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Thanks demon, good stuff. I think Jon raised a good point for corporations gaining power and oppressing people. Labor unions to me represented the heart of free market thinking. I would be really happy if people instead of wanting government doing health care because of bad insurance conditions (like pre-existing conditions) took to the streets and protested! Raise up in arms with your dollars and your shoes! Demand to get the service you want! I think we have gotten lazy, I know I have, demanding things we want from companies. Consumers are a strong force when they finally self actualize. Anyone up for a rally

^ That's why government has a role. People are naturally apathetic to a lot of problems, so the role of government in those situations is to take action where people "should" be protesting in the streets. For example, several big health insurance companies have been caught canceling contracts after a person has gotten terminally ill. If we weren't a naturally apathetic people, those companies would simply be out of business, because everybody would have switched to a new company. So the government must step in and make it illegal to cancel someone's plan in those situations.

In the case of the Federal Reserve, people just don't understand it, so if it is going to change, the change has to come from government.

Give me control of a nations money supply, and I care not who makes it’s laws. Mater Amschel Rothschild, founder of the Rothschild banking dynasty.

Ya, that is why Dr. Paul's line is pretty epic there about fraud. Though, I still say it is peoples job to fight for better deals, it is the governments job to enforce those deals.

^ I think the healthcare debate demonstrated that people can be persuaded into arguing against their own self-interest.

I don't catch your drift?

^ I think this photo sums it up.

At 260 work days a year times .04 (4%) would be equivalent to 10.4 working days. In other words, a 4% tax is 10.4 days of you working to afford that one tax. Or 10x more costly than one day of protesting. More over, a protest is a one time "fee" where a tax rarely end or pay for what the are supposed to. Plus, protesting or rebelling isn't always immediately practical. Many people have died for what they believe in, but in doing so will never enjoy the fruits of their labor, hardly practical. Are you advocating something that I am missing? It would seem, though, that if you don't want government solutions for things, then you aren't acting in your self interest? I don't see how that works out when you view other government entities in the same light, like FEMA and Katrina, the FED and the bubbles, Patriot Act and convert intelligence on US citizens. History has shown that you can fight against powers of money and greed without blood and win...the same is rarely true of large governments.

Interesting that he views deflation as a good thing. That goes against every macroeconomic theory out there.

Monetarism doesn't hate on minor amounts of deflation or inflation. Keeping it as close to nil is always the target though.

>> ^GeeSussFreeK:

I'm not an American in any way. I don't live in the US, I don't have an American citizenship and my last valid visa expired in June. This issue is not personal to me, it's not something that will affect my life in any way.

I may have made a mistake when I posted a photo which mentioned anti-tax protesters when I meant to refer to Teabaggers in general, specifically anti-healthcare reform protesters.

Your healthcare system as it is today is the most absurdly anti-consumer product that you can buy, and yet so many citizens were convinced that they ought to take to the streets to defend it.

At the moment, any insured American can lose his insurance at any moment, and join the statistics Rep. Grayson quoted. Can you even call that insurance at this point?

Anyway, new photos to make a better point:
http://www.preemptivekarma.com/archives/TeaBaggers%20010.jpg
http://www.bobcesca.com/images/medicare_sign_teabaggers.jpg

When the economy starts going bad again, which I think will happen soon, it will become very easy to wrongfully blame capitalism for it, when it's actually the FED's and the government's fault.

I'm guessing social liberals will get their way, even though all this fuss about healthcare is pointless. You can't pay insurance when your money is worthless.

Well, monetarism has been tested by Volker in the 80s, and as a result is not very popular nowdays. Inflation between 2 and 3% is considered ideal, and central banks of US and Europe will take measures to increase inflation if it ever falls below that value. Economy that is experiencing too low of an inflation risks stagnation, or even falling into a deflationary trap, seen during the Great Depression

Economic growth is not growth of the monetary system. Falling levels of inflation have nothing to do with stagflation directly.

When government establishes a monopoly over the currency of a country, it always has an interest in creating inflation, because it can use inflation as a very convenient and invisible tax that steals everyone's wealth. You have to question the motivation of a school of economic theory that says inflation is good or necessary for economic growth.

You can't only have one dollar bill in circulation. Likewise, having the same amount of dollars in circulation that we had in 1800 would be unwise. Commodity based currency of a relatively stable good is a smart way to insure that the money supply scales well with economic growth.

Just in recap, printing a dollar does not increase total goods and services available for consumers. Having a legal tender that is completely subjugated by people who benefit off inflation in unwise. Having a tender than does not or can not scale with increased economic growth is stifling. And having a currency that can be easily undermined by inflation is impoverishing.

Inflation only steals your wealth if you are keep your dollars in a pillow. If your wealth is invested in real capital, then you wealth grows along with the price on that capital.

The government doesn't need to print more money in order for inflation to happen, in fact, inflation is naturally associated with growth. Look at China, it had years of high inflation despite the government being fiscally conservative. Inflation simply represents the speed at which people exchange money. Suppose everybody decided to double their prices. We'd have 100% inflation overnight even though the total amount of money hasn't changed.

Small amount of inflation is needed for the economy to function well, so called the "grease effect" of inflation; both US and European central banks have lower limits on how low they will allow inflation to go. Bank of England aims to have it between 2 and 3%.

"Real capital" can be the money itself, as is the idea of a legal tender. For something to be considered a good legal tender, it must meet many different standards, one of which is that it be a unit of value which keeps its value.

Price fluctuations that change with demand is not inflation, rather, it is finding a new market value based on demand. The fact is Chinese people can afford more with wages improving. When goods are more highly demanded then prices go up, this is not inflation but basic supply and demand. Inflation is when demand stays the same but prices increase.

By function well, you mean function in the way you would have it function. IE, that investment be easy and saving be harder. While no doubt large wealth building takes harvesting capital and investing it, there is no reason or proper justification that it should come at the expense of people who save. As inflation sits, those who safe are punished at the behest of those who invest. It doesn't have to be this way, but those who acquire large amounts of wealth are able to influence agendas and ideas to suppose that it is in the best interests of us all to want our buying power to be diminished.

"When goods are more highly demanded then prices go up, this is not inflation,"

Yes it is. http://en.wikipedia.org/wiki/Inflation

Increases in prices cause increases in incomes and vica versa. Hence there's no direct relation between inflation and buying power.

Different definitions of inflation are being used in this discussion, which is the source of confusion.

http://en.wikipedia.org/wiki/Monetary_inflation

That is the original and true definition of inflation.

Since central banks, or government treasury departments, directly cause inflation by debasing the national currency, these institutions have a vested political interest in redefining the term "inflation" as a rise in prices.

The reason the use of the word "inflation" has changed to mean "increasing prices" over the past 50-70 years is that Keynesian economics has been taught in universities around the world during the same time period. Keynes advocated creating economic growth by governments spending money they don't have. It is natural that the institutions that follow Keynesian policy have an incentive to blame inflation on something besides government policy. Thus the government defines inflation as an increase in the Consumer Price Index, instead of the increase of the money supply. The Consumer Price Index itself has been weighted to reduce the importance of food and fuel - the very sectors of the economy where the effects of inflation are always the most obvious.

-- taken from a wikipedia discussion post, because I couldn't have said it better myself.

Interesting that all the references from the "Monetary Inflation" page are from Ron Paul and Von Mises institute, whereas the wikipedia "Inflation" page references are Macroeconomics textbooks.

Ron Paul may be sincere, but he is a physician with no formal economics training, and his macro-economic proposals (for instance, that we should encourage deflation), would go against advice of any established macro-economist.

>> ^yaroslavvb:
"When goods are more highly demanded then prices go up, this is not inflation,"
Yes it is. http://en.wikipedia.org/wiki/Inflation
Increases in prices cause increases in incomes and vica versa. Hence there's no direct relation between inflation and buying power.


This isn't always the case as observed in the Carter years. Inflation can rise without wages increasing at the same rate. The term was stagflation, and was against everything Macro economics said was possible, which is why I say it is an invalid model, as did Von Mises.

Also, you don't need to have a degree in economics to be well informed on the subject. Trusting in academia to determine intellectual clout is unwise. Moreover, academia is chop full of people interested in validating Macro economics, it keeps the research grant money coming.

"Trusting in academia to determine intellectual clout is unwise. Moreover, academia is chop full of people interested in validating Macro economics, it keeps the research grant money coming."

That's like accusing "academia" of reinforcing anti-Creationism theories because it keeps the grant money coming. Partially true (you'd have a hard time funding Creationist research, or anti-modern-economics research), but besides the point. Macroeconomics is a science, and we can either choose to listen to scientists regarding macroeconomics issues, or to politicians/clergy etc.

Phrenology and Physiognomy were science too, are now rejected as their claims held false. Macro-economics was unable to foresee stagflation because it's view of economy is flawed. Bad science should be thrown away, period.

Maybe "monetary" inflation was the "true" definition of inflation back when people thought that prices rose mainly due to government printing money, but it's no longer such because we now know that many other factors can raise prices. There's cost-driven inflation, demand-driven inflation, etc. For instance "stagflation" of the 70s is now commonly blamed on oil crisis and crop failures, which led to higher prices across the board.

Ron Paul's notions of money are positively quaint. They hark back to the times when money was in form of gold coins produced by government. Nowdays, most money is virtual, and created by private institutions, not the government. Imagine a new bank extending the loan to you. They simply create some virtual bits crediting your account, and since most people never convert their loans to actual cash, they are free to create a lot of those virtual dollars. The Fed makes restrictions of how much extra money they can create that way. If we got rid of the Fed, the banks could essentially "print" unlimited money, and then go under when someone tries to cash it, something that happened around the era of Wildcat Banking in the USA (instead of bits, they issued bank paper, which people used as money).

This is kind of pointless.

Look, austrians are predicting a major collapse of the US economy in a few years, the value of the dollar falling because of all the monetary inflation the Fed is creating because they're thinking like keynesians. Once foreign nations wise up and stop lending us all this money that we're never paying back, we're screwed.

I know you don't think that will happen, that the recession is over, etc. However, IF it does happen, just like that, will you change your mind about austrian economics, or will you still stick to your keynesian view of the world?

If there's some kind of collapse due to Fed lowering interest rates, I'll conclude that such aggressive lowering was not a good idea. However, there's no risk of "foreign nations" stopping lending to us because they are too dependent on our spending. If China stops lending money to US, US stops buying Chinese goods, and Chinese economy crashes. So they are forced to keep lending money indefinitely

I remember this game, its called musical chairs. Wonder who will be left without a seat when it is all over, the ones consuming or the ones producing?

>> ^yaroslavvb:
If there's some kind of collapse due to Fed lowering interest rates, I'll conclude that such aggressive lowering was not a good idea.

Hmm, I doubt you would make the connection that low interest rates contributed to such collapse, even if it did. I don't know, just doesn't sound very keynesian to me.

However, there's no risk of "foreign nations" stopping lending to us because they are too dependent on our spending. If China stops lending money to US, US stops buying Chinese goods, and Chinese economy crashes. So they are forced to keep lending money indefinitely

yaroslavvb, think about it, as the owner of a restaurant, would you lend money to your customers to eat at your restaurant? What if they kept borrowing so much that they couldn't ever pay you back in a timely manner? Would you keep lending to them indefinitely hoping to get paid back one day? After a while, would you actually need the spending of those borrowing customers, wouldn't it make more business sense to deal with regular non-borrowing customers instead?

We are spending THEIR money, the rest of the world is not going to be fooled forever. In business, there's such a thing as "cutting your losses".

Or shifting to different markets, which they are already doing,

I wouldn't lend money as a restaraunt owner, which shows how different the decision-making process is made at the country level. On a country level it actually makes sense for China to keep buying US bonds despite the trade deficit because it drives up employment inside the country.

At the cost of weakening their own currency, only a matter of time before that doesn't work anymore, cause we sure in hell ain't paying any of that debt back. We can hardly pay interest.

>> ^GeeSussFreeK:
At the cost of weakening their own currency, only a matter of time before that doesn't work anymore, cause we sure in hell ain't paying any of that debt back. We can hardly pay interest.

Exactly, those bonds are worthless, and we're running out of suckers to buy them, fast.

>> ^yaroslavvb:
I wouldn't lend money as a restaraunt owner, which shows how different the decision-making process is made at the country level.

To me it just shows you had trouble understanding my analogy. Yes, you would lend money as a restaurant owner, even to your own customers, if you thought that they will pay you back. Ever heard of a tab?

There is no absurdity in lending money to your customers, it's only absurd to keep doing it once you realize they can't pay you back. Then you're faced with a tough decision: Whether to lose your customer and all that money they owe you or keep wasting more money hoping you'll see any of it again. Eventually, their spending becomes just an expense, because they're spending your money.

On a country level it actually makes sense for China to keep buying US bonds despite the trade deficit because it drives up employment inside the country.

Employment is good because it leads to production. China produces enough to finance our debt, but that is in no way desirable to them, consuming is not a big favor the US is doing the world. Anyone can be a consumer, hell, hand me 1 million dollars and I'll consume it real fast for you. What you want is for consumers to PAY you, something the US hasn't done for a while now.

I think the main problem here is that yaro is subscribing to the fallacy of the broken window.

"At the cost of weakening their own currency"

... which is exactly what China wants to do. China *wants* to keep yuan weak and dollar strong to keep it's forces competitive. In fact that's one of the points of conflict between US and China right now -- US wants China to release yuan and let exchange rates be set by the market, while China wants to artificially keep it weak in order to keep Chinese goods cheap abroad

I digress

Have to disagree here. Economics is a valuable field of study, but it is not science or a science.

>> ^yaroslavvb:
"Trusting in academia to determine intellectual clout is unwise. Moreover, academia is chop full of people interested in validating Macro economics, it keeps the research grant money coming."
That's like accusing "academia" of reinforcing anti-Creationism theories because it keeps the grant money coming. Partially true (you'd have a hard time funding Creationist research, or anti-modern-economics research), but besides the point. Macroeconomics is a science, and we can either choose to listen to scientists regarding macroeconomics issues, or to politicians/clergy etc.