On Wednesday, November 30, Nick Deiuliis addressed the Economic Roundtable of the Ohio Valley. Nick presented the following talk, entitled, “Milton Friedman isn’t running the show anymore. And therein lies the problem.”
I gave a quick refresh and reread to the invitation letter sent to me back in September for this event. Two things stood out that I wanted to share.
First, the descriptor of the Economic Roundtable of the Ohio Valley includes those words ‘nonpartisan’ and ‘nonpolitical.’ How awesome is that, especially in this day and age?
The second thing that stood out was the letter summarizing the Roundtable’s history of having distinguished individuals and speakers. Sad to report I’m not going to live up to that legacy and will probably dilute it quite a bit. That’s the bad news, but the good news is that I’m here to speak today about the teachings and the thoughts of a very distinguished and noted individual in the field of economics. One who appeared at this very forum in the past. And that is the great economist Dr. Milton Friedman.
I admit I have a few irons in the fire. Professionally I run a publicly traded energy company in Appalachia, CNX Resources. Great company doing very noble things in an industry that matters greatly these days. Never a dull moment there, I assure you.
I’m active on the policy advocacy front. I maintain a website where I’m constantly posting various thoughts and materials and commentaries; you can give that a look at nickdeiuliis.com. I’ve begrudgingly become active on social media, particularly on Twitter as well as on LinkedIn. I will say it’s been striking how different those platforms are.
I wrote a book, Precipice: The Left’s Campaign to Destroy America. I’ll hit on some of the themes in the book during this talk. By the way, all the proceeds from its sale go back to another one of my endeavors, which is helping to fund the CNX Foundation’s Mentorship Academy – check that out on my website or on the CNX Foundation website.
And I publish a weekly podcast, “The Far Middle,” as in not the far right and not the far left. And, oh yes, how could I forget the most exciting effort of all? My wife and I raising five children, now all young adults.
I ended up with all these irons in the fire by evolving my leadership style from one of political quietism into one of advocacy. Particularly in the areas that affect my company, industry, region, and neighbors.
But I’ll tell you, the other big motivator for pursuing and participating in these efforts, even though at times it creates a very chaotic and time-challenged environment, is, in a word, love. I love Appalachia. I love the people who live in it. I love the energy industry. And I love the opportunity to engage with institutions like this one when it comes to the major themes and policies and issues that drive our collective future.
So, with the risk of that sounding like Ringo Starr with ‘peace and love, peace and love,’ let’s get right into it. I dedicated episode 23 of the Far Middle, back in October of 2021, to proposing six commonsense recommendations to broadly improve American society and our economy.
Much has happened since I issued that just over a year ago, to say the least. If you look across these six recommendations we will cover, you’ll see that the one thing they all share, besides all being commonsensical, positive things to improve our society and economy, is that none of them were followed by our leaders.
In fact, most of the six recommendations I will list saw policies and decisions from our leaders that moved in the exact opposite direction of my proposals. I will let you decide whether that is an indication that I don’t know what I am talking about or if instead I am a visionary genius.
And when I’m done running through the six recommendations, I want to wrap up by tying them to the great Milton Friedman and seeing how much consistency there is with what I was recommending and what Friedman would argue should be done.
Sound like fun? Let’s get rolling.
Recommendation #1: Balance the Federal Budget
The first recommendation is, in many ways, the most basic: requiring that our federal government adopt a balanced budget each and every year. And when I say balanced budget, I mean a legitimate balanced budget, where all the actual inflows and outflows are counted. Not the voodoo accounting you see with government budgeting scoring.
Suffice to say years of not following this recommendation has produced quite the financial quagmire. National debt sitting at over $30 trillion. That’s over 120% of GDP, a level not seen since World War Two. Worse yet, this nation continues to run massive deficits each fiscal year, making the debt load worse.
And those figures that I just stated do not include debt-like commitments in the form of entitlements such as Social Security, Medicare, and Medicaid. Those entitlements are growing just as quickly as the debt.
Compounding the problem further yet is that interest rates are continuing to rise, a topic we will cover shortly, and that is increasing the debt service cost, making budget deficits worse and national debt even higher.
Mandating a balanced budget necessarily requires government, and particularly Congress, to do its job. As in setting spending priorities in line with tax generating priorities. All I’m asking for here, by the way, is for the most powerful government in the world to exert the same financial discipline you and I do when managing our household finances and our personal balance sheets.
Recommendation #2: Shrink the Fed’s Mission
The second recommendation ties to the first, as I alluded to. And that is to have the Federal Reserve rein in its mission creep, which has expanded exponentially the past few decades, and to focus exclusively on setting a monetary policy that stabilizes prices and sets interest rates at a real, positive level.
The Fed has been quite distracted over recent years. It went from a simple, single mandate of stable prices via moderate interest rates, to then the dual mandate of maximizing employment and stable prices, to today a multifaceted mandate of maximizing employment, stabilizing prices, addressing economic inequality, fixing climate change, and embracing the tenants of modern monetary theory, or MMT.
The Fed doesn’t only move the capital markets these days, the Fed is the market, ala the ‘Fed Put.’ The Fed has created an economic and societal drug known as free money, meaning the Fed’s benchmark rates are far below inflation, resulting in real interest rates that we experience across our economy that are grossly negative.
When you have negative real rates for prolonged periods, all kinds of distortions occur in the capital markets. Asset bubbles pop up everywhere: in stock prices, in bond prices, real estate prices, in rare wine, art, coins, commodities, and everything else imaginable. We collectively become addicted to the asset bubbles caused by the drug of negative real interest rates, pushed by the dealer, the Fed.
This Fed manipulation of capital flows and the markets must end. It’s a certainty to end. It ends one of two ways.
The first way is that the Fed returns to its original mandate and job by raising benchmark rates to not just tame inflation but to create positive real interest rates. The second way is that the market comes to realize what the Fed has done and revolts, where the Fed loses all credibility.
Both paths will present some level of pain, as is always the case when going cold turkey and trying to deflate asset bubbles. The former path has a gain at the end of the pain while the latter results in nothing but calamity and economic destruction.
By the way, I believe that we are experiencing deeper negative real interest rates today than ever, despite the Fed raising benchmark rates. That’s because inflation has increased much more than the Fed has raised rates. So, not only is the Fed far from achieving the desired goal, but it’s also further away from that goal now than it was before inflation took root. Sobering for sure.
Recommendation #3: Reverse Climate Policies
The third recommendation that I offer is a big one. And that is eliminating, suspending, or reversing all regulations, accords, and treaties looking to, and I’m going to use the air quotes here, ‘tackle climate change.’
Please do not misunderstand. I don’t debate that CO2 levels are rising within the atmosphere or that the contributor to that rise is largely from human activity. My issues with climate change go back to simple math, physics, chemistry, and engineering. These policies are flawed when it comes to those items. How so?
Well, most fundamentally climate policies universally assume wind, solar, and electric vehicles are zero-emission or zero-carbon forms of energy or transport. That is simply not true. Never was and never will be. All activities, all forms of energy have a life cycle carbon footprint. And those carbon footprints for wind and solar and electric vehicles are quite large, I suspect larger than say natural gas power generation. For these policies to warrant and pretend that renewables or EVs offer zero-carbon footprints is misleading and a form of ‘fraud by policy.’
The second problem with these climate policy prescriptions is that geologically there is nowhere near sufficient global supply of metals, materials, and rare earths to manufacture the number of wind turbines, solar panels, and electric vehicles that would be required to meet mandates and targets.
The third problem is these policies inevitably benefit our adversaries, namely China and Russia, because these policies trade our domestic energy security enjoyed today for a reliance and an outsourcing of our energy dependence on the places where the stuff is mined and manufactured to provide us the wind turbines, solar panels, and electric vehicle batteries tomorrow. You can’t mine, process, and manufacture those things onshore to anything close to the scale that will be required under climate policy mandates.
The fourth problem with climate policies is that they are prohibitively expensive and are one of the most regressive forms of taxation to the middle class and working poor that you will ever find. All the subsidy, tax credits, and rebates that a government can create will never shield us from the regressive taxation nature of what climate policies do to energy cost and energy access.
And the final problem is that government is never the answer to issues like these and, in the words of Milton Friedman, government is the problem. The shale revolution in Appalachia did more to reduce global CO2 emissions than any government policy, mandate, or prescription. The free market, innovation, and disruptive technology: those are the answers to addressing, or, again using the air quotes, ‘tackling climate change.’
Recommendation #4: University Endowments Cover Student Debt Forgiveness, Not Taxpayers
I could talk all day on climate change policies, but we don’t have all day, so let’s go to our fourth recommendation. Which is any form of student debt forgiveness should be borne first by university endowments before a dime of taxpayer money is touched.
Look, I get it: too many colleges and universities have been ripping off students with degrees that have excessive tuition costs up front, offer little value in career wage later, and that produce a grossly negative rate of return. It’s been the biggest false advertising scheme in American history, and it continues. So, there is a wrong.
But the answer, or making it right, is not to have taxpayers pick up the cost for defrauded students and families. If you want to follow classic tort law, have the aggrieved party receive restitution from the one doing wrong, which in this case would be the university or college.
Doing so would also have the added benefit of catalyzing legitimate reform from the higher education system, because now there would be a cost to not fixing and improving the business model. Today, not only is there no consequence or cost to not reforming, but universities are also grotesquely rewarded for continuing to run the racket.
Common sense and tort law fundamentals inform us the path to reform and accountability is to tap the school endowments first. Students, parents, and taxpayers will all benefit. The system will reform.
Recommendation #5: Reform Public Unions and the Iron Triangle
Recommendation number five is something that both Franklin Roosevelt and Ronald Reagan both agreed with. How many things can you say that that would be true of? Well, what they agreed on was that public unions, and here I’m talking about entities like teachers’ unions in public schools, present an inherent civic conflict of interest.
That conflict arises across three corners of a triangle: in one corner you have the public union which collects dues from its workers and then uses those dues to fund political campaigns and lobbying efforts; in the second corner of the triangle you have elected politicians and judges, the beneficiaries of the public union funding and lobbying, and they are the ones who appoint the third corner of the triangle. Which are the administrators and bureaucrats, who set the rules and negotiate the contracts with the public unions.
The Iron Triangle, as it is referred to, works to the benefit of all three corners and to the detriment of those left out of the triangle: the student, taxpayer, and or the parent. The harmed parties are the ones who the public union worker, elected official, and appointed bureaucrat are sworn to serve but end up doing anything but.
The answer or solution to this conundrum of the Iron Triangle is to either stop the practice of public sector unions or to require very specific performance metrics within negotiated labor contracts. I am not anti-union; I am the product of a private sector union family and I work very closely with the unions across the awesome building trades. Public unions, however, are a different animal altogether and do not reflect an arm’s length negotiated balance, but instead are terminally conflicted without reform.
Recommendation #6: Have Social Media Pick a Side
The last recommendation, number six, is one that is more of a modern-day phenomenon and is affecting every one of us in bigger and bigger ways. And that deals with big tech and social media. For too long these entities have had it both ways.
On one hand, they enjoy the benefits of being a platform, meaning they are not responsible for content posted. On the other hand, they enjoy the benefits of being a publisher, thus being able to receive free speech protection and control content placed on their sites, much like a journalist or news organization would. Well, you can see why they would want to have it both, or maybe better said, all, ways. But you can also see how it can’t be over the long haul.
My recommendation would be to allow each social media platform to choose for itself whether it wants the protections and responsibilities of being a platform or instead prefers the same for being a publisher. But pretending that these sites can take the advantages of both and avoid the responsibilities of both is wanting to have it both ways. That’s not how it works in life and that’s not how it works in business; thus, it shouldn’t work that way when it comes to social media and big tech.
What Would Milton Friedman Think?
There you have them: my six big ideas, my big recommendations, to miraculously cure all that ails Appalachia, southeastern Ohio, and the United States of America. Let me conclude by tying all this back to the great Milton Friedman.
Our president in 2020 stated the following: “Milton Friedman isn’t running the show anymore.” Correct, Mr. President. And therein lies the problem.
I proposed the six recommendations, as I said, in October of 2021. Consider what has happened with respect to government action since that time.
- The federal government debt? It’s grown, continues to grow, and it’s worse than it’s ever been.
- When it comes to the Federal Reserve, its mission is as wide as ever and negative real interest rates are as large as ever, with no signs of inflation abating.
- With climate change policies, we just saw over 35,000 bureaucrats from over 200 nations convene in Egypt to accomplish nothing other to emit much CO2.
- Student debt we are most familiar with because the president unilaterally decided, without Congressional consent as required by our Constitution, to forgive $400 billion or so of debt, making reform by higher education even less likely.
- Public sector unions continue to grow unabated, as evidenced by the recent Inflation Reduction Act and its $80 billion gift to the Internal Revenue Service, so that the service can go out and hire tens of thousands of new public sector employees, all of which will pay dues to the union which then will return the favor to government by contributing even more to the campaigns of like-minded public officials. The Iron Triangle is alive and well.
- And our friends in big tech that run social media platforms continue to enjoy having their cake and eating it too; having their benefits of publishers and platforms protected while avoiding all the accountability that comes with either.
Yeah, unfortunately Milton Friedman isn’t running the show anymore. But if you wanted to get a feel for what he would advise if he were, give a read to his 1991 lecture titled Why Government is the Problem. I am proud to think that Dr. Friedman would’ve supported all six of my recommendations. His lecture goes much wider than my six recommendations, and he is much more entertaining in print than I am, despite me having the advantage of being here live with you. So, give it a read. And check out the Free to Choose Network, which continues to carry torch of Dr. Freidman.
And one last mention for my book Precipice as well; I wish as a citizen that many of the themes I wrote about three years ago did not turn out to be as relevant as they are today.
All this makes me think of borrowing a few lines from Simon and Garfunkel. Where have you gone, Milton Friedman? Our nation turns its lonely eyes to you.