From The Fields

Today, let's talk about what its proponents call "industrial policy". Simply defined, industrial policy is when governments restrict what would happen in a laissez-faire market economy in various ways. Those ways range from full government ownership and control of nearly everything in the economy. Under laissez-faire there would be no government ownership and/or control of anything in the economy. Modern "mixed" economies describe everything we are contemporaneously familiar with. The tools to achieve industrial policy are varied and many. They include outright ownership of businesses, tariffs, trade protections, import/export controls, subsidies, tax incentives, public procurement or government buying stuff from favored suppliers, regulations, research grants, building infrastructure, and government provided skills training.

There are no historical examples where economies are entirely controlled by the government and none where pure laissez-faire is practiced. But there is a spectrum ranging from lots of government control to minimal government control. That spectrum runs from Communism as practiced in the USSR under Stalin, China under Mao and North Korea under three generations of the Kim family to the largely free market economies in say, Argentina and the United States in the latter 19th century into the early 20th century. The difference in economic circumstances for the people is stark. Mostly communist/socialist economies like the USSR, Maoist China and Kim ruled North Korea led to profound economic depression including mass starvation. Mostly laissez-faire policies in the free market era of 1880-2010 led to the fastest real per capita income growth in the world for Argentina and the United States. Different countries in different eras with varying degrees of government control of the economy yield results somewhere in the middle. Over the long run free markets work better for the average person than countries using industrial policy.

There are both moral and pragmatic reasons why that is so. Morally, industrial policy usually involves a violation of individual rights, particularly property rights. For example import controls and tariffs prevent people from trading with each other on mutually agreeable terms based on the geography of where they happen to live. Subsidies and regulations make it difficult for market participants to mutually agree on price without the government's hand on the scale.

Pragmatically, government ownership of all or parts of businesses invites cronyism, political favoritism and graft. All of the above increase the costs of goods and services with the increase in price going into the pockets of politicians and bureaucrats. Free market prices are fair prices. They are the very definition of what buyers and sellers think is a good deal. Under industrial policy prices reflect what politicians and bureaucrats think should be fair prices. It lets politicians and bureaucrats pick winners and losers. Usually on purpose.

Industrial policy is really the descendent of the medieval guild system, where craftsmen, with the power of government backing them up, could control who could engage in a craft and set oligopoly prices.

What are present day politicians doing? Bernie Sanders thinks the government should own 50% of SpaceX and AI. Elizabeth Warren wanted to prevent the initial public offering of SpaceX entirely because she disagreed with the price that willing buyers and sellers of the stock agreed on. They represent the full-on Communist/Socialist side of the spectrum. With his tariffs, import and export controls, tax incentives, and partial government ownership of upwards of a dozen companies including Intel, Donald Trump isn't much better. One of the only free market Republicans, Thomas Massey, was primaried by Trump in the most expensive race in House history because Trump didn't think he was loyal enough and AIPAC didn't like his policy on not going to war with Iran. Wars of choice like the US attack on Iran are a huge boon to the defense industry.

In short, free markets are good. Industrial policy is bad. The Uni-party of Democrats and Republicans is force-feeding us various flavors of industrial policy. Only Libertarians are defenders of free markets. the right of people to make their own decisions about who to trade with and at what price. I'm Richard Fields and that's this week's Report From the Fields. See you again next week.

The IPO of SpaceX which made Elon Musk the world's first and only trillionaire is the story that's too big to ignore this week. That's made Musk the poster boy for rich people that leftists want to tax into oblivion. Bernie Sanders thinks that 50% of SpaceX and all AI companies should be owned by the "public". In plain language he thinks 50% of SpaceX and AI should be controlled by politicians like him. Which really means total control because being able to vote 50% of voting shares plus one would be enough to accomplish that. Libertarians rightfully don't appreciate Musk's support of Trump in the 2424 election and that, in the words of SpaceX's SEC disclosures, "In 2025, approximately 20% of our revenue was attributable to agencies within the U.S. Federal government." To be fair to Musk, the largest government customer of SpaceX has been NASA. The same NASA that has been moribund since the Apollo mission while wasting billions of taxpayer dollars. NASA accomplished very little at great expense. SpaceX built Starlink which provides space based internet connectivity pretty much everywhere. And they built rockets that can land and be reused, dramatically decreasing the cost of getting things into space.

Here's what libertarian and lefty critics of Musk miss. In 2020 Musk voted for Joe Biden. His disenchantment with Biden started when Biden held a White House EV summit and invited all the legacy automakers (General Motors, Ford, Stellantis) all of which were Union shops. Tesla, the pioneer in modern day EVs, was pointedly not invited. When 20% of your revenue comes from the Federal government and the Democrats in charge of that government ignore you, you look at alternatives. The only alternative capable of winning back the Presidency in 2020, unfortunately, was Donald Trump. Musk is not a man of the MAGA movement or even of the right. He demonstrated he was not MAGA when he left the Department of Government Efficiency when it became apparent that Trump had no inclination to follow through on the majority of DOGE cost cutting measures.

A little biographical history: Musk emigrated to Canada and later to the U.S. from South Africa at the age of 17. He then earned degrees in physics and economics from the University of Pennsylvania. At the age of 24, with $2,000 of his own money and a little help from friends and family, he co founded Zip2 which was effectively the internet's first yellow pages. When he sold it four years later, his share was $22 million. He parlayed that grubstake into the founding of X.com which became PayPal. After the sale of PayPal to EBay in 2002 he was a billionaire without a job. He decided he wanted to build a greenhouse on Mars. He went to Russia to buy the rockets needed to get there. In one of his pitches to the Russians, a Russian rocket scientist who evidently did not like the idea of selling rockets to Musk, spit on his shoes. In a later negotiation, the Russians mocked him saying, in rough translation, "Young boy, you do not have the money." On his flight home, Musk took out a spreadsheet and figured out how to buy the raw materials necessary to build his own rockets for less than the Russians were asking. And that's how SpaceX got started. Originally in a warehouse in El Segundo, CA.

Along the way, Musk also started Tesla, building electric cars. Eventually self-driving cars. Full disclosure: My wife and I own one and love it. He started the Boring Company which dramatically decreases the cost of making tunnels. He started Neuralink which makes it possible for paralytic individuals to control computers by thought with brain implants. And, of course, he bought Twitter to make it a forum for free speech rather than an outlet for establishment left-of-center propaganda. Most of the rest of social media still suppresses anything other than liberal groupthink. I can personally attest to that. If I make an identical post on X and Facebook, the X post will get dozens of likes and reposts. The same post on Facebook will get none. The free speech suppressing algorithms are still in place despite Zuck's saying it isn't so. And the legacy media has promoted center-right to far left views for decades. They have always been either dismissive of or hostile to libertarian views. Musk single handedly rescued freedom of speech in America. At least for the time being.

Finally the investment community is skeptical of the price SpaceX was able to get in its IPO. That price is roughly 100 times sales, not earnings, sales. That compares to the historical average of about 2.5 times sales for the S&P 500. The investment community may be correct in their skepticism. Or they may be overlooking the real potential value of SpaceX: providing AI from space. No nimbys complaining about huge AI centers next door raising the price of their electricity and water. For space based AI the only cost of power is getting the solar arrays into orbit. For cooling all that is needed uplifting radiators to radiate the heat caused by semiconductor operation off into space. SpaceX rockets can do those things. And take us to the moon, Mars and beyond.

We live in a mixed economy meaning the government is the biggest economic player. In order to survive, most of us have to deal with that fact. The government is one of SpaceX's customers. Tesla has benefited from government promotion of electric vehicles. I cash my social security checks. Even Ayn Rand used Medicare.

Overall, Elon Musk is a benefactor of humankind. His $1 trillion would fund the federal government for about 49 days. Musk is a bit better at capital allocation than Bernie Sanders or Donald Trump. His creations benefit all of us in one way or another. And when he cashes in on stock options he pays massive taxes, $11 billion in 2021. Let's quit nitpicking Musk and let him do his thing. My only hope is that I will live long enough to set foot on Mars. Perhaps with Neurolink, I will. That's this week's Report From the Fields. See you again next week.

In these Reports I have repetitively made the point that inflation is effectively a sales tax. Government spending that is not funded through taxes is funded through money creation. That eventually results in inflation. Federal debt is $39 trillion of direct borrowing at last count. But $175 trillion if you include unfunded liabilities. Mainly Social Security and Medicare. For perspective, that's over a half million dollars for every man, woman and child in the country.

The people, insurance companies, pension funds and other institutions in the United States lend a lot of money to the Federal government by buying U.S. treasuries, notes and bills. Foreign governments, institutions and individual investors buy a lot more of that debt. But the combined lending of all of the aforementioned doesn't come close to satisfying the government's gargantuan appetite for more borrowing to fund government spending. Where does the rest of that lending come from? The short answer is the Federal Reserve Bank. And where does the Fed get money to lend to the government? It has the power to create new money. If we did it, it would be called counterfeiting. Printing currency is not the way the Fed creates most new money, although through the Treasury Department, it is a small part of it. Mostly what the Fed does is purchase treasuries of various maturities from commercial banks. It pays for those treasuries with keystroke created new money. That effectively lowers short term interest rates. The banks then have cash which they can lend to consumers and businesses. More bank lending means more currency in the economy. When the growth of currency grows faster than the growth of the economy, prices go up. And eventually long term interest rates go up. It's that simple.

But it's not that obvious. The inflation effect is usually delayed. When LBJ was borrowing money in the early 1970s to fund both his Great Society and the Vietnam War, the inflation showed up in the late 1970s. When the first Trump administration was giving people stimmy checks in 2020 to compensate them for his COVID shutdown of the economy the inflation didn't show up until 2021 and 2022. In addition, Consumer Price Index numbers don't capture all of the inflation going on. First of all, the Bureau of Labor Statistics games the statistics with heuristics and substitution effects. If your new I-phone costs the same but does more stuff than your old one, the BLS calls it a price decrease. If steak gets too expensive and you switch to hamburger, the BLS says you're spending the same amount on meat so prices have not gone up. But secondly and more importantly, the BLS does not recognize inflation in assets; stocks and bonds. If the price of stocks goes up faster than their earnings do, that's inflation. The shorthand for that is the price/earnings ratio. The PE has more than tripled since the 1970s.

Of course, the rich, people who own assets, are just fine with that. They benefit from inflation. Those of us with few assets, living paycheck to paycheck, and watching paychecks rise more slowly than food and gas, are not similarly blessed.

The pertinent question we should be asking is whether government funding a huge proportion of its expenditures through inflation can last indefinitely. Without any historical exceptions, the answer is no. The Roman Empire, Weimar Germany in 1922-1923, the Kingdom of Hungary in 1945-1946, Yugoslavia in 1992-1994, Zimbabwe in 2007-2008 and many more all ended up in hyperinflation leading to social unrest and government upheaval. Having the global reserve currency like the United States does now, just slows down the process. Our reserve currency status expressed as the amount of world trade conducted in dollars has been going down. At various times in history, the currencies of Rome, Spain, the Netherlands. Great Britain and many others have been the most important reserve currencies. They've all eventually lost that role primarily due to inflating their currencies to pay for government overspending.

Will the practice of using inflation to fund government deficit spending go on indefinitely? Nope. Eventually the United States will run out of lenders willing to lend us money at a sustainable rate. With his spending on a voluntary war in Iran and elsewhere, Trump is accelerating that process. That's this week's Report From the Fields. I'm Richard Fields. See you again next week.

Sometimes these Reports just write themselves. It's too easy. CIA is the acronym for Central Intelligence Agency. The middle word in this bureaucracy's title is Intelligence. That quality appears to be missing at the Agency. Last month David Rush, a senior executive service-level employee with top-secret clearance who worked at the agency's Directorate of Science and Technology allegedly effectively stole from the CIA 303 bars of gold worth $48,052,794.24 based on the last time I checked the price of gold. How did he manage to do that? Well, if we believe the story we're being told by the CIA and the FBI, he asked for it-for "work related expenses". The response to that request seems to have been: "No problem, Dave. Need any paper clips, disappearing ink, cash, Rolexes or anything else? Perhaps Dave's response was, Well I could use a couple of million in foreign currency and some watches would be nice. I have plenty of paper clips, though." Somebody at the CIA finally smelled a rat (or maybe a mud bathing rhino). They called in the FBI to investigate. Turns out that Dave was not the brightest bulb in the lamp either. The FBI obtained a search warrant and found the missing gold. At Dave's home and a nearby storage unit.

You'd think the agency entrusted with sniffing out commie spies would maybe have slightly tighter internal controls on releasing their stash of gold. And what's the CIA doing with all that gold in the first place. I thought the government's gold was stored at Fort Knox, the mints at West Point and Denver or the Fed's vaults in New York.

But there's more to the story. You'd think the CIA would do a superlative job of vetting any new hires. You'd be wrong. Turns out that Dave claimed to have degrees from Clemson University and Rensselaer Polytechnic Institute and that he had been a Navy pilot. It seems that the schools have never heard of him and the Navy says he was never a pilot. What? The CIA forgets to do reference checks? The CIA doesn't just have egg on its face. It has enough omelettes to feed the crew of a Navy aircraft carrier for their entire mission at sea. This whole comedy of errors may be even worse. Dave seems to have once worked with Stephen Feinberg, the Deputy Secretary of Defense. And yes, Stephen is still the Deputy Secretary.

We all can chuckle at the demonstrated incompetence of the CIA. But, we as libertarians have been calling for the abolition of the CIA and the other 17 intelligence agencies since the 1970s or before. These agencies have proved their incompetence at doing their assigned tasks repeatedly. Shouldn't someone, anyone, have been able to predict that a military attack on Iran would lead to Iran closing down the Strait of Hormuz? And preventing the shipping of 20% of the world's petroleum products, not to mention significant portions of the world's sulphur, helium, fertilizer ingredients and more? But they seem very adept in forcing patriots and whistleblowers like Edward Snowden to seek asylum in Russia to avoid imprisonment at home. Not to mention ordinary citizens from having their phone conversations tapped by the Feds. In fact, we should abolish most federal agencies. The first Congress created the Department of Foreign Affairs, the Department of War, the Department of the Treasury and the office of the Attorney General. That seems like enough to me. And I would strip the IRS out of the Department of Treasury. I'm Richard Fields and that's this week's Report From the Fields. See you again next week.

Hi, this is Richard Fields with this week's Report From the Fields. I recently came across a political phenomenon called the Curley effect. It's named after one James Michael Curley who served four nonconsecutive terms as mayor of Boston between 1914 and 1950. He also was the Governor of Massachusetts and served two non-consecutive terms in the U.S. House of Representatives. He did all of this in spite of being well-known for graft and was actually convicted a couple of times. So how did he continue to get reelected to public office despite his, shall we say, colorfully unsavory behavior while in office? He did it by positioning himself as the Irish-Catholic champion of the Irish working man in opposition to the wealthy Protestant Brahmins. To illustrate how in your face his corruption was, I offer this anecdote. Before running for Mayor he ran for Alderman. Prior to that campaign he impersonated someone else in taking the federal civil service exam for postman. He won that election while he was in prison. His campaign slogan was "he did it for a friend." As Mayor he deliberately raised taxes on the rich and middle-class to spread wealth among the poor. As the wealthy left town his voting base among the remaining poor became a larger percentage of the remaining electorate.

We libertarians believe Democratic/Socialist political policies to tax the rich to give to the poor are destined to have wealth-reducing effects on the population at large. And, empirically they always do. We are also accustomed to thinking that those wealth-distribution policies are advanced by politicians who are ignorant of economics and unaware of the economic harm they are causing. Maybe we're wrong. Maybe running the wealthy out of town to consolidate power among the remaining voters is actually the point.

A couple of economists came to this conclusion; Edward Glaeser and Andrie Shliefer. They came up with the term, Curley effect. Namely, that the interest of politicians in getting reelected can be in direct conflict with the economic well-being of the populace as a whole.

It explains how the avowed Socialist Zohran Mamdani can get elected as mayor of New York while effectively saying bye-bye to the only people capable of financing his grandiose promises. The leftist mayor of Seattle, Katie Wilson, actually said "I think the claims that millionaires are going to leave our state are, like, super overblown. And if, the ones that leave, like, bye." While laughing. It explains why labor unions in California are pushing a 5% tax on California billionaire's assets. Not income, assets. And which includes a provision allowing the legislature to approve, by a simple majority vote, lowering the asset threshold. Maybe, eventually to include your assets. The wealthy are leaving New York, Seattle and California en masse. The middle class sees the handwriting on the wall and they're leaving too. And the politicians are quietly congratulating each other for tightening their political control.

This is something that once you see, it is hard to unsee. I'm Richard Fields and that's this week's Report From the Fields. See you again next week.