What’s new here?
Let’s be fair. This is a media report on Warsh’s views, with all the possible wrinkles that can go with that. But with that in mind, let’s take it at face value.
Here’s what the appointment of Warsh to the Fed could mean for interest rates this year
“Warsh has argued for lower interest rates on the belief that AI will significantly boost productivity and push down inflation. Like Trump, he rejects the belief that inflation is caused by the economy growing too fast and workers getting paid too much. Rather, he argues inflation is caused by the government spending too much and printing too much money. He also believes any inflation from tariffs will be a one-off.”
This is confused. On one hand “he argues inflation is caused by the government spending too much and printing too much money”. On the other hand, he “has argued for lower interest rates on the belief that AI will significantly boost productivity and push down inflation”.
These two propositions can’t both be true. If inflation is caused by spending and printing, it can only be reduced with less spending and printing. AI and productivity have nothing to do with it. If technology reduces real costs of production, that’s a real reduction in prices, not a reduction in inflation.
In short, changes in prices can be caused either by real cost changes or inflation, or both. The business of monetary policy is with the second kind.
Technology can and does reduce the costs of production. But if it does, in the absence of inflation consumer prices should decline. If they don’t, that’s inflation. Pretending it isn’t is tantamount to the government claiming for itself all the benefit of technological advance.
Of course rising consumer prices are even worse. You have both the amount of inflation that offsets real cost declines plus still more. It sounds like Warsh – or the writer’s interpretation of Warsh – is saying this is what he wants. That’s what the Fed’s “2% inflation” target really amounts to. Muddling the two together is an insidious way to claim you’re producing less inflation than you really are, and dates back at least as far as Greenspan, who touted “productivity” as holding down inflation in the late 1990s while inflating a stock market bubble.
If there is any new and clear thinking here, it’s escaped me. Don’t sell yer gold yet!
Well written blog my friend………….however i like to play devils advocate.
Back in the late 1970s my father called me from my bedroom to see a BBC 2 tv program.
It was called “The chips are down”. It was about the sudden explosion of the Microprocessor & the effects on the workforce.
The effects were if you where working in a factory you were STUFFED……..a simple machine was going to be able to do your job better & cheaper. Sure it would create new jobs but vast numbers of production workers would go.
Up to this time UK wage rates were set by Ford, whatever Ford gave their workers was used as a guide to what everyone else wanted or got…………….then the car plants shut.
One of the main drivers of wage growth had gone.
We are an the curbs of the same thing happening now. AI & more importantly Battery tec!
Cheap Sodium ion batteries will start in mass production in the next few months. This will allow cheap home battery storage, thus allowing energy poor nations to better manage what they can produce locally & reduce imported Hydro carbons.
Then there is Solid-state or Silicon Carbon battery tec.
I was blown off my feet early this week to find that China are mass producing Smart phones with a Silicon Carbon battery that has 825 wh kg!…for refence most cars have 140-160 wh/kg.
That will change EVERYTHING……..Phones/Computers/Cars/Drones
Thanks, mega … fair enough. Nothing intended beyond monetary policy … there are all kinds of ways of addressing employment disruptions through legitimate fiscal channels. My point is merely that the Fed and media don’t have a coherent grasp on even their own reckoning of inflation. Is it monetary or is it technological?
Far as employment goes, the Fed can do nothing sustainable about it. In the short run a burst of inflation might give it a boost, but only by reducing real wages. Then what happens? Workers work just as much but get less for it. Screwed again. Eventually they may get their wages raised but then the Fed reduces them again and round and round we go…
This may be one of Warsh’s stronger points; to the extent media reports are accurate, he favors more focus on inflation in monetary policymaking. The only thing the Fed actually can control is the security it issues … the Federal Reserve Note aka US dollar. By issuing a bunch of it it can temporarily affect other economic variables, but the only lasting effect is lost purchasing power. We see its legacy in the affordability crisis.
So what to do about unemployment? Remove regulatory rigidities that make it hard for the private sector to adjust, like mandated employer benefits that make job changes unnecessarily difficult. Make job retraining easier. Simplify unemployment benefits. And though I’m skeptical of claims that AI will result in permanent mass unemployment – it’s just another ‘it’s different this time’ argument – if it does, a UBI is a better way to deal with it. Inflation just makes people poorer.
Yep, China gearing up
https://carnewschina.com/2026/01/30/catls-sodium-ion-batteries-officially-enter-passenger-vehicles-report-says/
Trump’s Pick For Fed Chair May Not Be Approved by the Senate—And Not For the Reasons You May Think
This story is a great example of what’s wrong with Congress. It should never be up to one person. I can’t vote for or against Tillis, can you? Only voters in North Carolina can. Yet he is effectively acting on behalf of people in all fifty states. Patently undemocratic.
The committee and seniority system is effed up. It concentrates power. With no constitutional basis.
This isn’t about Warsh or Powell or Fed independence … it’s about who gets to decide. We elect one hundred senators and none of them are entitled to make policy on their own. Full stop.
This mess that paralyzes Congress is largely responsible for out-of-control executive power. Congress has itself tied up in knots, can’t act, and so we wind up with an increasingly imperial presidency and runaway unaccountable executive agencies.
Not to mention judges legislating from the bench because the legislature couldn’t bring itself to be clear.
Start by repealing the Seventeenth Amendment. The original plan was for the Senate to give states a seat at the table in Washington as a check on federal power. Then clean up the House and Senate bureaucracies by making it so that any member, with a sufficient number of cosponsors, can bring a matter up for a vote. No formal role for party affiliation. No kings in the executive and none in the legislative either.
In other news Mega might be getting his hair back.
PP405……….a new Drug developed by UCLA & funded by Google has just had its 1st large scale test. 35% of men reported a 24% increase in hair growth…….not the complete answer but a very good 1st stab.
By 2028 they might be on the market & am sure it will improve over time.
Mike
Just wondering…………………AMERICA+Russia V CHINA+Europe ?
Mike
Wow!
The Epstein files…………….makes the Pentagon paper look tame!
3 million pages………….lot still to see
I won’t get into the subject matter on the files……………..but it shows what Dark Forces are at play.
A “Vampires Ball”…………….lets drive a few stakes in!
Mike
OK its 11:38 pm ish here in Blighty & this post will not be a “Megas Dispatch from England”.
Give the subject matter i don’t consider something i could poke humor at.
However things here are moving quickly:-
Peter Mandelson the former government minster & recently sacked British ambassador to the US has been forced to formally resign from the Labour party. It is said he will be forced to testify before Congress.
Former Prince Andrew is also being told by the British Prime minster that he too must open up about wot he got up to with his mate”Jeff”
More downside in the metals tonight. Of the four we regularly follow, only copper is higher. Gold, silver, platinum are all down 4%-8%.
This is rapidly going from short term overbought to oversold. I see no material change in the fundamentals … this looks like an exodus of fast money that has piled on the bandwagon over the past few weeks, reminiscent of the acceleration and correction we saw in October except more violent.
What happens over the next few days is a crap shoot, but I expect by the end of the week volatility will subside as the fast money ebbs and prices will stabilize. The best course of action for long term investors is not to try to guess what prices will do in the short run, but decide what allocation they’re comfortable with and only buy or sell as needed to bring it into their target range.