Some comments:
(1) At 1.07 onwards, Ron Paul tells us that he wants a “natural rate of interest.” I have news for Paul: there is no such thing; it is a fantasy, a myth. A “natural” rate of interest does not exist outside of a fictitious equilibrium state. The non-existence of this natural rate of interest destroys the Hayekian versions of the Austrian business cycle theory.I have more thoughts about this, and I might update this post in the next day or so.
(2) Paul tells us that inflation is theft. Well, why isn’t deflation theft, committed against debtors? Deflation imposes a tax on productive businesses and individuals in debt, who must pay back their debts with money of higher purchasing power. There may also be debt deflationary effects. Wages and prices do not adjust smoothly or rapidly or uniformly, despite the laughable myths of Walrasians and Austrians who think that near perfect wage and price flexibility would magically occur to compensate for the debt deflationary effects and deflationary theft imposed on debtors.
(3) Paul’s comments on the Roman empire are misleading. Paul implies that the Roman empire was destroyed by inflation, but that is false. Rome did experience an inflationary crisis (by their standards) in the third century to the early fourth century AD, but this economic crisis largely abated by the mid-fourth century, and the empire persisted for over a century after this. Even the social effects of the inflation are debated, because so much of the empire’s population were peasant farmers not significantly reliant on monetised exchange. Furthermore, the Eastern Roman empire had been hit by the same inflationary crisis, but it never fell. Moreover, the Roman Republic fell during persistent private debt problems and, arguably, debt deflationary crisis.
(4) Ron Paul’s remarks on the post-WWII boom are plainly wrong.
LK,
ReplyDeleteanother falsehood rich environment here:
http://www.forbes.com/sites/jerrybowyer/2012/04/26/glenn-beck-national-decline-and-the-story-of-the-roman-empire/
Resp,
So how does Ron Paul explain the European Price Revolution a few centuries back, when gold lost about five-sixths of it's purchasing power?
ReplyDeleteIf there is no such thing as the natural rate of interest, then what rate of interest DOES OBTAIN absent manipulation of the rate of interest by central banks? Is it completely random: i.e. plus 100% one day, minus 25% the next day and 0% the next?
ReplyDeleteI doubt it. I.e. I smell a rat.
(1) Since I have never said or implied above that without government intervention, interest rates would be "plus 100% one day, minus 25% the next day and 0% the next", this is nothing but a straw man.
ReplyDelete(2) I suspect you don't understand what the Austrians mean when they refer to a "natural rate of interest". Please read these:
http://socialdemocracy21stcentury.blogspot.com/2011/12/hayeks-natural-rate-on-capital-goods.html
http://socialdemocracy21stcentury.blogspot.com/2011/06/natural-rate-of-interest-wicksellian.html
All that Ron Paul means is that interest rates, like all prices, should be set by the parties to the transactions and not by the government or a SWAT team-backed bureaucracy. The "natural rate" or rates means simply that rate or those rates which would obtain absent government interference. Whether or not that is a good idea (it is) is a different issue.
ReplyDeleteRP said:
“I want a natural rate of interest. I don’t want the government or Federal Reserve fixing the rate of interest. That’s price fixing…This idea that somebody or some group might know what the proper amount of money might be or what the proper rate of interest should be is sort of presumptuous. I don’t where they get this knowledge…When we talk about electing a president or a Congress to run the economy better, they’re missing the whole point. Governments aren’t supposed to run the economy. The people are.”
The European Price Revolution?
ReplyDeleteHistorically, infusions of gold or silver into an economy also led to inflation. From the second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the "price revolution", with prices on average rising perhaps sixfold over 150 years. This was largely caused by the sudden influx of gold and silver from the New World into Habsburg Spain. The silver spread throughout a previously cash-starved Europe and caused widespread inflation. Demographic factors also contributed to upward pressure on prices, with European population growth after depopulation caused by the Black Death pandemic.
http://en.wikipedia.org/wiki/Inflation
What's the issue here?
Why in the blazes does Ron Paul put so many superfluous definite articles before his nouns?
ReplyDeleteVery interesting. I'm neither a keynesian nor austrian but I will say Krugman did a much better job than RP.
ReplyDeleteRon Paul always comes across as big on the slogans with no actual substance to back his assertions up. He'll say something like, "The US dollar has been devalued X-number of times since Year Y," but he'll never talk about the *context*.
What does annoy me about austrian schoolers is that they come across as Jackson's Mary-in-the-black-and-white-room; they think they know everything about how economies work because their a priori knowledge is huge, however very few of them bother to "experience" (for lack of a better word) the economy.
For the record, some of my best friends are austrian schoolers.
Call me shallow, but I stopped the video the moment I heard Ron Paul say, "Well, he is for big government".
ReplyDeleteWrong on the first count.
Whether you like or dislike Krugman's positions, it's abundantly clear that this whole size of government talk is irrelevant. Ron Paul has certain views on how government should be run or what government should do, and Krugman has certain views on what or how government does anything. It's careless to just say one person wants more of everything that is done by government and one person wants less of everything that is done by government. That is a fictitious debate.
It is entirely possible to be a believer in activist government but be against countercyclical policy - after all Obama has proposed raising taxes during a damn recession.
It is also entirely possible to a believer in minimal government but be for counter cyclical policy - the Liberal Party and the early editors of The Economist were of this mold.
Which editors do you have in mind that was for minimal government but advocated counter cyclical policy?
DeleteNorman Macrae - among the more recent ones.
DeletePrateek, Ron Paul obviously isn't the best spokesman for Austrian economics (he's old and he's not an economist). Read Bob Murphy (on his "Free Advice" blog) or anything on freebanking.org
Delete@Rod Roddis:
ReplyDeleteAustrian economists like Ron Paul claim that gold has a spooky ability to hold its "value" over the millennia. For example:
http://wiki.mises.org/wiki/Gold#Purchasing_power
Research from the World Gold Council shows how gold has held its value over the long term when compared with other commodities. It is said that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC. The same ounce of gold still buys approximately 350 loaves of bread today. Across 2,500 years gold has in other words retained its purchasing power, relative to bread at least, and has had a real rate of return of zero.
Yet we have an historical example called the Price Revolution when this broke down, and not that long ago. Suppose some technological breakthrough in gold extraction, or perhaps nuclear synthesis, allows another massive increase in the gold supply and "debases" everyone's current holdings of gold once again?
Ironically, when this breakthrough in production happens to other valuable commodities, Austrian economists and their fans, like the late Julian L. Simon, tend to celebrate it as a victory of the human mind operating in response to price signals. The revolution in aluminum production, for example, has turned that metal from a commodity more valuable than gold into one we use for food and beverage containers which we throw away. Austrian economists have gambled their monetary beliefs on the idea that such a thing will never, ever happen to gold.
Krugman doesn't have a good enough knowledge of monetary economics to debate this stuff.
ReplyDeleteHe basically lets Paul away with saying that it's illegal for private individuals to create currency in the US. Eh, no it's not. If I write and IOU I've created currency. If I'm a mobile phone company and I sell phone 'top-ups' or 'credit' I've created currency. Etc. Etc.
"The problem is not creating money, but getting it accepted" -- Minsky
That is an excellent point. You can say the same thing about all kinds of promissory notes and bills of exchange used in commerce too.
DeleteApparently (Ron) Paul has written a whole book on this. Someone could have saved him the trouble:
Deletehttp://en.wikipedia.org/wiki/List_of_community_currencies_in_the_United_States
Anyway, (Paul) Krugman's not much better with his 19th century theories of banking and ISLM loanable funds (natural rate?) stuff.
To be fair though, Ron Paul was most likely focusing on the Liberty dollar incident when he was talking about how the US restricts people from creating currency.
DeleteWhich wouldn't have happened if the creator of the "liberty dollar" just shut up about it. Free staters in New Hampshire do everything they can in their power *to* get arrested.
DeleteWhy does he have to shut up about it? This does seem irrelevant to the situation,especially if one is going to claim that it is perfectly legal to create currency in the US.
DeleteRon Paul is not calling for a return to the gold standard. He is calling for the removal of capital gains taxes on the sale of precious metal coins and bullion and an end to the US govt's monopoly on coinage.
ReplyDeleteKrugman's response to Ron Paul's Free Competition in Currency ACt: "I don't know anything about that." How can he criticize Ron Paul's proposal for currency competition (NOT THE IMMEDIATE END OF THE FED) if he can't even understand it?
Ron Paul is hilariously deluded. Paul Krugman calmly refutes and sheds light on the real problem of the American economy in this video.
ReplyDeleteThe Austrian school is a joke. It's interesting to note that mainstream economists, which include conservative economists who support balanced austerity and paid-for tax changes (who are respected in academia) are unanimous and perfectly clear on the idiocy of this cult.
The study of economics will be more advanced and productive when this cult is rejected by every man who wants to take part in economic policy making and cares about their people.
Certain aspects of the Austrian school may be a joke, say, the Rothbardian branch. But there are aspects of Austrian economics that are not a joke and ideas they advocate (uncertainty, the market as a process, expectations, subjective preferences)may very well progress economic policy and the economics profession as a whole, like, say, the radical subjectivists or the free bankers
DeleteIf someone is ”hilariously deluded,” does anybody then need someone to tell them so? One would have thought this then either understandable enough not to need anyone to insist upon it, or else not understandable enough, and then in need of explanations instead of accusations empty of argumentative content.
DeleteI may be hilariously deluded but I think credit ought to more limited, and I suspect banking regulation would mostly be attempts to fight yesterday’s battle (intentions good but results meagre), and that the restrictions therefore should be more fundamental. I don’t know that any of the schemes of the Austrians are feasible, but I know Mises and Hayek (along with Keynes and Minsky for example) were a hell of a lot smarter than me.
"I have news for Paul: there is no such thing; it is a fantasy, a myth. A “natural” rate of interest does not exist outside of a fictitious equilibrium state. The non-existence of this natural rate of interest destroys the Hayekian versions of the Austrian business cycle theory."
ReplyDeleteWithout Central bank, there is a price of time, like there is a price of bread without sovietic central planning of such production.
Clearly, actually there is no more than an administrative tarif.
"Paul tells us that inflation is theft. Well, why isn’t deflation theft, committed against debtors? Deflation imposes a tax on productive businesses..."
If you discus of that, it is because we do not know the good quantity of money. You destroy this information for all by supporting the central banqu monopoly.
you are plainly wrong.