Paul vs. Paul: the Video

Check out Ron Paul’s great comeback at 4:04.  Krugman accused Paul of wanting to go back a hundred years in monetary policy.  Paul pointed out that Krugman’s inflationism is going back over a thousand years to go the ruinous currency debasement of ancient times.  (In Human Action, Mises argued that such debasement led to the fall of the Roman Empire.)

Comments

  1. I like the video, two different narratives out of an economic and economistic view on the state of the society (and the state and the society). I don’t agree with the interpretation of Ludwig Mises about the fall of the Roman Empire. If you can conquer something or otherwise gain enough supply of basic resources you could go on printing (or minting) money. And you got to have the people to run “your” domain.

    Fiat Money: There could be a certain ‘trickle-down’ effect with it. You can make risky right up to (at least medium-term) free-floating virtual “investments”. The corresponding economic system to this is (partly – not all activities are uncovered – but fundamentally) made possible and being maintained by (asset and consumer prize) inflation. In the course of that, the state receives fiscal revenues and people are getting (from time to time, e.g. in the boom phases or after a bust) attractive and affordable offers – for example in the real estate sector. Of course this is accompanied by hazards, like every investment in property (in every form of society, partially differing by the kinds of risks). So the middle class has to choose well where to invest in the boom or the bust phases – or in the slackened times in between – of a fiat money-organized economy (affecting the whole society).
    People who don’t have the socio-structural biography and position to accumulate capital – or just don’t want to – will maybe also gain by some investments that wouldn’t have been made without the less restrictive fiat money supply. Also a lot of welfare state programs – like especially those for the elder and the sick fellows – are today financed within the fiat money system. That maybe doesn’t necessarily have to be this way. But it is established and seems to be fitting to the (abstractly summarized) ‘societal basis structure’ as it is today.
    I am not a complete utilitarian but one could say: As long as there is a certain gain for the society in general, maintaining a (the respective current) system could be reasonable. This gain could be seen solely financially: If someone loses less by inflation than gaining by other effects. Or, more holistically: If a society can be organized by the people with the trust in a certain stability its ok if there is paper money as a lube as it would be if there was gold as the orientation standard or competing currencies.
    Currently we are experiencing a turmoil phase of the societal aggregate state. In this ‘flexible’ times we’ll have to wait, see and adapt ourselves to the upcoming new basis structure(s). If there will be a new economic system – as in one way or another Occupy Wall Street or Libertarians are hoping for – will emerge in the upcoming years. The form and with which symbols (e.g. property, intellectual property, possession, etc.) the new organization structures (in politics, economy, and other fields of society) will re-structure and re-establish is currently ‘open’ (in the sense of not concretely predictable for us). We are living in somehow exciting times.

  2. I’d like to see more discussion by Ron Paul et al about how a global fiat money regime can distort “free” trade. Under a gold standard, serial importers could not exist, due to the need to ultimately balance accounts with either goods or gold. Without such a balancing mechanism, a fiat global reserve currency (as opposed to gold) allows for the excessive buildup of debt. It allows us to act as consumer of last resort for the whole world. That is not “free” trade, since international trade takes place within the distorted market of the fiat dollar bubble.

    While it makes sense to support a currency linked to gold, and to support global free trade, it does not make sense to support global free trade WITHOUT first returning to an international gold standard (or the equivalent), since global trade is not taking place under natural market conditions and is thus not really free trade. The dollar bubble actually feeds on unbalanced international trade, since it helps drive down the market price of interest as surplus dollars return to the country to buy government debt.

  3. Amity Shlaes takes down Krugman at http://www.bloomberg.com/news/2012-05-02/gold-standard-for-all-from-nuts-to-paul-krugman.html. Excerpt:

    “Conveniently enough, the gold record happens to have been assembled recently by a highly credentialed team at the Bank of England. In a December 2011 bank report, the authors Oliver Bush, Katie Farrant and Michelle Wright review three eras: the period of a traditional gold standard (1870-1913); the period of a gold-standard variant, the Bretton Woods gold-exchange standard (1948 to 1972); and a period of flexible exchange rates (1972-2008).

    “The report then looks at annual real growth per capita worldwide, over many nations. Such growth, they find, was stronger in the recent non-gold-standard modern period, averaging an annual increase of 1.8 percent per capita, than in the classical gold-standard period before 1913, when real per- capita gross domestic product increased 1.3 percent annually. Give a point to the gold disdainers.

    “But the authors also find that in the gold exchange standard years of 1948 to 1972 the world averaged annual per- capita growth of 2.8 percent, higher than the recent gold-free era. The gold exchange standard is a variant of the gold standard. That outcome doesn’t tell you we must go back to the gold exchange standard yesterday. But it does suggest that figuring out how the standard worked might prove a worthy, or at least not a ridiculous, endeavor.

    “Gold shone in other ways. In a gold-standard regime, money is backed by gold, so it’s impossible, or at least more difficult, for governments to inflate. Naturally the gold standard and Bretton Woods years therefore enjoyed lower rates of inflation compared with the most recent era. The gold standard endures a reputation for causing more banking crises than other monetary regimes. The Bank of England paper suggests gold stabilizes banks: The incidence of banking crises in the non-gold-standard period is higher than the incidence in the two gold periods.

    “Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives,” wrote Bush, Farrant and Wright. “

  4. Did anyone else notice how Krugman attacks Paul for wanting to go back 100 years in monetary policy, but he himself wants to go back 50-60 years to the end of WWII? What an agenda-driven hypocrite – old ideas are bad because they are old and modern ideas are good because they are modern. He appears to offer no real analysis or arguments, just constant nay-saying and personal attacks against what he considers backward thinking.

  5. The most important thing Ron Paul said was not a statement about Austrian Economics or what happened 100 or 1000 years ago. It is that money creation through central banking is an act of theft.

    And unfortunately that is not enough to win the argument which is why I stopped watching shortly afterwards because everything else is just verbal cover trying to hide the true immorality of central banking. Had the moderator been honest and sincere that person would have put Krugman on the spot by asking how an immoral system could somehow be more efficient than a moral one. And even if Krugman could answer that using utilitarian arguments then there is the justice argument that those losing from the theft are not getting restitution for their losses. Then if the argument from Krugman that it is really a tax then the next question would be why create an inflation tax that hits the poorest and most vulnerable while providing massive payoffs to the super rich bankers and speculators?

    • And we have not even gotten to discussing malinvestments that come from this newly created money showing up to entrepreneurs as excess savings while it provides consumers a huge disincentive to save.

  6. Ron Paul, like the rest of the “gold standard” people, don’t understand their own propaganda. FACT: 100% fiat money has no intrinsic value and is not a store of value. “Saving” fiat money is losing value even if inflation/deflation is flat because of the time value of money. A bird in hand . . . is an economic principle. Fiat money IS a means of comparing the value of apples and oranges and a government endorsed IOU for goods and services.

    Ron Paul is living in the 19th century. If there is an economic theory of money for the 21st century where 90% of the “money” is electronic transfer of data stored in computer memory, I have not read it.

    • How is money backed by gold not a means of comparing apples and oranges? How can money backed by gold and not some nebulous government endorsement be a means to support electronic transfer?

      • “How is money backed by gold not a means of comparing apples and oranges?”

        It is, same as fiat money.

        ” How can money backed by gold and not some nebulous government endorsement be a means to support electronic transfer?”

        It could, but it is not necessary. The world has been off the gold standard for 30 (?) years and 90% of the US money is electronic transfer, less than 2% cash.

    • I don’t personally know Ron Paul, so I don’t know for sure, but if he understands austrian economics, which I believe he does, then he likely does understand time preference and how a free market determines time preference and interest rates. In fact, I think that’s what he was saying. The FED is artificially keeping rates low so that savers are losing money. In a free market, you could have positive interest rates for savings even with flat inflation. You could even have positive interest rates for savings with deflation. It depends on what the market for savings is.

      And it doesn’t matter if the money is electronic, paper, plastic or sea shells. It can still be backed by a commodity.

      • There’s also BitCoin, which has adherants in the “free market money” community, but smells like it has just as many problems as a typical fiat money, i.e., as it’s not commodity backed, it is subject to ad hoc inflation.

        So there’s two examples.

  7. Ah the old, “going back 100-150 years in monetary policy” nonsense.

    If that means a stable currency which held/grew its/in value along with falling prices then, yes, count me in.

    Herr Krugman’s buffoonery, again, on display.

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