Interview - Economic Analysis and Current Market Conditions with Peter Earle

Weekly Issue

Tim Melvin: Hey everybody, Tim Melvin here, and I've got a treat for you today. As you know, we've been starting to do more interviews. We've had some great ones in recent months, but today we're on with someone that I think is going to be one of the best discussions we've had in a long time.

One of the things I like to do with bringing people on to talk to everybody is filling gaps about what I am not good at, and I'm not great at economics. Our guest today is Peter Earle, an economist, and he's Director of Economics and Economic Freedom at the American Institute of Economic Research. That's AIER.org. If you're not reading their stuff in general and his stuff specifically, I think you're making a massive mistake and missing out on one of the best overall pictures of the economy today.

Now, Pete is a graduate of the United States Military Academy at West Point years ago, which means we don't like each other very much on the second Saturday in December because of course I grew up in Annapolis in the shadow of the Naval Academy. He recently got a PhD in economics from Angie University – hopefully I said that the way he just told me to say it.

Most economists that we talk to I'm not willing to bring on to my show because they're boring individuals who went straight from 97 years of college to government employee or working in the bowels of Goldman Sachs in New York. I mean, they never get out of the beltways or in between the rivers to get out and talk to people and see the world.

Pete has worked for securities firms. He's worked for hedge funds. He's been real active in the crypto space. And when I originally met him, if I'm not mistaken, you were working on gaming. So he once described himself as not like your normal economist, more like a game show host. And I think that's about right.

Anyway, other than his proclivity and insistence on being a New York Yankees fan, he's one of the smartest and most well-informed guys that I've ever met, has a very unique viewpoint. So Pete, thank you very much for being on today.

Peter Earle: Thanks, Tim. We're also both Niederhofer rights. So that's another connection.

Tim Melvin: Yes, that's correct. Right, right, right. Yeah.

So just to start off, I know you write at AIER kind of a monthly conditions thing that you just did last week. There's a lot of news and noise and if you just are listening to the instant experts in the internet and the talking heads you have no idea what's going on out there in the real economy because according to these folks we're on the verge of the biggest boom of all time where it's all about to burn down around our ears. Where are we really?

Peter Earle: Well, I mean, I guess I would start with the fact that we had a pretty strong GDP number on the surface for the second quarter. Beneath the surface, not that great. We saw a drop in domestic production, domestic investment, that sort of thing. Consumption is still strong – it's actually improbably strong. It makes me think that when I see data from credit card companies and from other credit companies that say that the delinquencies are actually rising and consumption stays as strong, I mean I have to believe either we're not measuring something right or it's inaccurate just because we see very low savings rates so a lot of money is leaving. But we still have inflation, we still have wages not quite keeping up with inflation.

I think we have a very narrow precipice here – we're on a very narrow ledge if you will. What I think we have is an economy that on one side we got some signs in the July non-farm payrolls number that showed that the employment picture is dissipating pretty quickly. We had a lot of revisions – we had so many revisions in fact that we had the replacement of the BLS commissioner. Not sure if that was the right thing to do, but that was the reaction.

But we also have inflation. The last CPI and PPI report showed pretty hot inflation. But this morning's PCE was actually not that bad. It was in line with expectations.

So we've got the Fed between a rock and a hard place. I think a lot is going to hinge upon two things. First, what the Fed does, not only just in September, but over the next maybe six to nine months, six to twelve months. But also what happens with tariffs, because even though tariffs have risen since April, we're still not at the full level that we were told tariffs would be at earlier this year. And we're now in the third pushback of tariff terms with China. When those are put on, considering the amount of trade we do with China, those are going to have a significant effect.

So the outcome of the tariffs and what the Fed chooses to do over the next six to nine months, twelve months is going to be the major factors. But it can go either way right now, I think.

Tim Melvin: OK, now trade and tariffs. I'm going to walk down the door that we've opened here because this is a discussion I get blistered for this one from my more right leaning friends. And a lot of other folks just have no idea what we're talking about and they don't understand how tariffs work. So let's have just kind of a broader discussion about trade and tariff.

Allegedly we're doing this because of the nasty evil things that the rest of the world has done to us by creating something ugly called trade deficits, which by the way I'm suing every store within about ten miles of me because my wife has created a massive trade deficit with these folks. So what is the logic behind tariffs, is it flawed? I mean, because I believe it is. I just straight up. I don't think this is a great idea, but I'm not an economist. I'm a kid from Baltimore who got lucky enough and had a few breaks and got into finance along the way. So you've had a lot to say about this.

Peter Earle: Yeah. So first of all, we'll talk about trade deficits. Trade deficit really means that we buy more products and service from another nation than we sell to them. And the one thing that if you look at is that the US has had periods where we've had trade surpluses, which means that more has been purchased from us than we bought elsewhere. And we've had deficits. And in either case, there's almost no difference in economic growth. We've got about in both of those periods, the average economic growth has been 2.2 percent GDP. So it's not like we're suffering under one and we're flourishing under the other.

The other thing is that it's kind of a silly way to look at things, because as you just mentioned, I have – I personally have a tremendous trade deficit with my local supermarket. And I don't view it – I don't view myself as either losing or failing because they've never bought a book for me or an economic paper. It would be more weird if they did. Right.

But the way to look at these things is as trade deficits on one side and current accounts on the other. The way to look at it is I have a trade deficit with the local Stop and Shop or whatever. I have a tremendous current account of goods and services, of food. So that's the way to look at it.

And I mean, that's essentially the case. And the very fact that the U.S. dollar is the global reserve currency is one of the reasons why we run deficits. Now, we have deficits in part because we sell a lot of debt and also because the dollar is used all around the world. If you pick up a phone on an oil trading desk and you say five million, everybody knows what you mean. You don't have to say dollars, you don't have to say euros, whatever. It's assumed to be dollars. Dollars are the center of gravity of global finance.

And one thing that happens when you do that is you run deficits. But even so, I mean, there's the logic that trade deficits are bad, treats trade as a battle or a war. Like I've got to sell more to them than they buy from me. That's ridiculous. I mean, we have a very wealthy nation. We're consumers.

And also, another factor is that as nations get wealthier, your consumption shifts from goods to services. And the thing about that is that most services are local, right? So the fact is that we're buying stuff from places like China and India and places in Africa and South America. But the fact is that a lot of our services business takes place at home. So it's not the disaster it seems made out to be.

But if you thought it was, and clearly the current administration does, one thing you would do to address that is tariffs.

Tim Melvin: Okay. So now we've set tariffs in motion, sort of, more or less. They're kind of a moving target. Right. Kind of a question that comes to my mind. First off, and this is outside of the discussion that we originally had, but does the president even have this power?

Peter Earle: So the answer is he does. There's an act of I think it's – I know there's an act of '72 and there's an act of '66 or '68 that gives him that power. But I would guarantee you that after this in the future, this is going to be reconsidered because it's a lot of power to have in one person, especially because you can impose measures that affect the entire economy.

Essentially, what a tariff does is it increases a cost. It raises the price of imported goods to make those goods less competitive against domestic goods. So if you have a widget – we'll use the classic economics example, Econ 101 – if you have a domestically made widget that costs five dollars and you have a foreign produced widget that costs four dollars, you might put a two dollar tariff on the foreign. So now the local is five, the foreign is six and it makes local goods far more competitive.

The problem of course is that while it's said that those tariffs are put on and that foreign companies or foreign governments pay them, it's absolutely untrue. Those are costs that are always passed down to consumers and thus it acts like a tax.

I mean, the administration sort of tipped their hand when some weeks ago Walmart commented that right now they're able to eat some of the tariffs, but they're going to have to pass them through. And the Trump administration said, you should eat all of them. Why would they have to eat anything if they were paid for by foreign governments or foreign producers? So it's a tax.

Right now it hasn't really landed fully on the U.S. economy because a lot of companies we're finding are eating them. What a lot of domestic companies did is a lot of them bought lots of inventory in the first quarter and they're now kind of using those inventories to sort of experiment with ways and combinations of eating tariffs. Eventually those inventories will be eaten through, eventually we'll have the full shelf of tariffs put on unless they get withdrawn, and then we'll see what the effect is.

I mean, when you're talking thirty, forty, fifty, sixty percent in some countries, I thought they were going to be – I mean, we would definitely have a recession. They're much lower now, but even so, they're going to cause issues. And on top of inflation and wages that aren't rising quickly, I think a lot of households are going to be hurting once they get put on.

Tim Melvin: Okay. Now, just what are the chances of, before I go, I had a thought, I just want to make sure that I share it. I did see yesterday a report from Piper Sandler to answer the question of who's paying the tariffs. And it was, right now, corporations have been eating it, but they've all said on their last earnings call for second quarter, we're done eating it. Right.

Peter Earle: Yeah, that's right. Because margins were getting squeezed. Right.

Tim Melvin: But only about eight percent of tariffs are being actually paid by the foreign, not government, but exporter to try to still get stuff into the market. That's one hundred percent being paid by either U.S. corporations or U.S. citizens. So I think that's a big stumbling block that people – I think it's coming.

Peter Earle: Yeah, exactly. I do, too. And you're correct. I think it's been delayed because there's been just negotiations and talks. We haven't hit the whole wall of this yet. They've been put on, they've been taken off. I tried to do some very quantitative exercises trying to figure out what to what extent rising prices are inflation versus tariffs and it's very hard to put your finger on tariffs because they've been put on taken off, the amounts have changed.

I mean we do know that there is at any given moment there's what's called the average effective tariff rate. And that's gone from between two or three percent to right now about nine percent. So it's about three times what it was. But it's projected that if the tariffs go in, if all the tariffs go into place and where they've been spoken about recently, it'll be about seventeen or eighteen percent. That's nine times what they were formerly. So I think we're definitely going to see it when it comes down the pipe.

Tim Melvin: OK, and it's probably not real good for global relations with the people that used to be our friends either, is it?

Peter Earle: No, not really. Yeah. I mean, there's a lot of – we can talk if you want about the Mar-a-Lago plan. There's been ideas about what could be done to address these things. Another one is beating the hell out of the dollar. Pushing down the dollar's value. But the problem is that when you do that, you face a regime where every nation in the world tries to beat up their currency. And I mean, because we are a wealthy country, because we're a big country, we have a lot farther to fall than some of our competitors do. I mean, if India tries to knock down the rupee, it's not going to hurt them as much as, say, our beating up the dollar would do. Plus, it's only a temporary fix.

Tim Melvin: Okay. Do you want to talk about the Mar-a-Lago? Let's do the Mar-a-Lago Accords because I hear it a lot. We hear a lot from the instant experts of the Internet when they're not being nuclear engineers, they're trade policy experts. Right, right. And the Mar-a-Lago Accords, this is supposed to solve all of our national problems. And I read it and thought, we'll be damn lucky if this doesn't start an actual shooting war.

Peter Earle: Yeah. So the people who are epidemiologists and then foreign experts. Those guys. Yeah. Right. Right. I know them. Yeah. Boy, I've...

The Mar-a-Lago plan is actually a white paper put out by a guy named Stephen Miran. He was an analyst at Hudson Bay Capital, which is a hedge fund. He's now the chairman of the Council of Economic Advisors, and he could be headed to the FOMC soon if Trump gets his way.

And basically, the original name of the paper, which is now called the Mar-a-Lago Plan, was something like "A User's Guide to Restructuring the Global Trading System." And there's really four parts to the Mar-a-Lago Plan. Basically, there's four parts are tariffs. They are weakening the U.S. dollar. They're restructuring the treasury market. And they're either renegotiating or reconsidering, by which he means ending, altering, et cetera, longstanding security arrangements.

And the idea is that the U.S. has been taken advantage of. We were deindustrialized forcibly. Jobs were stolen by China. And we're not going to take it anymore. That's the idea behind the Mar-a-Lago plan.

Tim Melvin: How did we get back the jobs that Japan stole in the eighties? I mean, right.

Peter Earle: And the question is, when you look at – so what I always point out when I talk about those are a few things, there's a couple of factors. First, if you look at the trajectory of jobs, industrial jobs, United States, from, say, 1950 through 1995, it looks exactly like the trajectory of agricultural jobs from 1900 to about 1950. Right.

And then if you look at other countries, look at England, look at Japan itself, look at China, look at Germany, look at France, the same trajectory. Jobs that left the U.S., companies that left the U.S. and put their manufacturing facilities in China have recently had those jobs leave and go to Vietnam. Those will eventually leave Vietnam – hasn't happened yet – and they're going to go to Indonesia, maybe Africa, places like that.

It's constantly a question of both technological innovation replacing workers and also just lower prices. So I mean, this idea that jobs were stolen is just not the case. The fact is that there were technological innovation and there's also just arbitrage going on, part of which I mean part of that arbitrage can be tied to collective bargaining.

I mean, not only that, but also when you think about it, the U.S. had a period of about twenty-five or thirty years where we really didn't – we were really the only game in town. Japan, Germany, most of Europe, a lot of other places that could have – most of the places that could have put up some sort of industrial competition for us were blown to hell in the war. They were still rebuilding.

So we had the chance to build this huge industrial edifice. And eventually when competition came along, a lot of pressure was put on it. Again, I point out that we're a very wealthy country and most people buy a house. Some who are lucky get a vacation house. You buy a car, maybe two cars. If you're lucky, three cars. You have an oven. You have a refrigerator, all that. But eventually when a population gets wealthy enough, they stop buying stuff and they start buying services, which is why you have things like financial counselors and physical trainers and dog walkers and baristas. Wealthy countries tend to buy more services.

And that's another factor. There's a lot of factors that have gone into this. But I mean, the idea that we're going to tariff our way back to bringing ball bearing firms back to Ohio – first of all, if we could do it, it wouldn't be a sign of success necessarily. And the price we would pay would probably be very high. There's a lot of trade offs to doing that.

Tim Melvin: Yeah. I mean, the average cost of putting those little pins in the iPhones, it's like a dollar forty an hour around the world. Right. Actually more in China than it is in Vietnam. But I haven't talked to any Americans that have said I'm actually – I'm kind of ridiculous enough. I'll ask you: do you want a job in a linen factory?

Peter Earle: That's right. A lot of people who are promoting this are people who are at or near retirement. And also, I understand nostalgia. I was born in the early seventies. I remember the eighties, but I mean, I don't feel like the period between 1982 and 1988 was the best time in history. It's the time I remember from my youth, but I don't think that was like, you know – so I mean, there's a lot of it is sort of romanticizing or anchoring to a period which someone is familiar with. But that doesn't mean it necessarily represented the optimal state of the economy and all that sort of thing.

Tim Melvin: Right. And I remember talking to a friend of my father's back in the mid-seventies. And he had worked at GM all his life in Baltimore. Yeah, sure. He was a cool guy from a fifteen, sixteen year old kid's point of view. He was driving a big old car and he had a leather jacket and he was just about as slick a dude as you could be, in my opinion, right?

And we talked one day, and I said, you know, that looks like, you know, maybe I'll just do that. I'll finish up high school, and I'll go, and I'll get a job at GM. He says, young man, he said, if I ever see you on the floor at GM, I'm going to take you outside, and I'm going to give you a beating you're never going to forget. It's not how you want to live your life.

Peter Earle: Yeah, I mean, I understand. I feel bad for people who feel like they were stolen from. But I mean, another factor here is also of course inflation. And I mean, rising prices affect lots of things and that plays a role as well. I mean, most of us will live long enough to see three or four of these major changes. This is one of them and it's unfortunate, but I mean, things like, again, kicking the dollar out the window, putting tariffs on everything, raising our prices and restructuring the treasury market, which is the one I've really dug into the most. If they were successful, the cost would be very high, even if you couldn't see it, and they're more likely not to be successful.

Yeah, I'll just say this. The fourth part about re-examining security relationships around the world, that one I actually think has some merit. There's some things I think we should think about again. So I'm not some like anti-establishmentarian. Like I consider these ideas. That's what I think has some merit. Yeah, maybe Europe should pay more at all for their security. That's my opinion, though.

Tim Melvin: Now, this brings us to our next point on the agenda, and I'm skipping one. I want to get back to the other, but I don't – this leads right into – right now, in my opinion, I once thought – because I saw Janet Yellen in D.C. speaking years ago when she was – And I'm like, this woman has the worst two hundred thousand dollar a year job in like the history of the world. She has to – this is when she was Fed chair. I was like, she has to want to go back and redo it and just stay in that philosophy major and be a professor at a little college in Vermont without thinking or worrying about any of this.

Jerome Powell's in that same box. Yeah. So what does the Fed do here?

Peter Earle: So the Fed is in one of those kind of uniquely precarious situations that it finds itself in periodically. It's in one of those now and that's a result of having a dual mandate. The Fed is supposed to conduct monetary policy with an eye on both maximizing employment and also with making prices stable.

And so here we have a situation where the July BLS revisions were staggering. It was 258,000 jobs down, which means in some cases for a few months we thought we created 120, 130 thousand. It was more like 12,000. So the labor market is probably weaker than assumed.

I look back – I wrote an article maybe two weeks ago called – here's what my analysis showed. Whenever you have huge revisions, there's maybe five or six of them over the last 25 years. Whenever you have those, it means the economy is at a major turning point. This is one of the few times outside of 2008 and 2020-2021 where we've had them.

So clearly something's happening in the economy. And what that means is this is the kind of environment where you would expect the Fed to lower rates and probably quickly. So you would basically – the Fed would lower rates, make monetary conditions, make financial conditions a little looser, cushion household balance sheet, that sort of thing.

And yet at the same time, the last two – I'll say the last two inflation numbers, but we had one this morning. The CPI and PPI were actually quite hot. We've got M2 growth. The growth in the money supply has reaccelerated. We're seeing tariff pass-throughs into goods prices. The Fed is not supposed to adjust monetary policy with an eye on tariffs because that's a supply-side thing. That's a – they focus on demand side, like monetary stuff. Right.

Even so, we're getting more inflation again now. It looks like inflation is resurgent. And so for that reason, you would think that the Fed would at least leave rates high or maybe even raise them.

So here we go again. Right. The Fed – the Fed cuts too soon, they risk more inflation. If they cut too late or if they stand fast for too long, they may see a spike in unemployment. That's the conundrum they're in.

This is all made more complicated by the fact that you now have Trump. First of all, let me say, I've written a little bit about this. Trump is by far not the first president to put pressure on the Fed. He's probably the loudest and the most public. That's true in almost everything he's done.

Tim Melvin: Yeah, that's true. Right, right.

Peter Earle: But many, many presidents have put implicit and sometimes explicit pressure on the Fed. But so here's the thing, right? So the Fed lowers rates and employment seems to level off. Will the takeaway be that they knuckled under to him? That kind of thing. The Fed wants to defend its independence and to be seen as being politically independent. They don't want to be seen as capitulated.

But at the same time, we have a whole bunch of other dynamics. We have treasury yields that are near five percent. We're issuing about 150 to 200 billion dollars in debt per month. And all of that sort of constrains the Fed's ability to maneuver.

So once again, we have a very uniquely Federal Reserve situation where the dual mandate is making it very tough for them to do their jobs.

I hear a lot of people say end the Fed. I'm not sure if I would go there if we were going to – to quote "end the Fed." I would prefer to see it sort of staged over a long period of time, not just lock the doors. But a quicker fix would be to restrict the Fed to a single mandate, make them focus only on price stability. And employment would take care of itself because a lot of employment issues have to do with bubbles. They have to do with cheap capital when it shouldn't be cheap, expensive when it shouldn't be expensive. And stable prices would have a lot of trickle down effects that would eliminate the need for the Fed to look at all these different issues.

Tim Melvin: Okay. Now I'm going to table what's it, end the Fed, burn the Fed, kill the Fed, turn the Fed into condos. We're going to table that. But there's one that is top of my brain because I watched it happen several times over the last few months. And I was like, Okay.

Now, you may be the only person I've ever met in my whole life who's more of a libertarian than I am. I mean, I am against government intervention from the HOA level all the way up. I'm pretty convinced that filing for public office, you should be disqualified as soon as the ink is dry. Just for wanting the job. No, for moral reasons. Right there. You're done. You're out.

So now we've got this administration. We've seen it with MP Materials. We saw it with the really bizarre toll charging deals he basically did with NVIDIA and was it AMD, I think? Yeah, yeah, yeah. And now he's just gone to Intel and said, you know what? You want this money that we said we'd give you, legislated to give you? Real easy. I'll give you the money that we're supposed to give you, but you've got to give me ten percent. Right.

Now, this... what is going on here? This seems a little bizarre to me.

Peter Earle: Yeah, the Intel issue is kind of difficult to get one's mind around given the way it was both said and believed that this was the most pro-business administration since maybe Calvin Coolidge or something. Right.

So many times when we see the government do something like this, what we should look to is the precedent, right? So in the 1930s, 1940s, we had the Reconstruction Finance Corporation. Right. So they bought preferred stock in banks and railroads, companies like that. But then they eventually sold it back. Right.

In 2008, we saw something similar where the Treasury acquired private shares and warrants in banks. We actually had the government of majority equity stake in General Motors at one point. And all of which were explicitly structured to be wound down.

In 1970, there was the Penn Central disaster, Chrysler, 1979. Those were loan guarantees. So we've had a lot of situations like this.

But what makes this a distinct issue is that in the case of Intel, we have the government taking a direct common equity stake not just a preferred stock alone, and there's no stated plan for liquidation. This is open-ended.

And of course adding to this is that we now have Lutnick who's the secretary of commerce saying this is not the end of it. We're going to do other things like this. Could be with defense – the defense contractors, private military companies, things like that.

Yeah, I mean, it opens a huge door to the whole specter of corporatism and favoritism, all that. I'll say this right now. There isn't a board of directors of some large, not great company, not so great second or third tier company that hasn't over the last week discussed, how can we get in on that? Guaranteed.

Tim Melvin: Oh, sure, because it's like MP Materials. MP Materials is a mine they couldn't really develop because of local pressures and all that. And we don't really – don't even really know how much is down there or exactly what use it's going to be, how effective it's going to be. But they're top of the food chain for rare earths here in the United States because their partner if you will, the Corleone family, is going to overwhelm local resistance for any environmental or any other agency.

So yeah, I can totally see that. But to me it's back more of socialism than capitalism so I was kind of wondering what's your take on that?

Did you see the Babylon Bee headline "Trump will nationalize companies until socialism is defeated"?

Peter Earle: No, I usually don't miss too many Babylon Bee headlines.

Tim Melvin: It's a lose-lose, right? Because think about it. Whatever you think of Warren Buffett, if you're a shareholder in Berkshire Hathaway, a great company, do you want politicians leaning over the shoulder of your management telling them what to do? Right.

And if you've got a lousy company, I mean, look, Intel, thirty years ago, was like Google. Everybody wanted to work there. But Intel's made some big decisions that were mistakes. It chose not to be involved with the iPhone, huge missed opportunity, huge opportunity cost. It's had trouble developing the ten nanometer chip.

And for that reason, yeah, I mean, for the same reason as I wouldn't want my good company with apparatchiks looking over their shoulder, I don't want my tax money being thrown at a company that seems to be only making mistakes.

And when Lutnick said something along the lines of, maybe we'll look at defense contractors next. My mind immediately went to Boeing, which is a company that's had problem after problem over the last few years, but also they're very tightly tied to the U.S. government. I think they make the only domestic airframe that we use. So I could see them being a candidate for that sort of thing.

That's not by any means an investment recommendation. I'm just saying it makes a lot – I think what we could see is large poorly run companies or companies that have kind of hit a snag of last few years will be targets for the government so that companies – countries rather like China and maybe the EU won't take them over by controlling stakes, that sort of thing.

Tim Melvin: Okay. All right. One more question. Again, I'm tabling the whole idea of the Fed and the future of the Fed for our very last question. My next one is, and it's one of my favorite ones, and I had a long talk with some folks about this last night.

Artificial intelligence. It's coming. It's either going to be a big fat nothing burger, or it's going to be bigger than the internet on steroids. Is there really the potential for AI to come in here and make the meaningful production increases that can quote unquote, rescue the economy from the impact of tariffs and bad decades, by the way, of that bad fiscal policy?

Peter Earle: I think they're operating on very different legs. I think AI – it's still in a very... It's still being innovated. It's not – here's the thing about, let me just say one thing up front. A lot of people have called me and said, Pete, do you think there's an AI bubble? And I've said, maybe, but probably not because I know – my Wall Street career started in the mid-nineties just before the dot-com boom started. And for that reason, I remember when there were scads of companies with zero earnings, zero revenue, zero profit that were shooting up. That's not the case now. These AI companies have revenue. They have business plans. They're a lot more normal in terms of corporate structure and corporate lifecycle than the dot coms were.

As for the productivity gains, I don't think we'll see them yet, but I will say this. There is some early evidence that when you talk about customer service, coding assistance, logistics, that AI can both make people better at what they do, reduce error rates. They haven't shown a sharp acceleration yet. On a firm level, we're seeing those sorts of efficiency improvements. There's cost reductions that they're bringing in.

It's not only AI, but it's also what AI will lead people to do. A lot of businesses will be built around AI that haven't existed yet. So there's an innovation catalyst there that could be interesting to see and create a lot of jobs.

And there's also a lot of complementarity. There's this view that AI will replace people. I don't think so. There are some jobs that will be replaced by AI, but more importantly, it'll make a lot of us just better. Like, if I want to see what inflation looks like around the world, I can type, you know, ChatGPT or AI, whatever, give me the inflation rates of the last twelve months for the G-20 and it'll give it to me and then I can look at it. That would have taken me a half hour before, but now I can get it and I can analyze it. So there's that.

Now, if you'd like me to continue on the other side, there will be like in all the waves of technological innovation, there's going to be some short-term displacement of jobs that will happen. Probably not as bad. We seem as human beings to always forecast apocalypses. It wasn't like that even in the dot-com era. There'll probably be some skill polarization.

One thing I think that's interesting is, a few years ago, there was this meme that went around called, "learn to code." Actually, that's not really the ticket anymore because somebody without any coding experience can use AI and get programmed. I write my own code, but when I come up with a really sticky error problem or a memory problem or something weird, I get help, and AI is able to help me do that. It doesn't write code for me, but it helps me when I have errors.

And I think if we look at, for example, Frederick Hayek had this famous thesis about knowledge, right? He said there's basically three kinds of knowledge. There's the technical and the scientific knowledge. What's in a book? How do you perform a surgery? How do you build a chip? Things that are written down, things that are engineering problems, all that. That's the first kind.

The second is the local and circumstantial knowledge, right? What's happening in this area? What did Donald Trump have for breakfast this morning?

But then there's the third kind, and that's the tacit knowledge. And that's like, how did Picasso know when a painting was done? How does Gordon Ramsay know how much salt to put in a risotto?

AI can do the first very easily. It's a competitive of knowledge. The second one, not that easily because it has to be at different places. That's one of the ways, by the way – that's one of the reasons, by the way, why Elon Musk wants all Teslas to communicate. He wants local information to become part of all of their knowledge. And he's got a project called Dojo to create an AI product that will do that.

But the third time, that tacit knowledge, AI will never be able to do. Right. I will never have instinct no matter how smart I get. So that's why I say the possibilities of AI just completely wiping out all employment are vastly overblown. It just doesn't work that way.

Tim Melvin: Yeah. I've talked to some because I do a lot with bank stocks. You may or may not know that it's kind of one of my core things. And the bankers that I've talked to like this, there's two places: the middle, the document processor. Yeah. That guy needs a new job. Okay. The underwriter is not going to be replaced, but the underwriter is going to get a lot better job, which is going to increase efficiency. And yeah, I think it's really exciting. And I mean, I've seen little bits of it. Like I said, I mean, it doesn't really affect my job as much, but I've heard of people in logistics saying, you know, it used to take me four hours to look at all these different routes and all these different cost combinations by the cheapest way to ship something now, ten minutes. And this thing can say, train from here to here, barge from here to here, and then truck or whatever. Amazing.

Peter Earle: I find it to be like having a really intelligent college intern to do research work that doesn't take five Starbucks breaks.

Tim Melvin: Doesn't sleep, doesn't have breakups, which doesn't break up with his or her girlfriend to create problems in the office.

Peter Earle: Yeah, it's great.

Tim Melvin: Now, here's our final topic. I've taken you a little bit over the time that I said I'd keep it. I'll apologize, but we're going to do it anyway. Okay.

Burn the Fed, end the Fed, kill the Fed. I hear it all the time. I actually think that Powell and this version of the Fed have not been perfect. I think they've done better than anybody's actually given them credit for in a difficult environment. But the burning cries are go back to the gold standard and or go to the crypto standard. Let's start with the gold standard. Is that even possible for us to go gold when everybody else is fiat?

Peter Earle: I mean, so I've been served up a lot of reasons by people over the years saying or telling or asking me why it would be impossible to go back. And they never hit upon the one I think it's the most formidable reason against going back or there would be a difficulty. And that is it's very hard to be the only country in the world on a gold standard when everyone else isn't.

Yes, there's enough gold. Yes, we can have a modern AI, microtrip technology-driven genetic engineering, modern economy with a gold standard, that wouldn't change anything. What would change most radically would be, of course, how the government finances itself and the size of the government, because this sort of unending upward march of prices and these expanding debt and deficits wouldn't be possible with a gold standard because it would have no credibility. So that's the main thing.

I mean, I feel like there is – there's a huge reward out there. Whatever the nation is that goes first to a gold standard, it'd be easier for a smaller country, and they would still have a lot of problems. I mean, they would immediately have created the most inflation-resistant currency in the world just by having a gold-backed unit of currency.

So I mean, there have been some roundabout attempts. Russia tried doing something in 2022, which was not a real gold standard. But I mean, I think it would take a big nation to really do it and set it off. The US or China, mostly China is definitely not going to do it. We probably have to start with the U.S. because we have this massive consumer economy. We're the biggest economy, the biggest trading partner in the world. So we'd have to start with us.

But there's absolutely no political incentive to do it right now. There's absolutely no – no one is going to kill the golden goose. Ironically, the golden goose in this case is paper for as long as it works. Right.

Tim Melvin: Okay. Now, Bitcoin, I'm an open, I've been openly skeptical. I remain skeptical that this is more than a digital trading speculative asset. You've done so much more in the space than I have. So unlike when you talk about how great the Yankees are, this time I'm just going to shut up and listen. What's the future of crypto and Bitcoin and what role does it have to play in the economy?

Peter Earle: So Bitcoin is one thing and the rest of crypto is another. Bitcoin is, of course, it's sort of the center of the crypto universe. It's the peer to peer electronic cash system.

Huge surprise to me lately, and I've been following it since 2011 or so, is that crypto is starting to behave more like, say, a stock than gold or anything like that. When we've had inflation issues, when we've had surprises like we had with tariffs, all that stuff, it's sold off. It does not track gold closely. So more and more, it's starting to become sort of an equity like risk asset.

I don't think that the future of – my personal views, I don't think the future of crypto is replacing fiat currencies, replacing gold. What I do think is Bitcoin's real value is that if you're in a nation like Venezuela or if you're in Zimbabwe, the economy is falling out of bed and there are – and you have runaway inflation galloping inflation and you don't have a lot of options because there might be capital controls and you can't get dollars, you can download an app and you can transact with other people and you can prevent the rapid depletion of your purchasing power.

So I think I think of bitcoin as more and more evolving into a role like a life preserver floating in the middle of the ocean. You find yourself out in the middle of nowhere. You can grab onto it for a while until a boat comes along. That's what I think. I may be wrong.

Tim Melvin: Well, all right. There's one thing that I know about Bitcoin is I'm probably going to be wrong about it. It's just so far outside my area.

Pete, I could do this for hours. I know you can't. If nothing else, you've got an Army football game to get ready for tomorrow night. And I don't have tomorrow at twelve. But I want to thank you for spending some time with us today.

Guys, if you are not reading Pete and all of his associates over at AIER.org, you are making a massive mistake and giving away an advantage when it comes to looking at money, markets, inflation, government, and just a host of other topics. So Pete, thank you so much for your time today.

Peter Earle: Thanks, Tim. Appreciate it.