From the theatlantic.com
He said Dr Paul's theory is completely false. I don't have enough economics background to debunk those accusations. It'll be great if somebody can show him the way.
No Ron Paul supporter (or other gold standard advocate) has managed to articulate to me what problem the gold standard solves. Inflation is low, and even better, relatively predictable, so the expectation is built into asset prices. Moreover, most people on fixed incomes are retirees, and most retirees get almost half their income from Social Security, which is indexed for inflation. This Ron Paul speech lists a number of reasons, all of them wrong: 1. The Federal Reserve destabilizes the economy with its "boom and bust" monetary policy. This is hard to square with the fact that the longer the Federal Reserve has been in existance, the more stable the economy has been. Dr. Paul's words strongly imply that he believes that there was no business cycle in the 19th century, which is untrue; as best we can tell, recessions were much longer and deeper before America had a central bank. 2. Americans don't save because they're afraid inflation will erode their savings. This is daft. Moderate inflationary expectations are built into the interest rates that banks offer. After thirty years of stable monetary policy, a good portion of the population doesn't even remember high inflation, and the ones that do are mostly retired and spending down their savings. Americans don't save because . . . well, have you tried the Wii? It's awesome. 3. American exporters are whipsawed by our fluctuating currency. Unless Dr. Paul has plans to put the entire world back on the gold standard--which I mote would require the kind of powerful international organization he's so suspicious of, or invasion--our currency will still fluctuate relative to others if we're on the gold standard. Every time the price of gold changes in another country, American exporters will either be helped or hurt by a change in the relative prices of their goods. The gold standard will shelter exporters from currency fluctuations only in their trade with other countries on the gold standard. There are no other countries on the gold standard. 4. Fiat money inflation benefits those shadowy figures who receive access to artificially inflated money before the inflationary effects kick in. Those shadowy figures being the bankers who loaned it to you so that you could buy your house. At any rate, this would only be true if we were talking about unexpected inflation. Expected inflation is already built into asset prices. The US economy does not have significant unexpected inflation. 5. Fiat money inflation "also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state". This is an extraordinarily primitive view of the money supply. The Federal government is not Caesar cutting his denarii with lead. The revenues from seignorage on 2% inflation are trivial. The Federal government gets the money for the "welfare-warfare" state just where it says it does: by taxing the bejeesus out of your wages. 6. Congress does not have constitutional authority to delegate its power "the authority to coin money and regulate the value of the currency". Hmm. Okay, but I'm pretty sure none of our legislators are qualified to operate a printing press, much less the annealing ovens and upsetting mills needed to mint coins. 7. Congress "should only permit currency backed by stable commodities such as silver and gold". Commodities, almost by definition, are not stable. The price of gold looks as if it used to be stable, because the dollar was fixed relative to an ounce of gold. This does not mean that its value relative to other economic goods was unchanged. You could fix your currency to the price of a bushel of wheat, and suddenly "wheat bugs" would be claiming that wheat is the only reliable, stable commodity in the world whose price never changes. That wouldn't stop fluctuating wheat supplies from whipsawing your economy back and forth. To be sure, the supply of gold changes more slowly than the supply of wheat. But demand for it is not so fixed.
No Ron Paul supporter (or other gold standard advocate) has managed to articulate to me what problem the gold standard solves. Inflation is low, and even better, relatively predictable, so the expectation is built into asset prices. Moreover, most people on fixed incomes are retirees, and most retirees get almost half their income from Social Security, which is indexed for inflation.
This Ron Paul speech lists a number of reasons, all of them wrong:
1. The Federal Reserve destabilizes the economy with its "boom and bust" monetary policy. This is hard to square with the fact that the longer the Federal Reserve has been in existance, the more stable the economy has been. Dr. Paul's words strongly imply that he believes that there was no business cycle in the 19th century, which is untrue; as best we can tell, recessions were much longer and deeper before America had a central bank.
2. Americans don't save because they're afraid inflation will erode their savings. This is daft. Moderate inflationary expectations are built into the interest rates that banks offer. After thirty years of stable monetary policy, a good portion of the population doesn't even remember high inflation, and the ones that do are mostly retired and spending down their savings. Americans don't save because . . . well, have you tried the Wii? It's awesome.
3. American exporters are whipsawed by our fluctuating currency. Unless Dr. Paul has plans to put the entire world back on the gold standard--which I mote would require the kind of powerful international organization he's so suspicious of, or invasion--our currency will still fluctuate relative to others if we're on the gold standard. Every time the price of gold changes in another country, American exporters will either be helped or hurt by a change in the relative prices of their goods. The gold standard will shelter exporters from currency fluctuations only in their trade with other countries on the gold standard. There are no other countries on the gold standard.
4. Fiat money inflation benefits those shadowy figures who receive access to artificially inflated money before the inflationary effects kick in. Those shadowy figures being the bankers who loaned it to you so that you could buy your house. At any rate, this would only be true if we were talking about unexpected inflation. Expected inflation is already built into asset prices. The US economy does not have significant unexpected inflation.
5. Fiat money inflation "also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state". This is an extraordinarily primitive view of the money supply. The Federal government is not Caesar cutting his denarii with lead. The revenues from seignorage on 2% inflation are trivial. The Federal government gets the money for the "welfare-warfare" state just where it says it does: by taxing the bejeesus out of your wages.
6. Congress does not have constitutional authority to delegate its power "the authority to coin money and regulate the value of the currency". Hmm. Okay, but I'm pretty sure none of our legislators are qualified to operate a printing press, much less the annealing ovens and upsetting mills needed to mint coins.
7. Congress "should only permit currency backed by stable commodities such as silver and gold". Commodities, almost by definition, are not stable. The price of gold looks as if it used to be stable, because the dollar was fixed relative to an ounce of gold. This does not mean that its value relative to other economic goods was unchanged. You could fix your currency to the price of a bushel of wheat, and suddenly "wheat bugs" would be claiming that wheat is the only reliable, stable commodity in the world whose price never changes. That wouldn't stop fluctuating wheat supplies from whipsawing your economy back and forth. To be sure, the supply of gold changes more slowly than the supply of wheat. But demand for it is not so fixed.
from http://meganmcardle.theatlantic.com/archives/2007/12/why_is_the_gold_standard_crazy.php
Thanks,
He misrepresents Ron Paul's positions because he doesn't understand the Topic.
Tony:1. The Federal Reserve destabilizes the economy with its "boom and bust" monetary policy. This is hard to square with the fact that the longer the Federal Reserve has been in existance, the more stable the economy has been. Dr. Paul's words strongly imply that he believes that there was no business cycle in the 19th century, which is untrue; as best we can tell, recessions were much longer and deeper before America had a central bank.
Of course, the USA had other central banks before the Fed Reserve. But its fractional reserve banking that causes Boom-Bust, central banking is merely an enabler. Plus, what recession was longer than the Great Depression that lasted nearly 2 decades?
Tony: 2. Americans don't save because they're afraid inflation will erode their savings. This is daft. Moderate inflationary expectations are built into the interest rates that banks offer. After thirty years of stable monetary policy, a good portion of the population doesn't even remember high inflation, and the ones that do are mostly retired and spending down their savings. Americans don't save because . . . well, have you tried the Wii? It's awesome.
That is a strawman, I've never heard Ron Paul say that. Americans don't save because the Federal Reserve puts the interest rate artifically low. This encourages debt and discourages savings.
Tony:3. American exporters are whipsawed by our fluctuating currency. Unless Dr. Paul has plans to put the entire world back on the gold standard--which I mote would require the kind of powerful international organization he's so suspicious of, or invasion--our currency will still fluctuate relative to others if we're on the gold standard. Every time the price of gold changes in another country, American exporters will either be helped or hurt by a change in the relative prices of their goods. The gold standard will shelter exporters from currency fluctuations only in their trade with other countries on the gold standard. There are no other countries on the gold standard.
Another strawman. And he's wrong, without the fiat dollar the world's monetary system would be very different. If every currency but the Dollar inflated, what would you rather have?
Tony:4. Fiat money inflation benefits those shadowy figures who receive access to artificially inflated money before the inflationary effects kick in. Those shadowy figures being the bankers who loaned it to you so that you could buy your house. At any rate, this would only be true if we were talking about unexpected inflation. Expected inflation is already built into asset prices. The US economy does not have significant unexpected inflation.
Then how do bubbles happen? Inflation is what happens when the money supply increases, this in turn leads to increases in prices, a seperate phenomenon. But prices do not rise all but once, they rise unevenly causing bubbles.
Tony:5. Fiat money inflation "also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state". This is an extraordinarily primitive view of the money supply. The Federal government is not Caesar cutting his denarii with lead. The revenues from seignorage on 2% inflation are trivial. The Federal government gets the money for the "welfare-warfare" state just where it says it does: by taxing the bejeesus out of your wages.
An outright lie. Federal spending vastly outpaces revenue. What he really means is "Sure they print money to pay the bills, but I don't care"
Tony:6. Congress does not have constitutional authority to delegate its power "the authority to coin money and regulate the value of the currency". Hmm. Okay, but I'm pretty sure none of our legislators are qualified to operate a printing press, much less the annealing ovens and upsetting mills needed to mint coins.
Translation: We had no Dollars before the Federal Reserve, the Treasury does not exist.
Tony:7. Congress "should only permit currency backed by stable commodities such as silver and gold". Commodities, almost by definition, are not stable. The price of gold looks as if it used to be stable, because the dollar was fixed relative to an ounce of gold. This does not mean that its value relative to other economic goods was unchanged. You could fix your currency to the price of a bushel of wheat, and suddenly "wheat bugs" would be claiming that wheat is the only reliable, stable commodity in the world whose price never changes. That wouldn't stop fluctuating wheat supplies from whipsawing your economy back and forth. To be sure, the supply of gold changes more slowly than the supply of wheat. But demand for it is not so fixed
Yet another Strawman. Ron Paul likes to cite the Constitution.
Peace
My response:
Grant:I don't even like gold (I suppose Paul's position because he wants to legalize private currencies), but I do feel compelled to respond: 1. The bimetallic standard was terrible, no one would question that. However, the success of a single, floating currency when compared to the bimetallic standard is no reason not to improve upon our current system. Also, America did experience its most rapid growth even with all that instability (though I don't mean to suggest this implies causation). I should also point out that, according to many Austrians, many of the booms and busts of the 19th century were caused by inflationary policies, and not the gold standard. 2. Cheap credit is a direct replacement for savings. If you can get a cheap loan, why bother saving? If you can't get credit cheap enough, you must save. 3. I'm not entirely sure what Paul meant here, so I can't comment. 4. The housing bubble wasn't significant? According to the Austrians, it was a textbook example of the Mises-Hayek business cycle. I suppose if you accept a single "price level" for the entire economy, then no, we probably don't have significant inflation. But the entire point of the Austrian critique is that newly-created money does not enter the economy uniformly. 5. When the government overspends, it sells debt as T-bills. The Fed sets interest rate targets and buys T-bills using freshly-printed dollars until those targets are reached. What am I missing? 6. Obviously, congress has the power to do everything necissary and proper to "coin money and regulate the value of the currency". Obviously, the US Mint is both necissary and proper, but it doesn't follow that the ability to set interest rates is. As I'm sure we all know, the power to emit bills of credit was purposefully omitted. We can argue over whether or not its advisable for a government to print paper money, but lets not pretend its legal for this one to do so. Sadly, the ability of congress to regulate the value of the currency makes the medium (specie or paper) used rather insignificant in my opinion, although I believe the definition of the word "regulate" has changed significantly from its original meaning in the Constitution. 7. The dollar isn't stable because the government makes it, its stable because its used as a medium of exchange. Similarly, if gold was used as a medium of exchange, its value relative to consumer prices would be more stable than it is now. The value of capital goods relative to one another will always fluctuate, just as they do relative to fiat currencies. And finally, I have a question: Most economists accept that prices coordinate action within economies by conveying necissary information. They also accept that the rate of interest is the price of borrowing money. However, most economists do not accept Hayek's arguments that altering the rate of interest produces similarly bad effects as altering other prices (over-investment, in this case). How can they accept that prices convey information necissary to coordinate actions without accepting that the rate of interest does the same? What do they feel is the effect of altering the rate of interest?
1. The bimetallic standard was terrible, no one would question that. However, the success of a single, floating currency when compared to the bimetallic standard is no reason not to improve upon our current system. Also, America did experience its most rapid growth even with all that instability (though I don't mean to suggest this implies causation).
I should also point out that, according to many Austrians, many of the booms and busts of the 19th century were caused by inflationary policies, and not the gold standard.
2. Cheap credit is a direct replacement for savings. If you can get a cheap loan, why bother saving? If you can't get credit cheap enough, you must save.
3. I'm not entirely sure what Paul meant here, so I can't comment.
4. The housing bubble wasn't significant? According to the Austrians, it was a textbook example of the Mises-Hayek business cycle. I suppose if you accept a single "price level" for the entire economy, then no, we probably don't have significant inflation. But the entire point of the Austrian critique is that newly-created money does not enter the economy uniformly.
5. When the government overspends, it sells debt as T-bills. The Fed sets interest rate targets and buys T-bills using freshly-printed dollars until those targets are reached. What am I missing?
6. Obviously, congress has the power to do everything necissary and proper to "coin money and regulate the value of the currency". Obviously, the US Mint is both necissary and proper, but it doesn't follow that the ability to set interest rates is.
As I'm sure we all know, the power to emit bills of credit was purposefully omitted. We can argue over whether or not its advisable for a government to print paper money, but lets not pretend its legal for this one to do so. Sadly, the ability of congress to regulate the value of the currency makes the medium (specie or paper) used rather insignificant in my opinion, although I believe the definition of the word "regulate" has changed significantly from its original meaning in the Constitution.
7. The dollar isn't stable because the government makes it, its stable because its used as a medium of exchange. Similarly, if gold was used as a medium of exchange, its value relative to consumer prices would be more stable than it is now. The value of capital goods relative to one another will always fluctuate, just as they do relative to fiat currencies.
And finally, I have a question: Most economists accept that prices coordinate action within economies by conveying necissary information. They also accept that the rate of interest is the price of borrowing money. However, most economists do not accept Hayek's arguments that altering the rate of interest produces similarly bad effects as altering other prices (over-investment, in this case). How can they accept that prices convey information necissary to coordinate actions without accepting that the rate of interest does the same? What do they feel is the effect of altering the rate of interest?
I concur with the above responses. Isn't this guy assuming that inflation is accurately measured, BTW, when he mentions expectations? Something Austrians would contest.
Inquisitor: I concur with the above responses. Isn't this guy assuming that inflation is accurately measured, BTW, when he mentions expectations? Something Austrians would contest.
It is implicit in his assumption. A measure like 'core' inflation whcih exlcudes pesky things which might actually show inflation is a legitimate measure because... well because he says so. Plus the 'stability' argument is off and likely a reflection of the 'stabilize the price level' mentality. Prices may be stable as a practical matter, but they are not that way by nature. What's important in a price, including the price of money, is not necessarily stability but that it be as honest a reflection of market conditions as is possible, which is achieved by letting the market alone. Just because prices tend toward stability over time doesn't mean it's a given, nor is it really necessarily the point in the end. If there are drastic changes in supply or demand you want an unstable price, one that can change suddenly.
But of course we already see the mentality that despises this in laws against price gouging. Many people are of the opinion that all is well so long as prices stay relatively constant and stable. In realty it means resources go not where they're really valued most but to who gets them first, whether it's the first ten hurricane victims to the convenience store to buy ice at enforced 'stable' prices, which they'll then use to cool their beer rather than economizing and using it only to cool essential items, or the first bankers to the discount window who get to use new money to pick up a quick buck rather than taking an honest look at their reserves and lending more discriminately.
Thanks a lot.
And she also has more testosterone than Ann Coulter.