TCS Daily


The Record of the Federal Reserve

By Erik Voorhees - August 27, 2009 12:00 AM

Not a day goes by without talk of the Federal Reserve, whether by the organization itself or by its opponents. An incessant cheerleader of his organization, Chairman Ben Bernanke will be the first to tell you that the Federal Reserve is an utmost necessity to the smooth operation of the U.S. financial system. Some would disagree. And while ongoing events can be difficult to objectively examine, hindsight is usually much more prescient.

Let's set aside what The Fed says for a moment and examine what it actually does.

  • From 1776 to 1912 (136 years), the value of the dollar, relative to the Consumer Price Index, increased by 11%. A dollar could buy 11% more goods in 1912 than in 1776. Thus, if in 1776, you sat on your savings pile of $1,000,000 for 136 years, it would then be worth $1,110,000 in purchasing power (it will have appreciated in value by 11%). A loaf of bread for Thomas Jefferson cost the same as a loaf of bread for Lincoln 50 years later and again the same for J.P. Morgan 50 years after that.
  • The United States Federal Reserve System was created in 1913. The stated purpose of the Fed, by the definition taken from its own website, is to "conduct the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices." Note that "stable prices" is another way of saying "stable dollar," they are two sides of the same coin (couldn't resist the pun).
  • After the Fed's creation, from 1913 to 2008 (95 years), the value of the dollar, relative to the Consumer Price Index, decreased by 95%. A dollar could buy 95% fewer goods in 2008 than in 1913. Thus, if in 1913, you sat on your savings pile of $1,000,000 for 95 years, it would then be worth only $50,000 in purchasing power (it will have depreciated in value by 95%). One would now need to pay about 20X more than J.P. Morgan for one's bread. Ask my mother how much the price of milk has increased just in the last ten years alone.

In other words, the value of the dollar remained extremely stable for 150 years, the Fed was created in order to "stabilize the value of the dollar," and the result has been a 95% devaluation of the dollar in less than 100 years following its creation. Below is a graph of this history, which I've marked with the year 1913 so you can see the change. The graph is also marked with the years of decoupling from the gold standard, as no examination of dollar value would be sound without such mention.


While we all take inflation as a "given" - as something that "just happens" in the economy - this belief is utterly incorrect. Inflation, which is the loss of value in your saved dollars, is caused by the Federal Reserve through its management of the money supply. Next time you see Ben Bernanke on the television telling you that they "will take the necessary steps" to help the country, consider their track record so far, and their dismal failure at their stated objective: preserving the value of America's money.

Yet, American's aren't particularly upset about this, and indeed the vast majority have no idea about any of this. I would wager that this is because Americans are educated in Government schools, which barely teach basic accounting, let alone macroeconomic monetary theory. In public school I was forced to memorize the names of every country in Africa, yet there was never a discussion of the nature of money. Half the nations of Africa have been renamed since, but the economic principles which cause such political turmoil remain the same.

The Federal Reserve System is fraudulent. Whatever its stated purpose, its effect is to create a hidden mechanism of deficit spending by politicians, through the insidious invisible taxation of monetary debasement (inflation). With printed money, the Government can buy services for its voters before the effects of inflation are felt. The voters money buys less the following year, as the new money has raised prices, and they are often none the wiser.

Obama is now mandating that the Fed is to have more oversight, more authority and control over the markets of the United States. If we can learn anything from the Fed, it's that the best way to succeed as a politician is to stretch one's failure over a long enough period that people won't remember it.


This article first appeared on LewRockwell.com.
Categories:

251 Comments

The graph pretty much speaks for itself
.

Roy might go ballistic
OK, I guess he won't but instead will still say there is a stable dollar.
Good thing this article came out AFTER he was forced to admit recently that there is indeed inflation, rather than deflation. Oh my god, guess that doesn't matter either because he will just repond with another huge epistle saying that the definitions are different.

All he, as well as other marxists and keynsian can say is that inflation is good(and not just for the political elite, but for commone people too).

We know it's good for the government, that's why they do it. But it certainly is harmful to the country.

Misrepresentations
Odd how you describe yourself as a seeker of truth.. yet you never bother to get your facts straight when you have a 'line' to uphold.

For the record, Roy has (1) never said there is no inflation. He has said that inflation has been kept under control with some success over the past thirty years. And he has recommended that the means by which that has been accomplished (means that involve actions on the part of the Fed) have been commendably successful.

Please quote Roy correctly.

Roy has also pointed out (2) that over the past year, since the current unease has hit in force, we've had price DE-flation. Missy can check the charts if she likes, to confirm this fact in evidence.

Roy will continue to assert that much confusion arises from their being at least three definitions of the word 'inflation' in common use. And suggests that when we discuss that condition we be specific as to what we are referring to, whether it be price increases relative to incomes, whether it be an increase in the money supply or whether it be too much money in the markets chasing prices skyward.

Roy has (3) never been a Marxist, not even in his teenage years, and often equates that particular simplistic idiocy with its ideological twin and counterpart, Misianism.. in that both reflect a little slice of a great truth that is by its nature complex, messy and hard to pin down in a simple formula.

He does find that the theories associated with JM Keynes stand the test of time remarkably well.

But he has never said (4) that inflation is 'good'. Only that in our present circumstance, that it is acceptable when kept at current levels. When inflation gets out of control it is very destructive.

Again, please quote Roy correctly. Or not at all.

Use of the third person
Roy notes that Missy prefers to speak ABOUT Roy rather than speaking directly TO Roy. And he finds no problem with this usage.

Should Missy prefer it so, Roy can continue in this vein. And she can continue also referring to her self by name.

"stand the test of time "
What test, expanding the size and power of the state?

"Whatever Happened to Penny Candy?"

http://www.bluestockingpress.com/whatever-happened-penny-candy.htm

ideological twin of Marxism
Try to explain how Misianism is the twin of marxism.

Misianism says individual people should be able to be free to make their own decisions, whereas marxism thinks other people should make these decisions for them.

Another way to say it is that marxists believe in force, whearas misians believe in freedom.

Another way would be that marxists believe in the control of people, whearas misians don't think people need any dictatorship of the proletariat.

Keynsianism does indeed stand the test of time for those who benefit from it, the political elite, but certainly not the common people.

Another would be that marxists approve of all those 10 pillars of communism(for those of you who don't know what they are, just google it), and misians don't like any of them(what about the keynsians on that point, what about men who like keynsiansim like you Roy?).

3rd person
I think people can use any person they want on a forum like this, but if I write an article for say, the Physical Review, I conform to their particular stylesheet, and apparently Rolling Stone is very fussy too.

Usually I refrain from the royal 'we', in spite of the fact that my relatives say we were once a branch of a former royal family.

With never a familiar pronoun
"Usually I refrain from the royal 'we', in spite of the fact that my relatives say we were once a branch of a former royal family."

Roy has found it. However, he sees nothing on the site mentioning that the Pooh Family descends from royalty.

http://www.pbase.com/netnapit/pooh_family

Roy is willing to continue with the fiction that he and Ms Pooh are really talking ABOUT one another, not TO each other. :)

How dare you?
Yes.. regarding Ms Pooh, I also have been spending some time in amateur psychoanalysis. I found tantalizing hints of delusions of grandeur combined with delusions of persecution-slash inferiority, manifested in a rather open degree of hostility. And this, even before I became sort of openly annoying.

So. Descended from royalty, quite beautiful and intelligent, as compared to the ignorant and rather plain peonage. A superior air, naturally. To be any less would be to be untrue to oneself. A quite well developed superego, but unsteady on its feet. Knocked down very readily but never betrays that to the onlooking crowd.

However to say such things to a lady would be very ungallant. So let's keep this litle chat.. discreet.

(wink)

"As for the graph, do you not agree that inflation has been increasing every since the institution of the Fed?"

Not only that, but since the coin of the realm was first minted, back in 1789. There normally tends to be inflation in the good times and deflation (a much worse condition) in the bad times.

A good exercise would be to find a graph tracking inflation since the country was founded. Meanwhile, if you're interested, I found this very interesting article on inflation generally:

http://www.newstatesman.com/199904020014

The high cost of penny candy
The better way to ask that question is to ask how many hours an average worker has to work to buy: a pair of shoes, a new car, a bag of groceries, a steak dinner out or a two bedroom home.

Seen in that light, we're doing immensely better than our grandparents. They had to work very long hours to buy a very meager amount of household goods.

Cheap dollar store goods from China have brought the prices of many housewares down to levels last seen in the 1950s. However the products of the professional classes have inflated tremendously. Try to find a decent accountant for less than $180 an hour, or have a tooth pulled for less than $350. A few years back they were only charging half that.

But your example was candy. When I was a kid, in 1950, a one ounce chocolate bar was five cents.. and an ordinary wage was $1/hour. Today I bought a 12 ounce bag of Hershey's for $3 (or 25 cents/ounce).. and a comparable wage is probably $12.

So then, let's say in 1950 an ounce of chocolate cost three minutes of work. And this afternoon it cost one minute, 15 seconds of work. A little less than half.

Based on that single datum, I would offer that inflation, in this lifetime, has not been the worst of our problems. Let me know if you have trouble checking my math.

An excellent question!
The content of Mises and Marx are disparate, in the sense that each tends to draw opposite conclusios from the same data. But the epistemology is strikingly similar. That is, they both feel very strongly that all economic and social behavior can be boiled down to a handful of universal rules, and readily understood.

They are each captive to their ideologies, feeling that only they have the key to understanding the world, and that everyone else is wrong. The same personality type gravitates toward such belief sets. And in fact we have numerous instances of neoconservatives, that is, people who once were Marxist and who then converted to being on the right economically.. either in the Austrian camp or the Chicago School (Milton Friedman).

They both argue the same way and they are both susceptible to factionalism over fine points that the casual observer comes away in amazement, that anyone could take theory that seriously.

Neither learns from either observation or experience. Both are invariably convinced of the truth of things by one thing and one thing only. Logic. And in a showdown between their elegant theories and the inelegant reality we live in, all take their message from theory.

They're really just alike. It's only the nature of their theories that differ.

So why not make the minimum wage $100/hour?
Inflation is just adding more zeros to the currency.

Changing the 'currency' to something of a more standard value, like hours worked is better, but that also reflects improvements in productivity for the candy and the worker.

So why not make the minimum wage $100/hour?

"Try to find a decent accountant for less than $180 an hour, or have a tooth pulled for less than $350. A few years back they were only charging half that.'

Someone has to pay for all the government red tape they have to put up with.

Inflation has been kept 'under control for these past thirty years?
Uh...apparently you haven't seen the same graph the rest of us did in that article.

An additional dimension to the question
One thing you are confusing is the theories of Karl Marx with the political activities of the individuals who brought down the Russian state. The two are very different, and in fact Marxism was never actually practised in the USSR.

Soviet society really most resembled the social system one finds in the US armed forces. Instead of having party members rule over the proletariat as a superior and more ptivileged brand of human, in our armed services it's the officer corps who are absolutely superior to those whose lives they hold absolute control over: the enlisted men (and now women). In every detail, the resemblance of these two models is striking.

Marx, on the other hand, attempted to design a society where everyone was equal. Nothing could have been further from the truth of the class-bound Soviet experience. He wanted to knock down the absolute power and freedom, based on the possession of capital, enjoyed by the ruling class and make everyone equal regardless of their social origins.

Or, as they used to say in Moscow, under Capitalism, man is ever oppressed by his fellow man. Whereas under Communism, it's the other way around.

" I would offer that inflation, in this lifetime, has not been the worst of our problems"
Yes it most certainly has. Savings rates dropped to almost 0%. Only recently have people started to save again. People parked their money into non-productive assets that do well in inflation...art, houses, etc.

The only trend that kept it from being a total disaster was the exponential nature of techological improvements to the economy.

Actually, yes
"Uh...apparently you haven't seen the same graph the rest of us did in that article."

Sure I saw it. We just have differing perceptions as to what constitutes an acceptable rate.

For you, nothing but zero will do. However that's hard to achieve. Let's say you peg the rate to gold. Well, they're digging up and minting more gold bars all the time.. so that's not constant. And the world is filling up with more and more people.. so that's not constant. And the amount of goods and services being produced are never constant either. So you've got a problem with ideological purity on all those counts.

Pegging an increase in the money supply instead to how much money is needed to express the economy most accurately has proven to be a much better way to fine tune things-- providing of course that a bit of discipline is used. And since Paul Volcker took over as head of the Fed, we've been able to keep inflation in line, with a target rate of hopefully no greater than 4% per year. And, of course, an increase in wages in roughly like amount.

There's no perfect system. But the one that works best is that we put in more money when we need to and take it back out when we no longer have the need for it. It's that second part of the formula that has eluded so many great heads of state over the centuries! Hence runaway inflation has had the tendency to help bring great empires low.

The dumbest of all arguments
You really will have to do a lot better than that.

The fact, one that so far you find to be unanswerable, is that we can afford to buy more stuff now with our labor than ever used to be the case. So that's a GOOD thing.

Those things that are escaping our ability to afford, such as healthcare and professional services generally, need to be reformed. Everything else is fine the way it is.

We also need to turn the corner on debt. And the best way to do that is to raise the taxes of those who can afford to pay more. They have been the chief beneficiaries of the current system, and now it's time for them to pay it back.

I am more concerned with unemployment
I am more concerned with unemployment, and just when I though that the FED was doing and adequate job with that things fell apart a bit. So if they failed in preventing unemployment in 1930 and in 1980 and again now they seem to be a complete failure.

George Selgin's has written and spoken about establishing competition in money supply IMO it seems difficult to get there but perhaps it is what is needed. When a huge monopoly gets off the damage can be huge.

The reason we can buy more with less is productivity gains.
The reason health care costs are rising are the result of government regulations and lack of competition to improve productivity.

The way to cut debt is to stop spending.

missypooh's beauty
Maybe I forgot to mention, when that particular boyfriend said I was too beautiful to have been created by anything less than a god, it was some years ago.
Now I'm old, fat and ugly, and going to sleightly overweight.

Marx vs. Mises
Nice try.....to obfuscate. The main difference is just freedom vs. tyranny. They're diametrically opposed.

You're also wrong to say that it's a matter of only logic.
With marxists it's ideological, with misians its empirical. People have been shown to be better off, and happier when freer.

11% from 1787 to 1912 is impressive enough
Remember, there was the massive inflation during and right after the Civil War during that time. AND the California Gold Rush.

The amount of goods and services have nothing to do with the value of the money when it was pegged to gold.

"Pegging an increase in the money supply instead to how much money is needed to express the economy most accurately has proven to be a much better way to fine tune things-- providing of course that a bit of discipline is used. "

Uh, yeah...and that never happens. The graph proves it.

" And since Paul Volcker took over as head of the Fed, we've been able to keep inflation in line, with a target rate of hopefully no greater than 4% per year."

That isn't 'in line', Roy. That is ridiculous. Far more primitive societies than ours managed to do way better. It's embarrassing.

"But the one that works best is that we put in more money when we need to and take it back out when we no longer have the need for it."

Yes, well that would STILL happen under a strict gold peg, Roy. It is just that the 'taking' and 'putting' is done in a more restricted range, via a baseline EVERYONE can see.

Off topic; but what the heck. Paging Roy with a request to ask his leader to NOT take over the ‘NET
http://news.cnet.com/8301-13578_3-10320096-38.html

Wrong
1. "The reason we can buy more with less is productivity gains."

Wrong. Those gains never trickled down into workers' pockets. During a measured period in which productivity increased by 19%, the incomes of the workers whose efforts contributed to that productivity increased by only one percent. Economic leeches got the rest.

2. "The reason health care costs are rising are the result of government regulations and lack of competition to improve productivity."

Wrong. Health care costs are rising faster than costs in any other sector because health care is an unregulated, for-profit industry. And it's the only one where you can't just stop buying the product. Stop buying and you die.

It's more lucrative than selling recreational drugs. With those, a disgruntled customer can just kick the habit.

And it's one in which not-for-profit competition is being resisted.. precisely because it would drive costs down.

3. "The way to cut debt is to stop spending."

Wrong. The spending is systemic, and kept in place by Congress and its ways. So the only way left to reduce debt is to raise taxes, and pay it down. Unless you want to dismiss Congress and try some other form of government. (The approach Putin took.)

Freedom vs tyranny
"The main difference is just freedom vs. tyranny. They're diametrically opposed."

Sorry. I forgot what a starkly simple, binary world you live in. I guess we weren't discussing the merits of two competing economic systems. The issue, for you, is GOOD vs EVIL. One must choose GOD or choose the DEVIL. It's beside the point that both communist and capitalist systems are just simplistic constructs that leave out more than they describe. Neither truly addresses the needs of humanity.

I was evaluating them as philosophies-- and I find that they both fail in similar ways. Plus, the True Believers in each are identical personality types. To say that "With marxists it's ideological, with misians its empirical" runs directly counter to observation. Both are convinced of an idea that to them is marvelous and perfect. And they have the True Believer's zeal, which causes them to want to impose their gridwork on everyone else.

It's funny how one's closely held biases can so cloud one's perceptions as to render one unable to notice this. The fact is glaring.

Finally "People have been shown to be better off, and happier when freer."

Hardly. On the much-touted Happiness Index people in the United States are actually way toward the unhappy end of the scale. You wouldn't know that, as I suspect you've hardly ever stuck your head outside the country's borders.

The happiest countries are like #1, Denmark. They have a strong social safety net and pay for it with high taxes. Citizens all tend to be middle class, with relatively equal after-tax incomes. All are well taken care of and, surprisingly to our sensibilities, take seriously the thought that all men (women too) are created equal, and that no one is by the size of his bank account more equal than the others.

No society is yet perfect. But the northern European welfare states are far closer than we are. One critical edge they have is that their public servants, unlike ours, are not corrupt. They take their duties to the public seriously.

Purchasing power
"I am more concerned with unemployment, and just when I though that the FED was doing and adequate job with that things fell apart a bit."

Don't blame the Fed. Unemployment can't be addressed by monetary policy. As we've just seen, pump more money in at the top and it gets sucked up by voracious predators residing there. Next to none "trickles down" into the hands of business that want to expand by adding to the workforce.

It's increases in DEMAND that directly create employment. And demand looks like this: hungry people with no money create no demand, and thus no jobs. Hungry people WITH money buy food, and stimulate the producers to hire help to grow more of it.

These are things that an economist will find hard to understand, because they go outside the confines of his narrow art. But the quickest way to stimulate production of goods and services-- that is, jobs-- is to transfer money from the pockets of the rich, who can't spend all the money they have, and so must invest most of it into markets that inflate from the mere presence of all that excess cash, into the pockets of the poor, who desperately need to BUY MORE STUFF with it. Taxation will do the trick handily, and also reduce our dependence on credit.

It is the failure to address this obvious fact that has led directly to our modern condition-- that during a recovery, jobs lag every other indicator.

Currently we have 310 million people in this country. 18 million of us are looking for work, and so constitute no stimulus toward employment-- that is, no purchasing power. But I will look for something written by your George Selgin, to see what he has to say.

It only sounds like a bright idea
"Uh, yeah...and that never happens. The graph proves it."

Did you show us "the graph"? Or are you talking about the graph I showed you.. the one beginning in 1975?

I'd like to take a look at the graph beginning in 1787, that you seem to be referring to. Please provide it.

"That isn't 'in line', Roy. That is ridiculous."

Keeping inflation within a 2-4% er annum range is a convenient way of accomodating expansion in the economy, and is so slight it hurts no one.

Sure, it causes agonies of despair among the greed heads who can't stand the thought that they might lose a single penny of their lucre.. but it hurts no one.

And the benefit is great. An hour's work purchases WAY more stuff than it did even sixty years ago. We're ahead of the game. 'The dollar' is only our way of keeping track of income and expenses.

If we pegged our arbitrary 'dollar' to some equally arbitrary marker like gold, we would continually be deflating. The economy would always be trying to expand, while the unit of measurement wouldn't be keeping pace. Interest rates would have to go into negative territory before anyone would EVER invest in ANYTHING.

Take a chill pill, bro. It's getting better all the time. :)

Like the rest of us
Roy was being terribly ungallant to have tattled tales about Missy within her earshot. Roy feels very badly about that.

But in any event, the only beauty Roy cares about is inner beauty. So Missy would still have a shot at the crown if only she weren't so damned uncharitable about everyone she enjoys heaping scorn upon.

Also, a mind open to fresh ideas is an admirable thing. It's only as we grow and ripen that we become alluring to those who are covetous of our fruit.

But now Roy is just running his mouth off. So Roy will wrap it up.

Was that a buzzing in my ear I heard?
On this we agree. Having the President of the United States take control of the Worldwide Web in the event of some presumed emergency would be a very bad idea.

For one thing he would have too many of the wrong sorts of people whispering in his ear. The web instead is useful to a couple of billion of us little guys, who don't have that privilege.

For another thing, you don't know who might be president when that happened. Can you imagine Sarah Palin acting as our Webmaster in Chief? I'm not even sure she knows how to turn the thing on.

All that being said, there should certainly be some international authority capable of governing the direction of its expansion. Right now it's haphazard, and no board with oversight around the globe can implement system-wide fixes for things like DOS attacks.

We do need some panel to direct the growth of the Web. Just not the US President. Or any US-only group. And the very LAST people we should include are the major telecom corporations, who only want to use it as a way of making money from us.

Apparently, Roy is OK if control of ‘NET falls in the hands of the likes of Stalin, Mao, Hitler etc,
But he doesn't want it to fall in the hands of Telcos b'coz they "only want to use it as a way of making money from us".

For the sin of providing him with the means to SPIT on their faces, he considers them lesser than history's mass murderers.

Way to go Roy.

Productivity reduces costs
The price of crops and livestock have not risen at all since the 70s when I raised hogs. With all other costs rising, the only way farmers can stay in business is with subsidies and productivity gains.

Not regulated?

"The heavy hand of government on health insurance already in the law is one factor driving up insurance costs. Legislators, responding to appeals from interest groups and real complaints from constituents, load mandates onto health insurance policies.

For example, Illinois in 2002 required group health insurance for employers with 50 employees to cover "serious mental illness" as it does other diseases. Last year it expanded that to require coverage for services provided by licensed marriage and family therapists. I certainly understand the value of that kind of counseling, but should it be required in policies that pay to treat illness? If so, don't be surprised premiums cost more.

I've seen the heartbreak infertility can afflict on a couple. Yet, I don't know how many people would list it as a disease. Illinois legislators have mandated that in vitro fertilization and other expensive infertility treatments must be included in group insurance policies for business with more than 25 full-time employees. That has to be underwritten in premiums. Ditto for coverage for contraceptive drugs. And inpatient treatment of alcoholism.

These may be good things, but they add to your insurance bill."
http://www.suntimes.com/news/huntley/1739133,CST-EDT-HUNT28.article

Is that how you balance your budget, go out and rob people?

Hand it over to mass murderers?
Your comment is so twisted with vitriol that it's kind of hard to figure out what you mean. But I do get that it's something bad about me. You find it impossible to carry on a civil conversation with a heathen, I suppose.

At any rate, I doubt whether Hitler or Stalin would be much interested in running the Web. What would be in it for them?

I was thinking it might be run productively by a board of individuals who were honest, weren't after a profit and just wanted to make sure it was in good working order. Such people do exist, even though you can't imagine them.

You named a US Pol but omitted Chinese Pols who ARE controlling the 'NET. Shows your inclinations
..

Now we're producing more penny candy?
1. "The reason we can buy more with less is productivity gains."

So you're admitting, then, that inflation is not an actual problem. Even with the dollar eroding at what has been a controlled rate for the past 30 years, we can buy much more with a week's pay now than anyone ever could before. right?

2. "The reason health care costs are rising are the result of government regulations and lack of competition to improve productivity."

Interesting theory. So if we just had more dentists, productivity would improve. And bridgework would cost less.

Then you must be in favor of the public option. It would be competition, and would force the existing profit oriented insurors to become more productive.

3. "The way to cut debt is to stop spending."

That's one way to do it. But we still live in a democracy, not some libertarian republic with no representation. And for every expenditure there's an interest group that won't let it die.

So the only other way we can go is to raise more money. Maybe if we held a national bake sale?

Nonproductive assets
The only thing you're talking about is moving the asset being inflated from retail prices, as expressed in dollars, into something else. Homes, antiques, polo ponies... It's still inflation relative to everything else. And if we went to the gold standard (with consequent deflation), and money kept growing more valuable with each passing year, relative to everything else, there'd be no investments. Everyone would stay in cash. No one would want to buy anything. The economy would be always shrinking, never expanding. We'd end up cautiously, with no jobs and no prospects.

It's all supply and demand. If everyone's making s--tloads of money in the markets, the prices go up ONLY because there's too much money up there, chasing a fixed amount of value. A bubble gets created. One that must in time pop. So too much money at the top is an unproductive curse. Better that it be taxed, and used for some useful purpose!

You have to start thinking of everything as a commodity-- including money. And values are always moving up and down between the various classes of commodity.

I'd be comfortable with a world where real estate is held to very modest gains in value. And where cash is subject only to very modest losses in value. And where the Dow remains steady from one year to the next. THAT would be a very sane world in which to live.

If you REALLY meant (and want) what you wrote, you wouldn't want to give MORE power to the GOVAGs
In fact, you would strive to reduce the power (Federal) GOVAGs now wield on money and our economy.

I’m referring to your “I'd be comfortable with a world where real estate is held to very modest gains in value. And where cash is subject only to very modest losses in value. And where the Dow remains steady from one year to the next. THAT would be a very sane world in which to live”.

A sane person doesn’t want to hand over his (and others’) lives to the control of anonymous and faceless bureaucrats in far away places.

Productivity outpaced inflation.
Productivity gains are not linear or predictable.

How does government compete? The government must create a monopoly for itself or it can't compete (like the post office and Amtrak).

When you can't print or borrow or tax anymore, spending must be cut. All three reduce the size of the economy making matters even worse.

More calculations per dollar
"Had he been aware of the historical statistics, Mises no doubt would have made good use of the example of the falling price of computing power since 1965. It is not likely that any economist would want to present a theoretical case for a theory that the world has been made poorer by the fall in the prices of computers. What engineer would turn in his multi-function, solar-powered, scientific $20 calculator in order to go back to a slide rule? ("Where was that decimal point supposed to go?") This steady drop in the price of computing power has been going on since at least 1910. Computing speed per dollar doubled every three years (1910-1950), then every two years (1950-1965), and then every year (1966-2000). Nothing in human history has matched this reduction in price (increase in output) at such a rate for so long a period. But the fact that such a steady increase in consumer value is both possible and economically profitable to producers indicates that there is no need for an increase in the money supply to facilitate exchanges. This price-cutting process is not a defect of the free market economy; it is a benefit. Mises said, that "one must not say that a fall in prices caused by an increase in the production of the goods concerned is proof of some disequilibrium which cannot be eliminated otherwise than by increasing the quantity of money" (p. 431). "

"If prices fall in a productive economy with free-market money, then the goal of stable prices can be achieved in one of two ways: (1) reduce production; (2) inflate the money supply. Only the advocates of zero economic growth are willing to affirm the first option. The entire economic profession, except for the Misesians, affirms the second. I would go so far as to say that there is no better litmus test of orthodox Misesianism than a denial of any monetary policy that has stable prices as its goal. "

http://www.lewrockwell.com/north/north85.html

Thank you Roy for proving yet again you don't understand A from B
"Wrong. Those gains never trickled down into workers' pockets. During a measured period in which productivity increased by 19%, the incomes of the workers whose efforts contributed to that productivity increased by only one percent. Economic leeches got the rest."

Total BS. And, even if true, it doesn't disprove anything to do with 'buying more for less', much less refute it. You totally ignored (or just flat out don't understand) that concept.

"health care is an unregulated, for-profit industry"

That is a flat-out false-hood. Health care is HEAVILY regulated and the means for paying for it has been warped by the government because of the tax code alone.

"So the only way left to reduce debt is to raise taxes, and pay it down."

Nope. That never works. Every time taxes are raised, the government just spends more and goes into MORE debt. That's all.

Life must be grand on Planet Roy.

No, what YOU are talking about is just plain nonsense.
" The only thing you're talking about is moving the asset being inflated prices, as expressed in dollars, into something else. Homes, antiques, polo ponies... It's still inflation relative to everything else.

No I am not. YOU think so because you truly do not understand any of this.

"And if we went to the gold standard (with consequent deflation),

No, there would not be 'consequent deflation'. Yet again you have no concept of the topic. There would be price stability, that is all. Even when we were last on an strict gold standard, as per this very article, the dollar lost 11% of its value from 1787 to 1912. Doesn't seem like it deflated to me.

And this isn't about the gold standard even, this is about the Fed. The Fed has blown it both before and after we finally severed from gold in 1971.

"and money kept growing more valuable with each passing year,"

No it would not, just like it didn't when we were last on such a standard.

"relative to everything else, there'd be no investments."

There were no investments between 1787 and 1912? Wow! I guess everything just grew on trees then, eh?

"Everyone would stay in cash. No one would want to buy anything. The economy would be always shrinking, never expanding. We'd end up cautiously, with no jobs and no prospects."

Thank you for providing absolute to proof to everyone besides me of my contentions that you are totally clueless on this subject.

"It's all supply and demand. If everyone's making s--tloads of money in the markets, the prices go up ONLY because there's too much money up there, chasing a fixed amount of value. A bubble gets created. One that must in time pop. So too much money at the top is an unproductive curse. Better that it be taxed, and used for some useful purpose!"

More hogwash but besides that: it has NOTHING to do with the topic at hand.

"You have to start thinking of everything as a commodity-- including money. And values are always moving up and down between the various classes of commodity."

Uh...YOU have been making arguments on this by classifying the issue this way. You just did prior to that statment.

And it has nothing to do with monetary stability or inflation.

"I'd be comfortable with a world where real estate is held to very modest gains in value. And where cash is subject only to very modest losses in value...THAT would be a very sane world in which to live."

Yes, and that world was pre-Fed America.

"And where the Dow remains steady from one year to the next."

Nice for you, but it has nothing to do with monetary stability. But hey, on Planet Roy anything goes so knock yourself out.

Don't listen to Roy
"It's increases in DEMAND that directly create employment. And demand looks like this: hungry people with no money create no demand, and thus no jobs. Hungry people WITH money buy food, and stimulate the producers to hire help to grow more of it. "

That Keynesian nonsense has been COMPLETELY discredited.

Tell us Roy, where was the DEMAND for electricity or iPods or microwave ovens to signal producers to start making them? And why isn't the regions of our world where there is the most demand not also the richest then, according to that Keynesian dogma? And don't respond that they don't have money -- because their two-bit kleptocracies print all the money that anyone could ever want!

" But the quickest way to stimulate production of goods and services-- that is, jobs-- is to transfer money from the pockets of the rich, who can't spend all the money they have, and so must invest most of it into markets that inflate from the mere presence of all that excess cash, into the pockets of the poor, who desperately need to BUY MORE STUFF with it"

You mean like how it was done when Bush sent out the stimulus checks in '08 and all people did was pay down their debts or put the money in the bank for a rainy day?

You remember? That was when you claimed the effect on the economy would be just like the hogwash you just spouted now...and then DENIED ever saying so when I called you on it when the 'effects' of the stimulus checks became obvious and even cited studies that totally disproved that Keynesian crap?

You remember that, don't you Roy? Then tell jwogdn here all about it, why don't you.

"Taxation will do the trick handily, and also reduce our dependence on credit."

How? How will it reduce our dependence on credit Roy? How will it do so when tax REVENUES will fall even more than they do now?

Did you know that during your precious 1950s, the top 10% of taxpayers only provided 8% of the tax revenues? This was despite the fact that they had 71% marginal tax rates imposed on them. Before Obama, they were providing about 70% or more again. In the 1920s, with the top rate at 24%, they paid 75% of the revenues. Hmmmmm.....so since ACTUAL HISTORY shows that the higher the rates imposed on the 'rich' the less blood you can get out of that turnip and vice versa when rates are lowered, your brilliant plan to raise taxes on the rich that already pay enough of the revenue burden will only result in less revenues from them...and that means more deficit spending since Congress will never actually CUT spending...and more taxes on the middle class to make up for the difference when the Chinese walk out of the Treasury auctions.

Oh, and that will also go hand and hand with consequent reductions of investment where it is needed. The rich will just park their money in muni bonds or what-not until sanity returns to our tax code.
No start-ups will be funded. No second or third rounds of funding will happen to the start-ups that are ready to move to the next stage (and create more jobs in the process).

Oh yeah...that will be just GREAT for unemployment, Roy. Brilliant!

Its a good thing the God likes fools, Roy...for you
"Did you show us "the graph"? Or are you talking about the graph I showed you.. the one beginning in 1975?"

The graph that is in this article. The DAMNING one that clearly shows what a total failure the Fed has been.

"Keeping inflation within a 2-4% er annum range is a convenient way of accomodating expansion in the economy, and is so slight it hurts no one."

BS! In fact I call you on this one. PROVE your nonsense. PROVE that ANY inflation is 'good'. Prove that it is needed to 'accomodate expansion' of economy.

"...and is so slight it hurts no one."

It hurts savers big time. The public figured this out: Saving was for chumps. So they parked their 'savings' in to inflation-safe assets like housing instead.

Or course, that caused all kinds of problems in its own..the most major being that putting money into a house is not a productive investment like putting into a vehicle that increases investment in real productive activities instead.

"And the benefit is great. An hour's work purchases WAY more stuff than it did even sixty years ago. We're ahead of the game. "

WAIT A MINUTE, both Marjon and I have been repeatedly saying the same thing while you keep insisting that the 'gains of productivity have not filtered down to the oppressed working man'.

Which is it?

"If we pegged our arbitrary 'dollar' to some equally arbitrary marker like gold, we would continually be deflating."

No, we would not and you haven't provided any proof to back up that absurd statement either. In fact, when we were pegged to gold w/o the Fed to mess things up the dollar 'inflated' by mere 11% over a 125 year period, remember?

"The economy would always be trying to expand, while the unit of measurement wouldn't be keeping pace. Interest rates would have to go into negative territory before anyone would EVER invest in ANYTHING."

No it wouldn't because being on a gold peg would not be deflationary any more than it would be inflationary.
If YOU believe otherwise then you provide EXHIBIT A for proving that you don't know what you are talking about when discussing commodity price rule pegs for currency supply management.

There would be more purchasing power, but that would be because of productivity gains, as you yourself are NOW ADMITTING AFTER DENYING IN THREADS IN THIS FORUM.

But that would be a good thing...even better if the dollar isn't inflating. Because then people would get the additional benefit of having a sound currency to save in if they so chose.

Like I said, you have ZERO clue as to what you are talking about. Either that, or you do but are spouting deliberate falsehoods in order to misdirect others reading this to your irrational world view.

Why don't the three of you just get a room already...
...but upload the video to Youtube. We can hack the projector screen at the next Obama rally with it and make all the attendants go blind.

Zyndryl is NOT a gentlemen and acomodates the FemiNazis' wishes on this one point.

:)

Cheif Beneficiaries Unite!
>"We also need to turn the corner on debt. And the best way to do that is to raise the taxes of those who can afford to pay more. They have been the chief beneficiaries of the current system, and now it's time for them to pay it back."

Here we go again. In Roy's mind, the wealthy are the "chief beneficiaries" of free market, and as such, they should be penalized by higher taxes. The default assumption is that the wealthy have become that way by taking unfair advantage of the not-so wealthy.

Yes, you can get rich by taking advantage of others. It is called theft, extortion, etc. But if attaining wealth were that easy, the poor would be doing it as much as the rich. The fact is that in a free market economy, the fastest, surest, safest was to become wealthy is by working, taking risks, and providing goods and services for others. The not-so-wealthy then purchase these goods and services voluntarily, at prices they find beneficial at the moment. Many of us even do so on credit - trading not the fruits of past labors, but the promised fruits of future labors, for the goods and services we desire. So, the businessman produces more wealth than he consumes, while the poor man consumes more wealth than he creates. But somehow, in Roy's mind, the man who produced more than he consumed was the "chief beneficiary" of a system in need of correction, while the man who consumed more than he produced was a victim.

Roy, has it ever occurred to you that the "chief beneficiaries" of free market economics are not the owners of WalMart, but rather, the people who shop there?

Here is an article that reminds me of you:

http://www.victorhanson.com/articles/hanson082909.html

These two paragraphs seem to match your way of thinking:

Individual compensation is now seen as arbitrary and, by extension, inherently unfair. A high income is now rationalized as having less to do with market-driven needs, acquired skills, a higher level of education, innate intelligence, inheritance, hard work, or accepting risk. Rather income is seen more as luck-driven, cruelly capricious, unfair — even immoral, in that some are rewarded arbitrarily on the basis of race, class, and gender advantages, others for their overweening greed and ambition, and still more for their quasi-criminality.

“Patriotic” federal healers must then step in to “spread the wealth.” Through redistributive tax rates, they can “treat” the illness that the private sector has caused. After all, there is no intrinsic reason why an auto fabricator makes $60 in hourly wages and benefits, while a young investment banker finagles $500.

Am I wrong?

Grading in Roy's world
In Roy's world, grades in school would be evenly distributed regardless of effort or talent.
That would be on way of reducing the cost of professionals like doctors and accountants, all would be mediocre or incompetent.

Why is Frank worried?
" Rep. Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee, said he plans legislation to restrict the Federal Reserve's emergency lending powers and subject the central bank to a "complete audit."

At a recent town hall meeting, Frank said the House would pass a bill to use an audit to crack open the central bank's books more widely, but in a way that will not encroach on the central bank's monetary policy independence.

In addition, he said the House would move to rein in the authority that allows the Fed to lend to a wide range of non-bank firms in "unusual and exigent circumstances."

A bill sponsored by Texas Republican Rep. Ron Paul that would allow the Government Accountability Office, a federal watchdog agency, to audit Fed interest-rate decisions has won the co-sponsorship of more than half of the House."

"Frank expressed unease at what he called the Fed's power to "lend money to anybody they want" in emergency circumstances. "We are going to curtail that lending power. We are going to put some restraints on it," he said."

http://finance.yahoo.com/news/Rep-Frank-eyes-Fed-audit-rb-3402785272.html?x=0

Maybe there really are some smart people in Cambridge and Frank is worried about re-election?

Roy wants to raise taxes
Did you notice what happens when a country tries to raise taxes really high? Certain things get set in motion. Many countries have tried it, with the same predictable results.

The UK tried to tax Mick Jagger because they figured 'he could afford to pay more'. And what do they get out of him for their misguided efforts?...nothing at all since he became a resident of Monaco.


Now tell us your solution for that would be to make the whole wide world less free. In fact, that's just what they're trying to do.

Here's a good article for you about taxes: http://www.freecanadian.net/articles/UndergroundEconomy.html

Roy and the FED
It could be that Roy likes the FED, in spite of the evidence of all the harm it has done, simply because he wants to be consistent in liking all big government agencies.

Notice how he uses terms like; "should be held to", and other similar ones. This is normal authoritarian phrasing. They want everything to be controlled rather than let people be free to make their own decisions in life.

nonproductive?
This quote of yours is also wrong.

"And if we went to the gold standard (with consequent deflation), and money kept growing more valuable with each passing year, relative to everything else, there'd be no investments".

This is belied even by the history of England in the 19th c. There was a pretty strong gold standard, even some deflation, yet massive investments during the whole industrial revolution there, and worldwide.

The same would happen elswhere too had they only could have such free economies, and solid currency.

"to impose"?
This is the authoritarian language that you and marxists use, but not any sort of libertarians, misians etc.

I see them mostly saying the don't want others to impose on them, rather than they wanting to impose anything on anyone else. This is why they have the moral high ground.

You are the one who always tells people to document sources for statements; tell us where any freedom lover says anything should be imposed on others.

A better comparison than your example of modern day Denmark would be the US compared to all of Europe, and all of the world, right back to the founding.

So keep the comparisons coming; colonial america vs. europe, obvious diffence in freedom; east germany vs, west germany, n vs s korea; american slaves after amancipation, Denmark after naazi occupation, south africans after apartheid.

Another problem with 'hapiness indexes' is that they are usually done by left wing biased outfits like the UN and others. Thus one that have say socialist health systems like Canada, usually score high(altough I've seen that country as low as 37th in some studies). The best index would the the 'vote by foot'
If the whole world were free to move about, then we would see it all shake out. Indeed, even now with more of the brainy professional classes moving about the world, certain countries have to try to compete to keep the smartest people there.



TCS Daily Archives