he would like to see someone really critical of the Fed but really knowledgeable about Fed policy, naming Larry White at George Mason University, who wants to end the Fed — though Henderson was doubtful White could do that internally, at least there would be interesting conversations. He described the Fed as very snobby about these things, recounting that when he was invited to speak at the annual meetings of the San Francisco Federal Reserve Bank, he was told in advance that his panel talk and the other panelists’ talks would all be recorded and online, and that the Fed made an exception the year he gave it — which he attributed to one slide saying that if government is not good at figuring out the right amount of steel in the economy, central planning being a bad idea, why would one think it is good at figuring out the amount of money in the economy. Henderson said he would rather the Fed react to someone who can bring intellectual weight, such as Larry White or George Selgin, and that Moore is a very nice guy but a very careless one, as seen in a lot of his writing. He suggested Moore would be good as Assistant Secretary for Economic Policy, pushing for capital gains tax cuts, an area where reducing the rate somewhat would probably bring government more revenue — a case Moore laid out in his article on capital gains in Henderson’s Concise Encyclopedia of Economics.
On the Fed’s control over interest rates, Henderson said the Fed has very little control over interest rates; what it targets is the federal funds rate, the shortest-term rate imaginable, the rate on money lent overnight, and it does not target it by being in that market — it neither lends nor borrows at the federal funds rate, instead buying or selling bonds to put more or less liquidity into the economy and thereby indirectly affect that rate. He said it is a bad idea to look only at interest rates when looking at Fed policy, and invoked Scott Sumner, his colleague at EconLog and a strong advocate of nominal GDP targeting, who always points out that interest rates cannot be used as a measure because of the Fisher effect, the effect of expected inflation. In the Great Depression, Henderson said, interest rates were really low and people said the Fed must have had very loose monetary policy, when in fact it was very tight: people expected deflation, got deflation, and nominal interest rates were lower because of that expected deflation. Deist called that as succinct an explanation as can be done of why interest rates are not a good indicator of the stance of monetary policy, and noted that when the Fed signaled during the recession that it intended to keep rates low for a long time, that could have a self-defeating impact by signaling it was not committed to generating the historical average for inflation. Deist also plugged a book he had recently put out based on interviews done on the show with economists of different perspectives on macroeconomics and monetary policy, The ABCs of Austrian Business Cycle Theory.
Earlier in the episode, Deist had raised the idea that the economy might be riding another kind of financial bubble, with all the money put into the economy during quantitative easing buoying the economy and making current growth at least partly unsustainable. Henderson disagreed: he did not think it was a funny money thing, and said he thought the growth was sustainable — which did not mean it would be sustained, but that nothing said it was some kind of a bubble. Asked whether the Fed might stifle growth, Henderson said yes, because the Fed has in its mind what the correct growth rate is, which he characterized as the central planning mentality; if it sees real GDP growing too fast — or, as Sumner points out, nominal GDP growing too fast — it might try to lean against that.
Across episodes: money creation and central planning
The excerpts show the same underlying question — who controls money, and what follows from that control — argued in more than one episode, with the treatment shifting from the concrete to the theoretical. In 2011 Boudreaux folded monetary policy into a broader claim that government spending and monetary policy do not create jobs, while in 2018 Larimer supplied the contrast case of a money whose supply is fixed by contract and enforced by software rather than by government. In 2019 Henderson supplied the institutional detail, disputing Moore’s account of Volcker and commodity prices, questioning Moore’s fitness for the Fed, and explaining why interest rates mislead as a measure of policy. The 2021 episode with Jeff Deist adds the general claim that many economists do not understand much about money creation or monetary policy, and that it is dangerous to think incentives do not matter and that America cannot be screwed up at the monetary or fiscal level Austrian Economics Triumphs (2021). What changed between the earlier and later treatment is chiefly the level of abstraction: the 2011 and 2018 episodes argue from jobs and from Bitcoin’s supply, while the 2019 and 2021 episodes argue about the Fed’s internal reasoning and about the historical ignorance of the economics profession.
What the sources do not cover
The excerpts do not describe the mechanics of quantitative easing beyond Deist’s characterization of money put into the economy, nor do they state what the Federal Reserve actually did with interest rates in any period. They do not give the outcome of any appointment, the text or fate of any bill, or the holding of any case. Several sections break off mid-sentence or mid-exchange, and nothing beyond those points is reported here.