Cato Institute economist Alan Reynolds points out, in “Producer Price Inflation Averaged One Percent for Eight Months,” Cato at Liberty, March 21, 2023, that, as the title suggests producer price inflation is very low. So why does inflation measured by the Consumer Price Index look so high? Reynolds explains: Although market rents have been falling since last summer, BLS estimates of rents on old and new leases still keep soaring in CPI monthly reports—at a 9.6 percent annual rate for the past three months! That statistical snafu made inflation in 2021 look lower than it really was, because shelter inflation was largely based on depressed 2020 pandemic rents. Today, the lagged BLS rent estimates have the opposite effect of greatly exaggerating inflation in early 2023 because reported shelter inflation (a third of the CPI) is still largely based on leases from the peak inflation of early 2022. Once we exclude shelter from CPI inflation, the resulting “CPI less shelter” is about like the PPI. CPI‐​less shelter has averaged just 1.1 percent since last June, as shown in my March 14 blog post. This is astounding. Unless Alan has, or I have, overlooked something, this means that inflation is already quite low.   (0 COMMENTS)

It is a cliché, but true, to say that war is an ugly affair. Which does not mean that there are no good moral and economic arguments for defensive wars. The world is not only inhabited by noble savages. But just as international thugs must be dissuaded from waging aggressive wars, soldiers on all sides must be dissuaded from committing gratuitous atrocities. It is clearly a sign of civilization that some of those have come to be be considered war crimes by international conventions and domestic laws since the 19th century. I take “civilization” in this context to mean a general recognition of a minimum respect for each human individual and of rules to that effect. The government of Australia just charged one of its soldiers with war crimes when he was deployed in Afghanistan, and more charges may be coming (“Australia Charges Soldier Deployed to Afghanistan With War Crime,” Wall Street Journal, March 20, 2023): The charge, which carries a maximum sentence of life in prison, follows a 2020 government inquiry that found credible information that Australian special forces were responsible for the unlawful killing of 39 prisoners, farmers and other civilians. The recognition of war crimes also reminds us of an important legal-individualist principle: even a soldier cannot hide behind the collective to commit crimes. During the 1968 My Lai massacre in Vietnam, as many as 500 unarmed civilians including women and children were killed. Rapes were committed too. No Viet Cong combatants were in the area. The very few heroes in this story include Warrant Officer Hugh Thompson and his two men. The Encyclopedia Britannica writes: As the massacre was taking place, Warrant Officer Hugh Thompson was flying a scout helicopter at low altitude above My Lai. Observing wounded civilians, he marked their locations with smoke grenades and radioed for troops on the ground to proceed to those positions to administer medical aid. After refueling, Thompson returned to My Lai only to see that the wounded civilians subsequently had been killed. Spotting a squad of U.S. soldiers converging on more than a dozen women and children, Thompson landed his helicopter between the two groups. Thompson’s door gunner, Lawrence Colburn, and his crew chief, Glenn Andreotta, manned their weapons as Thompson hailed other helicopters to join him in ferrying the civilians to safety. In 1998 Thompson, Colburn, and Andreotta (posthumously) were awarded the Soldier’s Medal for acts of extraordinary bravery not involving contact with the enemy. A few soldiers and officers at My Lai were eventually charged with war crimes , but only Lieut. William Calley, commander of Charlie Company’s 1st Platoon, was found guilty. Many of the others hid behind the collective by claiming that they were following orders. Calley was condemned to life in prison, but was paroled three years later. He tried to defend his actions in a book: John Sack, Lieutenant Calley: His Own Story (Viking Press, 1971). General Paul Selva more recently  declared before a Senate committee: “We take our values to war.” That’s a far cry from what president Donald Trump tweeted before pardoning Army commando Mathew Golsteyn, who had been charged with premeditated murder in Afghanistan. Trump’s tweet of October 12, 2019 read: The case of Major Mathew Golsteyn is now under review at the White House. Mathew is a highly decorated Green Beret who is being tried for killing a Taliban bombmaker. We train our boys to be killing machines, then prosecute them when they kill! Conservative Bill Kristol sensibly replied: No we don’t. And it’s beyond disgusting that an American president would say this about our military. Civilization is fragile. This idea is omnipresent in the work of economist Friedrich Hayek; my third essay on his trilogy Law, Legislation, and Liberty is forthcoming at Econlib.   Photo taken by United States Army photographer Ronald L. Haeberle on March 16, 1968 in the aftermath of the My Lai massacre and showing mostly women and children dead on a road. Haeberle contributed to revealing the massacre. Source: Wikipedia, with the mention: “This file is a work of a U.S. Army soldier or employee, taken or made as part of that person’s official duties. As a work of the U.S. federal government, it is in the public domain in the United States.” (0 COMMENTS)

  These are from a former student and I’ll probably have more of my own. A former student of mine at the University of Rochester’s Graduate School of Management, whom I hadn’t heard from in over 40 years, emailed me on the weekend and gave me permission to quote him. He had read my Hoover Defining Ideas article in which I argued against the bailout of Silicon Valley Bank. Here’s his first email: David, I am a former PhD student of yours at Rochester in the late 1970s. I eventually graduated with a dissertation concerning political risk and multinational firms. After teaching for a while, I moved on to the SEC, then Treasury, and finally ended up at the FDIC, in the TOO BIG TO FAIL group, and retired soon after, frustrated that our group was not making any serious progress in regulating such institutions. I just wanted to confirm that your analysis of the multiple failures concerning the SVB failure is spot on. Additionally, the $250K limit on deposit insurance should promote closer scrutiny of the bank by larger depositors. Eliminating or weakening that protection limit, as was done in this case, would likely result in less private sector scrutiny of bank behavior, not what is needed. Anyway, keep up the good work, Frederick J. Patrick, Ph.D. I taught at the U. of R. from August 1975 to July 1979. I replied to thank him and then he replied with more details: David, Thanks so much for your response. I’m fully retired now and have been for a while, but I still maintain a few contacts at the agencies where I worked. Oddly enough, I was working at the Office of Thrift Supervision as the Director of Credit Policy when Washington Mutual failed in 2008. About a year earlier, I gave a speech at the annual meeting of the federal banking agencies that was titled “There’s a tunnel at the end of this light” that characterized the mortgage market as being fueled by rising house prices, low unemployment, and low interest rates, a rare combination that was unlikely to last. Given the environment, Washington Mutual was engaged in making many NINJA mortgages that required virtually no underwriting (No Income, No Jobs, No Assets), a practice that was tolerated because rising house prices were thought to likely cover any defaulted mortgages. When pushed on this, WaMu said that if it didn’t make these types of loans, it would be out of the mortgage business. A year later it was, indeed, out of the mortgage business, with the largest bank failure in our history. The structure of OTS was such that it unintentionally abetted such practices. There were five regional heads of supervision, the idea being that there was substantial regional variation in lending practices and standards. For example, mortgage default rates were much lower in Minnesota than in New York, perhaps driven by cultural standards. So having regional directors with substantial autonomy made sense. However, it was my understanding that the budget for the regional supervision was based only on the size and vitality of the institutions under its supervision. The regions did better when their institutions did better.  WaMu was huge and growing quickly … Anyway, the lesson learned at Rochester that the incentives that individuals face matter in making business decisions has proved remarkably resilient, be it accounting practices (Paul Healy’s dissertation) or political risk, among others. Please feel free to quote my earlier missive.  And, to address equality issues of my own, my wife and I took the same last name when we married in 1979 – it’s Phillips-Patrick, so I’m legally Frederick Phillips-Patrick.  (And on an entirely different note, after we married, we spent the ’79-’80 school year in London, where I attended the London School of Economics. It turned out that my faculty advisor was Janet Yellen, who was visiting the LSE that year. How ironic!) Again, great to hear from you, Fred   (0 COMMENTS)

This question could have several interpretations:1. Did lax regulation from the Fed cause banks to take excessive risks?2. Did the sharp increase in interest rates during 2022 cause the crisis?Here I’ll focus on the second question, which itself is highly ambiguous:1. Did a tight money policy at the Fed cause sharply higher interest rates, hurting bank balance sheets?2. Did an easy money policy at the Fed cause sharply higher interest rates, hurting bank balance sheets? In my view, the NeoFisherian model provides the best way of thinking about this issue–it was easy money that triggered the problem.  Market interest rate movements have two components, changes in the natural (or equilibrium) interest rate, and changes in the gap between the natural interest rate and the market interest rate.  I’d estimate that roughly 90% of interest rate movements represent changes in the natural rate, and roughly 10% represent changes in the gap between the natural and market rate. In 2021 and 2022, the Fed adopted a highly expansionary monetary policy, which led to wildly excessive NGDP growth.  The fast NGDP growth pushed the natural interest rate much higher.  In this sense, you could say that the Fed contributed to the higher interest rate environment that damaged bank balance sheets.  The Fed raised its target rate by more than 400 basis points in 2022, and this mostly reflected an increase in the natural interest rate, which itself reflected faster NGDP growth caused by a previous easy money policy. Once the Fed created the extremely rapid NGDP growth, they had few options other than sharply increasing the policy rate (fed funds futures target.)  Some people suggest that the Fed raised rates too fast in 2022.  But if they had raised rates more slowly then inflation and NGDP growth would have accelerated even faster, the natural interest rate would have risen even higher, and the Fed would have eventually been forced into an even higher interest rate policy. The banking crisis would have been even worse. Much of the discussion of this issue is marred by confusion, a lack of understanding of the distinction between changes in the natural interest rate and Fed actions that move the policy rate relative to the natural rate.  Some people don’t seem to understand that the problem was excessive monetary stimulus, not excessively tight money.  Thus the appropriate counterfactual was not to scale back 2022 rates increases from 400 to something like 200 basis points, the appropriate policy would have been to raise rates by 200 basis points in 2021, so that NGDP growth would have been much lower in 2021 and 2022, so that the Fed would not have had to raise rates so high in 2022.  In other words, if you always strive to have NGDP return to a 4% trend line, the natural interest rate will stay at much lower levels, and banks will have fewer problems with their balance sheets.  In theory, fast rising interest rates can be due to either the Fisher/Income effects (fast rising NGDP), or tight money (the policy rate rising relative to the natural rate.) It just so happens that in this case the rising interest rates were mostly due to fast growing NGDP, i.e. easy money.  You don’t solve that problem by holding interest rates below equilibrium, just as you don’t solve the housing problem with rent ceilings. When people blame the crisis on rising interest rates, they are reasoning from a price change.  They need to be more specific.  Was monetary policy too loose in 2022, or too tight?  I say too loose.  Yes, rising interest rates were a problem, but not in the way that most people assume.  At a more basic level, it was the thing that caused the rising interest rates that was the real problem—easy money. One other point.  When I blame banking problems on unstable monetary policy, I am only discussing one factor.  A well-run banking system (as in Canada) can survive NGDP instability.  The US does not have a well-run banking system.  In our system, NGDP instability creates periodic banking crises.  We can fix the banking system or we can fix monetary policy.  Why not fix both?  (0 COMMENTS)

What would you describe as beautiful about a prison? To me, that seems a difficult question. Yet in this episode, returning guest Dwayne Betts helped me to see just how much there- or at least could be. Betts sat down with EconTalk host Russ Roberts to talk beauty, offer an update on his ambitious project to install libraries in prisons, and his new book, Redaction– a collaborative effort of poetry and visual art. “Freedom begins with a book,” is the tagline for Betts’ Freedom Reads program, as well as a fitting tagline for his personal story. Betts recounts how a fellow prisoner slid “The Black Poets” under his cell door, sparking a life transformation that led to Betts committing to being a poet and to making a life which included beauty in prison. (And in a delightful complementary story, to his reading of Sophie’s World and Sophie’s Choice, but that’s a project for another day…) Roberts presses Betts, what does it mean to “reach for beauty?” And how can you appreciate beauty when you’re in an otherwise ugly place? Who is to say who is worthy of a beautiful thing, and who gets to decide that question? Any and every decision you make is a choice, says Betts. We hope you will choose to continue this conversation with us.     1- What examples of joy in prison does Betts point to? What are some other examples of beauty existing within ugly spaces you can think of, and why do you find them beautiful? To what extent is finding beauty simply a matter of paying attention, as Betts suggests?   2- Betts spends a good deal of time describing the shape and construction and the location of the Freedom Reads bookshelves his group places. What are some of the details he thinks are important that surprised you, and why? What does he mean when he says they are trying to “create the opportunity for transformative experiences?” DO you have any ideas about other contexts in which we might usefully employ this way of thinking? Tell us about them!   3- An element of the program that surprised me was learning that when libraries are placed for inmates, they are also placed for the prison’s Corrections Officers, too. Why does Betts insist on this? What does it mean to publicly see someone as a reader? To what extent do you agree with Betts that, “books fundamentally are just so much better at changing people’s minds and the way they see the world than arguments.” How can libraries be both democratic and equitable?   4- The conversation closes with Roberts and Betts each describing what’s magical about books for them. How would you answer this question? What’s a book that has profoundly changed you, and how? (And any books you might suggest we read together?)   Bonus Question: What’s the last poem you memorized, and why? Do you think school kids should still be required to memorize similarly? Why or why  not?   (0 COMMENTS)

  Part of how I used the time during our extensive power outage was to read, by lantern, most of Bruce Caldwell, ed., Mont Pelerin 1947. Published by Hoover Institution Press in 2022, it’s a recounting, with transcripts of the various discussions, of the first meeting of the Mont Pelerin Society at, you guessed it, Mont Pelerin in Switzerland. The highlight for me was the discussion of Germany. Remember that it was 1947 and Ludwig Erhard hadn’t yet abolished price controls. The price controls were still enforced by the Allies, and were leading to widespread barter and close-to-starvation diets. I tell the story at some length in “German Economic Miracle,” in The Concise Encyclopedia of Economics. I found two things interesting: (1) German economist Walter Eucken’s clear thinking about the devastating effects of price controls and (2) the fact that even some of the prominent free-market economists at the meeting weren’t convinced that price controls should have been removed immediately. On point (1):   Eucken: It was very surprising that occupation did not mean the end of the Nazi system. Their price and distribution system was preserved in all detail and with only little change in personnel. (p. 117) Eucken: The rations are so small that nobody, literally nobody, can live on them. (p. 117) Eucken: To compress all this in a slogan, the German economy is undergoing a progressive primitivisation and now corresponds to the economic system of the 6th and 8th centuries. (p. 118) Eucken (after advocating currency reform): Further, if rationing and the price stop are maintained, the only effect will be that there will be no supplies. The official low prices reduce what is available in the market. I believe prices must be allowed to rise but only if at the same time a free market and international trade are resumed. (p. 121)   I confess that I don’t understand two things about his last statement. First, what does he mean by “free market?” I would have thought that in this context it means no price controls, which is covered by “prices must be allowed to rise.” But maybe he’s saying that allowing them to rise is not enough–that they must rise to free-market levels. I don’t know. Second, while of course, international trade should have been resumed and, if resumed, would improve things, why hold up deregulation of prices if international trade is not resumed? On point (2) about economists not being convinced that price controls and/or rationing should be removed immediately. Lionel Robbins: I know of no properly instructed person at home who would argue at this point that the policy of a price stop was a wise policy. But I do not think the consumption rationing system can be removed. But price stop can only be removed on grounds of politics. (p. 124) Karl Brandt (in response to Robbins): I did not intend to comment on the British situation. I would still cling to my notion that the possibility of establishing in Germany a free price market system, particularly with respect to food, without first having replenished the stocks, would absolutely lead to starvation, unless you took a large number of people and fed them on public relief. (p. 124) Caldwell explains in a footnote on p. 124 that “price stop” means “price ceiling.” Robbins was, of course, a prominent economics professor at the London School of Economics. Here’s his bio in David R. Henderson, ed., The Concise Encyclopedia of Economics. Karl Brandt was a German economist who had fled from Germany to the United States in 1933, shortly after Hitler’s election. It’s astounding to me that Brandt didn’t understand that the amount of a good supplied (he calls them “stocks”) will rise if the price is allowed to rise from a price ceiling situation. Eucken, by the way, gives an answer to Brandt that is similar to mine: Eucken: The situation would be different if we had a fixed amount of goods to distribute, but the central problem is the effect on current production. (p. 125) Milton Friedman adds: I think it is a fallacy that a free market is something that rich nations can afford, but that poor nations must do without. I think the U.S. never had any reason to have any rationing or price control at all. (p. 125) Karl Brandt does have one great insight, and his having fled from Germany in 1933 gives him credibility. He states: After destruction of physical assets, the Allies’ policy bought about the destruction of personal capital. That is, if anyone had invested under the Nazis, it was taken for granted that the person was persona gratissima with the Nazis. Rate at which the tribunals work is very slow. Germans talk of “Hitler’s 1000 years’ Reich, 14 years of Nazism, 986 years of denazification. By this slow rate, you are not getting rid of Nazis. And they are not permitted to work. Their children suffer. And the system will have a very bad effect on the children, who will have as a result a hatred of the Allies and of their methods. Fortunately, things turned around dramatically the next year with Erhard’s reforms and so there did not seem to be much resentment of the Allies. (Notice the fact that not all the notes are in sentence form. I’m pretty sure this is because the person taking notes was Dorothy Salter Hahn, the wife of economist Frank Hahn, and people were often talking at lightning speed. Frank Hahn, by the way, did not attend.) Here’s an interesting segment of the Wikipedia entry on Eucken: During the Nazi period, Martin Heidegger became rector (head of Freiburg University) and imposed the regime’s policies. Eucken was vocal in opposing these in the university’s Senat. Some of his lectures in the 1930s resulted in protests from the local Nazi student association.[3] After the Kristallnacht pogrom in 1938, Eucken was one of several Freiburg academics who banded together with several local priests in a so-called Konzil, where they debated the obligation of Christians to fight against tyranny. The Freiburg Circles had links to Dietrich Bonhoeffer and Carl Friedrich Goerdeler, key figures of the resistance against Hitler. Bonhoeffer asked Eucken, Adolf Lampe [de] and Constantin von Dietze to write an appendix to a secret memorandum, in which they worked out a post-war economic and social order. The central planning system of the Nazis was to be replaced with a liberal competitive system. If the attack of 20 July 1944 had succeeded, these plans would have been the basis of a new economic order. After the coup failed, Lampe and von Dietze were arrested and tortured by the Gestapo. Eucken, too, was arrested and interrogated twice but released. Two of his friends were executed.[3] Caldwell ways that Hayek called Eucken “the star of the [Mont Pelerin] conference. (p. 28) In David R. Henderson and Steven Globerman, The Essential UCLA School of Economics, we tell of Jack Hirshleifer’s work on disaster and recovery in postwar Germany. The starvation issue was serious indeed. One final note: On page 35, Caldwell lists the 39 attendees, not counting Dorothy Hahn. I knew 6 of them. HT2 Eric Wakin at Hoover.   (0 COMMENTS)

When physician Walter Freeman died in 1972, he still believed that lobotomies were the best treatment for mental illness. A pioneer in the method, he was a deeply confident and charismatic man who eagerly spread the technique in America, long after the rise of alternative treatments that were less destructive. Listen as journalist Megan McArdle and EconTalk’s […] The post Megan McArdle on the Oedipus Trap appeared first on Econlib.

I have been less active in responding to comments since the evening of March 9. The reason is that at 7 p.m. our power went out and wasn’t restored until March 11 at 9 p.m. Then it went out again from March 13 at 9:30 a.m. to who knows when. I’m writing this at 3 p.m. March 17 and it’s supposed to come on again late on the evening of March 18. I’ll believe it when I see it. Why does this happen? A huge element is nature. Another huge element is government. First, nature. We have a lot of trees with fairly shallow roots. The ground they are in has been softened by rain that is approximately double the amount we normally get by this point in the season. Then we get wind, with or without rain, that blows the trees down on the electric wires. Then a power outage. There are two possible solutions. First, put the wires underground as is happening very slowly in California. Second, cut down the trees before this happens. Now to the second factor, government. Unfortunately, there is a vocal lobby of citizens who believe that as long as trees aren’t diseased, they shouldn’t be cut. They persuade local governments not to allow home owners or Pacific Gas & Electric to cut down healthy trees. It’s because of these citizens’ power that a tree blew over in Pacific Grove (the city I live in) about 10 years ago and killed an elderly woman. Her survivors sued and won approximately $1 million. Ah, you say, but then wouldn’t that have caused citizens to change their tune and not oppose more cutting of healthy trees when they endanger people or could blow over onto electric wires. But if you ask that, you don’t know Californians, or at least a vocal segment of Californians. I think it was after the tree fell and killed the elderly woman that the city government of Pacific Grove hired a forester who came here from Wisconsin. Sounds like a good move, right? One of his first actions was to go around the city looking at city owned property and coming up with a list of trees to be cut. If I recall correctly, the goal he was tasked with was to reduce the probability of future trees falling and killing or injuring people. His list was presented at a city council meeting. Many citizens got up to speak to oppose the cutting of this or that tree. The guy was probably pretty smart and could see where his career as a forester was likely to go in Pacific Grove. The very next morning, the city manager came into his office and found the forester’s letter of resignation. It said words to this effect: “I’m resigning because Pacific Grove has lots of foresters.” (0 COMMENTS)

In a recent Reason magazine interview, Lyn Alden makes a very good point: And Lyn Alden, founder of Lyn Alden Investment Strategies, says “banks are basically highly-leveraged bond funds with payment services attached, and we treat it as normal to keep our savings in them.” She argues that the Federal Reserve makes it nearly impossible for banks to hold the bulk of their customers’ deposits in cash because “regulators want banks to be reasonably safe, but not ‘too safe.’ They want all banks to be leveraged bond funds to a certain degree, and won’t allow safer ones to exist.” Is this really true?  Do regulators refuse to allow ultra-safe banks?  John Cochrane makes the same claim (from a 4-year old blog post): Suppose an entrepreneur came up with a plan for a financial institution that is completely safe — it can never fail, it can never suffer a run, it offers depositors perfect safety with no need for deposit insurance, asset risk regulation, capital requirements, or the rest, and it pays depositors more interest than they can get elsewhere.Narrow banks are such institutions.  They take deposits and invest the proceeds in interest-bearing reserves at the Fed. They pay depositors that interest, less a small profit margin. Pure and simple. Economists have been calling for narrow banks since at least the 1930s.You would think that the Fed would welcome narrow banks with open arms. You would be wrong. Both are referring to the fact that the Fed refuses to approve “narrow banks”, which invest their funds in the safest way possible—accounts at the Federal Reserve. The media focuses on mistakes made by bankers and/or regulators, but the banking system is set up to be unstable.  Our political leaders want banks to take risks.  And when the inevitable happens, there’s a great deal of moral grandstanding. (0 COMMENTS)

Is there a more fitting name for a bank that has taken on too much risk than “Silicon Valley Bank”? Now it has failed, but instead of taking down with it those most responsible, the federal government has stepped in to rescue its explicitly uninsured depositors. The Feds promise “no losses will be borne by the taxpayer,” but they have a funny definition of taxpayer that excludes remaining prudent banks now charged an increased “assessment” by the government- that is definitely not a tax. The federal government is indeed partially responsible for this, playing its typical role as both arsonist and fireman – but not because of a failure of regulation. How many institutions are more regulated than a California bank? (Or to harken back, more regulated than saving and loans associations that failed by the thousand?) Regulators don’t have the insight or incentive to preempt such things but, alas, they have the power to make things worse. Yes, we’ve got yet more moral hazard piled on as we constantly “privatize gains and socialize losses” through bailouts of the biggest risk-takers. But we also have the Federal Reserve artificially holding down interest rates for years in order to goose the economy and make it easier for the government to borrow. With interest rates rising toward market reality, now banks’ balance sheets don’t look so hot. And Silicon Valley Bank tried to outcompete (or just didn’t know what they were doing), taking on far too much risk by assuming low interest rates were forever and failing to hedge a change. A general solution is to get the Fed out of setting interest rates and let bankers figure it out on their own – but there will always be private actors who take on excess risk.  The bible of monetary policy – Walter Bagehot’s Lombard Street – says that it would be best not to have a central bank at all but, if you do have a lender of last resort  – and this is its most famous advice – you lend freely at a high interest rate against good securities. Which is exactly what you’d expect a private lender to do with sufficient capital (indeed, in the United Kingdom at the time, the central bank was private). Illiquid banks get money. Insolvent banks don’t. Silicon Valley Bank tried to get private support and everybody with their own money on the line thought it was too risky. So the taxpayer – sorry, the assessment-payer – inherits the biggest problems in the system. But what of the risk-takers themselves? Silicon Valley Bank’s executives rode the success all the way up and even sold millions of dollars of stock just before receivership. Now the government pledges that executives and owners are wiped out, but they get to keep all their old gains. A classic historical regulation that is the greatest induction to prudence that banking has ever seen is to have personal liability for executives and owners if their bank fails – let the creditors go after who was responsible.  We are also talking about sophisticated business people putting their money in an insolvent bank, partially because they got extra yield or other fringe benefits. As the tech world bemoans finding out how many people are “rooting against tech” – or their woke ideology –  they should realize that some of us are instead rooting for responsibility. We are relying on uninsured depositors to keep bankers honest. But apparently no more.  A traditional thought is that it’s a lie that money can be in two places at once (freely available to you in your checking account AND being lent out by the bank) and so therefore the reserve requirement ought to be not 10% but 100%. In such a situation, absent fraud, every bank is solvent. You have two options: you either have total access to your cash at any time (but probably have to pay for such safety, as you would if you stored money in a safe deposit box) OR you can buy bonds (where you get interest but you don’t have access).  Of course, in the unlikely event we moved back toward asset-backed currencies, a free banking system (especially its Scottish variety at the time of Adam Smith) has proved it can be self-policing even without reserve requirements – private actors then have personal reason to call out the irresponsibility of their peers. In the meantime, we will most likely suffer the vagaries of a system that both props up the government and robs capitalism of its most potent incentives – that anyone might both reap the rewards and suffer the consequences of their own actions.    Grant Starrett is a real estate investor in Murfreesboro, Tennessee. He received his BA in history from Stanford and a JD from Vanderbilt. His writing has been published in the Wall Street Journal, National Review, etc. and he also writes book reviews every couple weeks for a substack distributed through GrantReadsBooks.com (0 COMMENTS)