No firing of Fed Governor Lisa Cook – yet

The Federal appeals court just ruled against the president’s firing of Fed governor Lisa Cook. The ruling was 2-1 and upheld the decision of the lower court whose judge, Jia Cobb (a Biden appointee) ruled that Cook was “substantially likely” to succeed with a claim that her firing was unlawful and blocked her removal. Judges Bradley Garcia and Michelle Childs both Biden appointees were in the majority while Judge Gregory Katsas, a Trump appointee, dissented. Garcia and Childs said that there was merit in the argument by Cook’s attorney that she wasn’t given proper notice or opportunity to respond to her firing. Katsas disagreed saying that if Cook were entitled to a hearing before removal, the adequacy of that process could be challenged and take months or years to resolve. Katsas wrote. “And that would enable a potentially compromised Governor to engage in significant governmental action—such as voting on whether to adjust interest rates.”

Interestingly, Cook has yet to be charged with a crime and despite documents produced by Bill Pulte the Federal Housing Finance director alleging mortgage fraud, other documents show otherwise. Of course, the Trump administration will appeal to the Supreme Court.

Regardless of the outcome of this case, I find it disheartening that these rulings appear to be partisan further indicating that the law is now blind even at the highest judicial levels.

Trump is politicizing the Fed. So What?

The president’s attempt to politicize the Fed seems to be meeting little resistance in the Senate. The nomination of the Council of Economic Advisors chairman Stephen Miran to fill the unexpired term of Adriana Kugler sailed through the Senate Banking Committee 13-11. Miran said that he would take a leave of absence from the Council and return to that job in January. The democrats attacked this arrangement as a conflict of interest – which of course it is. Miran will do the president’s bidding at the Fed and will participate in the Open Market Committee on September 16 and 17. He will vote for a lowering of the Fed Funds rate. The only question is how large a drop in the rate will he argue for. The president wants a 300 basis point drop while the Fed is more likely to decrease the rate by either 25 or 50 basis points. 

The Senate republicans – with the exception of McConnell and Paul – are scared of Trump and will do his bidding and confirm Miran. However, when the next democrat becomes president with a senate majority, look for more presidential lackeys to be nominated. The republicans may rue the day that they did not discourage Trump from nominating one of his aides.

So the president will have one of his own on the Fed. There are two other Trump appointees and they too are likely to do the president’s bidding hoping to be named Fed chairman after Powell’s term ends in May 2026. Thus, at least until then the president can count on at least those two to do his bidding as well. The president will have to nominate someone else to take the Fed seat in January. That person also will do his bidding hoping to be named chairman. Therefore, Trump can count on three of the seven governors to toe his line. If Powell resigns his seat on the Fed Board, the president will then have nominated four of the seven governors. But will they do his bidding? Maybe. The snubbed governors might reassert their independence. There will be no grounds on which they could be fired by the president. It will be interesting to see how this plays out.

Short-term the only hope that the president has is that whoever he puts on the Board will share his somewhat novel ideas about the economy and its workings. But even that will be no guarantee of how the governor will votes. Although many whine about politicization of the Fed. I am 100 percent in favor of a president putting kindred spirits on the board. Joe Biden did that with his appointees. He nominated Lisa Cook, Philip Jefferson and Sarah Bloom Raskin to be on the board. Cook is an international economist with an impressive resume concentrating mainly on the Russian economy but recently turned to issues on the intersection of macroeconomics and economic history, particularly African-American history. Jefferson is a macro economist who has published papers such as “Seigniorage payments for use of the dollar” but also is interested in issues involving inequality and poverty. Raskin’s nomination failed to get senate approval although she had previously served on the board. Her advocacy of the Fed taking an active role in climate change doomed her nomination. That she is also married to Rep. Jaime Raskin one of the more highly partisan democrat members of congress also probably played a role in her failure to be confirmed.

Jay Powell has allowed the Fed and its reserve banks to research politicized issues. There were seminars and podcasts at the reserve banks on issues such as race, sex discrimination and the climate. Some have criticized the Fed as these items are far from the Fed’s publicized mandate of price stability and full employment. However, they are actually part of how the Fed interprets its mission. The Fed’s home page states: 

The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve

• conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
• promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;
• promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;
• fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and
• promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

Therefore, as long as the Fed is a supervisor of banks and has the role of oversight for consumer protection and examining for compliance of consumer laws and regulations, research in the consumer area is consistent with its mission. My contention is that the Board in Washington should concentrate on the dual mandate of price stability and full employment and delegate the other areas to the reserve banks. For example, the Atlanta Fed states as its mission: “The Atlanta Fed’s Community and Economic Development function supports the Central Bank’s mandate of stable prices and maximum employment by helping improve the economic opportunity of low- and moderate-income (LMI) individuals and underserved places for a stronger economy for all Americans. Community development is one of the Federal Reserve’s core functions and this responsibility is rooted in its mandates from Congress.” The New York Fed says “At the New York Fed, our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society. We do this by executing monetary policy, providing financial services, supervising banks and providing thought leadership on issues that impact the nation and communities we serve.” Just recently the New York Fed released its Empire state manufacturing survey.

It is not surprising that the types of seminars and papers that were produced under Biden are no longer being published by the reserve banks. Yet it is clear that the reserve banks feel that their mission goes beyond the conduct of monetary policy to the impact of monetary policy on the economically disadvantaged. These issues are germane to the regions.

Some pundit complain that the Fed was being “woke” and were pursuing “wokeness” because most of its staff economists are democrats. I beg to differ. One need not be on the left to want to see what is the impact of monetary policy on all sectors and members of society. Don’t misunderstand, the impact of monetary policy on all sectors of the economy and its participants is a vital and important area of study. The question is whether the Fed and/or the reserve banks should be conducting this research as well as having seminars and podcasts about these issues.

Although my dissertation and early research were in monetary theory, my later work concentrated on the impact of changes in bank regulation on the banks and the banks’ customers. I pioneered the econometric study of lending discrimination and discriminating in the lending terms of mortgages. The motivation for that work came from the Comptroller of the Currency when I was serving as deputy director for economic research and analysis in the early 1970s who wanted to know if national banks were discriminating against blacks in the lending decision. Our research led to a new field of study and its model and statistical techniques are still used today.

I do believe that the impact of monetary policy on people as well as the economy at large should be studied at the reserve banks rather than by the economists at the Board of Governors. Those impacts affect the reserve bank regions and are as important as the effect of policy on agriculture and on industrial production. That said, the economists at the Board of Governors should concentrate on the Fed’s dual mandate and nothing else.

Are tariffs inflationary?

Are tariffs inflationary? Any monetary economist would say “no” – at least not just tariffs by themselves. As the sainted Milton Friedman said “Inflation is always and everywhere a monetary phenomenon and is thus the responsibility of the central bank.” Although there are caveats to this, Friedman is fundamentally correct. This would mean that if Trump gets his way and the Fed lowers the Fed funds rate, the likely consequence will be more inflation. To explain this, let’s have a basic primer on how things should work. The Fed funds rate is the interest rate on overnight borrowings of banks’ excess reserves. To lower the rate the Fed increases the supply of excess reserves by purchasing securities from the banks. Given more excess reserves than they wish to hold, the banks then will seek to lend them out, creating more demand deposits and hence increasing the money supply. Whether the increased money supply increases inflation depends on how much slack there is in the economy. This means that in an economy with low unemployment the likelihood of the increase in money being inflationary is high. If the banks do not lend out the new excess reserves, they can still earn interest on the reserves paid to them by the Fed.

So the process by which the Fed funds rate is lowered by the Fed creates money. The empirical question what in this instance will be the impact on prices? The Fed seems to think that in today’s environment the impact will be inflationary. But it is not the tariffs themselves that are inflationary but the response by the Fed that causes the inflation. Let us suppose that most of the tariffs are passed on to consumers and that the Fed does not lower the Fed funds rate. The prices of imported consumer goods go up as well as the prices paid by businesses who use imported products as inputs in the production process. If there is no change in the money supply then there is no inflation even though the Consumer Price Index and the Producer Price Index will rise. How can that be? Well think of inflation as the air in a balloon. If no more air (money supply) is added to the balloon then it will be like squeezing on the balloon with some prices increasing and other prices decreasing but no inflation since inflation is defined as an increase in the general level of prices. Looking at the CPI and PPI will then be misleading. One would have to look at a more inclusive measure such as the GDP deflator to see the overall price effect.

The CPI measures a market basket of goods purchased by urban households. So that basket of goods could increase in price but if goods not included in the basket decreased in price the CPI would show inflation when in reality there would be no inflation. Again one would have to look to the broader measure, here being the GDP deflator that accounts for the prices of all goods and services.

At the Fed’s annual conference in Jackson Hole, Wyoming (which I used to be invited when I was an important person) Powell said “the effects of the tariffs on consumer prices are now clearly visible.” Powell then said that the “reasonable base case” is there would likely be a one-time step-up in the price level — though it’s important to note that “one-time” does not mean all at once and evolving tariff schedules could keep the adjustment alive for a while. In other words the Fed expects that the impact of the tariffs will raise prices and that the prices level will remain at the new higher level but there will not be “persistent” inflation. That means that absent an accommodating increase in the money supply, the higher price level stays on that plane and does not keep increasing year to year. Powell then said that the Fed “will not allow a one-time price increase in the price level to become an on-going inflation problem.” Translation: the Fed will not lower the Fed funds rate which would allow continued inflation.

But here’s the rub. The Fed’s mandate is a dual mandate. It is to provide price stability (no inflation) and promote maximum employment. This dual mandate is in conflict with each other and the Fed must weigh which is the more important. I may be in the minority (no pun intended) but I wish that the Fed would ditch the full employment part of the mandate and concentrate on inflation. Consequently in our current economic environment where there is considerable job loss which I attribute to the president’s policies, there is incredible pressure on the Fed to lower the Fed funds rather thereby increasing the money supply with the likely consequence of increased inflation. Mind you the common measures of inflation have been rising well past the Fed’s target of 2 percent already.

The irony is that many pundits credit the president’s election to the Biden inflation. The president’s insistence on lowering the Fed funds rate may in turn lead to a higher rate of inflation that otherwise would not exist. The empirical question is if that occurs with the president and his party pay a price at the polls at the midterm?

Random thoughts #71

Breaking news: Fed governor Lisa Cook’s bank documents contradict the charge of mortgage fraud. A good friend sent me an article that said that Cook’s financial form shows that she declared her Atlanta property as a vacation home and not a primary residence. The statement from the Bank-Fund Staff Federal Credit Union in May 2021 reads: “Property Use: Vacation Home”. On a disclosure document for national security purposes required by the federal government that says “Please list all of your interests in real property, including additional homes, vacation homes, rental properties, and interests in trusts that may hold property” Cook wrote “2^nd home.” These disclosures coupled with the ruling by Judge Cobb point to Trump’s attempt to fire Cook “for cause” will likely fail.

Do you think we have seen the last of outdoor political events? Charlie Kirk was assassinated Wednesday and yet President Trump attended the Yankees game to commemorate 9/11. Even though security around the president was undoubtedly beefed up, going to the baseball game may not have been the wisest move. I do not mean that the president and other political figures should go into hiding, but I was awfully uneasy about the president’s exposure because of the Kirk shooting. Recall that the president himself survived an assassination attempt at an outdoor rally in Pennsylvania. Indoor events are much more secure and it is likely that we will see fewer outdoor political events in the future.

The president slapped a 50% tariff on Brazil, not for economic reasons, but for political ones. He was upset over the prosecution of former president Jair Bolsonaro on the charge of plotting a coup to overturn the results of Brazil’s 2022 election. Bolsonaro’s supporters stormed Brazil’s congress on January 8, 2023. I know the irony is obvious. Well Bolsonaro was found guilty. I am awaiting Trump’s reaction. How about a 100% tariff?

The Dow closed over 46000 for the first time in history. The Nasdaq and S&P also closed higher. Why is a good question. I know that the pundits say that it is in anticipation of a rate drop by the Fed. But that cannot be the reason because a rate change had been widely predicted earlier and that should have already been baked into the exchanges. This should mean that if the Fed actually does drop the rate, that there should be no effect on the markets. Thus, I believe that something else is going on, but what I do not know. By the way, the Dow is an outdated antiquated index and should be purged. It tracks only 30 large industrial firms and is a price-weighted average meaning that stocks with higher prices are given a greater impact in the index. Basically the Dow is for public consumption and is largely ignored by professionals. The tech heavy Nasdaq and the S&P 500 – which consistently outperforms the Dow – are more closely watched.

Not surprisingly, the ICE raid on the Hyundai-LG plant in Georgia will cause the construction of the plant to be delayed. A deal was reached with the South Korean government to allow the detained workers to be sent back home without being deported because deportation would prevent them from re-entering the country. It is curious why ICE was so heavy handed in the treatment of the workers, putting them in shackles and handcuffing them as though they were criminals. The South Korean government said that the treatment of the workers would put a dampening on further private investment in this country. No kidding. The workers were on temporary visas so maybe this was all a misunderstanding? Hyundai’s executive chairman said “visa regulations are very complicated.”

Mortgage rates are falling. I thought all the learned pundits were saying that the Fed funds rate had to fall in order for mortgage rates to fall? The reason is a fall in the demand for housing. Will the lower rates cause an uptick in the demand for housing? Maybe. If unemployment keeps rising and consumer sentiment keeps falling the answer is no. Again it’s the old” you can take a horse to water” thing.

With all this tariff business, one question that should be answered is “what products do we export?” The answer is petroleum products, aircraft parts and agriculture products. Well China is the biggest customer for our agriculture products and they are not buying any. They are now going to buy their soybeans from Brazil rather than the US. The Chinese are insisting that Washington drop their tariffs on Chinese goods or else no buying of soybeans. Earlier the Chinese embargoed their rare earth minerals until they received a concession from Washington to lift the tariffs on certain items. The impact on US soybean farmers has been called “devastating” and many may face bankruptcy. I guess that the administration will have a farm bailout plan like they did in the first administration where the Department of Agriculture distributed $12 billion to farmers when China stopped buying US agriculture when China retaliated against Trump’s tariffs.

Lithium and Alzheimer’s

Many of us have had first hand experience with dementia and Alzheimer’s. There are few things more stressful and heart wrenching than having a loved one suffer with these diseases. A close friend shared with me a research paper that links Alzheimer’s with lithium – or the lack thereof. The article, from the Harvard Medical School, “Could Lithium Explain — and Treat — Alzheimer’s Disease?” explains that lithium depleted brains have a higher likelihood of Alzheimer’s. It conversely finds that “A new class of lithium-based compounds avoids plaque binding and reverses Alzheimer’s and brain aging in mice, without toxicity.”

https://hms.harvard.edu/news/could-lithium-explain-treat-alzheimers-disease

The paper detailing the findings are in Nature and was one of the most exciting articles that I have read recently.

https://www.nature.com/articles/s41586-025-09335-x

What is especially important is the observation that the common weed killer glyphosate – known commercially as Roundup – depletes lithium from the soil. 

Groundbreaking Alzheimer's Cure…Harvard Scientists Release 10 Year Research.

Lithium Deficiency Triggers Alzheimer's Disease & A Simple Lithium Compound Reverses The Disease.

Glyphosate Has Chelated & Stripped Our Soil Of Lithium, Resulting In Widespread Mineral Deficiency.… pic.twitter.com/NbeYaiSfTp

— Valerie Anne Smith (@ValerieAnne1970) August 31, 2025

This is absolutely stunning. We all know the well documented hazards associated with Roundup. But those hazards have been concentrated on cancer. The finding that glyphosate deletes lithium from the soil means that the incidence of Alzheimer’s increases given lithium depletion. This is important stuff. This makes a compelling argument that all glyphosate products worldwide should be banned from agriculture. Of course, there would likely be some unforeseen consequence to doing so. But surely there must be less toxic means of weed control.

Although the tests were conducted on mice, testing humans would be a simple matter. All you would have to do is to have two test groups of people to compare the incidence of Alzheimer’s in people who eat only organic produce and meat products free from pesticides versus the rest of us. Wouldn’t that be the same as using the control groups of mice? Also theres would be an obvious treatment for Alzheimer’s which would be to change people’s diets. No meds needed.

The top panels are a lithium depleted brain with Alzheimer’s. The bottom panels are from a brain with lithium and no Alzheimer’s.

 

A mild sense of foreboding 

I know some people are probably tired of my defense of free trade and criticisms of Trump’s tariffs. But consider that I am critical of the chaos and quixotic nature of the country negotiations. It started out with some mathematical formula to calculate a “reciprocal” tariff. Then that went out of the window and was replaced by whatever the president decided at the moment. Make him mad and your tariff was doubled. The ten percent universal base tariff was replaced by the 15 percent one. Why? Only the president knows. Our allies got higher tariffs than our adversaries. Did Trump ever place a tariff on Russia? Incredibly high tariffs were placed on India (a once ally) because they purchase Russian oil driving India closer to its ancient adversary China. Instead of building and cementing alliances, we are now forcing our once allies in trade to look elsewhere. I described this policy as Fortress America because we no longer have allies. We no longer engender respect and trust. Our leader is looked upon as unprincipled and undisciplined. It is hard to argue otherwise. We have no friends we can depend on because no one and no country can depend on us.

Trade deficits do not constitute a national emergency. The national emergency is in the continued profligate spending and undisciplined politicians who are the elected leaders of the country. The national emergency is the ever widening differences between those on the political left with those on the political right. I pray that the assassination of Charlie Kirk is not a precursor of things to come when we start killing each other’s leaders and all hell breaks loose. Kirk’s murder will likely inflame the political rhetoric rather than tone it down. The left hates Trump and his cultlike MAGA disciples. I wish the president would now tone down his bellicose tweets and someone would take away his tweeting machine, I see little change of that happening. As Elizabeth Warren said when asked that Democrats need to lower the temperature in politics, “Why don’t you start with the president of the United States, right? And every ugly meme he has posted and every ugly word.” I am not surprised that neither Trump nor his enemies are working to bring back the loyal opposition.

None on the left are willing to bend a knee to Trump and offer him fealty. That seems to be the only strategy to make him back off his attacks. Haven’t you noticed that in the trade negotiations, better deals are given to those arriving at the White House bearing gifts? It has to be infuriating to both the citizens of other countries and to their leaders to come groveling before Trump bearing gifts and kissing his ring. I am not an expert on foreign affairs but Trump humiliated Japanese prime minister Ishiba leading to Ishiba’s party suffering a historic defeat in parliamentary elections. Ishiba felt forced to accept Trump’s demands of a fifteen percent tariff and pledging to “invest” $550 billion in the US with Trump crowing that the US was keeping 90 percent of the profits. Such an arrangement apparently did not sit well with the Japanese electorate. Trump actually called the pledge a “signing bonus” adding to Ishiba’s humiliation.

For me the national emergency is rather emergencies: out of control spending, trashing alliances, creeping nationalization of industry, shakedowns of countries and companies, protectionism, willy nilly tariffs, mean tweets, use of the military domestically without the consent of elected officials are all national emergencies. It is a shame because this administration inherited a mess on the left and has made progress in purging the rot from Biden’s years. However, it must be careful in not making another mess that would have to be cleaned up by another administration. My fear is that we will go careening from one mess to another building animus as we go.

Trump wants to bring back manufacturing. I have never heard a clear statement of what manufacturing does he want to bring back. The administration keeps saying that once the illegals leave then native American unemployment will fall. Yet there are over 7 million vacant jobs in the presence of illegals. Is there just a mismatch between job vacancies and skills? The Hyundai-LG plant in Georgia said that they were using (illegal) Korean workers because of the paucity of Americans with the requisite skills to get the plant up and running. Hyundai said that it would train Americans to do the work but needed to get the plant operational first.

There are common sense ways to address those areas of national security, namely rare earth minerals. Some have suggested pharmaceuticals as well and want all drugs manufactured in this country. I don’t necessarily see that but am willing to learn and listen. What I would like to see is a listing of all of the items on which we are trade dependent whose curtailment would constitute a national emergency. Then we could deal with each one. Saying that sock companies in Lesotho are evidence of a national emergency is laughable as are most of the items that are being traded across countries. But placing punitive tariffs on agricultural imports and the restricting the import of products like wood, steel and aluminum that are inputs to our outputs makes little sense.

Again I am a laissez-faire free trade economist who favors government with a small “g”. I am confident I know what makes America great I am confident I know how to make America even greater. And protectionism ain’t it. So here we are with core inflation up, unemployment up, labor force participation down, the dollar falling, countries and foreign investors shedding dollars, gold and bitcoin being safe havens (bitcoin?) and government borrowing costs rising. Did I leave anything out? No wonder I have this mild sense of foreboding. But maybe everything is going to be ok. Maybe.

My friend Don Boudreaux is an ardent supporter of free trade and I recommend his blog Café Hayek to you. Here is a posting where he takes the MAGAapologist Larry Kudlow to task for calling Trump a free trader. I would hate to be Kudlow and having to keep apologizing for Trump. As a friend of mine says “being a Trump apologist is a full time job.”

MAGA Orwellianism

Word is that the president may declare another national “emergency.” If so it will be his 22nd – 10 already this term. Don’t you get images of the little boy who cried “wolf”? Trump’s assertion that trade deficits constitute a “national emergency” is a joke. However, this was the only basis that could invoke his use of tariffs. Now he is contemplating invoking a national emergency in housing. Mind you there is not a shortage of housing. In fact the amount of housing units available far exceed the current demand for housing. The issue, some say, is “affordability”. This has always puzzled me. Is there a mismatch of housing demand and supply locally? One republican congressman says “When you have a housing shortage and a supply issue, it pushes up valuations, which pushes up your property taxes, because your valuation goes up. It pushes up home insurance premiums because the value of your home is more expensive if there was some kind of a claim.” Again there is no housing shortage. This issue is – dare I say – a manufactured one. Currently there are 15 million more housing units than households. So what crisis? This may just be an excuse to get Trump involved in more government interference with the market. American socialism? State capitalism? Trump socialism!

What constitutes a national emergency? No one knows. Under the 1976 National Emergencies Act, the President can declare a national emergency at his discretion. The act does not provide an explicit definition of what constitutes an “emergency.”  The simple declaration of an emergency would allow the president to bypass congress. This is all the congress’ fault. It should amend the law and mandate that a declaration be ratified by the congress. Trump loves to declare emergencies. Thus far did you know that he has declared ten of them, ranging from the trade deficit to the “crime emergency” in DC.

Don’t forget that despite the evidence, the democrats think that the climate constitutes an existential threat, i.e. a national emergency. Can you imagine what would have happened if Biden had declared a national emergency? Look for the next democrat president to do so.

If congress doesn’t change the law, its only recourse is to pass legislation terminating the emergency. Of course the president can veto it and it would take a super majority of the congress to override. Good luck with that.

Fed Governor Cook not cooked – yet

U.S. District Judge Jia Cobb has temporarily blocked President Trump’s removal of Federal Reserve Governor Lisa Cook. “The judge concluded that the alleged mortgage misconduct likely didn’t amount to ’cause’ to fire her under the Federal Reserve Act, and that the way in which she was dismissed likely violated her due process rights under the Constitution.”  Bloomberg.

This means that Cook can stay at the Fed and participate in the Open Market Committee’s meeting next week. It is widely anticipated that the Fed will cut the Fed funds rate. It will be interesting to see how Cook votes.  

The judge wrote “The best reading of the ‘for cause’ provision is that the bases for removal of a member of the Board of Governors are limited to grounds concerning a Governor’s behavior in office and whether they have been faithfully and effectively executing their statutory duties.” 

Obviously the administration will rush to appeal Judge Cobb’s ruling. But it is apparent that the judge does not view the charge against Cook sufficient to justify firing for cause. The charge against her has been referred to the Justice Department for possible prosecution. It would be interesting if a conviction on a felony would then be sufficient to justify her firing.

Again, why isn’t there a clamor for Adam Schiff to resign from the senate and Letitia James to quit as New York attorney general? Aren’t they accused of the same thing as Governor Cook? Why haven’t criminal charges been filed against them too?

By the way, I am tired of every article mentioning that Cook is the first black woman to be a Fed governor.

I am also tired of seeing those on the right asserting that Cook has no business being on the Board of Governors because she is not an expert in monetary economics. I have previously pointed out that only Governor Waller is trained in monetary economics and that if that were the criteria, then he would be the only governor. Traditionally, the Fed governors have had a variety of skills and of the ones that are economists, international economics (Cook) and labor economics (Jefferson) are commonly found on the board.

What did Elon say?

Did you see where Josh Hawley (R-Mo) wants to ban driverless cars? What about the driverless trucks that are now on some roads? Elon Musk is putting much of his fortune on driverless technology. Hawley who is somewhat of a maverick thinker is in this instance a Luddite. Like it or not, driverless technology is the future.

More bogus job numbers?

The Labor Department now says that the economy added 911,000 fewer jobs than previously estimated in the 12 months ending in March. This is no surprise to me. I know from long personal experience that job statistics are generally inflated and are revised downward. I also have seen almost daily reports of businesses shedding jobs. The question is are we ever going to be able the data coming out of this or any administration?

Random Thoughts #70

Renaming stuff, illegal Koreans, the Fed nominee and genius quarterbacks

The president seems fond of renaming things. There is the Gulf of Mexico, now the Gulf of America. Let’s see how long that name change lasts once he leaves office. Now the Department of Defense is the Department of War. Why? Who knows? Again let’s see how long that name says around too. Renaming is a hassle and very costly. Defense (er, war) secretary Hegseth had the title on his door plaque changed. But that change must be made on everything throughout the Pentagon and the military. Seems like it will cost billions of dollars to effect the change throughout the over 700,000 (!) facilities Defense (er, war) has around the world. Are those billions coming out of the defense (er, war) budget that are slated for other stuff – like ammunition?

Trump is reverting back to the name that the Defense department had from the inception of the country until 1947 when Harry Truman renamed the department. What I don’t understand was Trump’s statement calling for the change. He said “We won World War I, we won World War II, we won everything before that and in between, and then we decided to go woke, and we changed the name to DOD. So, we’re going Department of War.” What “woke” is he talking about? Harry Truman was “woke”?

Speaking of “woke” is Trump going to demand that we rename the black boxes in aircraft?

Did you see where Abrego Garcia’s lawyers claim that there are twenty two countries where he cannot be deported for fear for his life? Twenty-two? ICE was going to deport him to Uganda where he says he will be persecuted and tortured. Maybe he should seek refuge in Zohran Mamdani’s family compound. So ICE picked a country not on the list and is sending him to Eswatini. Yes that is a real country. What I want to know is whether Garcia will be incarcerated there.

When I saw news of the ICE raid at the Hyundai-LG plant in Georgia that arrested 475 illegals, I immediately thought that these must be Mexican construction workers. But no. They were South Koreans. The news reports were never clear what these workers were doing and how did they get here. Surely they did not come across the southern border. If they were flown here by Hyundai or LG, didn’t they have to have passports and visas to enter the country? Surely they weren’t all somehow spirited into the country without anyone knowing about it. Homeland Security said that the illegals had either crossed the border illegally, overstayed their visas, or arrived on visas that didn’t allow them to work. Duh. 

Well let’s eliminate the crossing the border illegally thing. Overstaying the visa excuse is a probability as is the “visas that didn’t allow them to work.” If the Koreans were here to supervise the construction of the plants or to train Americans in the use of the equipment – which I assume was Korean, why didn’t they get their visas renewed and/or why didn’t they have the appropriate visas? Some politicians are claiming that the Koreans were putting the Koreans to work in the plants rather than employing native American workers, saying that employing Koreans was cheaper than hiring Americans. But the Koreans are saying that they are not displacing Americans because there are no Americans to displace given the paucity of technically trained natives. If that were true, then wouldn’t Hyundai-LG seek to make these workers legal? It’s all very confusing.

Stephen Miran who Trump nominated to fill the remaining months of Fed governor Kugler’s term says that he will not resign from the Council of Economic Advisors. Rather he will take a leave. This makes a mockery of Fed independence and Miran saying that he will not be compromised is obviously lying. Does anyone really think that if he doesn’t do Trump’s bidding that he will get his old job back?

There is a superficially compelling article in the Wall Street Journal why boys are better at math than girls.

https://www.wsj.com/opinion/do-sports-explain-the-math-gender-gap-eecb0dbe

Its all about sports and numbers. “The better one understands a sport, the greater one’s appreciation of its numbers. Statistics exist for each game—all derived by mathematical calculations. Football’s yards per play and points per game. Baseball’s batting and earned run averages. Basketball players’ points and rebounds per game. All these observations apply to other sports too.” Well there are very simple empirical tests to confirm or disconfirm this conjecture. First, do athletes have higher math scores than nonathletes? This should apply both to female athletes too. I know that the author will say that its not just the athletes he is talking about but that more boys follow sports than do girls. Yet a simple test would be to look at the math scores of girls who play sports versus girls who don’t. I don’t really anticipate that football players score higher on their math SATs but who knows? I would especially be interested in seeing the math scores of quarterbacks whose position is probably the most mentally demanding in all of sport.

Speaking of math, I was suspect that professional card players and gamblers are probably good at math.

If boys are better at math than girls then that’s damning with faint praise. Recall that most of my college seniors could not tell me what was 5 percent of $500.

Tariffs are taxes, tariffs are taxes.

The dismal August jobs report of only 22,000 jobs created continued the downward spiral of job creation during President Trump’s time in office. Since the initial reports always overstate reality, it is likely that job growth in August was negative. So is Trump going to fire the new head of BLS? I have a friend who says no, that Trump welcomes the poor jobs report so he can blame the Fed. 

The prognosticators are predicting a 100% chance that the Open Market Committee will cut the Fed funds rate by at least 25 basis points and maybe as large as 50 basis points. No matter. Trump will yell that Powell is “too late” again and its all his fault. It can’t be the uncertainty due to the tariffs. The new jobs added were not in industries directly impacted by the tariffs. They were in social assistance and healthcare. However, manufacturing, wholesale trade and equipment all shed jobs. Of course, that is all the Fed’s fault as well. Right? John Deere and Caterpillar, users of imported steel and aluminum and dependent upon foreign sales are reporting losses from the costs of the tariffs. Ford and General Motors are also reporting huge losses as the high tariffs on Canada and Mexico remain. But again it’s the Fed’s fault. Right? The interesting thing is that if the public were told that Trump had imposed the largest increase in taxes in history, many if not most would realize that the impact would be deflationary. If consumers have less to spend and expect taxes to go up even more then they will spend even less. Business in turn would decrease investments and shed jobs. Would this too be the Fed’s fault? 

The Fed will likely cut the Fed funds rate even in the face of rising prices due to the tariffs. Currently, the Fed’s preferred index (the personal consumption expenditure index) is up to 3.3% and predicted to be as high as 4.75% in the first quarter of next year. Then if the economy gets hit with an inflationary recession, the Fed will still be blamed. Yet interest rates have always been a poor indicator of the economy. Very low interest rates exist in a slumping economy as businesses cut back investment spending and hiring if there is not adequate demand for their products. Cutting interest rates will not spur either more investment or hiring in that situation. This is the old “you can lead a horse to water” saying. Both increased investments and increased hiring increase costs and if the demand isn’t there, then there will only be greater losses. Didn’t we learn anything during the period of zero Fed funds rates and negative real interest rates? Apparently not. 

But the Fed got itself into this mess by acting as if the current employment numbers were driving monetary policy. Monetary economists know – as should the Fed – that monetary policy operates with a lag, as long as twelve to 18 months. Yes it is true that when the Fed acts, that there will be short term effects on the market but the measurable impact on unemployment and prices manifest themselves over the longer term. As a consequence, the Fed will always be acting “too late” if it lets today’s numbers determine monetary policy.

Somehow we have lost sight on why jobs are disappearing. Yes the tariffs are a big factor but so is Trump’s slashing of the federal workforce. Black unemployment has jumped up to 7.2 percent while overall unemployment has gone from 4.2 percent to 4.3 percent. Disturbingly, much of the unemployment has been among college educated blacks. The reason has been the impact of the federal jobs cuts. Forbes estimates that 350,000 educated black women have lost their jobs under Trump. Labor force participation of educated black women has fallen 2 percent, meaning that these are not counted as unemployed since they are no longer looking for a job. It is likely that the concentration of black women in DEI programs both federal and corporate play a part in the job losses. It is also possible that when all the probationary employees (like my cousin) were fired, that a disproportionate number were blacks as well.

But didn’t Trump and JD Vance say that enforcing the immigration laws and deporting the illegals would increase native worker employment? Vance said that jobs vacated by deported migrants would be filled instead by some of the 7 million Americans who are either unemployed or out of the labor force. Illegals, Vance said, that illegals taking jobs are “one of the biggest reasons why we have millions of people who’ve dropped out of the labor force.”  Vance, like his boss, is prone to pop off without checking the facts. Maybe we haven’t seen this surge in native American employment because there hasn’t been enough time yet. But in the face of increased taxes, businesses curtail investment and hiring. The unemployment rate is going up not down. Someone needs to tell the vice president that there are currently 7.2 million job openings in the country. Why haven’t they been filled by the natives who are out of work? Sorry, but illegals seem to be a convenient scapegoat taking the blame for whatever ails the economy. But hey, who believes these statistics anyway? I am certain when the president’s man gets installed as the head of the Bureau of Labor Statistics that we will once see statistics showing full employment of native Americans without inflation.

The idea of JD Vance as president is frightening. If he has said anything that makes sense, it has escaped me.

Lest we forget that inflation remains high and may go even higher with the rate cuts. In order for the economy to rebound what is needed is an increase in consumer confidence and in business confidence. As to consumer confidence, the University of Michigan’s Index of Consumer Sentiment has been falling, the reasons being concerns about job loss and inflation. Since this is a consumer driven economy, decreases in consumer confidence do not inspire increased spending on the part of businesses regardless of low are interest rates.

I know how to rekindle consumer confidence: cut all tariffs to zero. Subsidize those items that are truly vital to national security. Rein in government spending. Trump once boasted during his first term about his tax cuts. Now repeat after me: tariffs are taxes, tariffs are taxes, tariffs are taxes.

Trump’s illegal tariffs are again ruled to be illegal

The decision by the US Federal Court of Appeals on Trump’s tariffs was surprising. It was 7-4 in upholding the Court of International Trade’s finding that the tariffs were illegal. Why was it surprising? Not because the lower court’s decision was upheld but because of the vote. I thought it was going to be unanimous like the lower court but it was 7-4. No lawyer am I but I had thought that tariffs were the purview of the Congress and not the president – although the president could impose tariffs under certain circumstances. I also thought that the courts would find that the declaring trade deficits a national emergency under the International Emergency Economic Powers Act in order to impose tariffs was so laughable that it would be thrown out of court. Not so fast my friends.

First, when the ruling by the appeals court was handed down, the president went off in his usual bellicose manner. He tweeted:

Again, it was the 7-4 vote that was interesting. The president said it was partisan. But was it? Of the seven in the majority, yes 6 were appointed by either Obama or Biden but of the four that dissented two were appointed by George W. Bush and two were appointed by Obama. What is intriguing is that the dissenting opinion was written by an Obama appointee who has ruled consistently in favor of executive overreach. This is consistent with what I have been warning. What Trump is doing in defining the powers of the executive will be used by the next democrat that occupies the White House. And then the republicans will be wailing and gnashing of their teeth bemoaning executive overreach. Remember what is sauce for the goose. The court’s ruling will not take effect until October 14 allowing the administration time to appeal to the Supreme Court.

While the government tried to argue that the tariffs were a response to the so-called (and imaginary) national emergency caused by the trade deficits, the appeals court instead concentrated on the tariffs being a tax and said:

“While the President of course has independent constitutional authority in [foreign affairs and national security], the power of the purse (including the power to tax) belongs to Congress. Absent a valid delegation by Congress, the President has no authority to impose taxes.”

And there’s the rub. There are two salient points here. First, is a trade deficit a basis for the declaration of a “national emergency” and second, are tariffs a tax? The court acknowledged that if indeed there were a national emergency, the president did have limited authority to impose temporary tariffs targeted to specific aims. For example, the tariffs imposed on Canada, Mexico and China to limit fentanyl could possibly stand. Also the tariffs on steel and aluminum were imposed under the Trade Expansion Act and are not including in this ruling. Second, are the tariffs a tax? An economist would argue that they are in fact a border tax imposed on imported goods at the port of entry. Can the administration argue otherwise? This is reminiscent of the arguments on Obamacare where Chief Justice Robert’s decisive vote was on the basis that Obamacare was a tax and hence in the purview of the congress. If this logic carries over to the tariffs, then I would expect a decision upholding the lower courts that the tariffs imposed under the International Emergency Powers Act are illegal. Again I would expect a unanimous vote but now I am now so certain.

What is particularly interesting to me is the presidential misuse of the international Economic Emergency Powers Act. As one legal scholar points out “The Act is intended to enable sanctions against individual countries that pose a national-security threat—not a persistent, broad, social or economic

Dynamic.” So since China is a threat to the national security, an imposition of tariffs to that country (or to Russia, Iran or North Korea) would be allowed. Where Trump erred is using this particular statue to impose worldwide global tariffs on countries that do not pose a national security threat to the US. Stay tuned.