Posts Tagged ‘Inflation’
A Couple Quick Questions, Ed. 15
Posted on January 14, 2012 at 5.34 pm
Q. Under the Austrian School of Economics, and indeed by the predictions of its proponents, the huge, expansionary policies of the Federal Reserve should be causing run-away Inflation. Indeed, the cry for years has been to warn of dire hyperinflation should any of the no in place expansionary policies by tried. Yet this flies in the face of what we have seen, namely price stability (save for rising Oil Imports) resulting in an entirely normal inflation rate of 3%. How do you square this with your avowed Austrian view? — Whimsical Eloquence, from tumblr.
A. Most of my answer can be summed up in this graphic:
As you can see, the value of the dollar has steadily declined over the course of the last hundred years. It was also on the decline before then. If you’d like to play with the numbers on a year-by-year basis, try this inflation calculator. As the results of my calculation put it, “What cost $1 in 1900 would cost $25.85 in 2010. Also, if you were to buy exactly the same products in 2010 and 1900, they would cost you $1 and $0.04 respectively.”
That’s a lot of inflation, especially considering the lowering of prices which has been produced by technological advances, economies of scale, etc. Moreover, as you mentioned, I subscribe to Austrian economics, which sees inflation not primarily as a rise in prices — the rising prices are merely a symptom of the underlying problem of the (fiat) growth of the money supply, which has grown precipitously. Learn more here.
Q. I like Ron Paul, for the most part, however why do Ron Paul fanatics never mention his millions of dollars in earmarks he asks for (and mostly receives) every year? — The Modern Patriot, from tumblr.
A. I’m not sure that it’s accurate to say that this issue is “never” mentioned. On the contrary, it’s brought up quite regularly as a supposed “gotcha” ostensibly showing Dr. Paul is not as consistent as he’s cracked up to be. This is far from the case, especially as even his harshest detractors on the subject admit that “Paul’s campaign-finance record shows little indication of a politician who is tied to special interests. Individuals have provided the vast majority of his campaign cash, supplying 91 percent of the money since his first bid for office.”
Here’s a speech (including transcript — and on a pro-Ron Paul website, by the way) of the congressman explain his reasoning behind his stance on earmarks. The shortest version of his argument is that, constitutionally, he’d rather see money appropriated by Congress than the executive branch, so he puts in the earmarks his district requests and then votes against them because he doesn’t want the money spent at all.
Q. How can you legitimately believe that you are supporting the preservation of liberty when you are against taxes on the rich and for deregulating our economy. There is the freedom to do something and then there is the freedom from something. In the case of corporations, the question is whether they should have the freedom to exploit their workers and consumers without consequences, or whether the workers and consumers should have freedom from this exploitation. For whatever reason you side with the corporate opinion. Your attempt at forming a philosophy based around anti-authoritarianism has completely ignored the authority that capital accumulation gives the rich. There is nothing “libertarian” or “hip” about supporting neoliberal economics. — David, from the internet.
A. Woah, woah, woah. So many unfounded assumptions here. Let’s start at the end: The title of my tumblr is very much tongue in cheek based on some amusing Google Analytics results I got one time.
But moving back to the beginning, let’s go through these accusations one by one.
1. How can you legitimately believe that you are supporting the preservation of liberty when you are against taxes on the rich and for deregulating our economy. Well, I’m actually against taxes for everybody, not the rich in particular. As for deregulation, the rest of your question indicates that you have rather different ideas about the nature and consequences of this idea than I do. As it happens, the economic mess we’re in now is not due to a lack of regulation.
2. There is the freedom to do something and then there is the freedom from something. In the case of corporations, the question is whether they should have the freedom to exploit their workers and consumers without consequences, or whether the workers and consumers should have freedom from this exploitation. For whatever reason you side with the corporate opinion. Do we really have to go through this again? I am not advocating special benefits for corporations. I am not transferring trillions from the poor and middle class taxpayer to Wall Street. I am not permitting the wealthy to get away with fraudulent activity without prosecution. The government — the entity you want to give more control over our economy — is. My goodness, what do they teach in schools these days?
3. Your attempt at forming a philosophy based around anti-authoritarianism has completely ignored the authority that capital accumulation gives the rich. I’ve argued above that it hasn’t, but I’d contend that yours has. You object to the government using its powers to give special favors to its rich friends, but you want to give the government more of those same powers. Do you really think the rich friends won’t come knocking again? Really? I find that I am the more suspicious of the wealthy of the two of us.
We Can Always Print Money to Do That
Posted on August 8, 2011 at 12.29 pm
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” — Alan Greenspan, August 7, 2011
Is Mr Greenspan the greatest troll alive? Following this quote, we can only hope that’s the case.
It’s certainly true that we could just print more and more and MORE money to pay off the government’s $14 trillion+ debt. Actually, we wouldn’t even need to physically print anything — we’d just add a few zeros to some balance sheets here and there and then set up a some wire transfers to our various lenders. Voila! Problem solved. Remind me again why we had that whole debate last week?
The difficulty here — and presumably the reason why we haven’t taken advantage of this ostensibly simple solution already — is that this would cause massive overnight inflation, probably collapse the dollar, and generally wreak havoc on the world’s economy.
See, whenever you just print huge quantities of money based on nothing, this results in devaluation, or inflation, of the unit of currency. The effect of the very policy Mr. Greenspan recommends may be clearly seen in the history of our money’s value over the course of the last 100 years of the Federal Reserve’s print-happy ways. The dollar’s worth has declined to less than five cents of what it was at the beginning of the 20th Century.
The presence of 14 trillion new dollars would dilute — and thus inflate — our money supply at an unprecedented rate. As simply defined by Austrian economist Ludwig von Mises, inflation “means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check.”
Basically: making more money out of thin air = less value per piece of money.
In practice, we often use the term “inflation” to discuss the resultant rise in prices which this new quantity of money produces. Unfortunately, this habit is not only inaccurate but also dangerous:
When inflation is seen as a general rise in prices, then anything that contributes to price increases is called inflationary….In this framework, not only does the central bank have nothing to do with inflation, but, on the contrary, the bank is regarded, against all evidence, as an inflation fighter.
Though his statement admitted no such possibility, Mr. Greenspan and the central bank he used to head are both veteran agents of the inflation they claim to fight. Nevertheless, his suggestion of printing our way back from the edge of default is impressively reckless even for a (former) Fed mouthpiece.
To quote Mises again, “Continued inflation inevitably leads to catastrophe.” And the catastrophe hurts worst those who can least afford it:
Savers and those living on fixed or low incomes are hardest hit as the cost of living rises. Low- and middle-incomes families suffer the most as they struggle to make ends meet while wealth is literally transferred from the middle class to the wealthy. Government officials stick to their claim that no significant inflation exists, even as certain necessary costs are skyrocketing and incomes are stagnating.
The transfer of wealth comes as savers and fixed-income families lose purchasing power, large banks benefit, and corporations receive plush contracts from the government — as is the case with military contractors. These companies use the newly printed money before it circulates, while the middle class is forced to accept it at face value later on. [emphasis added]
Not coincidentally, those who suffer most from inflation are also those who have the fewest cocktail party acquaintances working at the Fed — “Oh dahling, let me just print you up a couple hundred for the powder room…and a couple billion to bail out your failing corporation!” So although Greenspan’s remark is couched in the assumption that we must prevent a default on behalf of all Americans, the real life results of his proposal wouldn’t be nearly so egalitarian.
In the end, “we can always print money to do that” is less a reassurance and more an off-the-cuff summary of the last century of government growth, leeching off the leaking wallets of the lower and middle classes. How possible default may be I’m not sure, but printing our way out of it is most certainly not the answer.
A Couple Quick Questions, Ed. 2
Posted on August 7, 2010 at 8.22 pm
Q. Considering we are TRILLIONS in debt, the government is printing money like there’s no tomorrow, and oil prices have risen significantly, why are we not experiencing 1970s style inflation? — Mike, from the internet.
A. Because the money has been created, but it’s not yet circulating.
The monetary base grown significantly in the past two years, as you realize: “$870.9 billion to $1735.3 billion in just five months, with much more to come” — and that was more than a year ago. However, we don’t seem to be suffering from obvious excess inflation…at least not yet. But is it coming? I’d lean toward “yes.”
Here’s why: As Dan McCarthy explained from an argument by Mish Shedlock on the @TAC blog a while ago:
[Deflationists may be right in the short term, but] the Fed is doing everything in its power to print its way out of deflation — which would actually be beneficial as a correction to the inflated real estate, stock, and other prices we’ve seen over the last 20-odd years — and into inflation. Shedlock argues that as long as the banks aren’t lending, we won’t see inflation, and Polleit notes that they have indeed massively increased their excess reserves (from $1.9 billion to $798.2 billion so far). Trouble is, eventually the banks will start loaning out that money again, which is when inflation explodes.
In other words, it’s like the Fed has created mass amounts of money and then hidden it in a hole. While it’s in the hole (or rather, while it’s not being lent or spent), the money clearly isn’t circulating, so it really isn’t having any effect on the value of the rest of the money in the economy. But once it’s in use, watch out.
Q. Should Christians volunteer for military service? — CJ Scrofani, from Warrenton, VA.
A. That depends. Right now? No. Other times? Maybe.
