LIFTICVSMAXIMVS wrote:
…
“Now move along folks…nothing to see here. We just going to float some more money into the system. If prices rise (as they have since the creation of the Fed) do not worry it’s absolutely normal under central planning authority…P.S. it isn’t stealing because we’re from the government and we only mean well!”
What a joke! Keynesians think government intervention is as natural as gravity. Of course they think Austrian free-marketers are wrong. Who would benefit under such a system…?
BostonBarrister wrote:
The kicker is that many of the critiques of Paul - and most of the ones I find - are from libertarian-leaning academics.
Nominal Prospect wrote:
No, they aren’t.
The term “libertarian” gets thrown around a lot by people who don’t understand it. Bill Maher calls himself a libertarian, for instance. He’s not.
The Lew Rockwell and Von Mises crowd are the true libertarians. Rockwell was a close friend of Rothbard’s, who practically founded the movement, and was taught by von Mises.
Very few liberal academics are capable of grasping what libertarianism is really about. There is a huge amount of confusion and mislabeling in the political and economic lexicon. For instance, you have “free market” economists endorsing price controls, central banks, etc… You cannot take people’s own, self-appointed labels at face value.
Ron Paul IS libertarian. The academics who criticize him aren’t. It’s that simple. I’m telling you this because I’ve known about him for years. If Ron Paul isn’t a libertarian of the purest sort, then everything I know about that particular ideology must be wrong. I highly doubt that’s the case.[/quote]
There are a lot more libertarians than there are Libertarians.
BTW, I just love how critical posts of Ron Paul stir up internet Paulnuts…
orion wrote:
And I just love how the myriads of economists who disagree with Ron Paul are always mentioned yet nobody takes the time to tell us were he is so obviously wrong.
Please enlighten us, because the 10000000 economists I just drew out of my ass say you can`t.
Someone rather more partial to Ron Paul’s arguments in favor of the gold standard than I am asks me to write a post outlining my objections to it. All right, here goes.
Money is a mysterious thing. It is a store of value, it is a medium of exchange. It is, in a fiat currency economy, worth only what people think it is worth, and what they think it is worth can be oddly affected by what they think it may be worth in the future, resulting in self-fulfilling feedback loops (at least in the short term). Even in non-fiat currencies, such as the gold standard, the value of the underlying asset can be changed by rising (or shrinking) demand for money. Economists studying this fascinating topic tend to suffer from migraines as they suffer from all the mysterious–hell, nearly mystical–attributes of money.
However, over the last fifty years, economists have settled on some very broad areas of consensus. The first is, as famous libertarian monetary economist Milton Friedman wrote, “inflation is always and everywhere a monetary phenomenon”. When the supply of money outstrips the demand, prices rise. And this is by no means limited to fiat currencies; see the great Spanish inflation of the 16th & 17th centuries ( http://www.straightdope.com/classics/a2_437.html ), thanks to the steady influx of gold from the New World. Or check out the price of basic commodities in mining towns during the Gold Rush, when all anyone had was gold.
The second is that a little bit of inflation is okay–possibly even beneficial, since it helps the economy to overcome the problem of sticky wages ( Sticky Wages ) when the relative value of labour has fallen. But a lot of inflation is very, very bad. Exhibit A is Zimbabwe; Exhibits B-�?? are every other economy that has had inflation near or above the double-digit mark; the higher the inflation, the worse the economy did. The feeling that the currency will experience an unpredictable amount of inflation dampens the willingness of the citizens to save and invest, which is why so many third-world loans are denominated in dollars.
The third is that deflation is also bad, and at the lower percentage values, often even worse than inflation. This surprises/offends/meets with the frank disbelief of many “sound money” types, who think that, barring local shortage, in an ideal world everything ought to cost the same or less than it did when Grandpa was a boy. (These sorts of opinions are cemented further by the fact that Grandpa, who is often the source of them, is usually living on a fixed income, and therefore feels that he would make out better in a deflationary economy.) The problem is, deflation does rather devastating things to anyone who has debt, since they now have to repay what they borrowed in more expensive dollars. Deflation means that, thanks to the abovementioned sticky wages, the economy has to deal with demand shocks by lowering output. Deflation can result in what’s known as a liquidity trap, a concept pioneered by liberal economist John Maynard Keynes and best elucidated by liberal economist Paul Krugman ( Baby-Sitting the Economy )back before he left economics writing to focus on his hatred of George W. Bush. Deflation is what made the Great Depression so memorable. Deflation is so bad that almost everyone agrees that moderate inflation, in the range of 1-2%, is better than risking even a small amount of deflation.
Advocates of a gold standard dispute this. They argue that America experienced a long, slow deflation throughout most of the 19th century, without anyone getting hurt. What they neglect to mention is that people did get hurt, repeatedly, in the period’s awful financial contractions. Though we don’t have modern economic statistics for the period, it’s pretty clear that recessions were longer and deeper than they are now ( Lists of recessions - Wikipedia ).
This is not only due to the gold standard; the era’s primitive financial system and its approach to financial regulation, which often ranged between lighthearted and foolhardy, also played substantial roles. But the gold standard also has to stand up and take a bow. There’s a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.
The gold standard cannot do what a well-run fiat currency can do, which is tailor the money supply to the economy’s demand for money. The supply of gold grows–or not–depending on how much of the stuff is mined. Demand also fluctuates for non-economic reasons; gold has uses besides being money, like industrial components and jewelry.
The lone advantage of a gold standard–and it is a real advantage–is that it prevents governments from inflating the currency. The problem is, this is only moderately true. The government, after all, can always modify its gold standard. Yes, you say, but it will pay a price in the markets, and this is true, but this is the same price it pays when it prints more fiat currency. Such practices do not go unnoticed for long.
As James Hamilton has pointed out ( http://www.econbrowser.com/archives/2005/12/the_gold_standa.html ), gold-backed currencies, like all money with a fixed exchange rate, are subject to speculative attacks whenever the government’s financial position looks weak. Such speculative attacks often require punitive economic measures to fight off, which is one of the reasons that America suffered so nastily from the Great Depression–it raised interest rates in the middle of a recession in order to defend the credibility of its currency.
Also, since devaluations tend to produce sharp changes in the values of currencies, rather than smooth appreciations or declines, the economic dislocations are magnified. Imagine you’re a company with a contract denominated in dollars. If the value of the dollar gradually declines, you lose a little, but not too much, since you periodically renew the contract, giving you time to adjust the amounts. If, on the other hand, the devaluation pressure builds up over a period of years, and then all at once the government has to devalue by 20%, you end up badly hurt. You might go out of business. Now multiply that all across the country, and you can see why recessions used to last for years.
In short, you don’t get anything out of a gold standard that you didn’t bring with you. If your government is a credible steward of the money supply, you don’t need it; and if it isn’t, it won’t be able to stay on it long anyway. (See Argentina’s dollar peg). Meanwhile, the limitations on the government’s ability to respond to fiscal crises, the necessity of defending against speculative attacks in times of crises, and the possibility of independent changes in the relative price of gold, make your economy more unstable. It’s a terrible idea, which is why there are so few economists willing to raise their voices in support of it.[/i][/quote]
This is a response to an article by David Frum, but I think it fits in here:
You Cannot Be Serious
David Frum, a political commentator with no economics background whatsoever, chides Ron Paul for being self-taught on economics and claims that Paul has taught himself the opposite of what has been serious science from Alfred Marshall to Milton Friedman.
Paul is an advocate of the Gold Standard, and a critic of central banking. But let the record be clear — Milton Friedman was a critic of discretionary monetary policy, he advocated a monetary rule, and in later life became increasingly concerned with public choice problems in following the monetary rule. He suggested that a computer run monetary policy at one point to take the human element out of it, and he also had favorable things to say about alternative banking regimes. In addition, his critique of the gold standard was not as vociferous as some would have you believe. He argued that the costs of the gold standard were too great. (see Roger Garrison’s piece on this) However, he did admit that the gold standard had served as a useful check on inflation for many years. See Friedman’s Monetary Mischief. He did not, it must be stressed, advocate a return to a gold standard for a variety of reasons. In his last interview on the subject that I am aware of — a podcast with my colleague Russ Roberts — Friedman advocates the central bank practice of “inflation targeting” and singles out Don Brash for his exemplary performance as central banker in NZ.
Friedman and the gold standard advocates share a fundamental bond ---- inflation is destructive to an economy and ultimately to a civilization. Good policy must fight inflation.
Friedman stated the facts on inflation as follows:
Inflation is everywhere and always a monetary phenomena. Its cause is a more rapid an increase in the quantity of money than in output;
Governments determine the quantity of money;
There is only one cure for inflation, a slower increase in the quantity of money;
It takes time for inflation to develop; it takes time for inflation to be cured (measured in years not months);
Unpleasant side effects are unavoidable.
Pundits like Frum believe that economic policy can be designed to avoid the unpleasant side effects of previous policy errors. But there isn’t any silver bullet here to provide a quick and easy fix to decades of monetary irresponsibility. As I said before, we don’t need government intervention, we need market correction. Market forces, if allowed to operate freely, will work quickly to reallocate labor and capital and shift resources to higher valued uses. Furthermore, if allowed to operate unencumbered by restrictions and controls, the lure of the gains from trade and the gains from innovation will ameliorate many (not all) of the side-effects. As Milton Friedman said, we have been misled by false teaching in economics to believe that there is a trade-off between inflation and unemployment. This dichotomy is false. The choice is not between inflation and unemployment, but between high unemployment as a result of inflation, or unemployment as a temporary side-effect of the cure for inflation. Playing the policy game of always pushing off market corrections through easy money, is as Hayek warned like holding a ‘tiger by the tail’.
Right at the time that David Frum is ridiculing Ron Paul’s for holding economic ideas that have been rejected from the time of Marshall to Friedman, we learn that the European Central Bank is injecting $500 billion into the banking system to ease the market corrections that must result from the previous credit expansion. That tiger is getting awful hard to hang on to!!!
And, Mr. Frum should look up the various Nobel Prize winners in economics, starting with Hayek, who have been concerned with government monetary policy and looked to a commodity backed money as a viable alternative. The ‘self-taught’ economics of Ron Paul (whatever other problems I might have with him and his presentation of these ideas) is grounded in sound scientific economics. An understanding of the logic of human action, the coordinating capacity of the market economy, the problems with bureaucracy, the special pleading of interest groups, and the destructive capacity of inflation are fundamental to his economic policy message. I hope my students learn those lessons from reading Adam Smith, David Hume, J. B. Say, F. A. Hayek, and James Buchanan. None of these names are on the ‘crackpot’ list of economists. Some might want to call Mises a crackpot, but the reality is that his work, more than any other 20th century economist, has all those arguments integrated into it and presented in a coherent and comprehensive manner. Mises was not a crackpot, but perhaps the most insightful economic thinker in the world at a time when the world itself was upside down. He was an anti-socialist when the world looked upon socialism with hope, and he was an anti-Keynesian when the discipline of economics all moved in the Keynesian direction. Subsequently we learned that socialism led not to hope but to political tyranny and economic deprivation, and Keynesianism was logically flawed in lacking microfoundations, and practically flawed in leading to world-wide inflation and economic stagnation. In other words, Mises was right! In fact, I think one could make a reasonable argument that Mises was right on every single controversial position he held — from methodology to public policy.
So where does that leave us? Well, we have monetary injections on top of an already precarious financial situation. Market adjustments are required, not interventions of easy money.
I can think of no better response to Mr. Frum’s claims about economic teachings than John McEnroe’s now famous line at Wimbledon — “You CANNOT be serious.”
ADDITION: See Richard Ebeling’s discussion of Friedman and the Gold Standard.
The main point is, that while I even agree with the last paragraph you posted, i.e if you have a responsible government you probably do not need a gold standard and if you don´t you won´t have it for long, his theories are not so “far out there”, “kooky”, “badly understood” as people like Mick28, who never read an economic textbook in their life would like to believe.
Almost all serious replies to Ron Pauls ideas acknowledge that he has a point, it is just that he thinks that liberty is what is most important, not even, but especially in economic issues, others think other aspects are equally or more important.
Since we do not have a final answer because it is a question of priorities, this is a political question and, voila, he is running for a political office.
[quote]Mikeyali wrote:
Go easy Lifty, I was being sarcastic.
mike[/quote]
No worries, I understood it as such but was just using it as an opportunity to show that the disagreements aren’t really that large but rather just due to how some of the conclusions are arrived at incorrectly – such as via mathematical proof.
[quote]orion wrote:
…
The main point is, that while I even agree with the last paragraph you posted, i.e if you have a responsible government you probably do not need a gold standard and if you don´t you won´t have it for long, his theories are not so “far out there”, “kooky”, “badly understood” as people like Mick28, who never read an economic textbook in their life would like to believe.
Almost all serious replies to Ron Pauls ideas acknowledge that he has a point, it is just that he thinks that liberty is what is most important, not even, but especially in economic issues, others think other aspects are equally or more important.
Since we do not have a final answer because it is a question of priorities, this is a political question and, voila, he is running for a political office.
[/quote]
Oh, I definitely think there is a point - particularly in the description of the problem. But as I’ve stated before, the use of a commodity standard has its own problems - and it seems to me that when discussing them with people it’s like discussing communism in that the answer you get is: it hasn’t REALLY been tried correctly. I feel similarly about monetarism as I do about democracy: it’s the worst idea except for all the other ideas that are out there.
Our current system is more problematic than pure monetarism because the Fed has been given dual priorities: control inflation and promote full employment. Those can obviously run at cross purposes, as they seem to be doing currently…
[quote]BostonBarrister wrote:
Oh, I definitely think there is a point - particularly in the description of the problem. But as I’ve stated before, the use of a commodity standard has its own problems - and it seems to me that when discussing them with people it’s like discussing communism in that the answer you get is: it hasn’t REALLY been tried correctly. I feel similarly about monetarism as I do about democracy: it’s the worst idea except for all the other ideas that are out there.
Our current system is more problematic than pure monetarism because the Fed has been given dual priorities: control inflation and promote full employment. Those can obviously run at cross purposes, as they seem to be doing currently…[/quote]
Quite right!
The argument is not that there aren’t or weren’t problems with commodity money but rather if the problems discussed are even relevant.
The Fed cannot solve both “problems” at the same time because they can only do one thing and that is affect the money supply.
Why is full employment important? If markets need to correct due to changing technologies, for example, it doesn’t matter what the Fed does to try and correct it. It will always result in malinvestment.
The Fed cannot know ten years from now that we will be using hydrogen verses hydrocarbon for energy which will require a divergence in current investments. The only thing they can affect is immediate investments and who is to say it is the correct decision for our future?
These are the unintended consequences that interventionism has. This is why most “libertarians” promote an absolutely free-market.
As for arguing for the gold standard the reason why most libertarians would want such a thing is to restrain the government. Economic consequences be damned – they are going to happen anyway.