What Will a 20% Tariff Do?

The Trump administration is now talking about a 20% tariff on imported goods from Mexico. As expected with any issue in economics, reactions are all over the map. Predictably, his supporters forget everything they learned about economics. They think the tax will be yuge.

Many others oppose the tax, but make a basic economic error. They think a 20% tax on, say Corona beer, will result in a 20% increase in the price of Corona.It’s much worse than that. Stop and think about it for a moment.

A 6-pack of Corona is about $10. Will people pay $12 for it? I bet most won’t. Corona itself has the strongest motivation to find out what consumers are willing to pay. If they thought they could charge more, they would already have raised their price.

Therefore, this tax will eat up Corona’s capital, as the company squeezes its profit margin. Maybe they raise the price a bit, and suffer reduced volumes. This will pinch margins even more, as there are fixed costs which don’t go down as volume drops.

Their American importers will also suffer, of course.

Ultimately, Corona will likely be forced out of the market. That’s when beer prices will go up, with fewer producers and less supply.

And of course the newly unemployed Mexicans who worked at Corona will cease buying any products from America. And Corona itself will have to reduce what it buys, as it is making less money.

Domestic beer brewers +1
Domestic importers -1
Domestic consumers -1
Domestic manufacturers -1
Domestic exporters -1

And all of this is assuming Mexico does not respond with tariffs and regulations of its own, which will add more entries to the minus column. If only we had a historical precedent so we could know how that is likely to play out…

Yield Purchasing Power

Most people think in terms of purchasing power. How much can one’s cash buy? I reject this view on two grounds. One, it encourages a liquidation mindset. If your life savings consists of 100,000 dollars in the bank, plus a house and some shares of AAPL and INTC, how many years’ worth of groceries can you buy?

If the grocery-value goes up, people cheer.

Life savings is not supposed to be about liquidation. People used to be able to earn a yield on their money. We should think of an estate as a business, with assets that generate income (as people once did). In this view, you don’t think of selling the business every minute of every day, cheering when its price goes up.

You think of its profits. You think of how many groceries you can buy–by operating a business to generate profit.

You don’t think of the purchasing power of the business, but its Yield Purchasing Power.

The conventional purchasing power paradigm paints a rosy picture. That may help explain why apologists for the regime of the irredeemable dollar promote it.

The yield purchasing power view shows something altogether different.

I have written eight short articles on Yield Purchasing Power. I gave a talk about it, in fall 2016 at the American Institute for Economic Research, which was recorded on video. Below are the links, gathered here in one landing page (which will be updated as I add more material).

Yield Purchasing Power: Think Different About Purchasing Power
Falling Yields, Rising Asset Prices -Rising Yields,Falling Prices
Interest – Inflation = #REF
THERE’S Your Hyperinflation!
Yield Purchasing Power: $100M Today Matches $100K in 1979
The Economy is in Liquidation Mode
Who the Heck Consumes Capital?!
Move Over Entrepreneurs, Make Way for Speculation!
Who Is Worth More: Some Hedge Funds or All our Kindergartens?

Video of my talk at AIER


Reflections over 2016

2016 was a phenomenal year! Most of my focus over this year was on my company, Monetary Metals. That is appropriate for the founder and CEO of any early-stage company. Doubly so in this case, as Monetary Metals is a company with a vision to change the world for the better. People need a path towards the use of gold as money. Monetary Metals provides that path, a way to earn gold on your gold.

I raised a small amount of capital in February, sufficient to bring on board Bron Suchecki, formerly of the Perth Mint. And to begin working with Arie Levy-Cohen, formerly of Morgan Stanley, on defining the value proposition and branding.

In the Spring, I visited Hong Kong and Singapore for the first time. I was there to give keynotes at two gold-related conferences. I expected to really love the food in HK, as I seek out Chinese restaurants wherever I go. I did find two good places, but much of what I ate there was bland and starchy. I also may have eaten something bad there, because when I flew on to Singapore I felt unwell. I spoke and went to many meetings, only by the grace of being medicated. I stayed in the Marina Bay Sands, and did not even go up to its world-famous roof deck and negative-edge swimming pool. I got better when I returned home. Need to return…

This summer, I spoke at FredomFest. While at the conference, Monetary Metals announced its first gold fixed-income deal with another company who was there, Valaurum. We provide the gold they need to manufacture the Aurum®, a gold currency unit containing one tenth of one gram of gold in a clear plastic film about the size of a dollar bill. It is gold you can fold.

Interest on gold will change the world.

I am a member of the Arizona House Ad Hoc Committee on Gold Bonds. Arizona is considering my idea of issuing a gold bond, which gives the state a fiscal benefit, and attracts capital from all over the world. Here is the video of my proposal.

What do you do if you are invited to give keynote addresses in Great Barrington, Massachusetts and Kuala Lumpur, Malaysia? Less than one week apart?

If you’re crazy, you agree to both. If you’re insane (in a good way), you book an around-the-world ticket on the One World Alliance, and fly to Auckland, Sydney, Singapore, KL, London, New York, and home. You spend over three weeks on the road, meeting with partners and prospective clients. You also see some friends, hang out in Auckland, have some great beer, attempt to stay for the Australian Rules Football but get overcome by jet lag and bail out early. Then you spend 45 minutes walking up hill, uphill, and uphill some more, to get to the Langham Hotel at the top. And crash.

You have lunch with an investor at Aqua Dining, overlooking the water and a great swimming pool in Sydney. In Singapore, you have some good food and good meetings. This time I felt well and could enjoy. Then I flew on to KL. At the conference, they brought new meaning to the concept of serving tea. They had a noodle dish that was out of this world, plus little pastries. And, of course, tea and coffee. I am not a coffee drinker, but I am developing a love of tea.

In KL, I spoke about the Fed’s falling interest rate, and how nothing in the world is immune from its pernicious effects. Including even an Islamic finance program for homebuyers. It does not charge interest, and yet its rate of return has been falling since inception in the 1980’s.

From KL, took a redeye to London Heathrow. Checked in to the Sofitel in T5 to crash for a few hours. Had my first investor meeting Sunday evening in Chelsea by the Thames. Later that week, I had a small private tour of Westminster Palace and dinner in a private dining room.


I also had a chance to take a train two hours north of London, catch up with a friend and have lunch in what I suspect was a Medieval pub. The ceiling in places was too low for me to stand up! Across the street was an old castle, much smaller than I expected. I missed an event at the Institute for Economic Affairs on Lord North Street. I was looking forward to it, but jet lag struck again.


Then I flew on to JFK. Luckily, a hired car took me up to Massachusetts, where the American Institute for Economics Research has its headquarters in an old mansion. I was in no condition to drive. I realized something. By continually traveling west, I forced my body to stay away later and later. However, it’s hard to get up later and later. So I ended up with jet lag of increasing severity. I crashed a few hours when I arrived, and gave the keynote at their annual meeting (video here). Most excitingly, the audience was very excited by my ideas. I think my talk was different than others they’d heard.

The grounds are gorgeous, and I was there at the perfect time of year.


Right after I got home, I closed another investment round. I set out to raise $400K. Ended up with over $500K, from investors not just in America, but Europe, China, and down under.

In November, I had a flat tire on my Porsche 911. So I called the Porsche Roadside Assistance 800 number (the car does not have a spare tire). Why do they make you go through the process of finding your Vehicle Identification Number, only to put you on with an agent who does not know your name, car, or anything else. His first question was did I try to install the spare tire (the car does not have a spare tire). Next, he asked me if I have the tow hooks (the car does not have tow hooks). OK, we will try to get a tow truck to you in 60 minutes or less.

Hours and several phone calls in which they lied to me later, the tow truck shows up. Do I have tow hooks? (no, it’s a 911, it doesn’t have tow hooks). OK, we’ll have to winch it up onto the flat bed. *CRUNCH*, the rear banged into the ground when the angle of the car changed as it began rolling up the bed.

Then followed a series of unrelated, unforced errors by various Porsche people. For example, inviting me to come to the dealership for a loaner car. I got there, no loaners. But we can give you a ride to Enterprise to get one. After the ride, waited on two lines. We’re out of cars, but we have a pickup truck.

At the end, I get a letter from my service adviser. “Soon, you will receive an emailed survey from Porsche… Unfortunately, anything short of Complete Satisfied [bold, underlined, and yellow highlighter in original] counts as a Zero score. The survey is very important to my career….”

In what universe does management allow an employee to give a letter like that to a customer?!

Despite that, I gave lots of feedback, not venting my emotions but specific criticisms of systems and processes which did not recognize the value of the customer or his time. I said bad systems beat good people. My salesman called me, to try to make me feel better and get me excited about a 2017 911 turbo. Unfortunately, the general manager called me the next day to undo whatever goodwill was created by the salesman. “Your car is in good mechanical order.” Yes, they got the car working, but that was never my complaint.

Now, I am thinking about the Audi R8 and Chevrolet Corvette Z06. Or maybe the hot Mercedes AMG coupe. No rush, my 911 has only 15,000 miles and right now I am focused on building a great company! 🙂

About that Economic Inequality

I address this essay to two groups. One group is those among the liberty movement, who believe that there’s nothing wrong with inequality. These are often Objectivists, who unknowingly defend a regime that artificially suppresses working people. The other group is those among the Left who still call themselves liberals. They say they don’t like inequality, but nevertheless continue to support this regime, and they often demand more of its interventions.

I am talking, of course, about our regime of the Federal Reserve and its zero-interest policy.

I have written before about how falling interest rates have pushed up the prices of stocks, bonds, and real estate (also artwork, antique cars, etc.) This is seemingly good for those who own capital assets (it’s not, but go try to tell someone it’s not good that his house doubled). At the same time, falling interest causes falling wages if not mass layoffs.

In other words, the Fed drives down interest. This drives up asset prices and drives down wages. The minority who own assets seemingly get richer (an illusion) and everyone else suffers.

That is not the only way that falling interest rates cause inequality. Nor is it the only way that it targets certain groups for greater harm than it brings to others. Consider that zero interest makes it impossible to save. I don’t mean hard to save. I don’t mean excuse-making for lazy people who don’t plan for their futures. I mean impossible in the full context. Let me explain.

When I started my career in 1990, the standard advice was to set aside 10% of your salary and put it in the bank. By the time you reached 65, you would have a big nest egg. The key to this strategy was earning interest. Every bank had brochures showing that by age 65 most of your nest egg would be the accumulation of compounded interest.

Let’s put it in human terms. Suppose you’re a young worker, just starting out. You make the median income of $52,000 a year. You set aside 10% of your gross paycheck before tax. Over 45 years, your salary set-aside adds up to $234K.

Back in 1990, a 1-year Certificate of Deposit paid 8.1 percent. At this rate, you would have about $2.4M by the time you retired at age 65. Over 90% of that total is the compounded interest.

However, today, the same 1-year CD yields less than ¼ percent. At this scant rate, you can expect to have only $246K. Over your entire career. Of that sum, just $12,000 is interest. Let that sink in.

Needless to say, $246K is not enough to live in retirement. If you can’t keep working, you’re going to have to go on the dole. And this leads us to an underappreciated point.

Business consultants, writers, deal makers, and many other white-collar professionals can easily continue to work for 10 or 20 years past the conventional retirement age. So long as you’re healthy, why not keep working? Aside from the money, it gives you something to do, keeps your mind engaged, and you’re contributing to society.

However, there are many jobs where you cannot keep working. Think about brick layers, plumbers, and roofers. These jobs both take a toll on the body and demand more than most 75-year olds can give. Whereas a business consultant may continue to grow his network and expertise even as he gets older, a worker in a physical job is slowing down as well as wearing out.

There is never a good reason for government to intervene and attempt to prevent people from experiencing the consequences of their actions (whether good or bad). Many of those crying about income inequality, just use it as a rationalization to move America down the socialist road.

That said, there is an inequality problem. It is not due to lack of government intervention, as the socialists would have you believe. It cannot be cured by yet more taxes and interventions. Its cause is intervention. I refer to the most pernicious and least-appreciated kind of intervention.

Monetary policy.

You Didn’t Build That!

“There is nobody in this country who got rich on his own — nobody.” – Elizabeth Warren, campaign speech 2011

“If you’ve got a business – you didn’t build that. Somebody else made that happen.” – Barack Obama, campaign speech 2012

The Left is clear about their view. You do not get credit, and you do not own your business by right. When the government taxes you, taxes you some more, regulates you, and licenses you, it has the right. Because you didn’t build that.

As with so many issues, the Right seemingly opposes the Left. Certainly, there was outrage at the outright, open expressions of communist ideology from Warren and Obama. But let’s drill a bit deeper. Let’s look at a litmus test to see if conservatives really believe that you own your business. Or perhaps they accept that you are a mere steward of the people’s resources, for the good of the people.

Can you hire or not hire anyone? After all, if you did build that, then it’s yours by right. And as a matter of right, you can decide who to hire. Right?

Not so fast. Here is what President George Bush, considered to be a conservative, said at the signing of the Americans With Disabilities Act in 1990.

“It will guarantee fair and just access to the fruits of American life which we all must be able to enjoy.”

This is a law forcing businesses to do what they did not agree to do. Who built that business again, Mr. Bush? But this conservative does not think that way. He thinks of it as “access” to the “fruits of American life.”. Access to what? Fruits grown by whom, Mr. Bush??

He continued:

“And then, specifically, first the ADA ensures that employers covered by the act cannot discriminate against qualified individuals with disabilities.”

Clearly a mere steward has no right to hire based on his own preferences.

Then he made it even more clear:

“Second, the ADA ensures access to public accommodations such as restaurants, hotels, shopping centers, and offices.”

Who built that? No matter! Mr. Bush declared your business to be “public accommodations.” And in his view, it’s the role of the government to grant people “access”—to force you to give it to them. How far is the view of Mr. Bush from that of Ms. Warren and Mr. Obama?

OK who else, aside from the Conservatives and the Left, thinks you didn’t build that? Consider the following recent dialog:

“If we discriminate on the basis of religion, to me, that’s doing harm to a big class of people.” – politician
“The Jewish baker should have to bake the cake for the Nazi wedding?” – Moderator
“That would be my contention.” – politician

The politician is, of course, Libertarian Gary Johnson. He does not necessarily think that you built that business any more than Bush thinks it or Obama thinks it. Johnson sees the question in terms of whether “we” should discriminate.

Who is this “we”? One is left to conclude that he means those people who really built your business. The public, presumably.

The Left may be more brazen, more willing to go there, more shameless in taking your business away from you. First in theory, morally, by declaring that you are not a creator or hard worker or whatever it takes to build a business. The in practice, by setting no limits to taxation, regulation, permits, and compliance.

However, the Right and even the Libertarians are on board the same boat. They may stick to humanitarian imagery. They typically prefer to couch their desire to control your business in more palatable terms. But government control of your business stinks all the same.

At root, it necessarily comes back to the same principle. The only way to justify coercing you to “grant access”, the only justification to force a Jewish baker to serve a Nazi cake, is on grounds that it’s not really yours.

You didn’t build that, so shut up and let the government manage it for the benefit of others!


This essay is a followup to my previous post, Antidiscrimination Law.

Antidiscrimination Law

“We need to make it illegal for companies to discriminate.” This applies to employees, and even customers.

Well, either such discrimination—really bigotry—is good for the company, or it isn’t. Either companies benefit from racial or gender preferences in employees, or they don’t. Either bakers benefit from turning away paying customers who want cakes, or not (without discussing those rare cases where someone wants to force the baker to bake a cake with a hateful message on it).

If you believe that corporate decisions made by bigotry are good for companies, then that would seem to justify laws to ban it. Well, it would justify it if you believe that the proper purpose of law is to force people to act against their own interest for the sake of someone else’s good…

…Wait, why is it in the interest of employers to fire the blacks (to name one legally protected group)? If you want go there, then realize that there is no way to make this case without promoting overt racism. Think about it. Take as long as you need.

Perhaps you believe that corporate decisions made by bigotry are not good for companies. Then why the need for a law at all? Do you seriously argue that people need to be forced to use cars rather than horses, to use computers rather than do their books using paper ledgers, and to live in houses rather than be exposed to the elements? Self-interest is its own motivator.

And if the purpose of this law is to help companies, how do you justify fining them, punishing them, and or even bankrupting them?

Antidiscrimination law is entirely uncontroversial. It’s universally supported by the Left, nearly universally on the Right, and even some Libertarians promote it. Yet it’s based on logic so flawed that in a rational culture that actually taught logic in school, middle school students would all be able to write essays explaining why such law is contradictory.

Everyone supports it, yet it’s simple to show it’s bad. Hmm, think about that for a while.

Regulation, Thy Nature is Flawed

Regulation has several inherent flaws.

1. One agency acts as legislative, judicial, and executive branch. It makes the rules, decides who is breaking them, and punishes offenders.

2. Regulation is based on the doctrine of prior restraint. Instead of retaliating by force against criminals, the government initiates the use of force against innocents–because they might commit a crime. So it criminalizes non-crimes.

3. Regulation forces businesses to prove a negative–often at great expense.

4. It ossifies the status quo. It is easy (well relatively) to get permission to do the same thing that everyone else is doing. Much harder to get permission to change how business is done.

5. It is an engraved invitation for cronies to use regulation and regulators to suppress competitors.

6. It gives the unscrupulous a place to hide. Bernie Madoff was highly regulated. Regulation didn’t stop him.

7. It prevents startups from forming in the first place (doubly so because raising capital is itself highly regulated, and startup founders don’t typically have the capital and legal sophistication to navigate the regulations).

8. Regulation makes it impossible to know in advance what is legal and what is not. This is because regulation attempts to control actions A, B, and C in an indirect way to prevent crime X. So it can make arbitrary distinctions between two essentially similar things–but one is illegal.

9. Regulation makes it illegal for you to do something that someone else can do legally.