Continuation from this thread:
http://mises.org/Community/forums/t/28462.aspx
After these conversations I sent him the standard "depression of 1920 vindicates capitalism" argument in my own words. It was probably a 5 page paper I emailed him with facts and figures. It seemed pretty irrefutable. His response: an atlantic article titled The Hero: ben bernanke saved the global economy. So why does everyone hate him? (see below)
http://www.theatlantic.com/magazine/archive/2012/04/the-villain/8901/
I will BOLD quotes from the article by Lowenstein and ask my questions in regular text.
I read over the article, and it delves into some things I, admittedly, do not have vast knowledge on. These include the previous two federal reserve banks. the article states
"The first, organized by Congress in 1791, was allowed to expire after 20 years, leaving the young republic with only a patchwork system of weaker state banks. During the War of 1812, Congress realized its error (in the absence of a central bank, inflation had run rampant), and in 1816, it chartered a second bank, again for 20 years. The Second Bank of the United States was, in the main, a success. Its notes were circulated as currency, and it astutely managed their supply so as to keep the economy humming. Alas, President Andrew Jackson, a fierce opponent of both paper money and national banks, campaigned in 1832 against renewal of the charter, and indirectly against the bank’s brilliant but impetuous head, Nicholas Biddle. Resentment against financiers was running high, and the election became a referendum on the genteel Philadelphia banker versus the rough-hewn war hero—and a referendum on the bank itself. Jackson won, and the Second Bank was, per his promise, destroyed. The U.S. economy promptly plunged into a severe depression."
DId the economy, in fact, go into depression after the bank was dissolved? And if so, was this simply the bursting of a bubble created by the second central bank of the US?
it goes on: "Over the past four and a half years, Bernanke, 58, has presided over the most sustained period of crisis of any civilian official in recent history, with the fate of millions of unemployed and underemployed Americans hanging in the balance."
seems like this would count against him, but if it does, couldn't the same argument be used against us that it was poorly regulated capitalism that caused it and he just had to deal with it. I know that the data does not support this, nor does logic, but in a quick debate, it seems it would be hard to shield against that response.
the article: "Only recently has the economy begun to show signs that the recovery is gaining steam. Since August 2007, Bernanke has deployed the Fed as the lender of last resort to the banking system and worked overtime to furnish an “elastic currency”—that is, to keep enough money in circulation for the economy to function. These were the very tasks that the founders of the Fed envisioned. Bernanke has performed them by tripling the size of the Fed’s balance sheet—to an eye-popping $2.9 trillion—and by inventing a welter of new programs to lend to banks and other private-sector institutions. For most of the Fed’s history, popular opinion—being generally opposed to depressions—has favored such efforts, but today the public’s disgust with government, and with banks, has cast a shadow of suspicion upon Bernanke."
'Last resort'? Really...?
"During the financial crisis of 2007–09, he bailed out a handful of large banks and devised a series of innovative lending operations to disperse credit to banks, small businesses, and consumers (virtually all of these loans have been repaid at a profit to taxpayers). He also lowered short-term interest rates to nearly zero and made private banks run a gantlet of stress tests to ensure some minimal level of solvency going forward."
Is this even superficially true? I know that the government can manipulate all sorts of data with all kinds of unconventional accounting practices. Is this the case here?
"This second phase has been, if anything, more controversial than the first. Its success is much harder to measure (we have no way of knowing whether the economy’s improvement would have been less robust, and how much so, without Bernanke’s efforts)."
Seems like an argument from ignorance. You could make the flip-side argument that because of this uncertainty, how could you say it's impossible he hasn't hurt the economy?
"Texas Governor Rick Perry said in August that Bernanke, who steered the economy out of its worst slump since the Great Depression, was 'almost treacherous—or treasonous in my opinion.'...Newt Gingrich called Bernanke “the most inflationary, dangerous” Fed chairman “in history.”...Mitt Romney, who had previously praised Bernanke for doing a good job, promised in September that if elected he would replace him, as did Herman Cain (Bernanke’s term expires in 2014)."
So far roger has only mentioned bachman, Gingrich, Cain, Romney and Perry as the main attackers on Bernanke, plus Paul, which is the only candidate that makes sense to quote (and maybe Cain) given Paul's knowledge and background, and Cain's having been the Dallas Fed Chairmen. I guess it makes sense to show the "views" of the next person who may become president. But, it seems like he's setting up a fight that isn't really very fair or well represented. I guess he is just looking out for the nominees for GOP.
"(Gingriche's statement is) remarkable...given that during Bernanke’s tenure, inflation as measured by the Consumer Price Index has averaged 2.4 percent, lower than that under any other Fed chief since the Vietnam War."
Again, are these numbers just a lag in inflation that we will see and feel soon?
"Though Bernanke is a Republican, Republicans in Congress have conducted a sustained war against him, threatening to audit the Fed’s interest-rate moves; accusing Bernanke of cover-ups; refusing to fill two vacancies on the Fed’s board of seven governors, the body that Bernanke chairs; and protesting his policy briefs on mortgage reform. Last September, when Bernanke was planning to launch his latest stratagem for spurring the economy, known as Operation Twist, the Republican House and Senate leadership publicly called on Bernanke to desist—a rare attempt by Congress to meddle directly in monetary policy. Bernanke defied them."
Seems like this just goes to show how rogue and dictator-like this guy is. Of course there are no regulators on the regulators, but even the regulators can't regulate. I would hope this exposes Ben's arrogance. Also, My friend claims the Fed has been audited. I know it has not in any detailed way. What might he be referring to?
it goes on...
"At the time, inflation was trending down toward 1 percent, worryingly close to the negative territory known as deflation. One reason the Great Depression lasted so long is that prices kept falling, year after year. A primary aim of Bernanke’s new program was to ward off deflation, which it did. But this success has not been nearly enough to satisfy Bernanke’s critics on the left—who have been pushing the Fed chief to initiate (within some limits) the very inflation that those on the right fear."
I have never understood the argument that deflation and price decline is really ever a bad thing. Perhaps it's good my mind doesn't work that way but I would like to understand the rational, however poor it may be. Keep your enemies close kind of thing. Anyway, because I dont understand their argument, I can't really tell them why they are wrong, or I cant tell them in any different way than I already have. This is a particular point i want a lot of clarification on because my friend was so adamant that deflation is also a terrible thing.
"In December, he felt compelled to release a letter to Senate leaders in which he distinguished Federal Reserve loans, which have not cost the taxpayers anything or added to the federal deficit, from “government spending”—a simple point, perhaps, but one that is often confused in the public discourse."
please explain "how could it not in any real sense?"
"the Fed chief urged me to pick up a copy of Lombard Street, a seminal book on central banking written by Walter Bagehot, the 19th-century British essayist. “It’s beautiful,” Bernanke said of the book—obviously appreciating that Bagehot had urged central bankers to take vigorous action to forestall panics."
anyone read it?
"Bernanke has been an ineffective lobbyist for agendas beyond the Fed’s purview, such as long-term deficit reduction or mortgage reform. Nor has he exploited the natural leadership role of the Fed chairman on the world stage, for instance during the crisis in Europe."
bullshit
"“What Bernanke discovered was that it wasn’t the quantity of money, it was that the banks stopped lending,” says Stanley Fischer, formerly Bernanke’s thesis adviser at MIT and currently the governor of the Bank of Israel. “More than the decline in money, it was the collapse of credit.” The implication was that regulating banks in good times—and, if need be, rescuing them in bad—was of prime importance, something Bernanke would remember in the 2007–09 crisis."
Collapse of credit that was never real in the first place, right?
"The particular problem of the ’30s was deflation: goods were worth less each year—or, alternatively, dollars were worth more. In a mirror image of inflation, no one would spend, because lower prices were forever just around the corner, and no one would borrow, because they would have to repay their debts with more valuable currency.The central bank cut interest rates to try to induce borrowing and spending, but then it was bereft of tried-and-true methods of stimulating the economy. Production and employment kept spiraling downward; Keynes called this a 'liquidity trap.'"
if this is the argument against deflation doesnt it beg the question: "Arent these problems also just a symptom of an unstable (fiat) currency?" and what exactly is a liquidity trap?
continuing..."But while Bernanke recognized the danger in theory, he did not anticipate the looming crash in home prices. Indeed, he argued that central banks, including the Fed, had tamed the extremes of the economic cycle."
and who was it exactly that did see it coming? Hmm...oh yes, the austrians.
"he overlooked the fact that dicey mortgage-backed securities made up a sizable portion of the assets of the biggest banks. “Risk was concentrated in key financial intermediaries,” he told me. “It led to panics and runs. That’s what made it all so bad.” Speaking of government officials collectively, he added, “Everyone failed to appreciate that our sophisticated, hypermodern, highly hedged, derivatives-based financial system—how ultimately fragile it really was."
And who was it exactly that made those toxic assets so appealing? Hmmm...
"These criticisms aside, if one is assigning blame, it is important to note that the bubble inflated almost entirely on Greenspan’s watch. The time to avoid a crash was when mortgages were getting written, or when banks could still sell off assets without sparking a panic; by the time Bernanke arrived, a crisis was probably inevitable."
How are bernanke's policies any different from greenspan's policies when old greeny was chairmen, after he betrayed his mostly free market ideals? Greenspan largely helped perpetuate two large bubbles and bernanke is remedying them with the same policies, right?
"Brian Madigan, a former senior official at the Fed, made just that argument after the crisis, and also wrote that Bagehot’s principles “need to be interpreted and applied in the real world.” One senses that he was speaking for the chairman. With the financial system on the brink of collapse, bailouts were deemed to be the lesser of two evils."
besides talking about the depression of 1920, which failed to ultimately convince my friend, what else can be said to refute this?
"So far, the hawks have seen inflation around every corner. So far, they have been wrong, and Bernanke has been right."
I must admit, I thought the inflation would have hit us a while ago. What is happening there?
Bernanke even openly admitted to "...Congress in February, 'Our nation’s tax and spending policies should increase incentives to work and save,' but his nearly zero percent interest rate clearly discourages saving."
So, how if he knows savings is the back bone of real credit and a strong economic atmosphere, why does he not cease his policies, and why did he enact them in the first place?
Former Fed governor Warsh seems to understand it brilliantly, "'We have been trying to fake a housing recovery for four and a half years,' he says, meaning that each Fed purchase elevates the market above its inherent level."
"By this thinking, bankruptcies and foreclosures play a restorative role—returning assets to the market newly unleveraged and reasonably priced. The argument has emotional—almost religious—appeal, the downward repricing of assets being the market’s form of atoning for sin. Bernanke encountered this idea in November, when he visited military families at Fort Bliss, in El Paso. A woman asked him whether “we should be looking to get ourselves back to where we were … when it comes to how people live, buy homes, save, invest.” The chairman drew a breath and acknowledged, “That’s a very deep question.” His answer was revealing. While insisting he has no wish to return to overpriced homes and lax mortgage standards, he added, 'I’m not a believer in the Old Testament theory of business cycles. I think that if we can help people, we need to help people.'"
Speaking of emotional appeal, Ben clearly ignores the logic of the woman's question by replying with an emotional answer. If it's so important to help people, why doesn't he do it out of his own pocket. Best of both worlds i guess: helping people with other people (or the victim's) own money.
Here he elaborates a little further: "'There is a thesis that the only way to restore the economy is by a necessary purging of previous excesses. In disagreeing, I am not saying there are not imbalances that need to be fixed. That said, there is still scope for policy to ameliorate the effects of necessary rebalancing on the public, to help shorten the recession. A massive decline in employment slows the rebalancing and deleveraging processes rather than speeds them; people don’t have the income to pay their debts. So the argument is: where you can, you try to short-circuit the process by urging banks to take losses and modifications, and recapitalize. Obviously, you need to get bank balance sheets healthy, and individual consumers healthy—but subjecting the system to high unemployment and high rates of bankruptcy and foreclosure is a very inefficient way to get there.'"
Is this just a broken window fallacy, or is there more that I am missing?
"Bernanke is more conservative than his Republican critics imagine, but as he has stated publicly, he finds the prospect of millions remaining unemployed “unacceptable.” He is particularly worried about the many people who have been out of work for more than six months. Like FDR, he is willing to try what works, or what might work"
Is it realistic to believe that millions would have been unemployed, even for a short time, if the market had had the opportunity to fix itself? Aren't there millions still unemployed now? Not even a case of the "unseen". We clearly see millions are unemployed.
"His mentor, Milton Friedman, thought the business of adjusting interest rates was so tricky, it would be better to yield the job to a computer. But Bernanke thinks a human can do it. "
Was Friedman really his mentor? Didn't Friedman admit late in life that he was wrong about the Fed and the monetarist's theory of money and central banking?
Anyway, thats all. I do have one final question. Is there anyway to know, or are there signs that point to, when an intervened economy will simply bounce back from the intervention, as it has in all previous depressions in the US and when it will simply enter into a hyper-inflationary phase such as that of Germany's in 1923? What I mean is, when a bubble bursts, and regulators and central bankers create a new one to make it appear they fixed the economy, at what point does the law of diminishing returns totally clauber the efforts of the central bankers? Why do we bounce back from the great depression but not from Germany's depression in 1923. I know they bounced back, but the market appears to have had to forcefully thwart the governments efforts. I don't know if my question is clear, but I would really like to know. At what point is fiat money inflating so quickly that it becomes totally pointless. Also, any remarks you can add to any of these questions is appreciated, but try to refrain from alluding only to the depression of 1920. He appears to find little convincing in that other than his saying "you paper was well-researched and impressive. I work 16 hours a day so I dont have time to refute it, but here is this article." Thanks guys. Ill post my response to him that caused him to give me this article.
Here is the paper I emailed him that caused his response to me with this article talked about above. You can read it if you like. I damn near plagarized one particular free man article, but who cares...its only IP. Anyway, here ya go. The reason this all started was because he asked me to watch Too Big to Fail, the HBO re-enactment of the current crisis.
Hey man, I just finished watching Too Big to Fail and as far as factual representation of what each person did, it seems ok in my honest opinion. That being said, what the movie seems to imply is that Bernanke and Paulson saved us all. My opinion on this matter has not changed. Let me clarify my argument and state some terms then I'll take a rebuttal from you. I understand that our argument was over dinner and in the company of a disinterested girl friend. However, you only made mere assertions that were not backed by any evidence. I would like to give you the opportunity to present hard, well-known facts that support your argument. Shot me those as your rebuttal. Here goes mine!
The “Too Big to Fail” argument is largely founded on fear rather than truth. As you (and many others) have stated, “we wouldn’t have lasted the winter.” I think that the fact that we did, given the bailouts, proves my argument and here is why. Where did the money come from to bail out the banks? It was created out of thin air. The government did not tax us, they printed the money necessary to acquire the toxic assets (derivatives, mortgage backed securities, sub-prime loans). As you know, when you inflate the money supply, all you are really doing is spreading the loss of the value of he dollar across everyone in possession of that dollar, usually at the largest cost to the poor because they are the last to get to use these new dollars. In the case of the bailouts, what this means is that you take money from the profitable members and firms of society, and give it to the unprofitable members and firms of society in the form of monetary injections. You have not fixed anything. You are creating the illusion that unprofitable firms are actually profitable, and then furthering and prolonging that illusion with the bailouts. All of this is at the cost of entrepreneurs and consumers who must give up resources to less efficient firms instead of to more efficient firms. Bad investments must be liquidated. This is what I meant by the interest rates serving as market signals to entrepreneurs as to where to invest resources. Fiat money is irrelevant. Money is a means by which to acquire scarce resources. Fiat money is not bound to scarcity but resources are. So let’s say the Fed pumps into the banking system an additional 2 billion dollars. They lower their interest rates to the banks so the banks will quickly take this money to lend out. The bank now has more money in reserves (more supply) so it lowers its interest rate (how much the money costs) on loans to borrowers. This signals the entrepreneur to believe that savings has risen, which means consumers want to save now to spend in the future. Now the entrepreneur sets off to build a house. Unaware that this savings is artificial (the market has not actually saved 2 billion dollars) the entrepreneur has set out on a project that is not as sustainable as he was led to believe. It would be the same as if he had acquired 100 bricks to build the home, thinking this would be enough, when he actually needed 150. The resources simply aren’t there to build the house. So, is it better to tell him now when he has only used 50 of his bricks, so he can cut his losses and go home (the recession)? Or do we wait till he has laid his 99th brick and then let him really figure it out? Eventually there is no way to stimulate the economy. You can avoid the inevitable only for so long. Eventually the jig is up and there is nothing the Fed will be able to do about it. Better to reallocate resources now, than waste more of them, and figure out the harder way that you’re fucked. No law we can pass can create resources out of thin air, and the bailouts are simply a bait and switch magic trick that lets it appear that we can. You might as well regulate the laws of gravity; they are an exercise in futility. The market, like gravity, will do what it will. It will correct itself, just as a rocket that runs out of fuel will fall to the ground. I wont even go into the Moral arguments against such confiscation of the public, I think you know it is wrong.
I also think in theory you agree with me on all of this, but you think that it is just that: theory; it doesn’t really apply to the real world as we know. I don’t think anything could be further from the truth. Lets look back to history on this one.
Depression of 1920 v Depression of 1929
There is a little known depression that monetarists such a Milton Friedman and Keynesians love to ignore because it proves the free markets ability to fix recessions and depression more efficiently than government could ever hope to. In fact, this depression is probably about the closest we could get to observing a controlled experiment in macroeconomics that one could find. The year is 1920, and the Fed was only a wee 7 years old at this point. WWI has finally concluded, and because of the war the Federal debt had blown up to massive proportions. Consumer price inflation rates had jumped up to 20%. From fiscal year 1919 to 1920, Harding slashed Federal spending from $18.5 billion to $6.4 billion. This is a 65% reduction in just one fucking year! The following two years it was finally pushed down to $3.3 billion when 1922 hit. As for the Fed, it pushed its discount rate all the way up to 7% by June of 1920. While at first it might seem like this nominal rate was actually looser than the 1.5% discount rate charged in 1931 because of inflation rates, in actuality the price deflation of the 1920-21 depression was more severe! From that peak in June of 1920, the CPI fell 15.8% over the course of a year. In contrast, year-to-year price deflation never reached 11% at any point in the Great Depression. No matter if we look at nominal interest rates or rates adjusted for inflation it is still clear the Fed was very tight during the 1920-21 depression and quite loose during the Great one. Even though the Fed cut its interest rates to record lows at the onset of the Great Depression, the total money supply held by the public collapsed by a third from 29-33, which is exactly why Friedman blamed the Fed for “not doing enough” to avert the great depression. According to him, by flooding the banks with newly created reserves, the Fed could have offset the absurd cash withdrawals of the public and kept the overall money stock at a constant. Unfortunately for Friedman, this argument still does not display why the 29-45 downturn should have been more severe than the 20-21 depression. The collapse of the monetary base during the 20-21 depression was and still is the largest in American history. It makes a joke out of the downturn that started during the Hoover years. If, in fact, monetary injections are necessary to correct an economy in a slump then the 20-21 depression should have been much worst and lasted much longer than the 29-45 depression. I am in no way insinuating that the 20-21 depression was gleeful in anyway; there was pain. Its unemployment rate peaked at 11.7% in 1921. But by the following year, it had already dropped to roughly half of that at 6.7%, and then to 2.4% by 23. Right after this, the US enjoyed the extremely prosperous 20’s. Of course, much of this was an illusion, as the Fed began pumping money into the economy soon after Harding left office, creating a false boom in the economy. But again, this bolsters my argument that when the Fed, or any central bank, starts to fuck around with interest rates you are treading down a path to destruction. You must at least admit it is interesting that the government did exactly the opposite in the 20-21 downturn compared to what it does today and did in the 1929-1945 Hoover/Roosevelt depression.
Again, you may say that this one is different, that we could not have survived it. Again, this recession is nothing compared to that of the 20-21 recession/depression. We weathered that one just fine, so it leads one to believe that we would have been fine during this one as well. None of our depression could even compare with that of Germany’s in 1923. It was in this instance that what you fear, total collapse, had occurred. And just like we have been doing the past 90 years, Germany’s central bank also tried to fend off collapse through the exact same policies. Only this time, we got to see what will happen to us if we do not change our course. Inflation got so bad that that the exchange rate for German Marks to American Dollars was 3 trillion to 1. No, that is not a typo. If you want to talk about collapse, that is the picture of it. Zimbabwe is no different today. I have several trillions of Zimbabwe dollars sitting IN MY DRESSER if you do not believe me. But, this is what will happen to us. You get off the gold and death to your money will follow. It will be so worthless that it will not be accepted. Remember when I said pumping money into an economy long enough is like a rocket running out of fuel? When your money is worthless is the point when you’ve run out of fuel. Printing more money won’t even have a negligible effect on the economy. It is worthless. This is what I mean when I say the economy will have its way; this is inevitable. The sooner you let it fix itself, the less it will hurt in the future.
Your argument, in my opinion, is the same as telling someone that has accrued a lot of debt to take out more credit cards to pay off the loans. Or to spend more when they are already deep in the hole. You cannot spend your way out of debt! But, this is the best policy our geniuses up in D.C. can come up with. It is nonsense.
So, in conclusion, why do you think the bailouts were a good thing? Or, if not a good thing, a necessary thing. There is nothing easier than devoting yourself to proving the imperfections so something thoroughly comprised of human beings. The free market is not perfect. What you must ask yourself: what is better than the free market? Compared to what? Your turn, brother.
1) If you're going to write all that and all he does is send you an article as a reply, I'm not sure how you hope to get anywhere. It's one thing to make an argument and then link to other sources as support. But when all you get is a link to some source that your opponant thinks agrees with him and refutes you, it's usually a good sign of irrationality.
2) You pasted a lot of stuff here. It's quite difficult to distinguish your words from the article. If people are interested in reading the article, they can follow the link. I'm not quite sure what you're wanting from us.
My questions for you are:
a) What is it you hope to gain from your back and forth with this friend of yours?
b) What is it you want from us here?
1) It did piss me off a bit, but if the article does capture the essence of his belief so well, why waste time writing an exact copy.
2) I bolded lowenstein's quotes to make it easier. I also quotes him so readers would know what my comments and questions were referring to. I pasted the link so people could read all of it if they so desired.
your questions:
a) I gain enjoyment from debating him (as an austrian, this should be good enough for you). I feel debating him brings me a marginal benefit higher than any other activity, until it doesn't anymore. Also, even if he doesn't really care or chooses to stay irrational I still get smarter from my research, which i believe helps the cause of liberty. Plus, he is a very likable guy, that can think quickly on his feet. He would be good to have on the team. The rest can be taught. Most of us didn't get here through totally personal logic. people taught us, wether it be through videos, or books, or personal friends. I want to be that friend. If he doesn't come to see things my way, then at least I received real world objections, that I may not have anticipated if I had not debated him.
b) What I want from you all: to answer my questions (because I want to learn [isn't that usually half of the reason why we congregate in this little corner of ours on the net]), expound upon my comments, and correct me where I am wrong. You, in particular, John James probably know much more than I do about the austrian business cycle and can shoot sources on different topics like no one I know. I don't know how you do it (how do you do it?). and different people answer differently, so if one of you posts and I don't understand, then another may clarify. Or, one of you expounds upon another. Pretty much the reason why I go to the forum so much now is I got tired of the elementary arguments you hear from the dailies now. they are great as a front page to attract new comers, but after a while the law of diminishing returns takes over, and you seek deeper knowledge. I get that here. I don't feel i am totally ready for human action, so the forums are a nice medium.
caulds989:It did piss me off a bit, but if the article does capture the essence of his belief so well, why waste time writing an exact copy.
Well, it's not about writing an exact copy, it's about voicing your own argument. My point is, virtually every time someone just links an article and acts as though that were an argument, it's because he has no argument. Just like Huemer talks about in that lecture. Many people don't know anything other than what they believe, and can't explain why they believe it because they didn't come to that conclusion through any use of rationality or reason. So when faced with opposition they will simply look for confirmation of their belief wherever they can find it, and then present it in place of an actual defense of their position.
If the guy actually had an understanding of his argument he could make it on his own and simply use the article to support it. Otherwise, you may as well just send him links. Sure he won't read them, but it would save you time. (Of course you could also just move on to better soundingboards and save the time of just trading links).
a) I gain enjoyment from debating him (as an austrian, this should be good enough for you). I feel debating him brings me a marginal benefit higher than any other activity, until it doesn't anymore.
You don't have to explain marginal benefit. If you like it, that's fine. That's all you have to say. (Although you also admitted it pissed you off too.)
Also, even if he doesn't really care or chooses to stay irrational I still get smarter from my research, which i believe helps the cause of liberty.
I understand this completely. Glad you see it that way.
Plus, he is a very likable guy, that can think quickly on his feet. He would be good to have on the team. The rest can be taught. Most of us didn't get here through totally personal logic. people taught us, wether it be through videos, or books, or personal friends. I want to be that friend. If he doesn't come to see things my way, then at least I received real world objections, that I may not have anticipated if I had not debated him.
Here's some resources on this:
Arguing with Statists [1] [2]
A model of the liberty message...this is what you can be
This is what you can do with OccupyWallStreet
What you should be doing
What I want from you all: to answer my questions (because I want to learn [isn't that usually half of the reason why we congregate in this little corner of ours on the net]), expound upon my comments, and correct me where I am wrong. You, in particular, John James probably know much more than I do about the austrian business cycle and can shoot sources on different topics like no one I know. I don't know how you do it (how do you do it?). and different people answer differently, so if one of you posts and I don't understand, then another may clarify. Or, one of you expounds upon another. Pretty much the reason why I go to the forum so much now is I got tired of the elementary arguments you hear from the dailies now. they are great as a front page to attract new comers, but after a while the law of diminishing returns takes over, and you seek deeper knowledge. I get that here. I don't feel i am totally ready for human action, so the forums are a nice medium.
Sounds good. I'll see what I can do.
John James:You don't have to explain marginal benefit. If you like it, that's fine. That's all you have to say. (Although you also admitted it pissed you off too.)
Haha, ever hear of masochism? Some things piss you off and bring you pleasure at the same time. But seriously, I was pissed off at his response. I love debating him when I see him.
Can't wait for your responses.
First, for fun, we can start with Schiff's assessment of Too Big to Fail:
"The first, organized by Congress in 1791, was allowed to expire after 20 years, leaving the young republic with only a patchwork system of weaker state banks. During the War of 1812, Congress realized its error (in the absence of a central bank, inflation had run rampant), and in 1816, it chartered a second bank, again for 20 years.
Notice how (just as with the movie everything) is always on the up and up, and it's just our wise, benevolent overlords coming to the rescue. The way this is written implicitly states that the Second Bank was created because inflation ran rampant without a centralized cartel to manage everything. The reality is the government didn't have their monopoly on inflation and therefore lacked the capacity to create inflation to finance the War of 1812 and they got scared about not having that extremely valuable tool in their insidious arsenal.
(See A History of Money and Banking in the United States, pg. 75- for more info)
The Second Bank of the United States was, in the main, a success.
Ya don't say.
Its notes were circulated as currency, and it astutely managed their supply so as to keep the economy humming. Alas, President Andrew Jackson, a fierce opponent of both paper money and national banks, campaigned in 1832 against renewal of the charter, and indirectly against the bank’s brilliant but impetuous head, Nicholas Biddle.
This is just insane. Even the History Channel showed how corrupt the bank was and how much of a conniving figure Biddle was in their documentary on Jackson.
Resentment against financiers was running high, and the election became a referendum on the genteel Philadelphia banker versus the rough-hewn war hero—and a referendum on the bank itself. Jackson won, and the Second Bank was, per his promise, destroyed. The U.S. economy promptly plunged into a severe depression."
See Panic of 1837 (and the linked resources).
it goes on: "Over the past four and a half years, Bernanke, 58, has presided over the most sustained period of crisis of any civilian official in recent history, with the fate of millions of unemployed and underemployed Americans hanging in the balance." seems like this would count against him, but if it does, couldn't the same argument be used against us that it was poorly regulated capitalism that caused it and he just had to deal with it. I know that the data does not support this, nor does logic, but in a quick debate, it seems it would be hard to shield against that response.
It's a stalemate argument. It's the same as when Republicans say "look at what Obama's done" and people get to reply "He got that from Bush. And things could have been a lot worse."
The statement as it is made there in the article is just used to give the reader a sense of importance about a dorky bald man whom they've likely never heard of.
That's what the Fed is supposed to be. That was Bagehot's whole thing in Lombard Street.
But you'll notice that entire paragraph is meant to lay the groundwork for making the case that the negative opinion of Bernanke and the bank is unfounded and misguided.
"During the financial crisis of 2007–09, he bailed out a handful of large banks and devised a series of innovative lending operations to disperse credit to banks, small businesses, and consumers (virtually all of these loans have been repaid at a profit to taxpayers). He also lowered short-term interest rates to nearly zero and made private banks run a gantlet of stress tests to ensure some minimal level of solvency going forward." Is this even superficially true? I know that the government can manipulate all sorts of data with all kinds of unconventional accounting practices. Is this the case here?
Those are basically factual statements. The Fed did bail out large corporations and devise methods of lending money to various institutions and foreign governments. It did lower interest rates to zero. The fact that such a pro-Bernanke propaganda article would freely mention those kinds of things as if they were good or positive is just a sign at how ignorant the public is.
The nice little mention about "stress tests" and "repaid at profit" are lies, however (of course). Statements like that are usually made through accounting slight of hand or loose definitions of terms. Kind of like when GM said it had repaid it's "loans". But with the banking industry it's even easier to hide in the web. Rothbard wrote a whole book on it.
"This second phase has been, if anything, more controversial than the first. Its success is much harder to measure (we have no way of knowing whether the economy’s improvement would have been less robust, and how much so, without Bernanke’s efforts)." Seems like an argument from ignorance. You could make the flip-side argument that because of this uncertainty, how could you say it's impossible he hasn't hurt the economy?
Bingo.
But as a consolation prize, you could point to the predictions they made beforehand and show how incompetent they are.
"Texas Governor Rick Perry said in August that Bernanke, who steered the economy out of its worst slump since the Great Depression, was 'almost treacherous—or treasonous in my opinion.'...Newt Gingrich called Bernanke “the most inflationary, dangerous” Fed chairman “in history.”...Mitt Romney, who had previously praised Bernanke for doing a good job, promised in September that if elected he would replace him, as did Herman Cain (Bernanke’s term expires in 2014)." So far roger has only mentioned bachman, Gingrich, Cain, Romney and Perry as the main attackers on Bernanke, plus Paul, which is the only candidate that makes sense to quote (and maybe Cain) given Paul's knowledge and background, and Cain's having been the Dallas Fed Chairmen. I guess it makes sense to show the "views" of the next person who may become president. But, it seems like he's setting up a fight that isn't really very fair or well represented. I guess he is just looking out for the nominees for GOP.
Partly it's because they're more popular with the media, but yes, partly it's because it's easier to target them. It's like when someone with a bad argument builds a straw man so that he might easily knock it down. He's bringing up these poor opponents so that he can more easily make the case in favor of Bernanke. It's like a TV host having Nick Naylor on one side, and then inviting an intern to voice the opposing side.
"(Gingriche's statement is) remarkable...given that during Bernanke’s tenure, inflation as measured by the Consumer Price Index has averaged 2.4 percent, lower than that under any other Fed chief since the Vietnam War." Again, are these numbers just a lag in inflation that we will see and feel soon?
Partly, but also you have to remember every single thing about the way "inflation" is measured is meant to make the number lower. Even everything about the way it's reported is geared toward this. That's the whole point about the "headline inflation"/"core inflation" nonsense. They report "core inflation" because obviously, if you take out the two sectors that are most sensitive to inflation, your inflation numbers are going to look better.
Shadowstats.com has become popular in large part for it's report of CPI data using older methodologies.
What's Wrong with the CPI?
Are prices going up or down?
A Note On Inflation: It’s Here (at SeekingAlpha)
Inflation: One Man's Survey
Inflationary Deception (PDF)
"Though Bernanke is a Republican, Republicans in Congress have conducted a sustained war against him, threatening to audit the Fed’s interest-rate moves; accusing Bernanke of cover-ups; refusing to fill two vacancies on the Fed’s board of seven governors, the body that Bernanke chairs; and protesting his policy briefs on mortgage reform. Last September, when Bernanke was planning to launch his latest stratagem for spurring the economy, known as Operation Twist, the Republican House and Senate leadership publicly called on Bernanke to desist—a rare attempt by Congress to meddle directly in monetary policy. Bernanke defied them." Seems like this just goes to show how rogue and dictator-like this guy is. Of course there are no regulators on the regulators, but even the regulators can't regulate. I would hope this exposes Ben's arrogance. Also, My friend claims the Fed has been audited. I know it has not in any detailed way. What might he be referring to?
He's probably talking about the GAO report from last year:
CNBC: GAO Audit Reveals Fed Played Fast and Loose With Loan Rules
WaPo: Federal Reserve audit highlights possible conflicts of interest
CNN: GAO audit finds Federal Reserve bank boards lack transparency
it goes on... "At the time, inflation was trending down toward 1 percent, worryingly close to the negative territory known as deflation. One reason the Great Depression lasted so long is that prices kept falling, year after year. A primary aim of Bernanke’s new program was to ward off deflation, which it did. But this success has not been nearly enough to satisfy Bernanke’s critics on the left—who have been pushing the Fed chief to initiate (within some limits) the very inflation that those on the right fear." I have never understood the argument that deflation and price decline is really ever a bad thing. Perhaps it's good my mind doesn't work that way but I would like to understand the rational, however poor it may be. Keep your enemies close kind of thing. Anyway, because I dont understand their argument, I can't really tell them why they are wrong, or I cant tell them in any different way than I already have. This is a particular point i want a lot of clarification on because my friend was so adamant that deflation is also a terrible thing.
They're adamant because people like Milton Friedman point to the shrinking of the money supply during the 30's as a major reason for the Depression.
Why Deflation Isn't Harmful by Jörg Guido Hülsmann
Also, here's an abridged version of Prof. Salerno’s assessment using a specific case, and his full paper is "An Austrian Taxonomy of Deflation" (PDF) and there's also
An Austrian Taxonomy of Deflation—With Applications to the U.S. [PDF]
Also see here for a list of threads on the topic, and then of course there's the Mises Wiki.
"In December, he felt compelled to release a letter to Senate leaders in which he distinguished Federal Reserve loans, which have not cost the taxpayers anything or added to the federal deficit, from “government spending”—a simple point, perhaps, but one that is often confused in the public discourse." please explain "how could it not in any real sense?"
You're asking how could Fed loans have not cost the taxpayers anything? I'm not sure how to answer that question. If you'd like info on how the Fed does cost taxpayers, look for relevant articles here.
"the Fed chief urged me to pick up a copy of Lombard Street, a seminal book on central banking written by Walter Bagehot, the 19th-century British essayist. “It’s beautiful,” Bernanke said of the book—obviously appreciating that Bagehot had urged central bankers to take vigorous action to forestall panics." anyone read it?
Menger, Mises, and Rothbard did. You can find mentions of Bagehot in their writings. Of course Bernanke finds it beautiful. It's like when a fat person is told chocolate is good for them.
"“What Bernanke discovered was that it wasn’t the quantity of money, it was that the banks stopped lending,” says Stanley Fischer, formerly Bernanke’s thesis adviser at MIT and currently the governor of the Bank of Israel. “More than the decline in money, it was the collapse of credit.” The implication was that regulating banks in good times—and, if need be, rescuing them in bad—was of prime importance, something Bernanke would remember in the 2007–09 crisis." Collapse of credit that was never real in the first place, right?
The Great Credit - Crunch Hoax of 2008
What Credit Crunch ?
The Credit Crunch Myth
The Bogus “ Credit Crunch ”
The Credit Crunch that Isn't — Another Political Fast One
The Housing Bubble and the Credit Crunch
Credit crunch + Market Rout = Central bank intervention
"The particular problem of the ’30s was deflation: goods were worth less each year—or, alternatively, dollars were worth more. In a mirror image of inflation, no one would spend, because lower prices were forever just around the corner, and no one would borrow, because they would have to repay their debts with more valuable currency.The central bank cut interest rates to try to induce borrowing and spending, but then it was bereft of tried-and-true methods of stimulating the economy. Production and employment kept spiraling downward; Keynes called this a 'liquidity trap.'" if this is the argument against deflation doesnt it beg the question: "Arent these problems also just a symptom of an unstable (fiat) currency?" and what exactly is a liquidity trap?
Liquidity Traps versus Inflation Traps
The Liquidity Trap Myth
Is the United States in a Liquidity Trap?
Does a Liquidity Trap Pose a Threat?
Take Advantage of the Liquidity Trap !
continuing..."But while Bernanke recognized the danger in theory, he did not anticipate the looming crash in home prices. Indeed, he argued that central banks, including the Fed, had tamed the extremes of the economic cycle." and who was it exactly that did see it coming? Hmm...oh yes, the austrians.
Keynesian Economics vs. Austrian Economics
http://wiki.mises.org/wiki/Austrian_predictions
"These criticisms aside, if one is assigning blame, it is important to note that the bubble inflated almost entirely on Greenspan’s watch. The time to avoid a crash was when mortgages were getting written, or when banks could still sell off assets without sparking a panic; by the time Bernanke arrived, a crisis was probably inevitable." How are bernanke's policies any different from greenspan's policies when old greeny was chairmen, after he betrayed his mostly free market ideals? Greenspan largely helped perpetuate two large bubbles and bernanke is remedying them with the same policies, right?
Well. To be fair, Greenspan lowered interest rates to 1% for a whole year. Bernanke only put rates down to 0%, and he's only kept them there for a little over 3 years. So that's totally different. Yeah, Bernanke's nothing like Greenspan.
"Brian Madigan, a former senior official at the Fed, made just that argument after the crisis, and also wrote that Bagehot’s principles “need to be interpreted and applied in the real world.” One senses that he was speaking for the chairman. With the financial system on the brink of collapse, bailouts were deemed to be the lesser of two evils." besides talking about the depression of 1920, which failed to ultimately convince my friend, what else can be said to refute this?
The history of financial crisis. The less intervention there is, the faster the recovery. But ultimately, if you show him a shining example of a crash that was bigger than that of 1929, and ended up being fully recovered within 18 months, and he still says "nope. You're wrong", you may as well be arguing with a mule.
If you want, you could send him this: Thomas Sowell Explains the Great Depression.
"So far, the hawks have seen inflation around every corner. So far, they have been wrong, and Bernanke has been right." I must admit, I thought the inflation would have hit us a while ago. What is happening there?
Look around. The HUI index is up over 700% in the last 10 years (and that's a lowball largely because of a recent correction). Gold itself is up around 500%. And just give it time.
What's more, I honestly don't think your friend would want to hinge his position on this guy being right.
Bernanke even openly admitted to "...Congress in February, 'Our nation’s tax and spending policies should increase incentives to work and save,' but his nearly zero percent interest rate clearly discourages saving." So, how if he knows savings is the back bone of real credit and a strong economic atmosphere, why does he not cease his policies, and why did he enact them in the first place?
He's a shill.
It's just gobbledy gook to make himself sound like he knows what he's talking about and is being reasonable. Notice how it's always a Goldie Locks tone. "Yes, x is bad, but we don't want to go too y. Blah blah blah here's a suggested policy that furthers the agenda of the elite."
"Bernanke is more conservative than his Republican critics imagine, but as he has stated publicly, he finds the prospect of millions remaining unemployed “unacceptable.” He is particularly worried about the many people who have been out of work for more than six months. Like FDR, he is willing to try what works, or what might work" Is it realistic to believe that millions would have been unemployed, even for a short time, if the market had had the opportunity to fix itself? Aren't there millions still unemployed now? Not even a case of the "unseen". We clearly see millions are unemployed.
Yes. It's always "it would have been worse." It's a failsafe play, until Doc Brown finishes the DeLorean.
"His mentor, Milton Friedman, thought the business of adjusting interest rates was so tricky, it would be better to yield the job to a computer. But Bernanke thinks a human can do it. " Was Friedman really his mentor? Didn't Friedman admit late in life that he was wrong about the Fed and the monetarist's theory of money and central banking?
Maybe "mentor" in the passive sense.
Friedman Economics
Bernanke’s Philosopher
But yes, later in his life Friedman had concluded the Fed should be abolished.
Anyway, thats all. I do have one final question. Is there anyway to know, or are there signs that point to, when an intervened economy will simply bounce back from the intervention,
A good sign is when the intervention stops. But as for forecasting...
What I mean is, when a bubble bursts, and regulators and central bankers create a new one to make it appear they fixed the economy, at what point does the law of diminishing returns totally clauber the efforts of the central bankers? Why do we bounce back from the great depression but not from Germany's depression in 1923. I know they bounced back, but the market appears to have had to forcefully thwart the governments efforts. I don't know if my question is clear, but I would really like to know. At what point is fiat money inflating so quickly that it becomes totally pointless.
It sounds like you're making multiple assumptions and asking multiple questions. Germany destroyed their currency. The U.S. didn't. I don't know what you mean "bounce back" from the Great Depression. It lasted for essentially a decade.
There is no way to know exactly when things will happen economically. If someone could do that they'd have more money than God. (And it would actually be worth something).
Forecasting mythology
"you paper was well-researched and impressive. I work 16 hours a day so I dont have time to refute it, but here is this article."
Bingo. This is what you'll find often. Again, I refer to Huemer...becoming informed is costly, and rationality is costly. People don't take the time to become more informed and make sound deductions because other things are more fun for them, and because not being informed allows them to continue believing whatever they want to believe.
So when faced with opposition, the least costly way to deal with it is do a random search for something that you think reinforces your view (or at least goes against your opponant's view) and present it as a refutation. You don't even have to read it. (And often, they don't).
They never seem to have time to respond to any actual points or criticisms, but they have no trouble finding the time to spout their own beliefs. They enjoy "debate" and "intellectual discussion" until they are actually faced with any sort of actual opposition...then all of a sudden they don't have time. It's a self preservation tactic.
It's similar to the tactic described here, in which the ill-equipped party will attempt to shift focus on something else and in some cases use that as a reason to close the discussion.
Trust me. It gets old quickly. But have fun with it while you can, I guess.