The Friction Ahead in 2023
Going into 2023, there are many reasons for responsible investors and for hardworking savers to adopt a cautious, bearish outlook. If anything, it’s hard to tell what to be concerned about the most and what to prepare for first: an escalation to the Ukraine-Russia war? Inflation persisting or even reaching new highs? Fuel and heating costs exploding even further? Growing government overreach and suppression of individual liberties and financial sovereignty?
In an effort to answer questions like these, that are keeping countless Americans and Europeans up at night, I turned to Jeff Deist, President of the Mises Institute in Alabama. Jeff has been one of the most impressive thinkers and speakers that I have personally encountered, and I’ve always found his clarity of thought particularly enlightening, but also very helpful in this day and age. After all, the ability to plainly and honestly communicate a great idea is just as important as the ability to conceive it – especially when it can be communicated to the public and change some open minds in the process, just like the Mises Institute has been doing for four decades.
Claudio Grass (CG): After the extreme trespasses, power abuses and irrational policies and U-turns we saw during the pandemic, many citizens hoped that 2022 would prove to be the year of “normalization”. What we got instead was a war, a fuel and food crisis, and a world more divided than any time before in recent memory. What was, in your estimation, the most worrying development we saw in 2022?
Jeff Deist (JD): 2022 may be remembered as the year we fully understood how elites and the political class never intend to allow a return to “normal.” The covid flu virus created the excuse for lockdowns, controls, and spying; and as Robert Higgs explained, the “Ratchet Effect” means crisis measures don’t go away when the crisis ends.
Covid will be the excuse for attempts to impose a whole new battery of state mandates in areas of health (vaccines, masks, testing), business (closures), money (central bank digital currencies, capital controls), and movement (quarantines, travel restrictions). It’s up to us in the fight to restore normalcy and decency; the politicians will always go in the other direction.
CG: We both warned for a long time that there would be a very high price to pay for the more-than-a-decade-long monetary and fiscal policies of the Fed and most of its peers. Why do you think it took so long for inflation to make the comeback we’re suffering though today? What triggered it and why now?
JD: The current price inflation engulfing the US and other western nations results more from fiscal stimulus in 2020 and 2021 than monetary policy. In America alone, national politicians pumped more than $6 trillion into the domestic economy in the form of direct payments—subsidies—to state and local governments, preferred industries (insurance, airlines), businesses (payroll “loans”), and individuals in the form of stimulus checks.
All this new money was created even as Covid lockdowns dramatically reduced the production of goods and services and disrupted global supply chains. So unlike monetary stimulus, where central banks push interest rates down and buy government bonds from commercial banks, the price inflation we are suffering today is directly tied to fiscal stimulus. It’s a simple matter of more money chasing fewer goods and services. Paying people to stay home and not work was a recipe for disaster.
CG: After numerous unsuccessful attempts to simply deny its existence, central bankers were forced to acknowledge that inflation is indeed a problem, but still, quite unsurprisingly, nobody seems too keen to take any responsibility for it. Together with politicians, they simply blame Putin for it and pretend that the reckless “print, borrow and spend” approach of the past years had nothing to do with it. Given the relatively low levels of financial literacy among the general public, do you think most voters and taxpayers believe this narrative?
JD: The question is not only whether average people still believe in the technical competence of central bankers to “manage” the economy, but whether they still believe central bankers even intend to help average people. Increasingly the answer to both appears to be “No!”
We are fewer than 15 years removed from the last economic crisis of 2008, so the idea that central banks prevent crises and crashes is hardly supported by the evidence. Of course, the poorest people suffer most from inflation, as a larger portion of their income for basics—food, utilities, transport, and rent. So, I do think average people sense something is deeply wrong with the financial and monetary system, even if they don’t understand the underlying technical issues.
CG: Apart from the thousands of human lives the Ukraine war has already claimed or uprooted and the inestimable damage to private and public property, there was another causality: Whatever was left of the legal protections for private property or of the free market in Europe vanished seemingly overnight. We saw gas and nuclear power companies nationalized, unprecedented interventionism in the oil and gas market and redistribution policies, fining energy companies for being profitable to pay for “inflation checks” to the public. Do you see a similar trend in the US?
JD: The US has been more insulated from the energy shocks cause by sanctions against Russia simply because we have vast amounts of domestic oil and natural gas. But we lack sufficient refining capacity to make full use of our oil, due to environmentalist pressure. We also lack sufficient nuclear capacity for a country of 330 million people.
So yes, I think events in Ukraine will advance the narrative of the “Green New Deal,” which effectively nationalizes energy policy to promote so-called renewable fuels while banning—or regulating into oblivion—fossil fuels. This is all a pipe dream, of course, as coal, oil, and natural gas still account for more than 80% of our energy use. And we are many decades away from having the grid capacity for widespread use of electric vehicles, even if you ignore the terrible issues of lithium mining and battery disposal.
Unless we are prepared to suffer a significant loss of material living standards, politicians in the West better stop fantasizing about green energy and start getting serious about the real market for reliable and cheap fossil fuels. Let’s hope and pray this winter does not result in the freezing deaths of people in Ukraine or Europe due to energy shortage.
CG: Speaking of the US, what’s your assessment of the fiscal and regulatory policies adopted since Joe Biden took office? Do you think there’s anything his administration could have done to avert the current inflationary spiral or was it always going to be inevitable, after so many years in the making?
JD: Biden certainly is responsible for the increase spending under his administration, which has enormous inflationary consequences. But most of the mischief in our economy was created by fiscal and monetary policies enacted while he was a cronyist US Senator for many decades. In that sense his Senate record is far worse than his presidential record. He is a buffoon, and easily led, which means he is not capable of challenging the “print, borrow, and spend” approach you mentioned. But I hope people understand Biden is a symptom of a much deeper problem, which is a hopelessly corrupt system with all the wrong incentives.
CG: Focusing on the sociopolitical situation, at least from an outsider perspective, we’re certainly seeing less outrage and controversy reflected in the international press compared to when Trump was in the Oval Office. Does that mean that the “wounds have healed” and that Americans are actually more united today or is the rift still widening, just more quietly?
JD: From my perspective the rift has widened. Biden’s narrow victory is viewed by the Left as a mandate to punish and vanquish the Deplorables, especially in rural areas. That’s the nature of politics, which is a form of proto-violence. Markets and civil society are win-win institutions, government and politics are zero-sum. So, unless and until we reduce the importance of political outcomes—unless and until we make life less political—we should expect division to grow.
CG: Both in US and in Europe, there is well-documented and growing mistrust of the media, social- and legacy organizations alike. My own hope had been, especially after the pandemic, that the obscene amount of bias would cause more and more people to do their own research and to “educate themselves”. Have you noticed such a shift in the US, perhaps reflected in a heightened interest in the educational content and programs that the Mises Institute offers?
JD: Absolutely. The digital age provides us the ability to seek out and find voices of reason and peace amidst the white noise of mainstream media. I hate to think it takes a real calamity to wake people up, but perhaps this is human nature. The more worried people become about the economy and their future, the more they seek out alternative sources of news and information. The Mises Institute works to be an alternative source for economic news and education.
CG: Another trend we have in common is the “green agenda”. Even as the present crisis made it abundantly clear that the energy transition in Europe was catastrophically premature, bringing about the “cold, dark winter” that millions of citizens are now facing, there is still extreme pressure for more “green” policies, including a war on farmers at a time of unprecedented food price increases. Is that something you expect to see continue in the months and years to come and if so, what’s the impact you expect to see?
JD: Food and energy crises certainly are possible. In keeping with the “new normal,” elites will use such crises to increase their own power and force us to suffer for problems they caused. We know, because they tell us plainly, their plans to have us stop using fossil fuels, stop traveling so much, stop eating meat, and stop owning homes. They are quite explicit about this.
The fastest and most effective way to achieve this is to make houses, gasoline, and meat so expensive only the very rich can afford them. We already see consolidation of home ownership by private equity firms, for example, to create a nation of renters in the US. We see billionaires like Bill Gates investing in fake meat substitutes. We see recipes in gourmet magazines for dishes featuring bugs!
None of this is normal or natural, but must be imposed by incentives, either positive or negative. If we hope to maintain any personal or family sovereignty in the coming decades, we have to recognize and resist this new program of imposed austerity.
CG: What’s your outlook for the US economy in 2023? What are the main threats that worry you the most and what would be your advice for responsible savers that seek to protect all they’ve worked for from their government’s incompetence or intentional abuses?
JD: Biden and company will face an increasingly tough economy, but given the Democrat’s tepid success in the midterm elections I suspect the administration will simply double down on fake statements about how well the country is doing. Politics is contra-reality, so by definition Biden cannot accept or admit what’s really going on.
I predict the US Fed will “pivot” in 2023 on interest rate hikes, meaning they will revert to their usual (true) status of worrying more about equity and bond markets than consumers and inflation.
Inflation will remain will us, higher than admitted by government statistics, and will become a permanent feature of the 2020s across the West. Government spending and deficits will continue to grow. As a result, it will be a very trying decade for savers! Gold and silver, commodities, and bitcoin are the obvious suggestions for those looking to protect themselves from devaluation, but for a variety of reasons the US dollar will remain strong against other currencies. And of course, the most important thing is to “harden” yourself against uncertainty by improving your skills and practicing self-education.
[This interview first appeared here at ClaudioGrass.ch.