So I have written a follow up on Ron Paul.
Despite the great admiration he gets from not just the far Right but some of the deluded left, what is striking in reading his editorial in today's Wall Street Journal, is the breadth and depth of Mr. Paul's ignorance of economic matters. (WSJ 10/20/11, pg A16). Mr. Paul starts by explaining to us the nature of money:
"Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers. It's particular usefulness is that if helps facilitate indirect exchange, making it easier for us to buy and sell goods because there is a common way of measuring their value. Money is not a government phenomenon, and it need not and should not be managed by government. When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster."
He then proceeds to offer us this mythical piece of economic history: "The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank's creation in 1913. It pumps new money into the financial system to lower interest rates and spur the economy. Adding new money increases the supply of money, making the price of money over time-the interest rate-lower than the market would make it. These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy. So certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best uses of those resources."
The Fed all by itself has caused every boom and bust, without the Fed there would be no boom and bust! Well then abolish the Fed and we will have a utopia. Like the time prior to Federal Reserve Act of 1913: between 1873-1913-the age of "hard money' and the gold standard-we hand innumerable bank panics and were in recession 20 our of 40 years. So that's what a utopia looks like!
As for this talk about money being a good like anything else, Mr. Paul is making an error which was much easier to make during the age of the gold standard, that he no doubt wants to return us to. When gold was the currency it was easy to confuse two things: gold in it's role as the currency or facilitator of exchange and gold as just another commodity that has many different uses. The claim that "money is not a government phenomenon" is a very confused claim as well. Don't all currencies refer to a particular government? Then how can it be this pure phenomenon of the State of Nature that Mr. Paul seems to imagine?
He then adds breathtaking overstatement claiming that, "The manner of thinking of the Federal reserve now is no different than that of the former Soviet Union." Like a true Bircher, Paul always has to add a dose of red baiting.
Mr. Paul is the Great White Hopes of many anti-Obama liberals. They think he's kidding in his demand for $1 trillion more in budget cuts:
"As part of his "Plan to Restore America," the Republican presidential candidate and firebrand congressman from Texas wants to cut out all foreign aid, end the wars in Afghanistan and Iraq, and eliminate five Cabinet-level departments."
"We are in the midst of the worst debt crisis ever in all of history, so I cannot see how we can get out of this by increasing the debt around the world," Paul said in a CNBC interview. "Nobody has proposed any cuts and I don't know how in the world you can get out of the problem of too much spending and too-big government by not cutting anything."
Specifically, he wants to eliminate the departments of Energy, Housing and Urban Development, Commerce, Interior and Education.
Just what we need-someone who is more concerned about deficits and inflation than jobs and growth. Say this for the Fed: at least it understands the problem unlike Paul who gets the wrong diagnosis:
"There is little evidence that the bulk of U.S. unemployment today is structural, but such a problem could develop if more people don't find work quickly, The Wall Street Journal reported, citing an interview with Federal Reserve Governor Daniel Tarullo."
" If you don't get unemployment down more quickly than it seems to be going now, we could have more of a structural unemployment problem in the future," Tarullo, who supervises regulatory affairs at the U.S. central bank, was quoted as saying.
" If you don't get unemployment down more quickly than it seems to be going now, we could have more of a structural unemployment problem in the future," Tarullo, who supervises regulatory affairs at the U.S. central bank, was quoted as saying.
Unemployment could be reduced by boosting demand in the economy, meaning if the Federal Reserve ![[cnbc explains]](http://media.cnbc.com/i/CNBC/Sections/News_And_Analysis/_News/_CNBC_EXPLAINS/_IMAGES/CNBC_explains_icon1.gif)
or the Congress did more to bolster consumption, more Americans would have jobs, Tarullo said.
http://www.cnbc.com/id/44972879
As for as Paul's demand to End the Fed, this is an idea which may strike some as appealing on a populist level to the extent that they don't know what the Fed does. The Fed is not the main problem right now. The problem is the dysfunctional Congress who won't pass Obama's AJA.
I don't think ending the Fed would be a good idea or provide anyone any benefit; I do agree with Barney Frank though that maybe is should be made more politically accountable, where maybe some of the Fed Governors can be confirmed by the Senate or maybe reduce the number from 12 down to 7 or so, or preferably a little of both. Maybe take it down to 7 and have 3 confirmed the traditional way-through the private banks-but 4 would face confirmation through the Senate.
or the Congress did more to bolster consumption, more Americans would have jobs, Tarullo said. http://www.cnbc.com/id/44972879
As for as Paul's demand to End the Fed, this is an idea which may strike some as appealing on a populist level to the extent that they don't know what the Fed does. The Fed is not the main problem right now. The problem is the dysfunctional Congress who won't pass Obama's AJA.
I don't think ending the Fed would be a good idea or provide anyone any benefit; I do agree with Barney Frank though that maybe is should be made more politically accountable, where maybe some of the Fed Governors can be confirmed by the Senate or maybe reduce the number from 12 down to 7 or so, or preferably a little of both. Maybe take it down to 7 and have 3 confirmed the traditional way-through the private banks-but 4 would face confirmation through the Senate.
So why exactly do we believe the Federal Reserve, run by bankers, will do the right thing for all Americans? Because they have done such a great job managing the Income gap? Or like Bankers have selflessly avoiding gain at the expense of the economy?
ReplyDeleteI am trying to understand your trust in the system.
You can't because Libertarians live in a fantasy world that is strictly black and white on every single issue.
DeleteThat's how Ron Paul gets you...lures you into his van, then will deflower you because the GHB is working.
ReplyDeletePaul you have a good name if you're a Ron Paul supporter! The reason for what you call my trust in the Fed system is that monetary performance has been much better than the previous classical age of the gold standard (1873-1913).
ReplyDeleteDuring the those 40 years we saw half ot them with the economy in recession with regular intermittent bank panics every 5 years or so.
There is something in what you say about the Fed serving rich bankers but the answer to this is as I suggested above the reforms of a Barney Frank or the great congressman Henry Gonzalez when he was alive-his sone has since carried the torch.
When the Fed was created, there was a push and pull between the Fed being controlled by private banks and being subject to political control. The initial agreement was supposed to be a compromise.
From the New Deal and Eccles Mariner until about 1970 the Fed did a pretty good job of working for the American people. With the victory of Monetarism, etc. the Fed in recent years has been over weighted with it's "price stability" mantra which does favor the banks and creditors over borrowers and the majority of Americans.
Hence we should end it's vaunted "indpendence" as Frank as recently argued not abolish it.
The gold standard even in it's own time was not a great system as we saw above. Today it's a total anachronism. It's easy to forget why we got off the gold standard in the early 70s. It's because France under DeBaulle kept tryint to skid our wheels by demanding more and more gold.
When Bretton Woods had created that system at the end of WWII it worked as the US created 50% of world GDP; by the 70s though we didn't have the advantage that could justify putting that system totally on our shoulders.