The Peter McCormack Show — Episode #133

Guest: Karl-Friedrich Israel

Topic: Inflation, Inequality, Socialism & the Future of Europe

Date: December 4, 2025

Episode Overview

In this episode, host Peter McCormack speaks with economist and libertarian Karl-Friedrich Israel about the causes and impacts of inflation, the roots of economic inequality, the resurgence of socialism, and prospects for meaningful reform in Europe and beyond. The discussion weaves through pragmatic and ideological concerns, drawing parallels between economic theory and real-world policy, and explores the potential for reforms rooted in sound money, decentralization, and educational change.

Key Discussion Points & Insights

1. Can Europe’s Decline Be Reversed?

[01:37–02:10]

• Peter: Asks whether Europe’s decline is inevitable or reversible.
• Israel: Says reversal is possible if the right economic policies are implemented but doubts the necessary political will exists at present.

2. The Political Incentive for Bad Economics

[02:10–02:40]

• Israel: Politicians are incentivized to pursue policies with visible, short-term benefits for select groups while dispersing costs across society and into the future—often via inflation.

3. Inflation as the Driver of Inequality

[03:07–06:21]

• Peter: Argues that inflationary policies hurt the poor and benefit the rich, a message hard to land with progressives.
• Israel: Details how inflation, especially asset price inflation, widens the gap between those with and without assets.
• Notable Quote:

  "Inflationary policies increase inequality... There is first of all a shift in saving behavior... which creates an overproportionate price inflation for those assets."
  — Karl-Friedrich Israel [04:00–06:21]

4. The Limits of CPI and Measuring the Real Cost of Living

[06:29–08:48]

• Peter & Israel: CPI focuses on bare-bones survival (consumer goods), ignoring key metrics like asset prices, home ownership access, and nest egg creation.
• Israel: Measurement of inflation is “highly problematic” because it doesn’t capture future-oriented wealth building.

5. The Hidden Reality of Inflation

[08:48–12:22]

• Peter: Wonders if a more honest inflation calculation would cause public outrage ("pitchforks out").
• Israel: People already feel the pinch, regardless of official statistics. True inflation, including asset bubbles (real estate), is much higher than reported consumer prices.

6. Root Causes: Regulation vs. Monetary Expansion

[12:13–13:50]

• Peter: Is asset price inflation (e.g., real estate) due to regulation or monetary policy?
• Israel: Both factors matter—regulations constrict supply, making regulated assets (like property) particularly attractive to investors seeking to escape inflation.

7. Is Inequality Always a Problem?

[12:49–14:07]

• Israel: Inequality is problematic if it arises from unjust processes (e.g., asset inflation, Cantillon Effect) rather than merit-based, voluntary market exchanges.
• Notable Quote:

  "Inequality that comes about in an unjust process... is the type that we should be discussing."
  — Karl-Friedrich Israel [13:53–14:07]

8. The Rise of Socialism and Confusions about Capitalism

[14:26–18:11]

• Peter: Notes a political shift toward socialism, playing audio from a UK leftist MP advocating for total nationalization.
• Israel: Most “socialism” in popular debate is really desire for heavy intervention, but some do call for full nationalization. That model has always failed historically.
• Notable Quote:

  "This has never been successful, such a system. And there are good economic reasons to believe that it will not work."
  — Karl-Friedrich Israel [17:26–18:11]

9. Rational Calculation and Cooperatives

[18:16–20:01]

• Israel: Explains socialist calculation problem: without market-based prices for production factors, rational economic calculation is impossible.
• **Advocates for free market experimentation with cooperatives to test viability without force.

10. The Illusion of Scarcity Elimination via Inflation

[21:30–24:26]

• Israel: Inflation creates the perception that scarcity can be transcended, but actually just redistributes existing resources and increases inequality.
• Notable Quote:

  "The pernicious, diabolic thing about inflation is that it lets us believe that there is no scarcity... but printing money never gets rid of real scarcities."
  — Karl-Friedrich Israel [22:43–24:26]

11. Welfare & Inflation Dependency

[24:26–26:44]

• Peter: Questions whether the welfare state is a response to inflation’s damages.
• Israel: Inflation increases dependency on welfare by deepening inequality, so reform should first cut inflationary government finance, not welfare itself.

12. The Milei (Argentina) Case Study & Libertarian Disappointment

[26:44–32:38]

• Peter: Notes libertarian hopes and disappointments with Argentina’s President Milei.
• Israel: Milei has not yet abolished the central bank nor fully liberalized the FX regime; praises Milei’s popularization of free-market ideas but says actions fall short of his rhetoric.

13. Should Central Banks Be Abolished?

[33:05–33:51]

• Israel: In the long run, yes. For Argentina (already mostly dollarized), it would have been easier. For mature economies, monetary policy reform should come first.

14. Why Are Sound Economic Ideas so Unpopular Politically?

[34:02–37:18]

• Israel: Sound economics is less fringe among the public than among economists; political incentives promote short-term gain over long-term stability.
• Peter: Notes public appetite for “easy answers” and the difficulty of selling free-market hardship.

15. Is Reform Possible Before Crisis?

[37:18–39:21]

• Israel: Political change only comes once the population is ready for it—usually after deep crisis or bitter experience.

16. Collective Corruption and Wealth Effects

[39:56–42:42]

• Israel: The elite benefit most from inflation's redistributive effects, so have little incentive to reform or even discuss these issues openly.
• Notable Quote:

  "There is a degree of collective corruption among the elites who are in a position to reform the system... they have no economic incentive to actually reform the system."
  — Karl-Friedrich Israel [40:06–41:04]

17. Coalition Possibilities: Left & Right United by Sound Money

[42:42–43:00]

• Israel: Leftist and libertarian reform proposals might indirectly aim at the same goal—taxing the rich via asset inflation controls.
• Notable Quote:

  "Instead of taxing the rich, you just get rid of inflationary policies and the outcome would be much healthier."
  — Karl-Friedrich Israel [42:42–43:00]

18. The Unintended Consequences of Wealth Taxes

[43:00–44:39]

• Israel: Wealth taxes tend to drive the rich away, reduce investment, and harm wage growth in the long term.

19. Europe’s Likely Trajectory — “Gradual Decline”

[44:39–45:51]

• Israel: Predicts Europe will face slow, managed decline with higher inflation, more regulation, but no dramatic crash unless major reforms are adopted.

20. Could Free Markets in Banking/Money Be Realized?

[46:16–48:23]

• Peter & Israel: Discusses full-reserve vs. free banking and the role of cryptocurrencies, particularly Bitcoin, in creating a free money market.

21. Austrian vs Post-Keynesian (e.g., Minsky) Approaches

[48:35–53:00]

• Israel: Finds value in various economic schools, but Austrian economics emphasizes letting crises play out to restore healthy structures, while Keynesians favor intervention.

22. Europe's Brain Drain & Overregulation

[54:34–57:19]

• Israel: Europe’s best talent increasingly leaves for more dynamic environments due to overregulation, high taxes, and bureaucratic ossification.

23. The State of Economic Education

[58:36–63:36]

• Peter & Israel: Worry about the leftward ideological drift and lack of pluralism in academia; the dominance of Keynesian (and more progressive) frameworks in economic instruction.

24. Value Freedom in Academia — Ideal vs. Reality

[63:36–69:42]

• Israel: Argues for value-free teaching but admits it’s imperfectly attainable. Stresses the need for students to engage seriously with all arguments.

25. How to Move the Public Conversation

[69:55–73:52]

• Israel: Advocates for focusing on economic truths (scarcity, incentives, sound money), addressing left-wing concerns sincerely, and avoiding sectarian economic debates.

26. Instilling Future Orientation

[73:52–78:21]

• Israel: Having children increases one’s concern for the future but society-wide pessimism (climate anxiety, nuclear anxieties) undermines future-orientation. Need more positive stories of change.

27. The Economic Reality Check & Selling Free Markets

[78:21–82:44]

• Israel: Finds common ground with the left by showing how monetary reform (ending inflation) tackles inequality more effectively than wealth taxes.

28. The Impact of AI: Bubble, Job Destruction, Resilience

[83:13–90:52]

• Connor/Peter: Ask about AI-driven concentration of wealth and job loss.
• Israel: Sees temporary disruption but believes in long-term self-correction if regulatory burdens (especially around patents and market entry) are addressed.

29. Welfare, Universal Basic Income & “Right Size” of Government

[91:05–94:55]

• Israel: Suggests current welfare structures are already quite large; universal incomes are illusory as someone must pay. Advocates radical decentralization and voluntary participation over centralized statism.

30. The Real Libertarian Project: Decentralization and Voluntary Communities

[94:55–97:48]

• Israel: Imagines not a stateless, utopian paradise but a world of decentralized communities where rules are voluntarily accepted.

31. Bitcoin, Freedom, and Global Finance

[99:42–101:21]

• Peter & Israel: Agree Bitcoin’s real value is in allowing cross-border capital flows and individual control—used by citizens in oppressive regimes and inflationary economies alike.

32. Advice for the Ambitious Young

[101:50–102:51]

• Israel: Do not focus solely on economics and wealth; invest in real relationships and community for resilience & happiness.

33. Reading Recommendations

[103:05–103:45]

• Israel’s Picks:
  1. Economics in One Lesson by Henry Hazlitt — for economic basics
  2. Socialism by Ludwig von Mises — for depth on why socialism fails
  3. The Ethics of Liberty by Murray Rothbard — for radical libertarian ideas

Selected Notable Quotes (with Timestamps)

• On asset inflation & inequality:

  "The difference, the gulf between the haves and the have nots increases because of asset price inflation."
  (Karl-Friedrich Israel, [06:21])

• On inflation’s illusion:

  "The pernicious, diabolic thing about inflation is that it lets us believe that there is no scarcity."
  (Karl-Friedrich Israel, [22:43])

• On wealth taxes:

  "Taxing the rich and taxing wealth and taxing capital in the long term is not a good idea. Also for the most vulnerable in society..."
  (Karl-Friedrich Israel, [44:01])

• On reform and coalition:

  "There might actually be room for a broad coalition between people who are concerned with some of the issues..."
  (Karl-Friedrich Israel, [42:42])

• On academia’s failure:

  "Economics is comparatively good, I would say. And even if they are not Austrian, there are many economists who understand the benefits of a free market system."
  (Karl-Friedrich Israel, [61:02])

Timestamps for Key Segments

| Segment | Timestamp | |------------------------------------------------------|----------------| | Opening, Europe's trajectory | 01:32–02:10 | | Asset inflation & inequality | 03:35–06:21 | | Defining true inflation | 06:29–12:22 | | Inequality's drivers, just vs. unjust | 12:49–14:07 | | Socialist proposals: critique & empathy | 14:26–18:11 | | Socialism vs. rational calculation | 18:16–20:01 | | Scarcity, inflation, and political incentives | 21:30–24:26 | | Welfare’s relation to inflation | 24:26–26:44 | | Milei, Argentina, and libertarian hopes | 26:44–32:38 | | Should we end central banks? | 33:05–33:51 | | Why good economics isn’t politically popular | 34:02–37:18 | | “Collective corruption” among elites | 39:56–42:42 | | Wealth taxes and asset flight | 43:00–44:39 | | Europe’s slow decline forecast | 44:39–45:51 | | Free banking and Bitcoin as hope? | 46:16–48:23 | | Austrian vs. Post-Keynesian approaches | 48:35–53:00 | | Brain drain and Europe’s overregulation | 54:34–57:19 | | Economic education, bias, and pluralism | 58:36–69:42 | | Making free-market case to the public | 69:55–73:52 | | Future-orientation and society’s new pessimism | 73:52–78:21 | | On AI, tech concentration, and job loss | 83:13–91:05 | | UBI, welfare state, and ideal government size | 91:05–94:55 | | Libertarian “utopias” and decentralization | 94:55–97:48 | | Bitcoin in practice | 99:42–101:21 | | Final advice & book recommendations | 101:50–103:45 |

Tone & Style

The episode combines accessible analogies with deep economic theory, featuring a friendly but concerned tone (Peter), and a measured, evidence-driven yet optimistic approach (Israel). Both are frank about harsh economic realities but suggest paths forward based on reason and historical insight.

Conclusion

This conversation stands out for its nuanced blend of economic critique, political realism, and libertarian optimism. Israel argues that many of society’s ills—rising inequality, asset bubbles, declining opportunity—are byproducts of inflationary policies, not unrestrained capitalism. He finds common ground between left and right in their concern for fairness, proposes pragmatic steps toward free markets, decentralization, and sound money, and points to Bitcoin as a technological wedge for individual empowerment. The challenge, he notes, is educational and cultural as much as political: only an informed, future-oriented public can drive transformational reform.