It was my honor and privilege last week to have a very informative exchange with Rich Gardner, occasional writer for PhillyIMC.org. The Philadelphia Independent Media Center is a progressive, independent media outlet whose mission is to give voice to those who have traditionally been excluded from mainstream media outlets. I regard their work and their mission very highly, even if I occasionally disagree with them on some of the finer points.
Among those points of disagreement is PhillyIMC writers’ consistently sharp decrial of laissez-faire capitalism (see, e.g., my criticism of the PhillyIMC article Dealing with Killers and KidnappersAs a laissez-faire libertarian, my instinct is to defend the free market.
On March 31st, Rich Gardner posted a PhillyIMC article called The Great Recession, which set about explaining the cause of our current situation, and what the Obama administration can and should to to ameliorate it. Gardner did not attack laissez-faire capitalism with the vitriol of other PhillyIMC writers, but he did lay out the case that deregulation and corporate greed were the genesis of the economic meltdown. For example, the centerpiece of the article is a list of Wall Street Watch‘s top twelve reasons behind the meltdown, the top four of which are:
- In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
- Regulatory rules permitted off-balance sheet accounting — tricks that enabled banks to hide their liabilities.
- The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives — which became the basis for massive speculation.
- Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
I responded to the article by addressing what I felt to be an error of omission on the part of Wall Street Watch. The folks at the libertarian Mises Institute tirelessly insist that, by far, the number one reason behind the meltdown was the Federal Reserve’s mismanagement of the money supply and the interest rate. This theory neither made Wall Street Watch’s top twelve, nor was it mentioned anywhere in the article. So I wrote a comment asking whether anyone felt that the theory ought to be included.
Rich Garder himself responded to my comment very quickly and courteously, and took great pains to consider my questions and concerns. He reviewed links to several Austrian-school articles that supported the Mises Institute’s theory regarding the Federal Reserve, and he responded to all of them. Because I found that exchange to be quite valuable, I will reproduce it here for your consideration. I am very grateful to Mr. Gardner for the time he spent on this. If everyone were as open as Mr. Gardner is to other ideas, suggestions, and ways of thinking, progress would flow through this country like cool, fresh water from a mountain spring.
Ultimately, Mr. Gardner was unimpressed by the arguments of Peter Schiff and Thomas Woods. He is now at least aware of their position, though, and that will inform future discussions he may have on the issue. (I should add here, after reviewing one of the comments, that Mr. Gardner did not win me over to his side, either. In the end, we agreed to disagree.)
Without further ado, here is the exchange. The original article, The Great Recession, is here. It is strongly recommended that the reader consider as many and as much of the referenced links and videos as possible. To facilitate understanding, the comments have be re-ordered chronologically:
Federal Reserve?
Submitted by Tim G. (not verified) on Tue, 03/31/2009 – 12:56pmAustrian economists insist that by far the number one main cause of the bubble has been the Federal Reserve’s pumping of money into the economy and fixing of the price of credit in ways that encouraged unsustainable lending and spending practices. Yet this reason did not seem to make Wall Street Watch’s top twelve. Is Wall Street Watch studiously ignoring the elephant in the room, or are the Austrians so far off base that their arguments do not merit a response?
Media:
Meltdown: An Interview with Tom Woods
The Bush-Obama Bailout Has Permantently Changed the Nature of American Capitalism
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Interesting theory
Submitted by Rich Gardner on Tue, 03/31/2009 – 1:25pmNo, Wall Street Watch doesn’t blame the Fed for any such thing. Dean Baker does indeed discuss the Fed, but more in a “dereliction of duty” manner than as an active player:
While there is no simple path out of this crisis, it was a crisis that could have been easily avoided. If the Federal Reserve Board had acted to stem the growth of the housing bubble before it grew to such dangerous proportions, the country would not currently be facing a recession and the prospect of a financial collapse.
Alan Greenspan had the tools necessary to rein in the bubble had he been so inclined. First, he could have imposed tighter restrictions on mortgages, as the Fed has recently done. This would have prevented many of the worst mortgages that led to the subprime crisis and helped inflate housing prices.
More importantly, he could have used his platform as Fed chairman to explicitly warn of the dangers of the housing bubble. In his congressional testimonies and other public appearances, he could have carefully explained how house prices had diverged from a 100-year long trend in the mid-90s.
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Are they right?
Submitted by Tim G. (not verified) on Tue, 03/31/2009 – 2:08pmSo…what of Peter Schiff and Tom Woods? Are they right, or are they full of baloney?
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I was looking at that long, long YouTube and longer MP3s and my quickie scan of the Mises website showed nothing concise, either. I did find a criticism of Krugman’s babysitting analogy that was completely incoherent.
‘Fraid I have to come down on the side of “baloney.” These guys come up with lots of great rhetoric, but they’re not making any sensible or coherent arguments. The closing argument in this YouTube, that the Chinese are being bamboozled into supporting America, is kinda silly.reply
Thx…
Submitted by Tim G. (not verified) on Tue, 03/31/2009 – 4:14pmThx. Keep us posted….
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The Babysitting Articles
Submitted by Tim G. (not verified) on Wed, 04/01/2009 – 10:36amRich: Perhaps you can write a short blog sometime on the incoherence of the criticism of the baby-sitting parable. Those who are not learned in economics might not be able to see it.
For those who are interested: Here are the baby-sitting articles –
Slate | Baby-sitting the Economy, by Paul Krugman.
Mises Economic Blog | Krugman and His Economics of Keynesian Baby-Sitting, by Juan Ramón Rallo, translated by Manuel Lora.
The latter is alleged to be completely incoherent. See if you agree. I don’t know enough about economics to say, but I’m not the type to dismiss an arguments so quickly. I’m a hanger-onner.
I’ll take a look at it
Submitted by Rich Gardner on Wed, 04/01/2009 – 11:27amThe piece I was looking at was actually in the community section. Sure, I’ll go through the more detailed piece you recommended.
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On the price fixing.
Submitted by Tim G. (not verified) on Wed, 04/01/2009 – 2:55pmYes, the “community section” appears to be more-or-less a public forum, and what is said there ought not be taken to represent the organization. I think the blogs and the articles come from more regular contributors.
A quick google search revealed that the author egregiously misquoted Krugman. I attempted to correct this error with a follow-up post.
Even so, I think it was very coherent for the author of the community article to examine the effects of fixing the price of one hour of baby-sitting to one scrip. I don’t know if all of his conclusions necessarily follow, but the price-fixing is one way in which the baby-sitting economy is distinct from our American-style market economy. This difference could undermine the utility of the analogy.
How would the baby-sitting co-op economy change if the co-op members were permitted to freely bargain and contract with the scrip? How would the general babysitting economy change if Congress passed a law fixing the price of babysitting services at $10 or so dollars [sic] per hour across the board?
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Okay, having looked at it…
Submitted by Rich Gardner on Wed, 04/01/2009 – 6:51pmthe major problem with the Mises piece is that Krugman presented his baby-sitting service example is more or less a parable. It’s not intended to be an exact parallel, it’s intended to illustrate some general concepts. Krugman’s education continued long after he had absorbed the lessons of the baby-sitting parable.
The primary concept that the parable illustrates is that small changes in something like the value/supply of money or scrip can affect behavior, even when the people being stimulated or disincentivized are rational, intelligent, well-meaning people.
The objections that the Mises piece brings up are kind of irrelevant. The paragraph that says there’s only one way to create wealth completely misses Krugman’s point. “Wealth” in this case is created by babysitting. “Production costs” simply don’t enter into the picture because it was never intended to be a full and sufficient picture of the whole economy in any event. This is like complaining that the old TV series “Gilligan’s Island” doesn’t have any sexual relationships between any of the characters. It’s not meant to. It’s designed to serve a simpler purpose.
Yeah, ‘fraid that I, again, am very unimpressed by the level of analysis here.reply
Questions:
Submitted by Rich Gardner on Wed, 04/01/2009 – 6:59pmHow would the baby-sitting co-op economy change if the co-op members were permitted to freely bargain and contract with the scrip?
Chaos. The system wouldn’t work properly.
How would the general babysitting economy change if Congress passed a law fixing the price of babysitting services at $10 or so dollars per hour across the board?
They’d continue to suffer booms & busts. They’d be hatin’ life because they’d be using an unnecessarily rigid, inflexible system.
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Thanks.
Submitted by Tim G. (not verified) on Thu, 04/02/2009 – 2:09pmThanks for taking a look at those. I’ll look forward to future articles!
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Sure
Submitted by Rich Gardner on Thu, 04/02/2009 – 3:56pm
Thanks for seeing to it that I was aware of this group.
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Sorry to be a nag.
Submitted by Tim G. (not verified) on Thu, 04/02/2009 – 5:49pmThanking [sic] you for being so responsive to my inquiries. I think you have gone above and beyond the call of duty. I don’t want to be a nag or a pest or a heckler, but for Paul Krugman’s sake, I couldn’t let the last answer stand….
The author of the community section post is alleged to be completely incoherent. His main argument is that the price-fixing upon which the baby-sitting parable is based causes complications that make the analogy unsuitable as a model. The author of the blog entry impugns the baby-sitting analogy on a variety of other grounds. Rather than exposing the alleged incoherence of these arguments in rebuttal, it is asserted instead that because Paul Krugman’s baby-sitting model is a fantasy of his own, the error of the blog lies in that the authors have analyzed it as if it were intended to sufficiently represent reality. It is further admitted that if one of the preconditions of the baby-sitting parable were visited upon our economy in real life, we would hate that system because it would be unnecessarily rigid and inflexible. Yet it appears to be Krugman’s intention for us to save our real world by applying the lessons of his fantasy to it.
Given all of the preceding, what reason would anyone have to do this?
Peter Schiff’s “Five Chinese Guys” parable was dismissed as silly. If I insisted that Peter Schiff’s parable is a fantasy of his own, was never intended to sufficiently reflect reality, and should not be analyzed as if it were, would that cure its silliness?
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Not exactly
Submitted by Rich Gardner on Thu, 04/02/2009 – 7:08pmPaul Krugman’s baby-sitting model is a fantasy of his own
Not precisely what I meant. I believe Krugman was taking a real model that actually existed, but it was an economic model that used scrip instead of money. The blog post asserted that wealth was not created. Untrue. By babysitting, a piece of scrip was produced, which could then be traded. Was it a one-time thing that was thrown away after one use? We’d have to find an interview or some other source where he goes into more detail, but I strongly suspect so.
If true, what it means is that the analogy of scrip to cash is not exact and the scrip could not be traded any further.
Also, production costs simply had no place in the story. There were no production costs because babysitting does not require anything to be produced.
The problem is that the Mises piece was apparently making the presumption that the babysitting story was intended to represent the US economy in all its’ complexity. The fact that it didn’t had nothing to do with whether the story was true or not.
I’d have to review the material to re-acquaint myself with the “Five Chinese Guys” parable.reply
The moral of the story?
Submitted by Tim G. (not verified) on Thu, 04/02/2009 – 10:42pmDo I understand correctly that the lesson to be learned from the baby-sitting parable is that inflating the money supply could help spur the economy out of a recession?
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Yeah, pretty much
Submitted by Rich Gardner on Thu, 04/02/2009 – 11:41pmMy understanding as to what Krugman and like-minded economists are advocating is to get money into he hands of those who will spend it. F’rinstance, if you get money to rich people, they’ll just put it into speculative ventures. If you give money to people with lots of credit debt, they’ll just use it to pay off bills. If you get it to people via their unemployment compensation or food stamps, it’ll go directly into employment-stimulating expenditures.
Basically, all the spending that would normally count as wasteful “pork” is good in the situation that the US is in today.reply
Peter Schiff’s responses.
Submitted by Tim G. (not verified) on Fri, 04/03/2009 – 8:06amOK. Peter Schiff responds to this scenario in the one-hour YouTube video. Take a look if you have a free hour this weekend. Again, I’m no expert. So I can’t say one scenario is right over the other, but this is what he says:
People should not now be spending money on consumer goods. They should be putting their money in banks.
The Federal Reserve wants to have its cake and eat it too. It wants to spur investment and job creation by fixing the price of credit at an unnaturally low rate. It also wants people to spend money now on consumer goods, rather than save it–even though our nation is already in debt on the average. The effect of this will be that a few years down the road, when all these unnaturally induced investments come to fruition, the people will have no money to spend on the goods that will have been produced. They will already have spent their money on consumer goods. At this point, the cycle of debt and inflation will begin again, spiraling eventually into hyperinflation and monetary collapse.
Instead, people should be saving money now. They should be paying off their debts and putting money into banks. Banks will then have more money to lend, and interest rates should fall naturally. This will spur investment. A few years down the road, when these investments come to fruition, people will be able to take money out of savings and spend it on the consumer goods that will have been produced. The cycle of indebtedness will be broken, and the economy will thrive.
Those who have argued against the baby-sitting parable would probably advocate this scenario. Their natural course of argument would be to emphasize the differences between the parable and the real economy and to assert that these differences render it unsuitable for inspiring economic policy.
Gosh, we’re running out of room in this margin! What do you suppose will happen to our conversation?*
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Sure, I’ll take a look at it…
Submitted by Rich Gardner on Fri, 04/03/2009 – 10:27ambut it sounds from your description like Peter Schiff is trying to solve two problems at once, the problem of excessively low interest rates (Dean Baker especially blames this on Alan Greenspan being besotted with the fantastical notions of Ayn Rand and her nutty novel “Atlas Shrugs”**) and lack of consumer demand. Krugman, et al, regard the lack of demand as the premiere problem that should be tackled first.
Major problem with people putting money into savings is that income for those in the bottom 3/5ths of the income ladder has been essentially flat since the 1970s, while a mild inflation has chewed up available income. The result has been two-income families and people working multiple jobs.
As we see in Europe, this is by no means an inevitable problem. Europeans have enough spare time and income, they’ve actually shortened their workweek.
Are we using anything up with this conversation? Nah, I just hope anybody following the exchange finds it fruitful.reply
Okay, saw the film
Submitted by Rich Gardner on Sun, 04/05/2009 – 4:24pm1. Internet bubble: Lots of people were aware back in the late 90s that the internet was not really a moneymaker. There was a magazine that compared the net way to the old-fashioned way and it was really a wash in a lot of cases.
2. Housing bubble: Different bubble for a different reason. Internet bubble was based on unwarranted optimisim. Don’t think Fed interest rates had much to do with the housing bubble. Think that had more to do with the reasons cited in the piece above.
3. Yeah, people could tell that there was a housing bubble because housing sale prices had lost their relationship to rental prices.
4. Not really sure that Bush had done anything to shorten the first recession of his term. His theory was that tax cuts would do it and folks have shown that the tax cuts were irrelevant. Growth is the natural tendency of the economy. Seems to me the 2001 recession, as most recessions do, just plain ended.
5. Good description of behavior during bubbles.
6. The idea that letting car companies go bankrupt because the “creative destruction” is good in the long run is the philosophy that was in vogue before the Great Depression. the whole point of the New Deal was that they had to shave off and cool down the rough edges of the economic theories. Life in a pure capitalist economy was just too rough for the average citizen to deal with.*** The idea of “just let auto companies fold” is the exact idea behind NAFTA and “Free Trade,” the idea that each country should simply concentrate on what it does best and let a single company in Germany take care of all the beer, a single company in Switzerland take care of all the watches, etc. There’s a reason Japan subsidizes rice, even though they’d be able to get cheaper rice from Korea. Having ones’ own workers have jobs is a valuable thing in and of itself. Getting the best product for the lowest price is simply not all there is to an economy. In that direction lies extreme inequality, with, well…like what the US has been developing for the last several decades, with the very top of the income ladder making lots and lots and everybody else getting poorer. That was the whole idea behind the anti-globalization movement of the late 90s.
7. Investments: Yes, the Bush Administration “investment” was in war and that was a complete waste. No, I don’t buy the idea that Obama is doing the same thing Bush was doing as Bush was spending everything on weapons and had his corporate buddies just plain stealing from the American people. Not at all clear as to why buying goods is not an investment as there are “reverberating” economic effects that result from buying civilian items. You buy a car, you can get to jobs further away and get to entertainments. You buy lipstick, you can get a date and the two of you will then spend money doing things out in town. Weapons don’t have this “reverberating” effect, which is why Republican spending on weapons doesn’t have anywhere near the “bang for the buck” that spending on just about all civilian goods does.
Nah, I completely disagree that Schiff has any valuable insights to contribute.
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Why is lack of demand a problem?
Submitted by Tim G. (not verified) on Mon, 04/06/2009 – 11:20amPeter Schiff responds to the perceived problem of lack of consumer demand beginning at 48:20 of the hour-long lecture video. It goes until about 58 minutes. He basically says: “Take a look around the economy. The problem can not be that Americans don’t have enough stuff. People have too much stuff already, they borrowed money to buy it, and they don’t even care about it.”
He touches on it again indirectly with the silly Five Chinese Guys parable that comes at 7:20 of the 10 minute video. He says, essentially, that creating “fat” American consumers will not help our economic standing. Rather than consuming, we should be saving our money so that it may be invested in productive ventures.
There is something sinister, I think, about an economic plan founded on government’s manipulation of the minds of American consumers to cajole them into buy things that they wouldn’t buy otherwise. Demand should not be created. Demand should be demanded. What good would it do the economy to keep workers in service and consumer-oriented jobs making things that people don’t even want, or at least wouldn’t want but for the government’s infusion of money and cheap credit into the economy?
Schiff argues that people working in the service sector should be losing their jobs and moving into production. He says “medicine tastes bad, but sometimes you have to swallow it.” Workers should be producing goods for export, and the American people should be saving their money. When people save for things, they are more likely to spend it on what they really want, not just on “more stuff” to pile on to the stuff they already have and forget about.
I prefer Schiff’s explanation to Krugman’s because there is something intuitively satisfying about the idea of borrowing less, paying down debts, saving more, foregoing materialistic and unproductive expenditures, properly allocating resources to meet real demands, and maintaining the integrity of the currency. How do you explain to someone that the way to economic prosperity is to unnaturally stimulate even more reckless spending?
I think our conversation will be literally “sqeezed” [sic], width-wise, until it is a single column of letters! What will we do then?
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The machine that satifies all demands.
Submitted by Tim G. (not verified) on Mon, 04/06/2009 – 12:01pmThe relevant analogy in the Schiff discussion is the one about the machine where you press a button and whatever you want would appear. The audience gets a chuckle at Schiff’s suggestion that if we had these things, the government would outlaw them because they would create unemployment.
The moral of that story is this: We create jobs to satisfy demands, not the other way around. We don’t create demands so that everyone can have a job. If people didn’t have demands, we wouldn’t need jobs.
How do you respond to this idea?
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We’ll have to agree to disagree
Submitted by Rich Gardner on Mon, 04/06/2009 – 1:55pmbecause I think Schiff is full of it. As the saying goes “He’s so full of it, his eyes are turning brown!” Sorry, but I think the “issue” you and Schiff raise is a complete non-problem.
Update: my statement is probably a bit harsh. I did state that Schiff had a few good descriptions and he did apparently notice the housing bubble before it burst, but the idea that people spend a nontrivial amount of money on things they want but don’t “need” is to place an awful lot of weight upon a very highly subjective term. I just think if someone mentions the “Austrian school of thought” ten years from now, I’ll just say “Oh, those guys.”
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May I copy to my blog?
Submitted by Tim G. (not verified) on Mon, 04/06/2009 – 4:22pmThis has been quite productive. I think it’s time now for me to await your next article and continue the discussion there. Perhaps in that article, you will explain how the color of an economist’s eyes affects the quality of his arguments. My eyes are naturally brown, so I’ll probably never be a good economist.
I would very much appreciate it if you would allow me to copy this comment thread to my blog at autofyrsto.wordpress.com. This is a personal blog. I do not write for any publications. I am a law student, and the blog is simply a way to communicate my ideas with my family, friends, and facebook friends. The blog will link page [sic] to this page so people can see all the original info.
You have my permission and encouragement to copy this thread to any other blogs and web-sites that you write for.
Thanks.
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Aye
Submitted by Rich Gardner on Mon, 04/06/2009 – 5:43pmYou may copy & post without restriction.
As to eye color, if you didn’t get it, don’t worry about it. It was a rude thing to say in any event.reply
Of course I got it!
Submitted by Tim G. (not verified) on Mon, 04/06/2009 – 7:54pmI was just messin. Thanks for the permission!
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*As the comment thread nested further and further, the alotted width of each comment became thinner and thinner. If you look at the original page, you’ll see what this is about. ~tg
**It is fairly well known that Alan Greenspan was at one point a “Randian” libertarian. Libertarians at the Mises Institute hold Rand’s novel “Atlas Shrugged” in very high regard. Rich Gardner apparently does not (I’ve never read it, but I get the sense that it is somewhat like Orwell’s 1984 regarding government bureacracy and doublespeak). It would seem to be difficult for Libertarians to implicate one of their own in the economic debacle. One possible explanation is that centrally planned monetary systems are impossible, even for the best and brightest of economic minds, to steer correctly. ~tg
***It should be noted that the Mises Institute offers no shortage of libertarian explanations about the cause of the great depression and how New Deal prolonged, rather than ameliorated it. I’ll leave that for another time. ~tg
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Mind Your Business 
Actually the Austrian’s are right. Arbitrarily spending money doesn’t magically create new wealth but for some reason this doctrine seems to be prevailing. Primarily in self declared intellects who have never done any real economic studying short of reading articles from Krugman.
If you understand the ATBC then you know that unsustainable booms must be met with more wasteful spending or collapse, because they are unsustainable. The only way to sustain the dependency developed on spending is to increase it. It becomes extremely comparable to how a drug addict meets his addiction during withdrawals. You sir are that drug addict making the argument for yet another hit of the sweet stuff. So your whole presentation makes perfect sense to the Austrians and doesn’t surprise us at all. It also shows that you have done as little research as possible before presenting your argument.
I’d like to point out the Broken Window fallacy for your review. Thanks! 🙂
http://en.wikipedia.org/wiki/Parable_of_the_broken_window
Thanks for the links, Blarg & Ego.
Blarg: By way of clarification, I’m Tim G. I presented the Austrian side of the argument in the above exchange, and I prepared this blog. I still agree with the Austrians. Although I respect Rich Gardner for his civility, responsiveness, and openness to considering alternative ideas, he did not convince me to adopt Krugman’s position. My intent for this blog was to lay out the discussion exactly as it transpired, and to allow the reader reach his or her own conclusion.
Ego: I agree with the sentiment that that there is something incongruous about a supposed free market economist running a central bank. –But it’s pretty damn tough to go further than the Mises Institute. I applaud your enthusiasm.
Fannie Mae and Freddie Mac came in at Number 10 on Wall Street Watch’s top 12 list:
I listed only the top four because I knew the blog was going to be a long one.
On Alan Greenspan… he stopped being a “libertarian” as soon as he became chairman of the Federal Reserve. Why? Read the communist manifesto. It lays out in black and white the necessary conditions for a socialist state. Condition number five is the establishment of a central bank.
Unless Alan Greenspan took over the bank to dismantle it, the only conclusion one can make is that he is no longer a libertarian or a free market economist.
I would go even further than the LVMI in saying that low interest rates are to blame for the bubblicious economy of the past 15 years: Alan Greenspan as an individual is more responsible for the current economic fiasco than any other person on the planet.
Also, there are a number of libertarian blogs that exist to track the damange central banking and Greenspan has wrought. See: http://themessthatgreenspanmade.blogspot.com/
Also, I’d like to point out to your progressive friend that there was just as much regulation that damaged the market as deregulation–probably more damage in the end. Under Bush there has been a net increase in regulation. Other regulatory culprits that you did not mention are Fanny Mae, forcing derivatives to be priced according to an equation, forcing banks to make loans to unqualified borrowers, and Sarbanes Oxley which encouraged leveraging debt to make public corporations private.
Also it should be pointed out that the best way to “regulate” businesses who engaged in risky lending or dabbled unwisely in derivatives would be to … let them fail. Giving them money to stay afloat, and then radically increasing the rules they operate under, achieves the opposite effect, as it keeps zombie corporations alive, and discourages new competitors to challenge them.
Ego: Peter Schiff argues against bailouts in the hour-long YouTube video beginning at 45:30 and continuing until about 48 minutes. In my opinion you & he both argue convincingly.
One advantage I should like to mention that the Austrian School (as apposed to say, the Chicago School) over Krugman’s Keynesian School is that there is not Gate Keeper like Krugman to pore over arcane equations for you. It uses deductive reasoning which is easy to follow and builds on from there. Economics is simply defined as human action. Money is simply a means of exchange. Inflation is an increase in the money supply. People prefer getting things sooner rather than later.
“Masters of the Universe” such as Greenspan or Krugman think that money is like some kind of magic spigot, and regulation is some kind of hose that be directed to put out fires. It’s a micromanaging mentality that loses the big picture. Long term consequences are never factored into legislation or regulation–indeed, doing so is probably impossible, since it’s difficult to predict the future. This is why centrally-planned societies break down catastrophically.
The more money you print, the less comparative value that existing money has. Even a child can understand this, but ‘economists’ have managed to rationalize this problem away. Obviously, bubbles will happen with easy money–any attempt to reinflate a bubble to keep people happy (how happiness is objectively measured I have no idea–are you enjoying your $800,000 condo?) there risk a risk that you’ll simply create a new bubble elsewhere. When the stock market burst, the bubble moved onto housing. When housing went belly up, it moved to oil and commodities. Since that bubble is toast too, I don’t know what the next one will show up. Probably somewhere in green technology or carbon credits given where this administration is headed.
One advantage I should like to mention that the Austrian School … is that … [i]t uses deductive reasoning which is easy to follow and builds on from there. Economics is simply defined as human action.
Ego: You’ve said in a sentence why I have been sold on the Mises Institute for so long. When comparing something like the Communist Manifesto to the works of Murray Rothbard, the Communist Manifesto comes across as a mere angry polemic: more heart than mind. I can’t imagine someone familiar with the works of Rothbard being even intrigued by the claims of the Manifesto. Perhaps I’m missing something, though. I never want to become closed-minded towards it.
Great job. I love how the outer layers of the issue kept getting peeled off until you seemingly got to the core with the statement and question:
“We create jobs to satisfy demands, not the other way around. We don’t create demands so that everyone can have a job. If people didn’t have demands, we wouldn’t need jobs.
How do you respond to this idea?”
I was disappointed that Rich had no answer. In a debate of that quality, “because I think Schiff is full of it” certainly doesn’t qualify as an answer.
Thanks
Dave: Thanks. I still want to treat the question as open. There could have been any number of reasons that Rich opted for the “short, short answer”–although a Fermat’s Last Theorem approach would have been preferable:
He may still have a good answer, as might many others. If so, I’m eager to hear it.
WOW! I forgot how to do integration….but it is safe to say that this blog has received hundreds more hits than all my other blog posts combined.
This has been helped, no doubt, by link from Thomas E. Woods himself and The Mises Blog itself. This was absolutely unplanned on my part, but I’m honored and flattered!
I may not be able to respond to all of the comments now, but thats OK. I should be doing homework anyway.
@autofyrsto
Libertarians ignore Marx at their own peril. The reason why I brought up the Communist Manifesto is because it clearly delineates the definition of a socialist society as defined by socialists themselves.
I personally use it as a benchmark on how far we have traveled along the Road to Serfdom. Read it for yourself and you’ll be shocked at what you see.
I’m pleased to see some pro-Austrian sentiment expressed at the end.
As for the infamous babysitting parable, if anyone really believes that babysitting can create wealth (whether paid in scrip or dollars) I suspect Mr. Obama has a position in his administration waiting for him.
“The blog post asserted that wealth was not created. Untrue. By babysitting, a piece of scrip was produced, which could then be traded.”
If you were to tell me that, by babysitting, an ear of corn or a Bic pen was produced, I’d agree. A piece of babysitting scrip? Not so much.
Craig: Yes, I believe this to be a misunderstanding of the baby-sitting parable on Mr. Gardner’s part. If scrip is produced only upon baby-sitting (i.e.., the co-op is permitted to print one scrip only after one hour of baby-sitting services has been rendered), then how does the co-op go about issuing more scrip to grease up the baby-sitting economy in recession? I realized the error immediately, but didn’t call it. Gardner had already told me that the parable should not be analyzed the way we analyze reality. Making another tedious, reality-based objection would not have advanced the discussion (sadly). I had to go right for the bottom line.
Howdy! I’ve responded to your Ayn Rand question here.
Here is a serendipitously timely article that mentions some perceived misconceptions about Ayn Rand and Alan Greenspan, from the perspective of a Rand defender:
Deliberately Misplaced Blame, by Shawn W. Malone
I think this comment takes the cake:
Questions:
Submitted by Rich Gardner on Wed, 04/01/2009 – 6:59pm
How would the baby-sitting co-op economy change if the co-op members were permitted to freely bargain and contract with the scrip?
Chaos. The system wouldn’t work properly.
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Mr. Gardner must be confused as to the workings of a price system.