Economics Questions

Re: Interesting opinion from Jesus Huerta de Soto

Prateek Sanjay — Wed, 12 Jan 2011 04:30:42 GMT

But surely capital controls are a crude and inefficient solution. On the government's part, I mean.

Will they eventually block foreign withdrawal of money completely? A bank can only attract as many deposits as depositors in general are willing to trust with them. And if there is a bank that does not allow them to withdraw money abroad, people might be less inclined to use its services.

Re: Interesting opinion from Jesus Huerta de Soto

Jonathan M. F. Catalán — Tue, 11 Jan 2011 20:01:43 GMT

Usually, inflation that causes outflow of reserves leads to capital controls.

Re: Interesting opinion from Jesus Huerta de Soto

Prateek Sanjay — Tue, 11 Jan 2011 17:18:08 GMT

Darn it, Jonathan.

I was carrying around the idea that if we could allow all foreign currencies as legal tender in a single country, then inflation by all those foreign countries would be limited when it leads to outflow of reserves from one inflating central bank to the less inflating central bank.

Re: Interesting opinion from Jesus Huerta de Soto

Jonathan M. F. Catalán — Tue, 11 Jan 2011 16:24:16 GMT

It seems to me a case of remote government, by chance, being more fiscally sane than what the more local alternative would have been (arguably). In the long run, though, I would prefer, if I were a Spaniard, more local government.

There was a lot of support for the European Union early on in Spain because the autonomous regions found it as an opportunity to reduce the power of Spain's central government, in favor of these regional governments (specifically, Cataluña and País Vasco). After it became obvious that this wasn't going to be the case, support for the European Union began to wane, because it wasn't apparent that the European Union was any less interventionist than the Spanish central government. To clarify, it's not a question of interventionism, as those regional governments tend to be extremely interventionist (and almost socialist), but of which government commits to the interventions. Apparently, local tyrants are better than 'foreign' tyrants.

What surprised me of Huerta de Soto's opinion is the wide availability of literature that warns against pan-national currencies, including Hayekian and Misesian arguments against the post-WWII bancor (Keynes' alternative idea at Bretton Woods). Mises warns against such currencies in Human Action, noting that the competition for inflation is more dangerous, or just as dangerous, than inflation by a local central bank.

Re: Interesting opinion from Jesus Huerta de Soto

gocrew — Tue, 11 Jan 2011 16:11:06 GMT

Stranger:

As Hoppe is fond of reminding us, competition for the production of goods is desirable, but for the production of bads (inflation) you do not want competition. The fact that the ECB locks European states out of monetary policy is a safeguard for the European people.

So that raises an interesting question: as long as politicos and bureaucrats operate under the foolish idea that what is good for exports is good for the country, is something like the Euro a better (less bad) idea?

Re: Interesting opinion from Jesus Huerta de Soto

gocrew — Tue, 11 Jan 2011 16:09:09 GMT

Jonathan M. F. Catalán:

One of the main "weaknesses" from the mainstream point of view is that Spain cannot devalue its currency in the face of deflationary pressure. That is what Huerta de Soto is talking about. The problem is that instead Spain is hostage to the ECB's monetary policy.

It seems to me a case of remote government, by chance, being more fiscally sane than what the more local alternative would have been (arguably). In the long run, though, I would prefer, if I were a Spaniard, more local government.

Re: Interesting opinion from Jesus Huerta de Soto

Prateek Sanjay — Tue, 11 Jan 2011 03:16:48 GMT

I can't speak or understand Spanish, but if he does say what you claim, then it's really no surprise. It's no secret in Europe that it seems to be culturally ingrained to spend like drunken sailors in several of the "Latin" countries (e.g. Italy, Spain, France). If the monetarily-conservative Germans weren't holding the Euro by the balls, inflation would go out of control in Europe. The way I see the Euro, it's nothing more than politicians from non-German countries handing power over to the ECB and begging their more conservative members to keep the non-German countries in line. The whole "trade is cheaper with a unified currency" deal is only a marginal side benefit when compared to how much better off countries like Italy and Spain are now that they don't have 20% inflation.

It would all be the exact same case if the entire Latin America were using the American dollar, and it certainly was the case, considering that Argentinia's use of dollar reduced its inflation from 1400% to 4%. Shocking.

Re: Interesting opinion from Jesus Huerta de Soto

DanielMuff — Tue, 11 Jan 2011 01:21:08 GMT

What Huerta de Soto said was that Spain would be going through hyperinflation if weren't on the Euro standard, thus, Spain should be thankful that it it's on the Euro standard.

Re: Interesting opinion from Jesus Huerta de Soto

Kakugo — Mon, 10 Jan 2011 22:11:21 GMT

krazy kaju:

I can't speak or understand Spanish, but if he does say what you claim, then it's really no surprise. It's no secret in Europe that it seems to be culturally ingrained to spend like drunken sailors in several of the "Latin" countries (e.g. Italy, Spain, France). If the monetarily-conservative Germans weren't holding the Euro by the balls, inflation would go out of control in Europe. The way I see the Euro, it's nothing more than politicians from non-German countries handing power over to the ECB and begging their more conservative members to keep the non-German countries in line. The whole "trade is cheaper with a unified currency" deal is only a marginal side benefit when compared to how much better off countries like Italy and Spain are now that they don't have 20% inflation.

As Adrian Healey said the euro is much more complicated than conservative German bureaucrats reeling in their inflation happy colleagues. I really cannot wait to get my hands on Bagus' book to learn more about the intricancies.

Re: Interesting opinion from Jesus Huerta de Soto

Stranger — Mon, 10 Jan 2011 15:24:04 GMT

As Hoppe is fond of reminding us, competition for the production of goods is desirable, but for the production of bads (inflation) you do not want competition. The fact that the ECB locks European states out of monetary policy is a safeguard for the European people.

The ECB can and will still inflate however, which is how Spain had such a big real estate bubble.

Re: Interesting opinion from Jesus Huerta de Soto

krazy kaju — Mon, 10 Jan 2011 14:40:01 GMT

I can't speak or understand Spanish, but if he does say what you claim, then it's really no surprise. It's no secret in Europe that it seems to be culturally ingrained to spend like drunken sailors in several of the "Latin" countries (e.g. Italy, Spain, France). If the monetarily-conservative Germans weren't holding the Euro by the balls, inflation would go out of control in Europe. The way I see the Euro, it's nothing more than politicians from non-German countries handing power over to the ECB and begging their more conservative members to keep the non-German countries in line. The whole "trade is cheaper with a unified currency" deal is only a marginal side benefit when compared to how much better off countries like Italy and Spain are now that they don't have 20% inflation.

Re: Interesting opinion from Jesus Huerta de Soto

Kakugo — Mon, 10 Jan 2011 13:56:40 GMT

From what I can understand it seems Professor Huerta de Soto thinks Spanish bureaucrats and politicans are even less trustworthy when it comes to money than German and French ones, their only weapon being steady monetary inflation to make the country more palatable on the cheap (no need for complicated and politically suicidal "reforms") and to effectively debase a steadily growing national debt.

There's no telling if Spain (or other parts of Europe) would fare better or worse than their doing no without the euro because the euro was just part of much more complex "masterplan" that included much more than a single currency. And right now dropping the euro is not an option for "second tier" members like Spain: the future of the currency lies in Berlin.

In these days I was thinking about real, everyday price inflation we experienced since the euro kicked in at the beginning of 2002. First year was really bad, followed by two and a half more year of steadily increasing prices. Halfway through 2005 it slowed down, then picked up again in 2008, slowed slightly in 2009 and came back with a vengeance in 2010. Except for fuel prices when crude oil prices collapsed at the end of 2008 we haven't experienced declining prices usually associated with a recession: we have entered the "worst of both world" scenario, an inflationary depression with no end in sight.

US, you are not alone.

Re: Interesting opinion from Jesus Huerta de Soto

AdrianHealey — Mon, 10 Jan 2011 12:15:14 GMT

What a lot of (American) libertarians seem to forget is that the euro is actually relatively more independent compared to the dollar. Furthermore; the euro is also more independent than the previous national currencies. The Belgian frank - I'm Belgian - has a worse track record than the euro so far and I think, all things considered, that the Belgian civilians were lucky to have the euro. Our government would otherwise have inflated our currency tremendously by now.

The good thing about the euro is that the political influence in the ECB is relatively small ànd in so far that there is political influecen, it's comming from the European union, which has a lot of conflicting (monetary) ends, so they can just basically ignore it. Hurray for the lack of democracy on the European level! :p

In any case; I'm not defending the euro per se. Just sayin' that it's not as bad as it use to be. And I also don't really agree with all the economists who keep saying that the end of it is near. I really don't see any reason to. Did the dollar stop because California was bankrupt? :x

I'm not an economist, so please take my comments with a grain of salt. And I will be reading Bagus his book after my exams. But really; the euro is a tat more complicated than some Americans give it credit.

Re: Interesting opinion from Jesus Huerta de Soto

Jonathan M. F. Catalán — Mon, 10 Jan 2011 06:20:58 GMT

One of the main "weaknesses" from the mainstream point of view is that Spain cannot devalue its currency in the face of deflationary pressure. That is what Huerta de Soto is talking about. The problem is that instead Spain is hostage to the ECB's monetary policy.

Re: Interesting opinion from Jesus Huerta de Soto

FunkedUp — Mon, 10 Jan 2011 05:47:03 GMT

Of course Spain is better off with the Euro. They (along with Greece, Italy, and Portugal) are able to live their socialist lifestyles at other's (Germany) expense. Who wouldn't want this type of relationship?

It's similar to the United States having the world's reserve currency. As Americans, this benefits us, because we live off the productive capacity of the producing nations. Our service sector economy is propped up because of it.