Geopolitical Shock: Closure and potential mining of the Strait of Hormuz and multiple tanker attacks are disrupting flows, pushing oil back above $100 and highlighting elevated Middle East Conflict risk.
Energy Markets: The U.S. cannot escort ships, Saudis are rerouting via the Red Sea, and LNG lacks strategic buffers, reinforcing an Oil Supply Shock with immediate price impacts.
Agriculture Inputs: A petroleum-linked feedstock for fertilizer is constrained, with fertilizer prices jumping by hundreds of dollars, signaling a deepening Fertilizer Shortage.
Food Inflation: Higher fertilizer costs during spring planting raise global input costs, implying months-later Food Inflation and potential shortages, especially in developing markets.
Financial System Stress: Non-bank “run-like” redemptions and reported withdrawal limits (e.g., at Morgan Stanley (MS)) plus asset-manager pressures (e.g., BlackRock (BLK)) point to mounting Financial System Risk.
Central Banks: With deficits surging and war costs rising, pressure mounts on the Federal Reserve to pivot toward Monetary Easing, balanced against stubborn inflation; the ECB is also signaling tightening concerns.
Overall Stance: The discussion highlights systemic risks rather than specific stock picks, focusing on energy transport, fertilizers, and financial stability as key areas of concern and potential volatility.
Transcript
Welcome back to the Power Market podcast. I'm Ryan McMon, editor-inchief at the Mises Institute and joining me today are two of our contributing editors. We've got th Bishop, we've got Connor O'Keefe and uh we we got to talk about a little bit about at least the home front as related to the Iran war. It is shocking that we're back here talking about this um because Trump has declared that the war is in fact over and the United States won. But it seems that there's still some things going on. I don't know why the war is still in the headlines so much, but we'll talk a little bit about that and some of the effects of the ongoing uh excursion as the administration is calling it. I guess it's not actually a war. Uh so we'll go into some of that here in just one moment, but first we got to uh mention our upcoming Mises Circle in San Diego. though. What's the deal with that? >> Yes. April 25th, we are heading to the West Coast in beautiful San Diego for an event dedicated to uh California's decline, a warning to America. Um, and we have just added in more content. if this was already on your radar now even more reasons to attend because speaking will not only be our own Ryan McMin and Connor O'Keefe but uh we've got Peter Klene senior fellow we've got Chris Carlton uh who's a regular radio Rothbard guest we've got uh Bill Anderson senior editor for misesus.org or whose uh columns are on the website every Friday. And also one of my favorites, Ed Fuller, who gave a wonderful talk last year on uh uh uh debugging some of the the Keynesian myths out there. He's got a lot of great research on Keynes's the man. Don't know how that's going to come up in a top the topic of California decline. Though there's certainly some Keynesian angles that you can add apply to the California situation, but it is going to be a wonderful event at the San Diego Mission Bay Resort again on April 25th. If you want to attend for this great West Coast visit, you can find out more about this and all of the events we've got set up for the rest of the year at mises.org/events. And for listeners, we will not have an episode next week because one of those events is our Libertarian Scholars Conference and Austrian Economics Research Conference. So, expect contents from that event filtering into to your feeds after the event. But guys, guess we're not going to be getting to Power and Market next week. And though we'll all be together in Auburn, Alabama watching a little bit of March Madness and everything that comes with uh with March. >> Yeah, we'll be of course attending the event. Um, but you'll have I mean our readers will have plenty of content then to consult after that event is over because we'll have several keynote talks including my own. I'll be giving the Ralph Reiko memorial lecture. >> Yeah. >> Uh there at the conference. >> Yeah. >> Yeah. Hopefully hopefully it all turns out well. >> So let's uh talk about the effects of the ongoing conflict in the Middle East. And I think really the largest issue here is the closing of the straight of Hormuz. Uh which I don't think had happened yet by the when the last time we were talking. And um well I guess the latest development there is that they're talking about mining the strait now which is a an escalation. Uh whether that's actually occurred yet has not been clear. But what escalation has happened is a couple of things. First of all, the United States Navy has made it clear that they are not available to escort ships through the straight. So, US ships simply aren't going through. And there have been some attempts and there have now been what I see is I suppose six attacks now on tankers that have attempted to go through the straits and this has just jacked up the oil price even higher. So, PE So, there have been attempts to go through the straight. This has resulted in the destruction of even more oil infrastructure and uh this morning at least the price of oil was back up a uh above $100. Now that is shocking in the sense that over the last few days uh international organizations have committed to releasing uh unprecedented amounts of stockpiled oil into the market in order to bring prices down. And prices have barely on that time at that day when they actually announced that under normal conditions the price of oil would have plummeted but it moved down a few bucks and then of course now is well above that uh especially uh now as more oil tankers burn in the Gulf. So this has been a big issue and uh is likely to continue impacting the US economy and the political system overall. uh and so at this time I don't think we're going to focus so much on the larger uh militaries tactical issues. I think we'll leave that for another time. But certainly looking at uh the US political situation and looking at the larger global economy as it relates to this situation. Uh that's that's going to be a big deal even if hostilities were to end right now which they're clearly not doing. Uh so Connor, what is the what's going on here? What how is this going to end up impact impacting the US and the the whole global system as long as the straits stay closed? >> Well, dramatically. And and to your point, even if this is magically going to tie up right now, the a lot of the infrastructure moving product through uh the these straits, like it would take weeks, in some cases months to um kick it all back up to the the normal levels again. So, we're definitely going to have some global impact on supply here. It's just a matter of how long um does it take for hostilities to calm down to a point where that starts to go away. And yeah, that's an important important point too is that a lot of people are focusing on oil here, but that's only one component that's at risk right now. And some people are starting to pay attention to other ones. The the one that's kind of going viral, at least as I'm seeing it right now, is fertilizer. that uh there's a tremendous amount tremendous amount of the world's fertilizer is dependent on trade that goes through the straits of Hormuz and I guess it's specifically I'm forgetting the exact uh component but there's a component that's basically a petroleum product that is necessary for fertilizer and already we're seeing uh fertilizing fertilizer prices rise dramatically. I think that they've gone up hundreds of dollars in the last week. And that's that's another huge supply shock that is on the horizon. And it's a little different because with oil and LG, the kind of the two big energy uh products that are being really disrupted here, the the effects are pretty much immediately. Price of oil is going up a lot. The price of LG, I haven't been following that as closely. I assume it is. It doesn't really have the the backs stop that oil does. there's not a giant strategic reserve for LG and the I know the Saudis are uh pivoting a lot of their oil to go out by the Red Sea right now. There's not really a version of that for LG. But my point is with energy the the effects are immediate, but with something like fertilizer that is impacting the agricultural markets worldwide right now. the spring planting season that fertilizer is needed, but it's basically just jacking up input costs for food production and going to result in food shortages. And I think um so we're we're seeing energy disruption right now, but that's this the food disruption is going to happen probably months down the the line. And it's going to be I think in the developed world higher food prices. But I think like because it's a literal shortage for a lot of the developing world we could there's if this goes on for a long time there's real famine potential here when we're just talking about food shortages. It's really it's why free market economists are always talking about how complicated the global economic system is and how like there's just all these components like you know you kind of go back to like the Thomas Soul like basic economics um insight that it is an enormously complex system that no one entity could plan and it's just happening automatically. But when things like this happen, you start to get some insight into just how complex this is and how you can't really just, you know, put your foot down and say, "We're going to stop all the trade here." And there's just so many unforeseen consequences. Another one is helium. I was reading about that today. It turns out like a bunch of the world's heliums coming out of Qatar. And that's really important for things like semiconductors. So like there's all of these second order effects. We're just starting to get an understanding of um what that may look like. Of course, the big question mark is how long is this going to take? Um, but yeah, it's just it's it's dramatic. And I guess what I just keep coming back to, the thing that I can't really get past is that none of this was unpredictable. Like this is what people that were advocating against this war were talking about tirelessly that if they really go after Iran, they will probably close the straight of Hormuz. And that will have huge implications for the global system. And just a little side note too, as uh some people have been noting, the the Iranians have actually upped their oil exports through the straight of Hormuz. So they're exporting more than they were before the oil before the war. So really, I think the the way to actually characterize this is that the Iranians didn't close the straight of Hormuz. They're just demonstrating that they are the ones that control it. And there's just a it's just an interesting thing because as an American, I'm not used to there being like a region on Earth that the US military really wants to control and they just can't right now. The tankers are not even going or the the Navy is not even going close here because they realize that that would be very dangerous. And I just think that's kind of an interesting thing. And I feel like so much of this from Trump's perspective seems to be about flexing American strength. And I think that this is really showing American weakness or at least the limits of American strength. So yeah, there's so many angles to the story and it's crazy, but the the ramifications are already going to be huge and if this drags on, it's just it's it's almost hard to imagine how how bad it can get. >> Well though, why isn't the government will the US government why aren't they taking back control of the straits? Like are there I mean clearly if they wanted to they could send in enough ships and personnel to do it but that would seem to have some political downside to it. I mean there's a there are costs to doing that sort of thing. >> Absolutely. And I think Connor hit the nail on the head when he talked about the limits of American capacity at this point. Right. You know the American military is designed for traditional warfare. It's designed for blowing up traditional military installations, ships, things like that. America's been very good at that. You know, we torpedoed a ship for the first time since World War II, right? You know, the the shock and awe component of traditional warfare. Iran is no competition, no match. And that has all gone, you know, according to Trump's plan. The issue is the the asymmetric component of modern military warfare. And this is something that you know Eric Prince you know of Black Rock of Blackwater fame not not to confuse with Black Rockck those two very different entities with their own patterns of destruction in the past. Um but uh you know this is something he has talked about to to a great extent on just how far behind America's industrial you military industrial capacity. You know it's it's it's prepared for the wars of the past and not prepared for modern warfare where it's cheap drones with dumb bombs that can do significant damage and particularly when you're dealing with uniquely vulnerable assets such as commercial vessels going through the the straight here. Um and and this also plays into the weaknesses of the Trump's administration's public posturing of this conflict. Uh you going back months now. I mean you had you know various people in the administration when when this has been brought up when concerns about military escalation and attacks in Iran were coming out. They would point to oh well look at past June during the the 12 days war which we've now exceeded in this conflict. um you know, oh well, you you saw a slight tick up, right? You know, you you had kind of a global, you know, risk premium for a short period of time, then went down because Iran was a paper tiger. Nothing do you see here. Well, this is a very different situation. This is a fight for survival of the of the the Iranian regime. They are doing things they were not doing the first time around. Um, you you've got the cardboard cutout of the Supreme Leader going around, which I think is very symbolic because, you know, effectively he is a standin for the Iranian revolutionary guard more so than the the old school clerics, which has itself very radical, you know, the potential for radical ramifications for what a a postconlict regime looks like there. And they're clearly willing and and leaning into their asymmetrical capabilities utilizing, you know, economic warfare. And this is a massive vein for for economic activity. you the the the lingering consequence. I mean, we're still just dealing with the short-term shocks. You know, oil, I think, is what, over $100 again, right now. Um, you know, the only reason it's not higher is, you know, I think some inherent belief that, you know, this is going to be wrapped up soon. There'll be peace again shortly, yada yada yada. Um, you know, but we we'll see if that, you know, if those offramps really exist. you know, the the offramps at this point, Iran's ability to inflict damage here means that they do not have to settle, you know, for just, you know, American operations ending. They can continue this theoretically and create a massive issue for for for weeks that would have catastrophic damage um for for the reasons that Connor illustrated there. So again, this is a combination both of again, I I think the there was a massive blind spot in the administration learning the wrong lessons from last year, overestimating the capability of the projection of American power to bend Iran to to its will, and then a large systemic problem with the way that, you know, Washington has invested in America's military capacity for the new age of conflict and combat. And I think that is a you know you know that's that's a that's a major major thing um that obviously not only Iran sees but you know other actors around the world see. Yeah. The and when I say of course the United States could physically do it that I need to qualify that and make sure that what I'm saying here is that yes the United States could double its defense spending. The United States could mobilize on a military footing. The United States could institute a military draft. And of course then it could at the cost of many thousands of American lives take control of the straight of war moves. The question what's implied of course in that is could the United States regime do that without uh cultivating mass resistance within its own population. That's the restraint on that. Of course, tactically, all all else being equal, the US regime could seize enough resources to carry out a seizure of the straight of Hormuz to uh conquer vast portions of land. The thing is is that all comes with huge human cost as well as political cost to the regime which is very sensitive to that. Actually, they don't care about elections very much because they control who gets elections. But they do care about people turning violent about people learn losing uh their idea of legitimacy with the regime because look what happened to the Soviet Union from that. We know what happens when the state loses legitimacy and it doesn't have to have anything to do with elections. So that's the sort of thing that can cost a regime significantly in these cases. And yeah, and as th points out, right, there are significant political limitations on this. I mean, just I think as one illustration of this, I I think we could do a little side quest on this is uh what do you think the odds are that the regime is going to reinstitute a military draft? This uh has come up a few times and uh it's been in the news because uh Congress with their new NDAA >> uh legislation decided, oh, we're going to we're going to work on by December 2026, we're going to institute this new automatic selective service registration. So now everybody will just automatically be registered for the draft and >> more convenient. Ryan, >> it's it's >> customer service. >> I can see some crackpot beltway libertarian saying, "Well, the important thing to do is to lower transaction costs, and this lowers transaction costs." >> Uh, those people, they love big government as long as it lowers transaction costs. Uh, and of course, that's that's the idea here, right? Is the state loves low transaction costs when it's running everything. And yeah, so now everybody's signed up for the selective service. Uh Levit, Caroline Levit goes on asked, "Hey, a lot of moms are worried about uh the military draft. Are you going to use the military draft?" She says, "Oh, we're not leaving anything off the table." Which of course was immediately interpreted as sure, we're we're keeping our options open for a military draft. So, what I mean, clearly the regime wants that option, but what are the odds of them being able to pull that off? Um, now historically, it was a new thing they introduced with World War I. You would have thought they would have gotten a lot of in uh yet they had a sort of draft during the Civil War that was easy to avoid and you could pay for substitutes, all that, but the first real draft the way we know of it was a World War I invention and everybody was fine with it, you know, except for the minority of anti-war activists. So, I don't know if the war gets bad enough, will America decide, yeah, I would love to send my one son to go die uh in Western Asia. Uh so let's let's uh let's handicap what what do you think are the odds of that happening Connor? >> Well, the way I look at it is um I am concerned about that for sure, but I think there there are a lot of steps before we get to that point. And so if we start crossing some of those steps, then I'll get more concerned. Um so it's not something that I see as imminent, but there's sort of an interesting dynamic with the draft. um to your point like you have to for for the whole population to be mobilized there has to be a enough of a sense that this is a war that's worth fighting like they there needs to be um people need to be willing to go over there and I think in the world wars you sort of had that part more of the the culture um certainly in the terror wars because you had 9/11 they didn't need a draft people were were signing up and enlisting to to go fight and so there's sort of a interesting dynamic where the if you have to draft people for a war. By definition, the population is not on board with it because you have to force them to to go. Um but then at the same time, they can't be so against it that you're going to get like a revolution at home if you institute the giraffe. So there's sort of a narrow um corridor that I think uh they have to be operating in. And I'm I'm definitely worried about that. I did write a few articles about this years ago that this was a this was a concern to me with the Ukraine war that essentially both sides were conscript armies. They were both using the draft and nobody really seemed that concerned about it. I mean obviously the Russians were on the other side, but we were supporting the Ukrainian army doing that. We had our lawmakers were trying to get them to lower the draft age to get to send younger men out uh to to the front line and there was just not that much criticism. So, I think the mindset that allows something like the draft to exist still exists here in the United States. So, I do worry about that, but it's it's not um something I see as a very imminent concern that you know at the moment. >> Yeah, I it's it's interesting because it's it's the classic Trump tactic of usually more applied internationally, right? where it's like, you know, they're threaten using MOABs over here and then like and then while simultaneously like praising how handsome the the leader of the country is trying to be threatened of you like within the course of like, you know, the same press conference and and here you like again like bringing up the draft which is extremely dumb just from a rhetorical standpoint, you know, about 12 hours before Trumping Trump talking about the war being basically over. You know, I don't think that's, you know, a realistic possibility within this conflict, you know, before we even have have boots on the ground to begin with. Um, but I I do think it's interesting though because, you know, this topic in general really touches on I think one of the undercurrents that are clearly at play here when you look at the polling. Um, but I think really is increasingly a defining characteristic of the American political system as a whole, which is just the generational tension, the complete generational disconnect. Um, you see it on on in both parties as well, right? Like Boomer Democrats and Zoomer Democrats, very very different. Boomer Republicans and Zoomer Republicans, very very different. And I think this this war is about as popular with you know generation Z as Jeffrey Epstein is. Um so like you know in order to get them you know in order to get any sort of significant buyin from younger Americans you know the only way they could do it is with force. And I think that that you know that that would be striking right at the cord of complete illegitimacy um you know and some of the the more the very very systemic sort of threats that I don't think would be unraveled here. Um but again it's just wild just from a public posturing standpoint. I think that's one of just the the the really just underlying challenges and and you know from a you know from those that that do not want Washington to be very aggressive like that the lack of communication strategy and cohesion is is an asset to it to that right it's this is a lot different than you know everyone being on board with going in Afghanistan or bombing Iraq you know back in the when when cable news was the dominant form of news consumption um it's just you know I think I I it's difficult to even imagine any other scenario conflict like short of, you know, red dawn style invasion um that could ever get the sort of levels needed to have a a full mil full buyin of a military operation. Um and and this this conflict right now clearly, you know, is not doing that. And and that's that's before the true weight of, you know, some of these economic tailwind risks. Um you know, it's it's one thing to have gas at, you know, 315 a pump. It's another thing if you know for if we're looking at this sucker in two weeks or four weeks from now and it's you know four five $6 and and people are really starting to panic. >> Yeah. I just wanted to emphasize one thing you said Connor which I don't think gets said enough which is that if you need a draft that is just evidence that there isn't actually the public support for your conflict that you say there is. because it what it means is that when the rubber hits the road, people aren't willing to give the state what they demand for the conflict. This has just always been true, they resort to a draft when they don't have enough uh public support or enough public willingness to be personally involved. So what do they do? They just steal it. They steal your sons. They steal your time. They steal your output. Uh so a draft is always essentially in a way a indicator of domestic political failure that the regime has failed in some respect but they're they're able to often get away with uh kidnapping these people and forcing them to fight um because enough of the population falls for it or they just straight up people feel resigned to just doing what they're forced to do or they face imprisonment. But I mean obviously we would have to note Congress I mean if if Trump tries to unilaterally instate a draft that'll be in lawsuits forever. Uh because Congress will uh start pointing out that uh since when do we have military drafts without Congress uh signing off for now? I have no doubt that the Republicans in Congress would love to just sort of uh give the presidency the new power to determine for itself uh the the military draft, but um he's the clock's ticking on that anyway until election day this fall. >> Well, it's quite crazy like seeing like Lindsey Graham. I mean like I mean I get it's Lindsey Graham so it's like low hanging fruit and whatever. Like I mean assume the most absurd thing ever and then just you can you can probably realistically attach it to him. like the comments that he was making on on Fox News about how like, you know, how how excited he is to send like people from South from South Carolina to go, you know, fight foreign wars and things like that. I mean, it's just, you know, it's it's it's peak absurdity. And at least luckily, at least rhetorically, Lindsey Graham is an outlier in how explicit that sort of rhetoric is. It was a little bit different back in the the Bush days. Um, policy-wise, right? I mean, you don't expect, you know, any sort of uprising from Congress that to change anything from a voting perspective, but at least in rhetoric, you know, Lindsey Graham out there is is pretty up and beyond most other members and just the the the absolute insanity of the sort of rhetoric coming out around this conflict. >> Well, it seems also that uh this could not have come at a worse possible time in terms of the larger economic context that we're now under. Right? It would have been one thing if this was occurring during an economic boom and I think to some extent George W. Bush was able benefited from the fact that the US was already recovering from the 2001 recession. A lot of that was just due to uh the Greenspan put and Greenspan's deliberate effort to blow up a housing bubble to just as monetary and economic stimulus. Uh by 2003 2004 that was humming pretty well. that new um that new boom that was occurring at the time. Trump has nothing like that going on under the current situation. The economy is clearly on the downs slope right now. Uh looking at the jobs report, right? We I think we sort of mentioned that last time, but it was very bad. It was 92,000 jobs lost in February, December. Jobs were lost as well. January was revised down significantly and then when you looked at average job gains it was a poulry 5,000 or so jobs per month which is really quite terrible. And so there was a consensus that the job report was awful except maybe among Trump's most uh ideal ideologically motivated supporters. And so you've got a worsening job situation. the the new uh CPI data just came out and nobody believes there is a slight downward trend there, but everybody expects that to reverse itself significantly in the near future. Not to mention that the uh producer price index from this last time, the most recent available data on that was a huge spike. Nobody expected it to go up that much. So, there's a a whole bunch of inflationary pressures uh in the economy plus job losses. And then uh just the other day the new Treasury data came out uh showing that the United States is way ahead of last year in terms of its deficit. The they've barely they haven't even calculated in the war cost yet. And the United States is burning a huge deficit, the biggest we've seen since co end. And if the way it's going, it will top everything we've seen in terms of annual deficits except maybe uh fiscal year 2020 or so. It's the absolute worst year ever. But we haven't even seen uh the real effect yet, right? Because if you look at what the war is costing that start, they started out saying, "Oh, it's a billion dollars a day." That got quickly increased to about $2 billion a day. And that doesn't even take into account a lot of the lost infrastructure and just the general disaster that's unfolding. That's just the actual new spending that's taking place. So we are looking at some of the worst deficits ever, just crazy federal spending, and we haven't even seen the full impact yet of it in the March numbers. So it's really quite remarkable what the United States is doing in terms of new spending. So that brings us then to a big important question. We we looked at job losses. We looked at inflation and we looked at mounting deficits to unprecedented levels. So, where does the central bank fit in to all this? It seems like something's going to happen. I've been shocked at how little the central bank has has been mentioned. Uh, not a whole lot yet. Oh, and before we get to that, just want to mention that there seems to be an unfolding financial crisis. Also, we see in private equity and and among investment groups like uh Black Rockck, not Blackwater, um Morgan Stanley today, they're starting to limit withdrawals because uh investors are coming and they're trying to take their money out because they're seeing major problems in the economy. So, uh it's this is this is kind of like the non-bank version of a bank run in many ways. And this is occurring in it's kind of a surprise to many people. This is this does not occur under normal circumstances. So that just points to another layer of economic trouble that the US is facing. And so you you combine all that economic trouble with mounting deficits. Uh what do they what's the Fed's next step, Connor? What surely even though they haven't mentioned it much there you're going to start to be hearing uh calls for the Fed to do something. So what's it going to do? >> Yeah. Yeah, you laid that all out well. And I I think like the the mantra that I will probably be repeating over and over, I will probably write half a dozen articles um just making this point if this war continues to drag on for a while, is that the economy was already not strong when this war started. I think as I see it, there's sort of two false narratives that could really take off. There's the Keynesian view that like, oh, hey, we have a new war, so that's going to be good for the economy. is going to stimulate a bunch of economic activity. I don't know about you guys cuz I haven't seen that anywhere. I don't see anybody making anything like that point, which is good cuz it's completely wrong. Um maybe if we get into a recession, we can start seeing some people talking about how, you know, rebuilding all these stock piles would be good for manufacturing or something, but nobody really seems to be talking about that. I think the other false narrative that will quickly start taking root here is that the economy was pretty much fine and then this war started and so any economic pain of any kind that we see going forward will be blamed on this war and I so I that's I think a um that's a point that I will be arguing against a lot because it's really important to realize that no it's it was not a healthy economy it's not like everything they have been doing up until this point you know we talk about like the covid recovery and the years since then was fine. Um and then this war just happened to break off. Trump went crazy, started this war and that ruined the economy. Like no, there were serious issues with the amount of money they printed. Um all the structural issues uh basically are have put us in a position where there's like it's almost like uh a bunch of fuel and then yeah, maybe this this war is the spark, but um no, there were deeper things happening beforehand. But yeah, specifically when it comes to the Fed, I think um sticking with my fire analogy, we we've been talking about um I've kind I've called it a minor stagflation situation we've been in where um they're calling inflation stubborn, I think is the word they're using, that it's taking a long time for it to get down to the uh 2% level that, you know, they're targeting here. So they've been uh a little bit apprehensive about cutting rates, but at the same time, there have been some concerning developments with the jobs numbers and economic growth coming down. So that was already happening beforehand. And I feel like everything we've talked about so far with the war, the the war is kind of an accelerant. I think it it accelerates all the dynamics where we were talking about there on that, you know, the economic growth side of things, all of the the supply shocks are going to really impact that, but also the pricing in terms of price inflation. Uh, of course the Fed will they'll be happy to have this new thing to blame on any price inflation that comes about, but as I see it, it's kind of a uh a mystery right now which side of their dual mandate gets worse first. But I think that will be uh what that will be the factor that'll explain the Fed's behavior. If inflation really starts going crazy for some reason, they'll they won't cut rates um if that's the big thing everybody's talking about. But if some of these other economic issues start really falling apart, um talking about like the financial industry, uh employment, like any any of those things, if something goes there, as long as inflation's not spiking, which I don't I don't think it'll spike here. We as Austrians, we talked about how it's a monetary phenomenon at the end of the day and supply shocks is a little bit more complicated, but um and from my perspective, it's kind of about which one goes first. I think they'll uh they'll then move forward from there. It's not obvious when that'll happen, how long it'll take for these effects to to take hold, but that that's my long-winded way of refusing to answer your question. I don't know which one they'll do. It kind of depends on how things play out. >> Well, it's interesting for the Trump administration. One thing they've been able to hang their hat on, right? And and I think this this has had, you know, significant impacts in the global economy and help offset some of the costs and tariffs and things like that is, you know, oil prices dropped pretty quickly and pretty significantly after Trump took office for, you know, obviously drill baby drill style policies and and and a major point of emphasis. You oil prices has always been one of the the things Trump likes to point to and obviously what is affected most by this war oil prices, right? Um and so so you that is a a major stress point there, but also of course this is a global crisis in in this regard, right? And so right now you've had um you know looking at central banks outside the Fed um you know there's a lot of reporting over the last couple days about the ECB looking to increase um interest rates there out of concerns uh addressing inflation pressures coming forward um you know consumer price inflation you know going forward um and you know you know one of the accelerants of a global financial crisis is high debt levels and of course you know we have been in an abnormally high debt situation for quite some time. And the more debt out there, when you have a rush to save assets, right? When when people are taking their money out of accounts, when people are are removing it from credit markets, then the stress that puts on these, you various areas of the economy that are saturated with debt, all of a sudden you they they start dealing with calls that they were not expecting to. I mean, this is I mean, you know, this is a a a black swan type event um that is going to challenge a a number of financial markets. And you know once you start once things start breaking you have a butterfly effect that can offset all sorts of different ways and then I think particularly within Europe particular with some of these other economies that have been getting away with policies even worse in the United States for quite some time. Um you know this is a a a very real stressor. Um and so again the qu the ultimate question is how long does this last right and that is the question that no one can answer. Um but again the economic blowback um and this is this is part of Iran's you know strength here is that the economic fallout that has nothing to do with bombs in the ground that has nothing to do with political leadership in the short term that has nothing to do with the the areas that are within America's you know capability to control this is a uncharted territory and nobody was you know nobody had this forecasted in no none of this was baked in to projections when we started this year. Yeah, I think they're going to ask the Fed to inflate. Um, now a lot of people have pointed out, hey, the the Fed has to deal with both inflation on the one hand and they also need to maximize employment, right? Because the Fed has the famous dual mandate. Actually, it's a triple mandate because they're also tasked with uh uh stable interest rates over time. Uh but what normally people don't forget to mention is that the Fed has a very important responsibility to the regime, not to any sort of economic policy. Just that when the regime has huge debts and that in turn as you're just churning out hundreds of billions of dollars of more debt that is going to raise yields because you make more of something, the price goes down. So the price of bonds go down, the yields are going to go up and then that's just going to lead into crippling expenses on a monthly and annual basis in terms of uh paying your interest on the debt. So the Fed is a very important role in driving interest rates back down to finance more spending, usually war spending. So it looks like you have something to add on this. >> Well, usually you don't have the you don't have the president trying to arrest the Federal Reserve chairman. Like let's not forget let's not forget that that Jerome Pal is still, you know, under under some semblance of federal investigation. And so like this is this is a whole another crazy town. Like this is this is this is a whole different dynamic. And so congratulations. I mean we might have the most independent Fed share of all time. It just that's just what happens when you have criminal criminal charges swinging over ahead. Um but yeah and and the bill the real telling point will be like if those if if if you start getting a New York Times report it's like oh well you know the DOJ has investigated and cleared pal of charges then golly gosh darn things might change very quickly that that is that is one of the real interesting indicators out there how the administration you thinks this war is going to go >> to to use a meme um that I see on Twitter the the department of justice has a chance to do the funniest thing ever which is to just suddenly absolve Powell of everything so that Powell can go full boore on supporting the Feds with low interest rate policy. >> Well, I suppose the flip side is like your Blackhawk helicopters coming in and extraditing Powell, you know, Maduro style. So there there's there's two possible outcomes here that could result in and federalism regime change in the short term. >> Now, we do have to admit, of course, that Powell has other uh interests that he answers to, right? Wall Street being a major one. Sure. And Wall Street's going to want its lower interest rates. Uh there's no doubt about that, especially as we're looking at increases of redemptions with these these private investment funds. Uh that high interest rates don't help that. And so I think you're going to see more and more pressure on Powell to drive down interest rates just in general. But its primary job is to drive down interest rates so treasuries don't see high interest rates. And this isn't just the Fed. This is all central banks exist to make it easier for their governments to borrow and most especially in wartime. And so I while yes, you're going to see the Fed ringing its hands and say, well uh we we have to consider both employment and we have to consider inflation in the end though. They're going to say now maybe they'll be slightly less cooperative because Trump is so antagonistic toward them. So maybe he won't get as much as he wants. Uh but considering all the other pressures that can come down on the Fed in order to help finance more war spending, I think you're going to see just a renewed wave of pressure for lower interest rates, especially in order to help treasuries. >> And also just worth mentioning too is that with within this broader context of the financial and and banking situation, the context of the war, u you know, banks are now part of the battlefield as well. Um, and so independent of your specific central banking moves, um, you know, America's already, you know, gone after Iranian banks. Iran is threatening to go after American banks, you know, whether it's cyber or whatever. Um, you I'm not expecting, you know, necessarily a drone heading to the Fed anytime soon. Um, don't want to give any of our listeners any ideas there. Um, but uh uh but but it that is another component though of modern warfare is that money and banking, the financial system, you know, is part of a military conflict. Um and you know obviously Iran has been you know they got the Russia treatment long before Russia ever did in terms of global finance pay you systems things like that but it's just that's something else to mention within this context. >> Well and in this war specifically Iran's whole strategy seems to be not economic in means but economic in ends. They're they're basically trying to make this as costly of an operation as possible for the West so that um the US doesn't just try to do this again in you know 4 months when they're building missiles again. So yeah, this seems to be their explicit goal and it's kind of a um it's an interesting dynamic of it is that they're obviously Iran is not doing well. They're getting bombed uh dramatically right now, but the econom economically they are kind of cut off from the rest of the world by design. they they're they were basically um sanctioned heavily by the US and so if the global economic system starts to falter that doesn't really impact them as much as it does most other countries. So that's an interesting component here too. But I I guess I keep coming back to thinking back to how we've been talking about the Fed and especially focusing in on that political angle. This is what I've been saying for months now is it feels like the Fed is trying to act like everything is calm right now so that when Trump gets his Fed chair in, you know, they can be like, "Oh, Trump is the reason that everything's going crazy." But I think the the big reason for that is because they didn't have an easy thing to blame any potential recession or economic problem on because things, you know, they were all under Biden and Pal and everybody like the the adults were in the room a few months ago. Um, and I think with this war, they Trump just handed them this easy thing to uh to blame everything on going forward. So, I think the the Fed is in a better political position now than they were before the war to kind of bring it back to a broader topic we've had on this show. >> Well, I think that's probably a good place to go ahead and wrap up this episode. I mean, it's all just so fast moving. I mean, we're just going to have different questions, different things to say here in a couple of weeks. So, uh, we'll go ahead and let that be the final word for this episode of Power and Market. Uh, and the >> Ryan, before we go, any sneak peeks from your, uh, your talk at the Libertarian Scholars Conference? >> Uh, well, I'm I'm trying to address the issue of, uh, the failure of the liberal program versus the failure of the liberal worldview. That's an important distinction. They >> uh, I I see people saying, "Oh, liberalism failed." they mean classical liberalism, right? Because they look around and they see that classical liberalism doesn't have uh some answers in terms of its program to problems related to democracy and that sort of thing because in the 19th century liberalism was really pro-democracy and stuff. Uh but we need to make a careful distinction between the liberal worldview and the liberal program which are really two different things. And boy, obviously the liberal worldview has not failed. It's more timely than ever. it's uh more important than ever and it really offers I think some of the uh some of the most essential insights about the nature of the state. So that's uh I think um a a a look at what's coming up from there. And then you won't be shocked to find out that actually there's another side of liberalism that is uh the more hard-nosed the more realist that favors things like secession and uh really opposing states wholeheartedly. that offers us some insights and a real way out of the current problem that we have. Um, but I haven't I'm not quite done writing it yet. >> Can I can I say something controversial? Uh, I want to share perhaps my least favorite Mises quote, but it kind of touches on that. Um, so he's got a quote in um anti anti- capitalist mentality, I believe, but it's a capitalism needs neither propaganda nor apostles. Its achievements speak for themselves. capitalism delivers the goods. And it's like I I get what he's saying, but like for for for a pro-democracy guy, he's like capitalism needs the propaganda. Like we we we absolutely need the banners and the all all the permanent like we have to keep constantly reminding the public about why capitalism delivers the goods. You need the you need the good propaganda machine there. That's one of the my one criticism of Mises is is that quote right there. Well, he says the opposite of that in many other places, saying that we have to fight the battle of ideas and people will tolerate whatever they think the state uh is doing uh if they don't have a proper understanding of how the state works and all of that stuff. So, yeah. Uh well, in fact, uh sort of the motivation for for this was a great 1994 article from Ralph Reiko. It's called Mises on Let me see, I got the title right here on my desk. Uh Mises on fascism, democracy, and other questions. One of which is immigration. uh where Reiko wants to address some of these holes in Mises's thought obviously in a spirit of respect toward Mises's work but but Reiko looks at some of these things and he says look at this like Mises I'm Mises has no answer to XYZ if you look at his political theory and so Ralph has some some nice discussion there and that's where he starts talking about the Italian elite theorists and all of that sort of stuff like look uh the Mises's democratic leanings um really offer no actual solution to the problems that we now face from democracy. So uh yeah, you can point to quite a few Mises quotes actually that uh are problematic in this realm. None of this of course calls into question Mises's prowess as an economist. That is like I think unassalable. Uh but that's a different realm of his work. >> Yeah. And uh Connor, you're you're presenting a paper, right? >> Yeah. I'm co-presenting a paper with Joshua on where where we named the concept interventionist non-interventionism. So uh basically it's our attempt to bring the whole concept which is often called anarcho tyranny into Rothbart's uh framework typology of interventionism. So we're uh trying to trying to start simple um with just using power or mainly using power market but we think it's a um it'll be a useful uh concept to define because it's it's very relevant like like I'm giving my the talk I'll be giving in San Diego is about wildfires and like that's an example there where the government basically takes over all of this land prevents anybody else from doing anything and then they just do nothing to it. there's no forest management. And so we're arguing that by doing nothing to this land that they monopolized and, you know, raised taxes to maintain, um, they're creating a very dangerous situation. And that still is the government doing something. Um, and that we we think that that you can read that or you can infer that concept from a lot of Rothbart's writing and Mises too. Um, and so we're just trying to basically um get the ball rolling with making it a specific topic that can then be used more in in scholarship directly. >> Well, we'll probably be coming back to these topics then um after the conference. We'll probably have uh >> more to talk about an upcoming podcast. >> Well, plus we got a big VIP coming, >> Dodto coming in from Madrid. >> That's right. the leading American pores, >> the leader of the Austrian school Spaniards. Yes. With who's produced what dozens of students over the years, many of whom are our have been our students, right? >> Yeah. So, I'm very excited for very excited for that. >> Yeah. I I don't think he's ever been to the Mises Institute before. So, that'll be that'll be something new and very interesting. So, yeah, of course, I'm looking forward to that talk as well. Now, that'll be during the Austrian Scholars Conference. Of course, this is this is a dual conference event. >> Yes. >> The you've got on Thursday the Libertarian Scholars Conference, which of course goes alongside the uh the Journal of Libertarian Studies, and then on Friday and Saturday is the Austrian Economic Research Conference. So, of course, you can come for both. Um but yeah, that that enables us to cover a wider variety of topics as well. >> I'm just excited. I've been able to work a sports economics paper into a panel on methodology. So I was talking about sports analytics and how it's it adopts an Austrian framework without knowing it. So we're we're going everywhere with with this event. >> Well, nobody loves a methodology talk more than an Austrian. So uh you probably have a pretty good audience for that. All right. Well, thanks you guys. Uh as I say, we'll be back next week. Well, not we will not be back next week here on Power and Margaret just because of uh the upcoming conferences. But I I I do not anticipate the war will actually be over uh in the next 10 days unless something really really changes. So, we'll be back in a couple weeks and we'll probably have plenty to talk about. So, until then, uh thank you everyone out there for listening and we'll see you next time.
The Strait of Hormuz is On Fire
Summary
Transcript
Welcome back to the Power Market podcast. I'm Ryan McMon, editor-inchief at the Mises Institute and joining me today are two of our contributing editors. We've got th Bishop, we've got Connor O'Keefe and uh we we got to talk about a little bit about at least the home front as related to the Iran war. It is shocking that we're back here talking about this um because Trump has declared that the war is in fact over and the United States won. But it seems that there's still some things going on. I don't know why the war is still in the headlines so much, but we'll talk a little bit about that and some of the effects of the ongoing uh excursion as the administration is calling it. I guess it's not actually a war. Uh so we'll go into some of that here in just one moment, but first we got to uh mention our upcoming Mises Circle in San Diego. though. What's the deal with that? >> Yes. April 25th, we are heading to the West Coast in beautiful San Diego for an event dedicated to uh California's decline, a warning to America. Um, and we have just added in more content. if this was already on your radar now even more reasons to attend because speaking will not only be our own Ryan McMin and Connor O'Keefe but uh we've got Peter Klene senior fellow we've got Chris Carlton uh who's a regular radio Rothbard guest we've got uh Bill Anderson senior editor for misesus.org or whose uh columns are on the website every Friday. And also one of my favorites, Ed Fuller, who gave a wonderful talk last year on uh uh uh debugging some of the the Keynesian myths out there. He's got a lot of great research on Keynes's the man. Don't know how that's going to come up in a top the topic of California decline. Though there's certainly some Keynesian angles that you can add apply to the California situation, but it is going to be a wonderful event at the San Diego Mission Bay Resort again on April 25th. If you want to attend for this great West Coast visit, you can find out more about this and all of the events we've got set up for the rest of the year at mises.org/events. And for listeners, we will not have an episode next week because one of those events is our Libertarian Scholars Conference and Austrian Economics Research Conference. So, expect contents from that event filtering into to your feeds after the event. But guys, guess we're not going to be getting to Power and Market next week. And though we'll all be together in Auburn, Alabama watching a little bit of March Madness and everything that comes with uh with March. >> Yeah, we'll be of course attending the event. Um, but you'll have I mean our readers will have plenty of content then to consult after that event is over because we'll have several keynote talks including my own. I'll be giving the Ralph Reiko memorial lecture. >> Yeah. >> Uh there at the conference. >> Yeah. >> Yeah. Hopefully hopefully it all turns out well. >> So let's uh talk about the effects of the ongoing conflict in the Middle East. And I think really the largest issue here is the closing of the straight of Hormuz. Uh which I don't think had happened yet by the when the last time we were talking. And um well I guess the latest development there is that they're talking about mining the strait now which is a an escalation. Uh whether that's actually occurred yet has not been clear. But what escalation has happened is a couple of things. First of all, the United States Navy has made it clear that they are not available to escort ships through the straight. So, US ships simply aren't going through. And there have been some attempts and there have now been what I see is I suppose six attacks now on tankers that have attempted to go through the straits and this has just jacked up the oil price even higher. So, PE So, there have been attempts to go through the straight. This has resulted in the destruction of even more oil infrastructure and uh this morning at least the price of oil was back up a uh above $100. Now that is shocking in the sense that over the last few days uh international organizations have committed to releasing uh unprecedented amounts of stockpiled oil into the market in order to bring prices down. And prices have barely on that time at that day when they actually announced that under normal conditions the price of oil would have plummeted but it moved down a few bucks and then of course now is well above that uh especially uh now as more oil tankers burn in the Gulf. So this has been a big issue and uh is likely to continue impacting the US economy and the political system overall. uh and so at this time I don't think we're going to focus so much on the larger uh militaries tactical issues. I think we'll leave that for another time. But certainly looking at uh the US political situation and looking at the larger global economy as it relates to this situation. Uh that's that's going to be a big deal even if hostilities were to end right now which they're clearly not doing. Uh so Connor, what is the what's going on here? What how is this going to end up impact impacting the US and the the whole global system as long as the straits stay closed? >> Well, dramatically. And and to your point, even if this is magically going to tie up right now, the a lot of the infrastructure moving product through uh the these straits, like it would take weeks, in some cases months to um kick it all back up to the the normal levels again. So, we're definitely going to have some global impact on supply here. It's just a matter of how long um does it take for hostilities to calm down to a point where that starts to go away. And yeah, that's an important important point too is that a lot of people are focusing on oil here, but that's only one component that's at risk right now. And some people are starting to pay attention to other ones. The the one that's kind of going viral, at least as I'm seeing it right now, is fertilizer. that uh there's a tremendous amount tremendous amount of the world's fertilizer is dependent on trade that goes through the straits of Hormuz and I guess it's specifically I'm forgetting the exact uh component but there's a component that's basically a petroleum product that is necessary for fertilizer and already we're seeing uh fertilizing fertilizer prices rise dramatically. I think that they've gone up hundreds of dollars in the last week. And that's that's another huge supply shock that is on the horizon. And it's a little different because with oil and LG, the kind of the two big energy uh products that are being really disrupted here, the the effects are pretty much immediately. Price of oil is going up a lot. The price of LG, I haven't been following that as closely. I assume it is. It doesn't really have the the backs stop that oil does. there's not a giant strategic reserve for LG and the I know the Saudis are uh pivoting a lot of their oil to go out by the Red Sea right now. There's not really a version of that for LG. But my point is with energy the the effects are immediate, but with something like fertilizer that is impacting the agricultural markets worldwide right now. the spring planting season that fertilizer is needed, but it's basically just jacking up input costs for food production and going to result in food shortages. And I think um so we're we're seeing energy disruption right now, but that's this the food disruption is going to happen probably months down the the line. And it's going to be I think in the developed world higher food prices. But I think like because it's a literal shortage for a lot of the developing world we could there's if this goes on for a long time there's real famine potential here when we're just talking about food shortages. It's really it's why free market economists are always talking about how complicated the global economic system is and how like there's just all these components like you know you kind of go back to like the Thomas Soul like basic economics um insight that it is an enormously complex system that no one entity could plan and it's just happening automatically. But when things like this happen, you start to get some insight into just how complex this is and how you can't really just, you know, put your foot down and say, "We're going to stop all the trade here." And there's just so many unforeseen consequences. Another one is helium. I was reading about that today. It turns out like a bunch of the world's heliums coming out of Qatar. And that's really important for things like semiconductors. So like there's all of these second order effects. We're just starting to get an understanding of um what that may look like. Of course, the big question mark is how long is this going to take? Um, but yeah, it's just it's it's dramatic. And I guess what I just keep coming back to, the thing that I can't really get past is that none of this was unpredictable. Like this is what people that were advocating against this war were talking about tirelessly that if they really go after Iran, they will probably close the straight of Hormuz. And that will have huge implications for the global system. And just a little side note too, as uh some people have been noting, the the Iranians have actually upped their oil exports through the straight of Hormuz. So they're exporting more than they were before the oil before the war. So really, I think the the way to actually characterize this is that the Iranians didn't close the straight of Hormuz. They're just demonstrating that they are the ones that control it. And there's just a it's just an interesting thing because as an American, I'm not used to there being like a region on Earth that the US military really wants to control and they just can't right now. The tankers are not even going or the the Navy is not even going close here because they realize that that would be very dangerous. And I just think that's kind of an interesting thing. And I feel like so much of this from Trump's perspective seems to be about flexing American strength. And I think that this is really showing American weakness or at least the limits of American strength. So yeah, there's so many angles to the story and it's crazy, but the the ramifications are already going to be huge and if this drags on, it's just it's it's almost hard to imagine how how bad it can get. >> Well though, why isn't the government will the US government why aren't they taking back control of the straits? Like are there I mean clearly if they wanted to they could send in enough ships and personnel to do it but that would seem to have some political downside to it. I mean there's a there are costs to doing that sort of thing. >> Absolutely. And I think Connor hit the nail on the head when he talked about the limits of American capacity at this point. Right. You know the American military is designed for traditional warfare. It's designed for blowing up traditional military installations, ships, things like that. America's been very good at that. You know, we torpedoed a ship for the first time since World War II, right? You know, the the shock and awe component of traditional warfare. Iran is no competition, no match. And that has all gone, you know, according to Trump's plan. The issue is the the asymmetric component of modern military warfare. And this is something that you know Eric Prince you know of Black Rock of Blackwater fame not not to confuse with Black Rockck those two very different entities with their own patterns of destruction in the past. Um but uh you know this is something he has talked about to to a great extent on just how far behind America's industrial you military industrial capacity. You know it's it's it's prepared for the wars of the past and not prepared for modern warfare where it's cheap drones with dumb bombs that can do significant damage and particularly when you're dealing with uniquely vulnerable assets such as commercial vessels going through the the straight here. Um and and this also plays into the weaknesses of the Trump's administration's public posturing of this conflict. Uh you going back months now. I mean you had you know various people in the administration when when this has been brought up when concerns about military escalation and attacks in Iran were coming out. They would point to oh well look at past June during the the 12 days war which we've now exceeded in this conflict. um you know, oh well, you you saw a slight tick up, right? You know, you you had kind of a global, you know, risk premium for a short period of time, then went down because Iran was a paper tiger. Nothing do you see here. Well, this is a very different situation. This is a fight for survival of the of the the Iranian regime. They are doing things they were not doing the first time around. Um, you you've got the cardboard cutout of the Supreme Leader going around, which I think is very symbolic because, you know, effectively he is a standin for the Iranian revolutionary guard more so than the the old school clerics, which has itself very radical, you know, the potential for radical ramifications for what a a postconlict regime looks like there. And they're clearly willing and and leaning into their asymmetrical capabilities utilizing, you know, economic warfare. And this is a massive vein for for economic activity. you the the the lingering consequence. I mean, we're still just dealing with the short-term shocks. You know, oil, I think, is what, over $100 again, right now. Um, you know, the only reason it's not higher is, you know, I think some inherent belief that, you know, this is going to be wrapped up soon. There'll be peace again shortly, yada yada yada. Um, you know, but we we'll see if that, you know, if those offramps really exist. you know, the the offramps at this point, Iran's ability to inflict damage here means that they do not have to settle, you know, for just, you know, American operations ending. They can continue this theoretically and create a massive issue for for for weeks that would have catastrophic damage um for for the reasons that Connor illustrated there. So again, this is a combination both of again, I I think the there was a massive blind spot in the administration learning the wrong lessons from last year, overestimating the capability of the projection of American power to bend Iran to to its will, and then a large systemic problem with the way that, you know, Washington has invested in America's military capacity for the new age of conflict and combat. And I think that is a you know you know that's that's a that's a major major thing um that obviously not only Iran sees but you know other actors around the world see. Yeah. The and when I say of course the United States could physically do it that I need to qualify that and make sure that what I'm saying here is that yes the United States could double its defense spending. The United States could mobilize on a military footing. The United States could institute a military draft. And of course then it could at the cost of many thousands of American lives take control of the straight of war moves. The question what's implied of course in that is could the United States regime do that without uh cultivating mass resistance within its own population. That's the restraint on that. Of course, tactically, all all else being equal, the US regime could seize enough resources to carry out a seizure of the straight of Hormuz to uh conquer vast portions of land. The thing is is that all comes with huge human cost as well as political cost to the regime which is very sensitive to that. Actually, they don't care about elections very much because they control who gets elections. But they do care about people turning violent about people learn losing uh their idea of legitimacy with the regime because look what happened to the Soviet Union from that. We know what happens when the state loses legitimacy and it doesn't have to have anything to do with elections. So that's the sort of thing that can cost a regime significantly in these cases. And yeah, and as th points out, right, there are significant political limitations on this. I mean, just I think as one illustration of this, I I think we could do a little side quest on this is uh what do you think the odds are that the regime is going to reinstitute a military draft? This uh has come up a few times and uh it's been in the news because uh Congress with their new NDAA >> uh legislation decided, oh, we're going to we're going to work on by December 2026, we're going to institute this new automatic selective service registration. So now everybody will just automatically be registered for the draft and >> more convenient. Ryan, >> it's it's >> customer service. >> I can see some crackpot beltway libertarian saying, "Well, the important thing to do is to lower transaction costs, and this lowers transaction costs." >> Uh, those people, they love big government as long as it lowers transaction costs. Uh, and of course, that's that's the idea here, right? Is the state loves low transaction costs when it's running everything. And yeah, so now everybody's signed up for the selective service. Uh Levit, Caroline Levit goes on asked, "Hey, a lot of moms are worried about uh the military draft. Are you going to use the military draft?" She says, "Oh, we're not leaving anything off the table." Which of course was immediately interpreted as sure, we're we're keeping our options open for a military draft. So, what I mean, clearly the regime wants that option, but what are the odds of them being able to pull that off? Um, now historically, it was a new thing they introduced with World War I. You would have thought they would have gotten a lot of in uh yet they had a sort of draft during the Civil War that was easy to avoid and you could pay for substitutes, all that, but the first real draft the way we know of it was a World War I invention and everybody was fine with it, you know, except for the minority of anti-war activists. So, I don't know if the war gets bad enough, will America decide, yeah, I would love to send my one son to go die uh in Western Asia. Uh so let's let's uh let's handicap what what do you think are the odds of that happening Connor? >> Well, the way I look at it is um I am concerned about that for sure, but I think there there are a lot of steps before we get to that point. And so if we start crossing some of those steps, then I'll get more concerned. Um so it's not something that I see as imminent, but there's sort of an interesting dynamic with the draft. um to your point like you have to for for the whole population to be mobilized there has to be a enough of a sense that this is a war that's worth fighting like they there needs to be um people need to be willing to go over there and I think in the world wars you sort of had that part more of the the culture um certainly in the terror wars because you had 9/11 they didn't need a draft people were were signing up and enlisting to to go fight and so there's sort of a interesting dynamic where the if you have to draft people for a war. By definition, the population is not on board with it because you have to force them to to go. Um but then at the same time, they can't be so against it that you're going to get like a revolution at home if you institute the giraffe. So there's sort of a narrow um corridor that I think uh they have to be operating in. And I'm I'm definitely worried about that. I did write a few articles about this years ago that this was a this was a concern to me with the Ukraine war that essentially both sides were conscript armies. They were both using the draft and nobody really seemed that concerned about it. I mean obviously the Russians were on the other side, but we were supporting the Ukrainian army doing that. We had our lawmakers were trying to get them to lower the draft age to get to send younger men out uh to to the front line and there was just not that much criticism. So, I think the mindset that allows something like the draft to exist still exists here in the United States. So, I do worry about that, but it's it's not um something I see as a very imminent concern that you know at the moment. >> Yeah, I it's it's interesting because it's it's the classic Trump tactic of usually more applied internationally, right? where it's like, you know, they're threaten using MOABs over here and then like and then while simultaneously like praising how handsome the the leader of the country is trying to be threatened of you like within the course of like, you know, the same press conference and and here you like again like bringing up the draft which is extremely dumb just from a rhetorical standpoint, you know, about 12 hours before Trumping Trump talking about the war being basically over. You know, I don't think that's, you know, a realistic possibility within this conflict, you know, before we even have have boots on the ground to begin with. Um, but I I do think it's interesting though because, you know, this topic in general really touches on I think one of the undercurrents that are clearly at play here when you look at the polling. Um, but I think really is increasingly a defining characteristic of the American political system as a whole, which is just the generational tension, the complete generational disconnect. Um, you see it on on in both parties as well, right? Like Boomer Democrats and Zoomer Democrats, very very different. Boomer Republicans and Zoomer Republicans, very very different. And I think this this war is about as popular with you know generation Z as Jeffrey Epstein is. Um so like you know in order to get them you know in order to get any sort of significant buyin from younger Americans you know the only way they could do it is with force. And I think that that you know that that would be striking right at the cord of complete illegitimacy um you know and some of the the more the very very systemic sort of threats that I don't think would be unraveled here. Um but again it's just wild just from a public posturing standpoint. I think that's one of just the the the really just underlying challenges and and you know from a you know from those that that do not want Washington to be very aggressive like that the lack of communication strategy and cohesion is is an asset to it to that right it's this is a lot different than you know everyone being on board with going in Afghanistan or bombing Iraq you know back in the when when cable news was the dominant form of news consumption um it's just you know I think I I it's difficult to even imagine any other scenario conflict like short of, you know, red dawn style invasion um that could ever get the sort of levels needed to have a a full mil full buyin of a military operation. Um and and this this conflict right now clearly, you know, is not doing that. And and that's that's before the true weight of, you know, some of these economic tailwind risks. Um you know, it's it's one thing to have gas at, you know, 315 a pump. It's another thing if you know for if we're looking at this sucker in two weeks or four weeks from now and it's you know four five $6 and and people are really starting to panic. >> Yeah. I just wanted to emphasize one thing you said Connor which I don't think gets said enough which is that if you need a draft that is just evidence that there isn't actually the public support for your conflict that you say there is. because it what it means is that when the rubber hits the road, people aren't willing to give the state what they demand for the conflict. This has just always been true, they resort to a draft when they don't have enough uh public support or enough public willingness to be personally involved. So what do they do? They just steal it. They steal your sons. They steal your time. They steal your output. Uh so a draft is always essentially in a way a indicator of domestic political failure that the regime has failed in some respect but they're they're able to often get away with uh kidnapping these people and forcing them to fight um because enough of the population falls for it or they just straight up people feel resigned to just doing what they're forced to do or they face imprisonment. But I mean obviously we would have to note Congress I mean if if Trump tries to unilaterally instate a draft that'll be in lawsuits forever. Uh because Congress will uh start pointing out that uh since when do we have military drafts without Congress uh signing off for now? I have no doubt that the Republicans in Congress would love to just sort of uh give the presidency the new power to determine for itself uh the the military draft, but um he's the clock's ticking on that anyway until election day this fall. >> Well, it's quite crazy like seeing like Lindsey Graham. I mean like I mean I get it's Lindsey Graham so it's like low hanging fruit and whatever. Like I mean assume the most absurd thing ever and then just you can you can probably realistically attach it to him. like the comments that he was making on on Fox News about how like, you know, how how excited he is to send like people from South from South Carolina to go, you know, fight foreign wars and things like that. I mean, it's just, you know, it's it's it's peak absurdity. And at least luckily, at least rhetorically, Lindsey Graham is an outlier in how explicit that sort of rhetoric is. It was a little bit different back in the the Bush days. Um, policy-wise, right? I mean, you don't expect, you know, any sort of uprising from Congress that to change anything from a voting perspective, but at least in rhetoric, you know, Lindsey Graham out there is is pretty up and beyond most other members and just the the the absolute insanity of the sort of rhetoric coming out around this conflict. >> Well, it seems also that uh this could not have come at a worse possible time in terms of the larger economic context that we're now under. Right? It would have been one thing if this was occurring during an economic boom and I think to some extent George W. Bush was able benefited from the fact that the US was already recovering from the 2001 recession. A lot of that was just due to uh the Greenspan put and Greenspan's deliberate effort to blow up a housing bubble to just as monetary and economic stimulus. Uh by 2003 2004 that was humming pretty well. that new um that new boom that was occurring at the time. Trump has nothing like that going on under the current situation. The economy is clearly on the downs slope right now. Uh looking at the jobs report, right? We I think we sort of mentioned that last time, but it was very bad. It was 92,000 jobs lost in February, December. Jobs were lost as well. January was revised down significantly and then when you looked at average job gains it was a poulry 5,000 or so jobs per month which is really quite terrible. And so there was a consensus that the job report was awful except maybe among Trump's most uh ideal ideologically motivated supporters. And so you've got a worsening job situation. the the new uh CPI data just came out and nobody believes there is a slight downward trend there, but everybody expects that to reverse itself significantly in the near future. Not to mention that the uh producer price index from this last time, the most recent available data on that was a huge spike. Nobody expected it to go up that much. So, there's a a whole bunch of inflationary pressures uh in the economy plus job losses. And then uh just the other day the new Treasury data came out uh showing that the United States is way ahead of last year in terms of its deficit. The they've barely they haven't even calculated in the war cost yet. And the United States is burning a huge deficit, the biggest we've seen since co end. And if the way it's going, it will top everything we've seen in terms of annual deficits except maybe uh fiscal year 2020 or so. It's the absolute worst year ever. But we haven't even seen uh the real effect yet, right? Because if you look at what the war is costing that start, they started out saying, "Oh, it's a billion dollars a day." That got quickly increased to about $2 billion a day. And that doesn't even take into account a lot of the lost infrastructure and just the general disaster that's unfolding. That's just the actual new spending that's taking place. So we are looking at some of the worst deficits ever, just crazy federal spending, and we haven't even seen the full impact yet of it in the March numbers. So it's really quite remarkable what the United States is doing in terms of new spending. So that brings us then to a big important question. We we looked at job losses. We looked at inflation and we looked at mounting deficits to unprecedented levels. So, where does the central bank fit in to all this? It seems like something's going to happen. I've been shocked at how little the central bank has has been mentioned. Uh, not a whole lot yet. Oh, and before we get to that, just want to mention that there seems to be an unfolding financial crisis. Also, we see in private equity and and among investment groups like uh Black Rockck, not Blackwater, um Morgan Stanley today, they're starting to limit withdrawals because uh investors are coming and they're trying to take their money out because they're seeing major problems in the economy. So, uh it's this is this is kind of like the non-bank version of a bank run in many ways. And this is occurring in it's kind of a surprise to many people. This is this does not occur under normal circumstances. So that just points to another layer of economic trouble that the US is facing. And so you you combine all that economic trouble with mounting deficits. Uh what do they what's the Fed's next step, Connor? What surely even though they haven't mentioned it much there you're going to start to be hearing uh calls for the Fed to do something. So what's it going to do? >> Yeah. Yeah, you laid that all out well. And I I think like the the mantra that I will probably be repeating over and over, I will probably write half a dozen articles um just making this point if this war continues to drag on for a while, is that the economy was already not strong when this war started. I think as I see it, there's sort of two false narratives that could really take off. There's the Keynesian view that like, oh, hey, we have a new war, so that's going to be good for the economy. is going to stimulate a bunch of economic activity. I don't know about you guys cuz I haven't seen that anywhere. I don't see anybody making anything like that point, which is good cuz it's completely wrong. Um maybe if we get into a recession, we can start seeing some people talking about how, you know, rebuilding all these stock piles would be good for manufacturing or something, but nobody really seems to be talking about that. I think the other false narrative that will quickly start taking root here is that the economy was pretty much fine and then this war started and so any economic pain of any kind that we see going forward will be blamed on this war and I so I that's I think a um that's a point that I will be arguing against a lot because it's really important to realize that no it's it was not a healthy economy it's not like everything they have been doing up until this point you know we talk about like the covid recovery and the years since then was fine. Um and then this war just happened to break off. Trump went crazy, started this war and that ruined the economy. Like no, there were serious issues with the amount of money they printed. Um all the structural issues uh basically are have put us in a position where there's like it's almost like uh a bunch of fuel and then yeah, maybe this this war is the spark, but um no, there were deeper things happening beforehand. But yeah, specifically when it comes to the Fed, I think um sticking with my fire analogy, we we've been talking about um I've kind I've called it a minor stagflation situation we've been in where um they're calling inflation stubborn, I think is the word they're using, that it's taking a long time for it to get down to the uh 2% level that, you know, they're targeting here. So they've been uh a little bit apprehensive about cutting rates, but at the same time, there have been some concerning developments with the jobs numbers and economic growth coming down. So that was already happening beforehand. And I feel like everything we've talked about so far with the war, the the war is kind of an accelerant. I think it it accelerates all the dynamics where we were talking about there on that, you know, the economic growth side of things, all of the the supply shocks are going to really impact that, but also the pricing in terms of price inflation. Uh, of course the Fed will they'll be happy to have this new thing to blame on any price inflation that comes about, but as I see it, it's kind of a uh a mystery right now which side of their dual mandate gets worse first. But I think that will be uh what that will be the factor that'll explain the Fed's behavior. If inflation really starts going crazy for some reason, they'll they won't cut rates um if that's the big thing everybody's talking about. But if some of these other economic issues start really falling apart, um talking about like the financial industry, uh employment, like any any of those things, if something goes there, as long as inflation's not spiking, which I don't I don't think it'll spike here. We as Austrians, we talked about how it's a monetary phenomenon at the end of the day and supply shocks is a little bit more complicated, but um and from my perspective, it's kind of about which one goes first. I think they'll uh they'll then move forward from there. It's not obvious when that'll happen, how long it'll take for these effects to to take hold, but that that's my long-winded way of refusing to answer your question. I don't know which one they'll do. It kind of depends on how things play out. >> Well, it's interesting for the Trump administration. One thing they've been able to hang their hat on, right? And and I think this this has had, you know, significant impacts in the global economy and help offset some of the costs and tariffs and things like that is, you know, oil prices dropped pretty quickly and pretty significantly after Trump took office for, you know, obviously drill baby drill style policies and and and a major point of emphasis. You oil prices has always been one of the the things Trump likes to point to and obviously what is affected most by this war oil prices, right? Um and so so you that is a a major stress point there, but also of course this is a global crisis in in this regard, right? And so right now you've had um you know looking at central banks outside the Fed um you know there's a lot of reporting over the last couple days about the ECB looking to increase um interest rates there out of concerns uh addressing inflation pressures coming forward um you know consumer price inflation you know going forward um and you know you know one of the accelerants of a global financial crisis is high debt levels and of course you know we have been in an abnormally high debt situation for quite some time. And the more debt out there, when you have a rush to save assets, right? When when people are taking their money out of accounts, when people are are removing it from credit markets, then the stress that puts on these, you various areas of the economy that are saturated with debt, all of a sudden you they they start dealing with calls that they were not expecting to. I mean, this is I mean, you know, this is a a a black swan type event um that is going to challenge a a number of financial markets. And you know once you start once things start breaking you have a butterfly effect that can offset all sorts of different ways and then I think particularly within Europe particular with some of these other economies that have been getting away with policies even worse in the United States for quite some time. Um you know this is a a a very real stressor. Um and so again the qu the ultimate question is how long does this last right and that is the question that no one can answer. Um but again the economic blowback um and this is this is part of Iran's you know strength here is that the economic fallout that has nothing to do with bombs in the ground that has nothing to do with political leadership in the short term that has nothing to do with the the areas that are within America's you know capability to control this is a uncharted territory and nobody was you know nobody had this forecasted in no none of this was baked in to projections when we started this year. Yeah, I think they're going to ask the Fed to inflate. Um, now a lot of people have pointed out, hey, the the Fed has to deal with both inflation on the one hand and they also need to maximize employment, right? Because the Fed has the famous dual mandate. Actually, it's a triple mandate because they're also tasked with uh uh stable interest rates over time. Uh but what normally people don't forget to mention is that the Fed has a very important responsibility to the regime, not to any sort of economic policy. Just that when the regime has huge debts and that in turn as you're just churning out hundreds of billions of dollars of more debt that is going to raise yields because you make more of something, the price goes down. So the price of bonds go down, the yields are going to go up and then that's just going to lead into crippling expenses on a monthly and annual basis in terms of uh paying your interest on the debt. So the Fed is a very important role in driving interest rates back down to finance more spending, usually war spending. So it looks like you have something to add on this. >> Well, usually you don't have the you don't have the president trying to arrest the Federal Reserve chairman. Like let's not forget let's not forget that that Jerome Pal is still, you know, under under some semblance of federal investigation. And so like this is this is a whole another crazy town. Like this is this is this is a whole different dynamic. And so congratulations. I mean we might have the most independent Fed share of all time. It just that's just what happens when you have criminal criminal charges swinging over ahead. Um but yeah and and the bill the real telling point will be like if those if if if you start getting a New York Times report it's like oh well you know the DOJ has investigated and cleared pal of charges then golly gosh darn things might change very quickly that that is that is one of the real interesting indicators out there how the administration you thinks this war is going to go >> to to use a meme um that I see on Twitter the the department of justice has a chance to do the funniest thing ever which is to just suddenly absolve Powell of everything so that Powell can go full boore on supporting the Feds with low interest rate policy. >> Well, I suppose the flip side is like your Blackhawk helicopters coming in and extraditing Powell, you know, Maduro style. So there there's there's two possible outcomes here that could result in and federalism regime change in the short term. >> Now, we do have to admit, of course, that Powell has other uh interests that he answers to, right? Wall Street being a major one. Sure. And Wall Street's going to want its lower interest rates. Uh there's no doubt about that, especially as we're looking at increases of redemptions with these these private investment funds. Uh that high interest rates don't help that. And so I think you're going to see more and more pressure on Powell to drive down interest rates just in general. But its primary job is to drive down interest rates so treasuries don't see high interest rates. And this isn't just the Fed. This is all central banks exist to make it easier for their governments to borrow and most especially in wartime. And so I while yes, you're going to see the Fed ringing its hands and say, well uh we we have to consider both employment and we have to consider inflation in the end though. They're going to say now maybe they'll be slightly less cooperative because Trump is so antagonistic toward them. So maybe he won't get as much as he wants. Uh but considering all the other pressures that can come down on the Fed in order to help finance more war spending, I think you're going to see just a renewed wave of pressure for lower interest rates, especially in order to help treasuries. >> And also just worth mentioning too is that with within this broader context of the financial and and banking situation, the context of the war, u you know, banks are now part of the battlefield as well. Um, and so independent of your specific central banking moves, um, you know, America's already, you know, gone after Iranian banks. Iran is threatening to go after American banks, you know, whether it's cyber or whatever. Um, you I'm not expecting, you know, necessarily a drone heading to the Fed anytime soon. Um, don't want to give any of our listeners any ideas there. Um, but uh uh but but it that is another component though of modern warfare is that money and banking, the financial system, you know, is part of a military conflict. Um and you know obviously Iran has been you know they got the Russia treatment long before Russia ever did in terms of global finance pay you systems things like that but it's just that's something else to mention within this context. >> Well and in this war specifically Iran's whole strategy seems to be not economic in means but economic in ends. They're they're basically trying to make this as costly of an operation as possible for the West so that um the US doesn't just try to do this again in you know 4 months when they're building missiles again. So yeah, this seems to be their explicit goal and it's kind of a um it's an interesting dynamic of it is that they're obviously Iran is not doing well. They're getting bombed uh dramatically right now, but the econom economically they are kind of cut off from the rest of the world by design. they they're they were basically um sanctioned heavily by the US and so if the global economic system starts to falter that doesn't really impact them as much as it does most other countries. So that's an interesting component here too. But I I guess I keep coming back to thinking back to how we've been talking about the Fed and especially focusing in on that political angle. This is what I've been saying for months now is it feels like the Fed is trying to act like everything is calm right now so that when Trump gets his Fed chair in, you know, they can be like, "Oh, Trump is the reason that everything's going crazy." But I think the the big reason for that is because they didn't have an easy thing to blame any potential recession or economic problem on because things, you know, they were all under Biden and Pal and everybody like the the adults were in the room a few months ago. Um, and I think with this war, they Trump just handed them this easy thing to uh to blame everything on going forward. So, I think the the Fed is in a better political position now than they were before the war to kind of bring it back to a broader topic we've had on this show. >> Well, I think that's probably a good place to go ahead and wrap up this episode. I mean, it's all just so fast moving. I mean, we're just going to have different questions, different things to say here in a couple of weeks. So, uh, we'll go ahead and let that be the final word for this episode of Power and Market. Uh, and the >> Ryan, before we go, any sneak peeks from your, uh, your talk at the Libertarian Scholars Conference? >> Uh, well, I'm I'm trying to address the issue of, uh, the failure of the liberal program versus the failure of the liberal worldview. That's an important distinction. They >> uh, I I see people saying, "Oh, liberalism failed." they mean classical liberalism, right? Because they look around and they see that classical liberalism doesn't have uh some answers in terms of its program to problems related to democracy and that sort of thing because in the 19th century liberalism was really pro-democracy and stuff. Uh but we need to make a careful distinction between the liberal worldview and the liberal program which are really two different things. And boy, obviously the liberal worldview has not failed. It's more timely than ever. it's uh more important than ever and it really offers I think some of the uh some of the most essential insights about the nature of the state. So that's uh I think um a a a look at what's coming up from there. And then you won't be shocked to find out that actually there's another side of liberalism that is uh the more hard-nosed the more realist that favors things like secession and uh really opposing states wholeheartedly. that offers us some insights and a real way out of the current problem that we have. Um, but I haven't I'm not quite done writing it yet. >> Can I can I say something controversial? Uh, I want to share perhaps my least favorite Mises quote, but it kind of touches on that. Um, so he's got a quote in um anti anti- capitalist mentality, I believe, but it's a capitalism needs neither propaganda nor apostles. Its achievements speak for themselves. capitalism delivers the goods. And it's like I I get what he's saying, but like for for for a pro-democracy guy, he's like capitalism needs the propaganda. Like we we we absolutely need the banners and the all all the permanent like we have to keep constantly reminding the public about why capitalism delivers the goods. You need the you need the good propaganda machine there. That's one of the my one criticism of Mises is is that quote right there. Well, he says the opposite of that in many other places, saying that we have to fight the battle of ideas and people will tolerate whatever they think the state uh is doing uh if they don't have a proper understanding of how the state works and all of that stuff. So, yeah. Uh well, in fact, uh sort of the motivation for for this was a great 1994 article from Ralph Reiko. It's called Mises on Let me see, I got the title right here on my desk. Uh Mises on fascism, democracy, and other questions. One of which is immigration. uh where Reiko wants to address some of these holes in Mises's thought obviously in a spirit of respect toward Mises's work but but Reiko looks at some of these things and he says look at this like Mises I'm Mises has no answer to XYZ if you look at his political theory and so Ralph has some some nice discussion there and that's where he starts talking about the Italian elite theorists and all of that sort of stuff like look uh the Mises's democratic leanings um really offer no actual solution to the problems that we now face from democracy. So uh yeah, you can point to quite a few Mises quotes actually that uh are problematic in this realm. None of this of course calls into question Mises's prowess as an economist. That is like I think unassalable. Uh but that's a different realm of his work. >> Yeah. And uh Connor, you're you're presenting a paper, right? >> Yeah. I'm co-presenting a paper with Joshua on where where we named the concept interventionist non-interventionism. So uh basically it's our attempt to bring the whole concept which is often called anarcho tyranny into Rothbart's uh framework typology of interventionism. So we're uh trying to trying to start simple um with just using power or mainly using power market but we think it's a um it'll be a useful uh concept to define because it's it's very relevant like like I'm giving my the talk I'll be giving in San Diego is about wildfires and like that's an example there where the government basically takes over all of this land prevents anybody else from doing anything and then they just do nothing to it. there's no forest management. And so we're arguing that by doing nothing to this land that they monopolized and, you know, raised taxes to maintain, um, they're creating a very dangerous situation. And that still is the government doing something. Um, and that we we think that that you can read that or you can infer that concept from a lot of Rothbart's writing and Mises too. Um, and so we're just trying to basically um get the ball rolling with making it a specific topic that can then be used more in in scholarship directly. >> Well, we'll probably be coming back to these topics then um after the conference. We'll probably have uh >> more to talk about an upcoming podcast. >> Well, plus we got a big VIP coming, >> Dodto coming in from Madrid. >> That's right. the leading American pores, >> the leader of the Austrian school Spaniards. Yes. With who's produced what dozens of students over the years, many of whom are our have been our students, right? >> Yeah. So, I'm very excited for very excited for that. >> Yeah. I I don't think he's ever been to the Mises Institute before. So, that'll be that'll be something new and very interesting. So, yeah, of course, I'm looking forward to that talk as well. Now, that'll be during the Austrian Scholars Conference. Of course, this is this is a dual conference event. >> Yes. >> The you've got on Thursday the Libertarian Scholars Conference, which of course goes alongside the uh the Journal of Libertarian Studies, and then on Friday and Saturday is the Austrian Economic Research Conference. So, of course, you can come for both. Um but yeah, that that enables us to cover a wider variety of topics as well. >> I'm just excited. I've been able to work a sports economics paper into a panel on methodology. So I was talking about sports analytics and how it's it adopts an Austrian framework without knowing it. So we're we're going everywhere with with this event. >> Well, nobody loves a methodology talk more than an Austrian. So uh you probably have a pretty good audience for that. All right. Well, thanks you guys. Uh as I say, we'll be back next week. Well, not we will not be back next week here on Power and Margaret just because of uh the upcoming conferences. But I I I do not anticipate the war will actually be over uh in the next 10 days unless something really really changes. So, we'll be back in a couple weeks and we'll probably have plenty to talk about. So, until then, uh thank you everyone out there for listening and we'll see you next time.