L.A. Liberty

A Libertarian in Leftywood

For most economists, the key to healthy economic fundamentals is price stability. A stable price level, it is held, leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals. It is not surprising that the mandate of the Federal Reserve is to pursue policies that will generate price stability. We suggest that by means of monetary policies that aim at stabilizing the price level the Fed actually undermines economic fundamentals.

— Frank Shostak, Stable Prices, Unstable Markets

sugashane:

Hurricane Sandy or a Fringe event in New York? 

There’s a metaphor here… maybe something about the prospects for liberty as an election looms near. And yet, when it’s all over and passed, the most substantive change would be the destruction left in its wake. Then again, such destruction - the many broken windows - will no doubt be spun by Krugman and other Keynesian buffoons as an economic boon to society.
Edit: Of course this image is fake, just like your illusion of choice on election day.

sugashane:

Hurricane Sandy or a Fringe event in New York? 

There’s a metaphor here… maybe something about the prospects for liberty as an election looms near. And yet, when it’s all over and passed, the most substantive change would be the destruction left in its wake. Then again, such destruction - the many broken windows - will no doubt be spun by Krugman and other Keynesian buffoons as an economic boon to society.

Edit: Of course this image is fake, just like your illusion of choice on election day.

(Source: priceofliberty)

baseballlibertarian:

It isn’t free market capitalism that benefits the rich. 

baseballlibertarian:

It isn’t free market capitalism that benefits the rich. 

(Source: phishtaco, via moralanarchism)

The unprecedented success of Keynesianism is due to the fact that it provides an apparent justification for the “deficit spending” policies of contemporary governments. It is the pseudo-philosophy of those who can think of nothing else than to dissipate the capital accumulated by previous generations.

Yet no effusions of authors however brilliant and sophisticated can alter the perennial economic laws. They… work and take care of themselves. Not-withstanding all the passionate fulminations of the spokesmen of governments, the inevitable consequences of inflationism and expansionism as depicted by the “orthodox” economists are coming to pass. And then, very late indeed, even simple people will discover that Keynes did not teach us how to perform the “miracle… of turning a stone into bread,” but the not at all miraculous procedure of eating the seed corn.

— Ludwig von Mises, Planning for Freedom, p.71

(via conza)

The Truth About Diocletian and Inflation →

letterstomycountry:

laliberty:

… Currency reforms of the sort Diocletian undertook still happen sometimes in the modern era, but they almost always go in the other direction. When a country has in the recent past suffered a bout of serious inflation that’s just come to an end, sometimes the government will choose to put an asterix on the new regime by basically striking a zero or two off the old currency. So in 1960, France introduced a New Franc and announced that one New Franc was worth 100 Old Francs, and that 1 Franc Coin of the old vintage could stay in circulation as one New Centime. You could describe the impact of that switch as a giant one-off deflation, but that’s a pretty misleading way to think about it.

Yeah, that is a pretty misleading way to think about it. So why suggest it as “going in the other direction”? Coming up with a “new” currency with new denominations is not necessarily any less inflationary if the effect is still the same. If the U.S. government prints brand new money out of thin air, it doesn’t matter if they print five Dollarinos worth $1,000 each or simply five thousand dollars.

Read more

I’m not sure I follow your objection.  The French monetary exchange didn’t involve just printing new money per se.  Under the traditional definition of inflation (an increase in the money supply), the French deflated their currency.  The old centime pieces were never circulated widely, and fell out of use under the new system.  So under the exchange that took place, the total amount of practically usable legal tender was reduced. …

But it is. They created new money. They didn’t first extract existing currency to then replace it with the new. As I said, creating a new currency isn’t necessarily any less inflationary, particularly if it’s additive. And of course the old centime pieces were increasingly less circulated because their value was exceedingly low in relation to the new money added to the economy, especially since they were no longer being minted to keep up with the volume demanded to keep up with inflating prices. (This phenomenon of one under-valued currency being drawn out of circulation by an artificially over-valued one is known as Gresham’s Law.) When actual inflation becomes price inflation, there is a point in which the velocity of the lowest denominations, especially when said denominations become a smaller percentage of the overall currency, tends to slow down as such denominations become more cumbersome and less practical to use.

… I linked to Yglesias’s article because Ron Paul accused Krugman of supporting the economic policies of Emperor Diocletian.  Krugman rejected that accusation, and I think the article demonstrates that Paul was being overwrought: I don’t believe I’ve ever heard Krugman calling for an overnight 100% doubling of the exchange value of the currency, which is what Diocletian did when he issued his final currency Edict.  I think we can both agree that such a policy decision would be catastrophic and ruinous.  …

This is only a matter of degrees. The point Ron Paul was making (and that I would agree with) is that Krugman’s preferred “tools” and “methods” are, essentially, the same as Diocletian - they only disagree in speed, as it were. One may advocate stabbing someone in the abdomen quickly, and the other may advocate a much more gentle stabbing. But the stabbee would rightly protest to both knives through his gut.

-

[I had to redact much of letterstomycountry’s argument as I only had time for a quick rebuttal of his main points. Please click here if you wish to see his argument in full.]

“[D]o you really think people use dollar bills because the federal government isn’t allowing them to use other stuff? That seems like a very strange point of view…You can do barter with all kinds of stuff…”

Paul Krugman, in his recent televised discussion (hardly a “debate”) with Ron Paul.

For starters, of course the government “isn’t allowing [people] to use other stuff,” if we understand “stuff” to be what Ron Paul was arguing (and Krugman was immediately responding to): money. We need only look at the recent Bernard von NotHaus conviction for minting “Liberty Dollars,” both coins and gold and silver certificates. Further, as Ron Paul stipulated, there are taxes on gold and silver that make using it as a medium of exchange artificially more prohibitive and costly

But this isn’t quite what Krugman was getting at. He explicitly conflated money/currency, which is what Ron Paul was discussing, with barter. This is such a fundamentally flawed proposition that it almost shocks me how little push-back the media has given Krugman.

As Bob Murphy explains in his economics book for middle-schoolers, Lessons for the Young Economist, “direct exchange, or what is also called barter, [are] exchanges that do not involve money”:

We only leave a state of barter and enter the realm of indirect exchange when people receive an item during a trade that they don’t plan on using themselves, whether for consumption or production. What happens in this case is that they plan on trading the item away to somebody else in the future. This is actually what happens in every trade involving money. When you sell a few hours of your leisure cutting your neighbor’s lawn for $20, you are engaged in indirect exchange. You don’t plan on eating the $20 bill, and you don’t intend to combine it with other materials in order to build something. The reason you value it, is that you expect to be able to find somebody else (in the future) who will sell you something you do directly value, in exchange for the money. 

It’s pretty basic stuff. But Krugman was probably hoping the unthinking masses wouldn’t notice his deflection.

The Truth About Diocletian and Inflation →

… Currency reforms of the sort Diocletian undertook still happen sometimes in the modern era, but they almost always go in the other direction. When a country has in the recent past suffered a bout of serious inflation that’s just come to an end, sometimes the government will choose to put an asterix on the new regime by basically striking a zero or two off the old currency. So in 1960, France introduced a New Franc and announced that one New Franc was worth 100 Old Francs, and that 1 Franc Coin of the old vintage could stay in circulation as one New Centime. You could describe the impact of that switch as a giant one-off deflation, but that’s a pretty misleading way to think about it.

Yeah, that is a pretty misleading way to think about it. So why suggest it as “going in the other direction”? Coming up with a “new” currency with new denominations is not necessarily any less inflationary if the effect is still the same. If the U.S. government prints brand new money out of thin air, it doesn’t matter if they print five Dollarinos worth $1,000 each or simply five thousand dollars.

And if I regularly took 2-3% of someone’s wealth - just took it of my own volition - would that person call such activity “normal” and “non-ruinous”? Would they consider themselves having achieved “prosperity” as a result? This is what the piece above suggests with regards to ostensibly mild inflation.

Further, the piece above mentions the Roman civil wars but shrugs aside as somehow less of an issue that the reason the wars were particularly adverse to the economy (aside from the fact that, contra to Keynesians, wars are eo ipso destruction of wealth - something the piece above at least seems to acknowledge) was because Rome funded the wars and empire through not only excessive taxation but the debasement of the currency leading to hyperinflation. Money itself was destroyed - and every non-barter transaction used money.

The contortions Keynesians must place themselves in just to defend their philosophy is amazing.

(Source: letterstomycountry)

Robert Wenzel's Epic Speech at The NY Fed →

Wenzel pulled no punches. The entire thing is worth reading, but here’s a sampling:

I suspect my views are so different from those of you here today that my comments will be a complete failure in convincing you to do what I believe should be done, which is to close down the entire Federal Reserve System

My views, I suspect, differ from beginning to end. From the proper methodology to be used in the science of economics, to the manner in which the macro-economy functions, to the role of the Federal Reserve, and to the accomplishments of the Federal Reserve, I stand here confused as to how you see the world so differently than I do.

I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality. …

In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed.

There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry. 

And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist.

And he ends the speech like a boss:

The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or,  if you stop printing, another massive economic crash will occur. There is no other way out.

Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat.

Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats.

letterstomycountry:

Under Austrian orthodoxy, the money supply works in extraordinarily predictable ways: namely, if you increase it, inflation follows.  Austrians have always defined inflation solely as an increase in the money supply.  

A quick point: yes indeed “Austrians have always defined inflation solely as an increase in the money supply.” But then again, so did everyone else. I’ve discussed this before:

Even Keynes himself defined [inflation] this way. In fact, from 1864-2003, that’s exactly how Webster’s defined inflation: “undue expansion or increase, from over-issue; — said of currency.”

That this definition is less common today is a direct consequence of what can only be considered many years’ worth of Orwellian language restructuring [by the neo-Keynesians and monetarists*]. As I previously explained, “Inflation was and is definitionally printing money, or more specifically inflating the money supply. By divorcing the word from its literal origins, [central planning apologists] cloud the direct effect between money printing and the value of money.”

This is not unlike suddenly using the word dog to instead refer to dog piss

*in case my point wasn’t already clear, this refers to most modern-day Keynesians and monetarists

antigovernmentextremist:

We start the “Keynesian Revolution” today in econ.

Below is what I anticipate class will be like:

Bring in a children’s picture book and hand it to the professor. When he/she asks what it is for, say “We’re covering animal spirits, magical multipliers, growth through inflation and protectionism, and that employment and an economy can be engineered… I just figured I’d offer up my own favorite fairy tale to go along with yours.”

Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis

(Source: youtube.com)

Anti-Bernanke →

In [his] opening lecture [on “The Federal Reserve and the Financial Crisis,”] Bernanke offers a brief overview of the role of central banks, their general origins, the specific origins of the Federal Reserve System, and the Fed’s early performance. …

So like any central banker, and unlike better academic economists, Bernanke consistently portrays inflation, business cycles, financial crises, and asset price “bubbles” as things that happen because…well, the point is that there is generally no “because.” These things just happen; central banks, on the other hand, exist to prevent them from happening, or to “mitigate” them once they happen, or perhaps (as in the case of “bubbles”) to simply tolerate them, because they can’t do any better than that. That central banks’ own policies might actually cause inflation, or contribute to the business cycle, or trigger crises, or blow-up asset bubbles—these are possibilities to which every economist worth his or her salt attaches some importance, if not overwhelming importance. But they are also possibilities that every true-blue central banker avoids like so many landmines. …

In describing the historical origins of central banking, for instance, Bernanke makes no mention at all of the fiscal purpose of all of the earliest central banks—that is, of the fact that they were set up, not to combat inflation or crises or cycles but to provide financial relief to their sponsoring governments in return for monopoly privileges. …

By ignoring the true origins of early central banks, and of the Bank of England in particular, and simply asserting that the (immaculately conceived) Bank gradually figured-out its “true” purpose, especially by discovering that it could save the British economy now and then by serving as a Lender of Last Resort, Bernanke is able to overlook the important possibility that central banks’ monopoly privileges—and their monopoly of paper currency especially—may have been a contributing cause of 19th-century financial instability. …

Besides ignoring the destabilizing effects of central banking—or of any system based on a currency monopoly—Bernanke carefully avoids any mention of the destabilizing effects of other sorts of misguided financial regulation. He thus attributes the greater frequency of banking crises in the post-Civil War U.S. than in England solely to the lack of a central bank in the former country, making one wish that some clever GWU student had interrupted him to observe that Canada and Scotland, despite also lacking central banks, each had far fewer crises than either the U.S. or England. Hearing Bernanke you would never guess that U.S. banks were generally denied the ability to branch, or that state chartered banks were prevented by a prohibitive federal tax from issuing their own notes, or that National banks found it increasingly difficult to issue their own notes owing to the high cost of government securities required (originally for fiscal reasons) as backing for their notes. Certainly you would not realize that economic historians have long recognized (see, for starters, here and here) how these regulations played a crucial part in pre-Fed U.S. financial instability. No: you would be left to assume that U.S. crises just…happened, or rather, that they happened “because” there was no central bank around to put a stop to them.

To be fair, Bernanke does eventually get ‘round to offering a theory of crises. The theory is the one according to which a rumor spreads to the effect that some bank or banks may be in trouble, which is supposedly enough to trigger a “contagion” of fear that has everyone scrambling for their dough. Bernanke refers listeners to Frank Capra’s movie “It’s a Wonderful Life,” as though it offered some sort of ground for taking the theory seriously… 

Bernanke’s discussion of the gold standard is perhaps the low point of a generally poor performance, consisting of little more than the usual catalog of anti-gold clichés…

It’s true that Bernanke’s whitewashing of the Fed isn’t quite complete: he devotes considerable time to explaining how it “blew it” during the Great Depression. But the admission is intended to be anything but fatal to the case for central banking. On the contrary: the depression was a crucial learning experience. Since then, the Fed, we are assured, has gotten its act together. Well, O.K.: there are still be a few bugs to be worked out. But never mind: some future Fed Chairman will manage to spin them away.

It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathised. He had attempted by a succession of new theories to justify the same, superficially persuasive, intuitive belief that had been held by many practical men before, but that will not withstand rigorous analysis of the price mechanism: just as there cannot be a uniform price for all kinds of labour, an equality of demand and supply of labour in general cannot be secured by managing aggregate demand.

— F.A. Hayek

jeffmiller:

soupsoup:
Only 12% of economists think the costs of the stimulus outweighed its benefits & 93% agree it lowered unemployment 
A rather bold headline, considering the rather small sample size (40 economists, some of who didn’t respond).  One of the responders was Austan Goolsbee, who, just maybe, should have been disqualified from participating in such a poll, given his own responsibility for the stimulus in question.
And also, considering that only 46% agreed or strongly agreed that the stimulus was worth it, it might have been more fair to note that a majority of economists were at least uncertain as to whether the stimulus was actually a good thing.
Just about everyone agrees that if the government spends money that will have to be paid back generations later, it can reduce short-term unemployment.  But as these polls demonstrate, most economists aren’t sure that this is a good idea.

Polls like these tend to be either utterly pointless (since they essentially address an ideological question) or purposefully misleading.
I responded to last month’s poll by this same group, IGM’s Chicago Booth, here. Not unlike the above, the blogger I responded to used the spurious metric “economists everywhere.” I demonstrated that IGM’s panel is hardly representative of such a designation. I explained that consensus among their chosen group was “like asking your local butcher if eating meat should be outlawed.” Its inherent ideological bias renders agreement meaningless.
And it spite of such leanings, as Jeff points out, less than a plurality conclude that the stimulus produced a net benefit - something that is not likely to be conveyed from the misleading title of the original link. 

jeffmiller:

soupsoup:

Only 12% of economists think the costs of the stimulus outweighed its benefits & 93% agree it lowered unemployment 

A rather bold headline, considering the rather small sample size (40 economists, some of who didn’t respond).  One of the responders was Austan Goolsbee, who, just maybe, should have been disqualified from participating in such a poll, given his own responsibility for the stimulus in question.

And also, considering that only 46% agreed or strongly agreed that the stimulus was worth it, it might have been more fair to note that a majority of economists were at least uncertain as to whether the stimulus was actually a good thing.

Just about everyone agrees that if the government spends money that will have to be paid back generations later, it can reduce short-term unemployment.  But as these polls demonstrate, most economists aren’t sure that this is a good idea.

Polls like these tend to be either utterly pointless (since they essentially address an ideological question) or purposefully misleading.

I responded to last month’s poll by this same group, IGM’s Chicago Booth, here. Not unlike the above, the blogger I responded to used the spurious metric “economists everywhere.” I demonstrated that IGM’s panel is hardly representative of such a designation. I explained that consensus among their chosen group was “like asking your local butcher if eating meat should be outlawed.” Its inherent ideological bias renders agreement meaningless.

And it spite of such leanings, as Jeff points out, less than a plurality conclude that the stimulus produced a net benefit - something that is not likely to be conveyed from the misleading title of the original link. 

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