Warning. This is long. I cover some basics of Austrain Economics at the basic introductory level. It seemed relevant to some points I want to make and it's never wrong to get introduced to the ideas.

To start things off lets start with a link. Who is Trump likely to nominate for Fed Chair if he cans Powell?

https://polymarket.com/event/who-will-trump-nominate-as-fed-chair?tid=1765770432689

Kevin Hassett dropped from a high of 79% odds of getting the nomination earlier this week, to now 52%. While still being the favorite Kevin Warsh has now become a noted possibility for the position. He started this week off with 11% odds and now sits at 40% odds.

I also want to mention that Grokipedia is entirely superior to Wikipedia. I'm going to link to both of their pages with both sources.

https://en.wikipedia.org/wiki/Kevin_Hassett
https://en.wikipedia.org/wiki/Kevin_Warsh

The problem is the Wikipedia pages aren't helpful, imo, for figuring out how they would do their job. The summary of the Wikipedia pages is these people exist and they've had jobs.

https://grokipedia.com/page/Kevin_Hassett
https://grokipedia.com/page/Kevin_Warsh

Much better. From this we see that Kevin Warsh would prioritize price stability and wouldn't just keep interest rates low. To me this is important because I see the level of investment in AI as part of a Fed induced bubble and a potential source of mal-investment for humanity that we won't be able to undo. We should take things a little slower. The Fed interest rates really does set how aggressive your economy is with speculation. Higher interest rates favors an economy that solves real world problems today in the most practical way possible. Economies with artificially low interest rates when they are held low for too long become obsessed with long term efforts to make unicorn companies that take over the world. We get plays for long term power instead of problem solving for a consumer who exists today.

Kevin Hassett, the current leader in the probabilities, has full buy in on the Phillips curve. He thinks that the Fed's interest is maximum employment. This may sound nice to people who want more jorbs. But if you are familiar with Austrian Economics you know what's wrong with the Phillips curve. The Phillips curve is an entirely empirical observation that ignores logic and thus doesn't bother itself with the bigger picture of how interest rates and labor relate long term and why.

Ludwig Von Mises's view on business cycle theory predicts the Phillips curve, and explains why it happens, and what happens down the road. The problem with the Phillips curve is that blind acceptance of empirical theories isn't real science. Logic when done correctly is more reliable than historic data. In physics this is the difference between a law and a theory. And the super beneficial result of using logic is that you've now freed up measurement to be an independent verification. But if you start with an empirically driven theory you can always add more complexity, re-fit parameters, and toss out unfitting outliers. Worse yet you don't understand anything and can't reason any better than a junky who knows he feels good when he does a certain activity.

So to understand Misesian Business Cycle Theory we need to first understand Mengarian Value Theory.

Carl Menger was one of the first men to introduce humanity to the concepts of micro-economics. He developed his theories of subjective value and marginal calculation in the exact same year that another economist introduced pretty much the same idea within English speaking circles. But Carl Menger did this within the German speaking world. The major difference is that Menger's theories have a little more structure for us to work with.

The first concept is that if something helps you preserve your life you are going to value it. So an item that helps satisfy a real human need is going to be valued. This is called a first order good. Next, an item that helps you obtain or create one of these first order goods is also going to be valued. This is called a second order good. And this actually flows up a chain. I might as well mention that there is also this idea of goods whose value depends on the presence of another good called co-ordinate goods. A pencil has no value without paper and paper has very little value without some kind of writing implement. Now these good can either be durable or consumable. That can be true for a first order good like food which is consumable, or a first order good like a house which provides shelter. This can also be true of a second order good. Paint can help me make a shirt in a screen printing business. But so can a screen frame. So can the building someone uses to make the shirts in. 2nd order goods and higher that are durable are called capital goods.

The thrust of the theory is that for something to be valuable or valued it needs to be a part of a tree that helps you survive or meet some other human need, or trick you into thinking it does. This can also be tied to another theory that post-dates his, which is Maslow's heirarchy of needs. So for something to be valued in Mengarian terms it needs to fit somewhere into that.

This differs from hyper-subjectivism which says people value things because they value them. The predicate of hyper is necessary because Menger's idea is the original subjective value theory. The subjective quality in classical subjective value theory is that because you and I have different circumstances, have different needs, and different current existing co-ordinate goods like skills and tools, we value things differently. If I don't know how to weld then the welder I bought off Amazon has very little value. But you might be able to do something really useful with it. This was apparently a new concept at the time because people had thought that value was objective (not dependent on who was valuing it) and there was big debate on how it was supposed to be calculated and what drives it.

Ok. The short version of Mengarian value theory is out of the way. The long version is here Now onto Misesian Business Cycle theory.

The short version of MBCT is that the exact amount a second order good is valued depends on interest rates. Or more accurately it will depend on the working discount rate of the person valuing it, which will tend toward the market interest rates. Mises introduces this kind of outdated concept of the window of concern. It's kind of OK to think of it as being the payback period of an investment. The more modern concept is that people have a distribution of concerns for different times in the future and they follow an exponentially decaying weight. But the window of concern can just be thought of as the average of that distribution.

The point is that if I can buy a machine that can produce 2 grommets a minute and will never break and doesn't require any other inputs, and my period of concern is 10 years; Then I value that machine at approximately 10,519,236 grommets (whatever that's worth). In reality you've got some accounting to do for a lot of other factors. Also in the most pure scenario you really have some math to do with some exponential terms. But the important thing is it is proportional to 10.5M grommets. If something causes us to double or halve the period of concern the subjective value of this machine can halve or double. What's also interesting is some of this extra accounting we didn't do can make this effect stronger because that can produce a margin effect.

Now do prices for capital goods swing that badly? In some cases they can, like housing. But also some of these prices are dependent on supply side factors. So while your subjective valuation of a machine might be double you might not pay that much because it doesn't cost that much to produce one. But the volume for those machines will increase. Which means, and we are tying the important part of this theory together, anything that is involved in producing those machines just went up in value. The customer is willing to pay more. There are more customers above the minimum price threshold. So what happens to the subjective value of third order goods? At the thrid level we have more customers, a growing market that needs to be captured, and our own window is expanded in the same market conditions. What about the effects on our suppliers, the forth level? fifth level? sixth level?

Anyone who simply values people being busy would see this as an ideal situation. But can it continue forever? Mises says no. The resource limits ultimately push back. Or the world burns itself trying to extract resources looking to solve problems that got way over emphasized by the market's calculation in a non-free market. It's sad that environmentalists can't gain interest in interest rates.

What is really scary is that the Fed lowers interest rates by printing money (letting banks have basically free money to keep them lending at those rates without running out of cash basically is printing money). This also causes inflation. Which means our real interest rate can go negative. That is when an interest rate is below the inflation rate. The effective window of concern at that point is infinitely into the future.

So companies aren't trying to solve problems we have today. They are trying to completely win the end game. What does end game mean? Part of me doesn't want to know. And if they are far enough back in the supply chain investors will speculate they are deserving of infinite money and resources with which to do it. And given how many resources they have to do it they'll probably succeed, or almost as bad, crash out our economy and environment trying.

And every time we have a financial bubble produced by low interest rates we produce things that don't actually have value for humanity and end up being permanent negatives. We didn't need all the housing produced in the housing bubble. All we got was the first wave of migrants. That's a permanent problem. The bubble popping didn't solve the problems the bubble introduced. What did the dot-com bubble bring us. We didn't need the entire world addicted to the internet. We didn't need technocrats having cracked human attention. We didn't need the surveillance apparatus developed to serve ads with 10% more efficiency. See how disproportionate the market can get. We have a near perfect surveillance apparatus that was developed to deliver spam. Because the market thought ads had infinite value. That's not a flaw in capitalism. That's a flaw in capitalism with manipulated interest rates. The dot com crash happened and we still have the surveillance apparatus.

And we very much do not need hyper intelligent computers writing their own software becoming infinitely intelligent and replacing all humans, thus creating an infinite robot intelligence that is perfect at acting in a world without meaning or purpose. What is the infinitely intelligent robot going to do once there is no purpose? It's quite literally the worst idea anyone could ever come up with and we are actually doing it and we are at a point where we don't know if we can stop it. Guys, this is actually happening. This is actual reality. We are already to a point where we can't undo this shit. And we are 1% through it.

And the worst part is, no amount of this being a bubble is going to undevelop the worst idea humanity ever had.

So if I am even potentially right about the interest rates, for the sake of humanity, raise them. Will that cause a horrific recession? Yes. But a horrific recession would shut down the AI companies. And we'd fucking survive it.

In short this is why I favor Kevin Warsh to be nominated by President Trump as Federal Reserve Chairman.