Posted by
cavalier973 on Wednesday, March 18, 2009 8:35:36 AM
I am posting excerpts of my disscussion with Bob Munck here; a lot of this discussion is both of us talking past each other, since I define "inflation" as monetary inflation, Munck defines it as price inflation:
But perhaps it cannot be helped, since the devotion to government control of the economy is so ingrained in people's minds, regardless of their political affiliation.
If President Obama really wanted to fix the root cause of the economic problems we face, he would return control of the money supply to the marketplace, where it originated. Money was invented by marketplace participants as an improvement over barter. Governments acquired control of the money supply in order to benefit themselves at the people's expense.
President Obama doesn't necessarily need to abolish the Federal Reserve (at first), all he needs to do is push for laws that allow private concerns to issue commodity-backed currency. People would then be free to choose whatever currency they think works best for them, whether it's continuing to use Federal Reserve notes, or "Bank of America Dollars", which would be backed 100% by gold reserves, and for which they could be reasonably confident they could get the prescribed amount of gold in exchange. If a bank "cheats", by issuing more currency than it has in gold reserves, then it should be allowed to go bankrupt, as a warning to other banks, to not print more money than they have in gold reserves, and as a warning to consumers, to be responsible and choose banks that will not inflate its own currency.
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"return control of the money supply to the marketplace, where it originated."
That's what failed.
Our financial problems are not the result of political failures by either party; they're the result of the failure of unfettered capitalism. Greenspan and many others made the mistake of believing that people in the financial industry would operate in the best interests of their company and of the country. Instead, they operated in their own best interests; they were greedy.
"laws that allow private concerns to issue commodity-backed currency."
That's perhaps one of the single stupidest ideas ever expressed. You want to privatize money. What then will prevent rampant speculation, price pumping, and all the other things that greedy people do? Remember, that devil Soros made his fortune by currency speculation on the world market.
"a warning to consumers, to be responsible and choose banks that will not inflate its own currency."
People will OBVIOUSLY choose such banks, in the hope that they can make a bundle on the inflation and get out. And it'll work for a while, just like the housing bubble, but this time it's our actual money that becomes worthless when it pops.
Brilliant idea. Really. |
"Our financial problems are not the result of political failures by either party; they're the result of the failure of unfettered capitalism."
I don't know what you think "unfettered capitalism" means, but having the government control the money supply is not a feature of "unfettered capitalism".
"That's perhaps one of the single stupidest ideas ever expressed. You want to privatize money. What then will prevent rampant speculation, price pumping, and all the other things that greedy people do?"
What prevents it now, I'd like to know? What did you pay for your first house? Now, what did you pay for your latest vehicle? And our money is not becoming worthless?
You'd like to know what would prevent it in the free market? YOU WOULD; when you say to the guy trying to hand you a "Bank of America dollar", "No, thanks, buddy; Bank of America ruthlessly inflates its currency, and I know I have little to no chance of passing this off on someone else. Give me a Citicorp dollar instead, because they have proven themselves to be reliable in giving up the gold in exchange for their dollars".
OTHER BANKS WOULD; by demanding, at the end of each day, that Bank of America cough up the gold for the "Bank of America" dollars they've been accepting all day from their customers, who in turn got the bills from Bank of America customers. When Bank of America says "Sorry, we don't have enough gold to redeem all these bills", then Citicorp and JP Morgan Chase will stop accepting the bills, forcing Bank of America to beef up its reserves again, if it wants to continue operations. |
"What prevents it now, I'd like to know?"
The Federal Reserve.
"What did you pay for your first house?"
Significantly more, on a per-square-foot or per-acre basis, than I did for our current house. Heck, it was even more (inflation adjusted) than I think we could get for this house now, though a year ago when our assessment peaked in seven figures it was about even.
"Now, what did you pay for your latest vehicle?"
Again, more after inflation than for our most recent purchase, if you take out all the extras that weren't available in 1968.
"You'd like to know what would prevent it in the free market? YOU WOULD;"
Nope, I'd speculate, as would everybody else. That's what everybody did with housing. |
"And it'll work for a while, just like the housing bubble, but this time it's our actual money that becomes worthless when it pops."
Our actual money is becoming worthless now, and it's controlled by the government through the Federal Reserve. The housing bubble was a result of this money inflation by the Fed.
"Brilliant idea. Really."
And it really is; money was an invention of the market; I don't know if you remember that part. Governments have always sought to control money as a means of controlling people.
Money evolved out of the barter system, where I, as a pig farmer, traded with you, as a dairy farmer. I gave you some ham, and you gave me milk and cheese, and we were both satisfied with the arrangement. But maybe the only shoemaker in town was Jewish, so I had to trade some extra ham to you to get cheese, so I could trade the cheese for shoes. The shoemaker's son, who inherited the business, is lactose intolerant, so in order to get shoes, I have to find someone who wants ham, and who has some product the shoemaker wants, in order for me to get shoes.
But when there is a commodity that EVERYONE is willing to accept, the need for finding a shoemaker who likes ham and/or cheese, is eliminated. I trade ham for gold, which I use to buy cheese and shoes, which you and the shoemaker will accept because you have confidence that others will accept gold in payment for the things they produce.
Government, however, takes over the money, so that it can inflate away, using the money to buy things for political considerations (war, political patronage, etc.) without the danger of angering the populace quite as quickly as it would by raising taxes or borrowing. |
"'What prevents it now, I'd like to know?'
The Federal Reserve."
Well, either you are closing your eyes to a situation you do not wish to acknowledge, or you are not aware of the caliber of disaster indicated by the presence of a government-controlled institution managing our money "for us"....
Do you seriously believe that the Federal Reserve, when it pushes interest rates down to near 0%, is not inducing wild speculation in a variety of endeavors that might or might not be actually beneficial to the economy?
When I asked you what you paid for your first house, I meant in actual dollars, not inflation-adjusted dollars. It's an old "trick" used by stockbrokers and other money-management types to get people thinking about inflation. Most people who are advanced in age could answer that they paid more, in actual dollars, for their last vehicle than they did for their first house (I'm not saying you're a geezer, though). But think to the future, even. Can you see a time, within your lifetime, when a nice, middle-class-style car (not luxury) will go for $100,000 or more? If you can, then you must admit we have an inflation problem; and since the money supply is controlled by the Federal Reserve, which is a quasi-government institution that works for the benefit of the government, then one could reasonably claim that the government cannot be trusted to manage our money. |
"Do you seriously believe that the Federal Reserve, when it pushes interest rates down to near 0%, is not inducing wild speculation in a variety of endeavors that might or might not be actually beneficial to the economy?"
Boy, you have the weirdest ideas about how the economy works. Do you make these up yourself, or are you getting them from some other crackpot?
Are you the guy who kept insisting that the tax rate is federal spending divided by GDP?
'When I asked you what you paid for your first house, I meant in actual dollars, not inflation-adjusted dollars. It's an old "trick"'
I don't know what you mean by actual dollars in this context. Prices went up, salaries when up. A house costs six times what it did then, a kid fresh out of school with my level of education makes six times what I did then. If you DON'T adjust for inflation, you're just telling fairy tales.
"(I'm not saying you're a geezer, though)"
Of course I'm a geezer. I bought that first car forty-one years ago.
"you must admit we have an inflation problem;"
No, we don't. When inflation is as low as it is now and has been for the last couple of decades, it's just not a problem. The numbers on the bills and checks change, but nothing else does.
Inflation is only a problem when it's going so fast that the system can't adjust to it. When inflation is 16% per year, there can be many months of actual hardship before cost-of-living adjustments, annual salary increases, etc. compensate for the rise. When it's only 4%, you don't get out of kilter by more than a couple of percent. No problem.
"Read this book:"
Well, that answers my question about where you're getting your crackpot ideas. A guy at a libertarian think tank who published on Regnery. Try reading a few real economics books. |
Someone else jumps in at this point, his post and my reply:
Cheney may be wrong and that's fine. But I get just a tad bit frustrated when I hear how bad things were under Bush.
From Q4 2001 to Q4 2008 we had low unemployment(still low in comparison to the FDR years even at 11%) GDP Growth and low inflation.
What is it that was so "bad"? i survived an unemployment even though I had less than half the income without bankruptcy. Imagine that?
The collapse of the housing market the credit crisis took years to create and it wasn't all done on Bush's watch, for you libs who insist it was all him.
It started in 1977, got worse with some Clinton policies of '92, '95' '98. in '01 Bush complained that something needed to be done, 4 MONTHS into his presidency, again in '03. Dems claimed it was "riskless"(read Franklin Raines) in '04.
Again '05, Bush is still questioning the practices due to the screwup by Fannie and Freddie cooking the books. '06, McCain warns the same. 2007, Bush again calls for action while Dodd is lying through his teeth. And then you have the melt down.
And Bush did was what was asked of him even though I didn't support it. And, now The COW is about to take us down the road to serfdom. I only keep the faith that this time, I won't have to file for bankruptcy or lose my house during this stint of unemployment. That's how much all that money would help a responsible person who did it right. |
but not all of it was genuine, or else we wouldn't be experiencing this severe economic downturn.
For capital goods industries and other longer term projects to be good investments, they need low interest rates for the long term. In a free market, interest rates are only lowered when a large enough section of the populace decides to save rather than to spend (high savings = larger supply of loanable funds = lower "price" for renting the money from the saver; i.e., lower interest rates). When a majority of people would rather spend the money now, that means that there is less money to lend out, which means higher interest rates. High interest rates are not conducive for making long-term investments, such as building a steel plant. In a high interest rate environment, entrepreneurs are better off producing consumer goods that can be gotten to the marketplace relatively quickly.
But when the Federal Reserve artificially lowers interest rates by inflating the money supply, it makes the entrepreneurs think that building a steel plant can in fact be a profitable endeavor. But although the money can be more easily obtained, it is not true that the underlying resources that the money represents, such as the brick, steel and mortar for the buildings, the labor to build it and work in the plant, have increased. At first, the problems don't show up because you don't generally have ALL the bricks delivered on day one. But when the cycle nears its end, the many different entrepreneurs who started all their long-term projects suddenly find that the resources they need to complete their projects are really much scarcer than they were led to believe by the low interest rates. With each project leader trying to be the first to acquire the shrinking pool of resources, they bid up the prices up for what's left, relying on bank loans to quickly acquire what they need. The greater demand for loans drives the interest rates up and we have the inevitable bust. |
| I highly recommend that you acquire and read the book "Meltdown" by Thomas Woods; he discusses some of the issues you mentioned, like the CRA, the Fannie Mae and Freddie Mac fiasco, and the "too big to fail" mentality. But he argues persuasively that the primary cause of the current crisis, and the reason some of those other factors were exacerbated, is the same culprit that is always behind the "boom-bust" cycle--the inflationary Federal Reserve. |
Now, back to Munck:
"Boy, you have the weirdest ideas about how the economy works. Do you make these up yourself, or are you getting them from some other crackpot?"
I understand this is a new paradigm of economic thought for you; I myself thought this was crackpot theory at first. I've read Milton Friedman's "Money Mischief" twice, and he was a big proponent of the fiat money system, and I generally went with what he said.
But Friedman's analysis doesn't square with the historical facts as well as the Austrian Business Cycle Theory does. As for Keynes' theories, they are popular with the powers that be because he gives a certain sophistication to the idea that the government can and should intervene heavily in the economy--in other words, it gives the government intellectual cover for its power grabs.
I haven't (that I remember) claimed that the tax rate is federal spending divided by GDP; but it is true that all Federal spending must eventually be paid through taxation--even if the taxes won't be implemented for decades.
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you write: "I don't know what you mean by actual dollars in this context. Prices went up, salaries when up. A house costs six times what it did then, a kid fresh out of school with my level of education makes six times what I did then. If you DON'T adjust for inflation, you're just telling fairy tales"
What I'm saying is that we shouldn't have to adjust for inflation. Price inflation is a result of monetary inflation. The Fed inflates the money supply, and as the money percolates through the banks to the eventual consumers, prices begin to rise generally. This is different from situations where one commodity or sector sees price rises. For example, the price of oil may increase dramatically. Without monetary inflation, what we would see is that consumers would pay more for petroleum-related products, but adjust their spending on other products downward.
With monetary inflation, though, you have more dollars chasing fewer goods, which eventually results in general price inflation. It doesn't "just happen."
And in a free market of money, inflation would be held down by the simple fact that you are not compelled to accept the currency of any institution that you don't trust. Banks would have to keep their notes trustworthy or they would lose business to more honest rivals. Also, with a stable or even static money supply, one should see a gentle deflation over the years as productivity increases in the economy. That's what we saw in the latter half of the 19th century, under the gold standard. |
"Boy, you have the weirdest ideas about how the economy works. Do you make these up yourself, or are you getting them from some other crackpot?"
http://mises.org/story/3368
"Even mainstream macroeconomists — whether neoclassical or New Keynesian — have come to realize over the last few decades that long-term predictability in monetary policy has definite advantages, and that in the long run, the best thing the monetary authorities can do is provide a currency with stable purchasing power."
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You write: "Well, that answers my question about where you're getting your crackpot ideas. A guy at a libertarian think tank who published on Regnery. Try reading a few real economics books."
Do you have any to recommend, or is that just your way of wiggling out of this discussion?
I'll admit that I haven't read Keynes or Marx or Krugman, since I get the impression that they write merely to give impetus to state control, and the practical implementation of the economic policies they advocate has been historically shown to introduce and increase inefficiencies in the economy, redirection of resources from productive uses to less-or-non-productive uses that are nevertheless politically advantageous, and a tax-and-regulation set of schemes that result in a general decrease in the production of goods and services, which means a lower quality of life for everyone. |
And that's it. Apparently, Munck either thought he reigned supreme, and totally shut me down by calling me a crackpot, or he got scared and ran. I could speculate that he stopped posting because he's no longer with us, but I have seen him post comments after this, on other blog entries.
Update 05/01/2009: I found this site through
www.lewrockwell.com that discusses the CPI and why it understates inflation. This argues against Munck's theory that inflation hasn't been a problem. Here's the site:
http://www.shadowstats.com/And here's the link to an article on the CPI:
Also, here is an excerpt I find interesting: "Up until the Boskin/Greenspan agendum surfaced, the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.
The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that."