Jonathan Newman



Articles by Jonathan Newman

Bank Crises and the Interventionist Spiral

Silvergate Bank, Silicon Valley Bank, Signature Bank, and First Republic Bank fell like dominos in March–April 2023. The United States Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) intervened in an unprecedented way to stall the domino effect. They waived the FDIC’s $250,000 cap on insured deposits at the failed banks, and the Fed instituted the Bank Term Funding Program to bail out any and all banks that run into trouble meeting depositors’ redemption demands.
The interventions saved the banking system, for a while. However, the inherent problem is rearing its ugly head once again.
When Signature Bank was liquidated and put into FDIC receivership, New York Community Bank bought $38.4 billion worth of Signature’s assets. Less than a year later, Moody’s

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Bastiat versus MMT

One doesn’t need to search modern economic literature to take on the MMT crowd. Just read Bastiat.
Original Article: Bastiat versus MMT

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Four Charts That Show Cantillon Effects

Murray Rothbard called Richard Cantillon the “father of modern economics.” While that title is often given to Adam Smith, Rothbard suggested that all the good things in Smith were first discovered by Cantillon or other pre-Smithian economists and that virtually all of Smith’s original ideas were “a significant deterioration of economic thought.”
One of Cantillon’s greatest insights involved the uneven effects of monetary expansion. New money enters the economy at a particular point—the first spender of new money acquires goods from the market, and those sellers may now use the money to increase their demands for goods, and so on. The money ripples out from its origin, providing real benefits to those closest to the center. As the new money is spent, prices rise, meaning those whose incomes

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Bastiat versus MMT

Proponents of modern monetary theory (MMT) are back in action after a quiet spell during the embarrassing (for them) record price inflation of 2021–23. They are here to tell us that the mountain of government spending and debt is nothing to worry about; the government’s red ink is the private sector’s black ink, they say. Private sector growth emanates from public sector deficits, and since the US government has a gigantic money printer, there’s no reason to ever fear a default or debt crisis.
Frédéric Bastiat, the great proto-Austrian French economist, provided an excellent framework for us to evaluate this claim about the consequences of government spending.
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of

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Exposing the Price Level Myth

Price inflation statistics were a hot topic in 2023. Official measures, like the Personal Consumption Expenditures Price Index (PCE) and the Consumer Price Index (CPI), rose to levels not seen in over four decades.
These measures were under commentators’ microscopes as recently as last week. The FRED Blog (run by the St. Louis Fed) briefly discussed how these two measures are constructed and how they differ. Paul Krugman compared the change in the “core” versions of the PCE and CPI (which remove components like food and energy) over six- and twelve-month time intervals, respectively. The consensus view is that these measures have unique applications. According to Krugman, “which one you should choose depends on what question you’re trying to answer.”
But if you read Mises, you’ll see a

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As the US Treasury Runs Out of Creditors, Its Options Dwindle

With US government debt skyrocketing past $33 trillion and possible recession looming, the Treasury faces the prospect of running out of suckers. Finding buyers for US debt will become much more difficult.
Original Article: As the US Treasury Runs Out of Creditors, Its Options Dwindle

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Paul Krugman Blames Economic Pessimism on Partisanship. He’s Wrong.

Paul Krugman can’t figure out why everybody is so bummed about the economy. From his perspective, we should all be jumping for joy, praising Joe Biden, and publicly signing fifty-year commitments to vote Democrat. Official statistics show that “unemployment is still near a 50-year low, yet inflation has been falling fast.” But the ignorant masses simply won’t get with the picture. Krugman admits “surveys of consumer sentiment and political polls continue to show that Americans have a very negative view of the Biden economy.”
He concludes that it is partisanship and media bias driving a wedge between consumer sentiment and economic reality. He found a study that shows that 30 percent of the disparity can be explained by Republicans who are doing fine economically but are just mad that Biden

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As the US Treasury Runs Out of Creditors, Its Options Dwindle

Are the chickens coming home to roost for the US Treasury? As Ryan McMaken noted in a recent Mises Wire article, the United States is in a debt spiral and there’s no easy way out.
The problem is multifaceted, but the origin is profligate government spending. While it typically spikes during crises, spending is increasing at an alarming rate even outside of crisis periods. And tax revenues are not keeping up, which means ever-deepening deficits. Government expenditures spiked during the 2020 crisis, but even ignoring those spikes, annual spending has increased by about $1.6 trillion since 2019, while tax receipts have only increased by about $600 billion.
The government must borrow to make up the difference, which has led to a mountain of debt. Total public debt has ballooned to over $32

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Mises on the History of Warfare

As war rages in the Middle East, we are reminded of what Mises wrote in 1949 on warfare and its awful effects.
Original Article: Mises on the History of Warfare

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The Radical Uncertainty of a Polymorphic Fed

Recorded at the Mises Circle in Fort Myers, Florida, 4 November 2023. Includes audience question and answer period. 
Special thanks to Murray and Florence M. Sabrin for making this event possible.

The Radical Uncertainty of a Polymorphic Fed | Jonathan Newman

Video of The Radical Uncertainty of a Polymorphic Fed | Jonathan Newman

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Mises on the History of Warfare

“The market economy involves peaceful cooperation. It bursts asunder when the citizens turn into warriors and, instead of exchanging commodities and services, fight one another.”
So Ludwig von Mises begins a short chapter in Human Action called “The Economics of War.”
While brief, the eleven pages (pages 817–28 in the scholar’s edition) are densely packed with Mises’s take on the history of warfare, what leads to total war, how wars are won, the costs of war, and the ideological conditions for war and peace. As is his modus operandi, Mises frequently contrasts war with the peaceful cooperation of the international division of labor.
The History of Warfare
In his short history of warfare, Mises describes the wars of primitive times as total wars, in which both sides sought the complete

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Fed Forecasts: Financial Sport or Costly Distraction?

Forget Vegas sports betting for reckless speculation. When the Fed officials make projections, the markets assume they are accurate. However, as Jerome Powell himself admits, forecasts are speculative at best.
Original Article: Fed Forecasts: Financial Sport or Costly Distraction?

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Central Bank Digital Currencies: The Last Battle in the War on Cash

Recorded at the Mises Institute Supporters Summit in Auburn, Alabama, 12-14 October 2023. Sponsored by Dan Johnson and Randee Laskewitz.

Central Bank Digital Currencies: The Last Battle in the War on Cash | Jonathan Newman

Video of Central Bank Digital Currencies: The Last Battle in the War on Cash | Jonathan Newman

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Is the Money in Your Checking Account Yours or the Bank’s?

When Silicon Valley Bank and other banks failed earlier this year, the debate over the sustainability of fractional reserve banking resurfaced. Under fractional reserve banking, banks keep only a fraction of customers’ deposits in reserve. The difference is bank credit, such as government debt, mortgages, business loans, and many other kinds of loans. This practice leaves the bank open to a run, in which panicky depositors attempt to withdraw their funds from the bank en masse but the bank doesn’t have the cash on hand. The following FRED graph gives an idea of the extent of the mismatch between deposits and reserves.
[embedded content]
But we shouldn’t worry about bank runs because the government is here to help. In the US, the Federal Deposit Insurance Corporation (FDIC) insures checking

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Why Stabilization Policy is Destabilizing

The call for "price stabilization" was part of the recent Republican debate. Despite its attractive appearance, having the Fed try to "stabilize prices" is a very bad idea.

Original Article: Why Stabilization Policy is Destabilizing

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Is the Monopoly Board Game Like Real Markets?

Many people believe that the board game Monopoly, developed during the Great Depression, mimics a real-world capitalist economy. Monopoly is a game, not real life.
Original Article: "Is the Monopoly Board Game Like Real Markets?"

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Why Stabilization Policy is Destabilizing

U.S. presidential candidate Vivek Ramaswamy took aim at the Federal Reserve recently:
The reality is, if the dollar is volatile, it’s as bad as if the number of minutes in an hour fluctuated. None of us would be here at the same time. […] When the number of dollars [in relation] to a unit of gold or an agricultural commodity is wildly fluctuating, money doesn’t go to the right projects. It’s just wild—it doesn’t make any sense. That’s been an impediment to economic growth…
So, what we need to do as the next-step—of course I’d like to end it [the Fed]—is at least get rid of the dual mandate. We’re done managing inflation and unemployment. It’s like trying to hit two targets with one arrow, dramatically missing on both. And restore a single mandate: stabilize the US dollar as a unit of

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What Is the Right Inflation Target for Central Banks?

The "2 percent" inflation target is purely arbitrary, and mainstream economists can’t agree on the "right" level. It’s all folly, and Austrian economics explains why. 

Original Article: "What Is the Right Inflation Target for Central Banks?"

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Is the Monopoly Board Game Like Real Markets?

It feels like a silly thing to say, but board games are not real life. Playing a few rounds of Operation does not make you a surgeon. Unlike in Battleship, real-world battleships do not sit still on a ten-by-ten grid.
Similarly, Monopoly does not correlate to “free-market capitalism,” despite anticapitalist claims like this tweet with over a million views:
There’s literally a children’s board game that demonstrates that “free-market capitalism” always leads to one person controlling everything.— Nina Turner (@ninaturner) July 26, 2023 The rhetorical strategy is obvious: anticapitalists want people to associate capitalism with Monopoly, the game that results in extreme wealth inequality as players bankrupt each other through zero-sum exchanges and often ends with family members storming

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CBDCs: The Ultimate Tool of Financial Intrusion

“Experts” at the Federal Reserve and other central banks proudly broadcast the potential “financial inclusion” that could be achieved with a central bank digital currency (CBDC). In the Fed’s main CBDC paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” they make it clear: “Promoting financial inclusion—particularly for economically vulnerable households and communities—is a high priority for the Federal Reserve . . . a CBDC could reduce common barriers to financial inclusion.”
The term has a ring to it that signals support for progressive goals. “Inclusion” is part of the Orwellian trio of terms “diversity, inclusion, and equity,” which, as Dr. Michael Rectenwald writes, means “surveillance, punishment of the ‘privileged,’ sacrifice of national citizens to

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What Is the Right Inflation Target for Central Banks?

Why have central banks settled on a 2 percent price inflation target? Project Syndicate asked four economists about this target and whether it is still appropriate. I’ll summarize their answers and then consider Mises’s position on “stabilization policy.”
Four Economists’ Answers to “Is 2 Percent Really the Right Inflation Target for Central Banks?”
Michael Boskin, Stanford University professor, Hoover Institution senior fellow, and former chair of the Council of Economic Advisers to George H.W. Bush, concludes that 2 percent is probably about right, mainly due to the negative consequences of a higher target. He considers whether a higher target could be maintained in a stable way as it comes with more variations in the returns to capital, less credibility regarding the price stability

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Critique of Neoclassical Economics

The differences between the Austrian school and the mainstream begin at the most fundamental level: method (logic vs. empiricism) and the goal of economic science (understanding vs. prediction).
Download lecture slides at Mises.org/MU23_PPT_19. 
Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2023.

Critique of Neoclassical Economics | Jonathan Newman

Video of Critique of Neoclassical Economics | Jonathan Newman

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The Austrian Theory of the Business Cycle

What is a business cycle?
Download lectures slides at Mises.org/MU23_PPT_14.
Recorded at the Mises Institute in Auburn, Alabama, on 25 July 2023.

The Austrian Theory of the Business Cycle | Jonathan Newman

Video of The Austrian Theory of the Business Cycle | Jonathan Newman

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Why Fractional Reserve Banking Is behind Bank Failures

Suppose an addict had the ability to magically create, ex nihilo, his own stimulating drug, as fractional reserve banks can do with money and credit. Would you expect moderation?

Original Article: "Why Fractional Reserve Banking Is behind Bank Failures"
This Audio Mises Wire is generously sponsored by Christopher Condon.

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Why Fractional Reserve Banking Is behind Bank Failures

Drug addicts suffer major withdrawal symptoms when they go cold turkey. In the case of high-tech startups and their banks (like Silicon Valley Bank), the super-low-interest-rate stimulant has been taken away by the drug dealer (the Fed) via interest rate hikes. With cheap credit drying up, firms switched to pulling cash out of SVB, all while the same interest rate increases caused the value of SVB’s assets to fall. SVB’s balance sheet couldn’t handle the fast withdrawals, which became a classic, self-propagating, panicky bank run, and the simultaneous fall in value of its liquid assets.
When banks practice this kind of maturity mismatch—potentially immediate-term liabilities (deposits) backed by long-term assets (loans and Treasury securities), it is called “fractional reserve banking.”

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How Monetary Expansion Creates Income and Wealth Inequality

US Gini Ratio, 1947 - 2019

“Every change in the money relation alters … the conditions of the individual members of society. Some become richer, some poorer.” – Mises, Human Action, p. 414. New money enters the economy at a particular point. It does not enter in the form of a proportional and simultaneous increase in everybody’s incomes.

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