First, They Came for the Supply-Siders…

On Oct. 18, the NY Times ran this story about longtime GOP-friendly commentator and policy analyst (and sometime Reason contributor) Bruce Bartlett being sacked by the National Center for Policy Analysis for being too anti-Bush. A snippet:

In the latest sign of the deepening split among conservatives over how far to go in challenging President Bush, Bruce Bartlett, a Republican commentator who has been increasingly critical of the White House, was dismissed on Monday as a senior fellow at the National Center for Policy Analysis, a conservative research group based in Dallas.

In a statement, the organization said the decision was made after Mr. Bartlett supplied its president, John C. Goodman, with the manuscript of his forthcoming book, "The Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy."

Whole thing here.

And here's a snippet from Bartlett's latest syndicated col, via the Wash Times:

The truth is now dawning on many movement conservatives that George W. Bush is not one of them and never has been. They were allies for a long time, to be sure, and conservatives used Mr. Bush just as he used them. But it now appears they are headed for divorce.

As with all divorces, the ultimate cause was not the final incident but grievances built up over a long period that one day could no longer be overlooked, contained or smoothed over.

Whole thing here. Among the particulars with which Bartlett charges Bush are crapola education "reform" at the national level, backing campaign finance reform (aka limitations on the First Amendment), weak immigration policy, hikes in regulation (such as Sarbanes-Oxley), and massive increases in spending beyond anything plausibly connected to the War on Terror.

It's never good to be shitcanned, but the kernel of corn here may be that this gives some tremendous pre-publicity to Bartlett's book, due out in April from Doubleday. Look for the release date to be pushed up a bit.

Comments

[Jennifer]

[Nelson Muntz] Ha, ha! Bush voters thought they were voting for a conservative! [/Nelson Muntz]

(I remember before the last election Reason asked a bunch of libertarians who they were voting for. Maybe they should re-interview the ones who cited taxes or national security as reasons to vote for Bush in 2004, and ask them how they feel about their choice? No, no, I'm not at all motivated by a desire to rub their noses in their self-inflicted blindness. Not at all.)

[Hakluyt]

Jennifer,

They were a bunch of people, but not all of them were libertarians. The vast majority of them did not vote for Bush.

[Jason Ligon]

Leaving the war aside as a separate issue (I'm going to go ahead and assume that most of you will have that as the #1 baddie), what were the worst moments of Bushism? The best?

For me, a guy who voted for him but didn't expect much:

I'd have to say Sarbanes Oxley, the dreadful Medicare expansion, Harriet Meiers, and broad domestic spending increases are the worst. Attacks on biotech are horrific, but part of me wants to say that it is just federal money anyway.

The best would have to be broad savings and retirement reform (the increase in savings limits and new diversity of savings vehicles), HSAs and their linkage to high deductible plans, the elmination of the personal dividend tax. I would say keeping overall levels of taxation low, but his spending probably makes that a wash. Growth has been remarkably good, too, all factors considered.

[R C Dean]

Maybe they should re-interview the ones who cited taxes or national security as reasons to vote for Bush in 2004, and ask them how they feel about their choice?

Those are the two areas where he has done the best, IMO, so I would say they probably don't feel too bad about it. No tax increases (yet), after all, strategic progress against terrorism, Iraq seeming to lurch forward with another successful election (not too happy with reports of fraud, but I will be interested to see if anything surfaces that is worse than what happened in East St. Louis).

I'll second Jason's list of things to bust on Bush for, though.

[Hakluyt]

Jason Ligon,

The most horrible moment was him signing McCain-Feingold. It strikes at the very roots of freedom and liberty. Then again, Democrats and Republicans are equally responsible for that particular monstrosity, so I can blame them both.

[Jason Ligon]

Ugh, Hak is right. I forgot McCain Feingold for some reason. That makes the list. I will also note I can't put PATRIOT on there, because, frankly I don't know what specifically is in it that I should be afraid of. I keep hearing from some quarters that it allows for warrantless searches and wiretaps, then I hear from others that it doesn't. If so, it is on the list, if not it isn't.

[Hakluyt]

Jason Ligon,

Going after Oregon's "Death With Dignity" Act, the whole Schiavo debacle, etc. are also very bad parts of Bush's tenure. The former of the two is even worse because that is solely his call.

[quasibill]

Best - amazingly, since I heartily disagree with it in theory, NCLB in practice. Now, even died in the wool liberals are acknowledging that top down, centralized education is crap. I have my doubts about whether they will maintain this new found belief, but it is refreshing to hear. Similarly, the medical marijuana and other assorted DOJ litigation has increased liberal respect for federalism, if only slightly.

Worst - the return of massive deficit spending, with the hogwash rationale that we can "grow out of it" - the surefire plan for massive future inflation. In other words, your comment of "Growth has been remarkably good, too, all factors considered," is an illusion based upon an inflationary monetary policy. And the results are starting to show themselves - the yield curve is flattening and the housing bubble (which is only a secondary bubble - the primary bubble is the finance bubble) is about to burst in several places (especially those places where the median home price is greater than 30x the median wage).

Or maybe the massive culture of fear and victimhood stoked by the administration after 9/11. That might actually be worse than the monetary fraud.

[Jason Ligon]

Hak: Yah, I'll lump the Death with Dignity and the persuit of Medical Weed in CA together as a low point headlined "Attacks on Federalism".

I'm a simple guy. I find lists clear things up for me a bit. There are a lot of smoke and generalizations to wade through, and it is easy to be left with muddy impressions instead of a clear picture.

[Hakluyt]

quasibill,

Similarly, the medical marijuana and other assorted DOJ litigation has increased liberal respect for federalism, if only slightly.

Its fair-weather federalism.

[Jason Ligon]

I don't know that monetary policy is particularly inflationary over any other point in the Greenspan tenure. There is a finance bubble, but we don't see a lot of real measured inflation year over year.

[Jennifer]

No tax increases (yet), after all, strategic progress against terrorism

No tax increases but a huge increase in the deficit, which will have to be paid off with more taxes. Personally, I have more respect for someone who spends his own money, than someone who goes into debt and expects his children to pay it off. Since when did "financial responsibility" become synonymous with "going into debt and living beyond your means?"

And what are these strategic anti-terrorism measures? Granted, we've arrested all nine thousand "Number Two members of Al-Qaeda," and several hundred "Third in command of Al-Qaeda," but otherwise. . .why has the CIA reported that, even ignoring insurgent attacks against Americans in Iraq, terrorist attacks throughout the world have actually increased since the war in Iraq? I sincerely hope you won't resort to the logical fallacy of "Well, we haven't had anymore attacks since 9-11; that's entirely due to Bush's wise leadership!"

[Scott]

Those are the two areas where he has done the best, IMO, so I would say they probably don't feel too bad about it. No tax increases (yet), after all, strategic progress against terrorism, Iraq seeming to lurch forward with another successful election (not too happy with reports of fraud, but I will be interested to see if anything surfaces that is worse than what happened in East St. Louis).

Except for leaving us w/ a budget deficit that will be a wonderful club for the Dems to raise taxes later (you don't think the govt will balance that budget w/ cuts, do you?), and while Samizdatistas dismiss election fraud in Iraq, even "what happened in East St. Louis" will only fuel the insurgency. You need a cleaner election for a constitution than you need to fill one office for a couple of years, particularly if the group currently shooting and bombing feels screwed.

Bush is the worst thing to happen to small-govt conservatism in years, and the attitude of "who cares about the WMD lies? Our way is best." is incompatible w/ small govt. If the govt can lie w/ impunity to get its way w/ "it's for your own good" as justification for Dean's war, it can do so for things RC Dean doesn't support.

And the WMD lies mean the specifics (the Niger yellowcake BS, etc), not that most people expected to find a can of Raid in one of Saddam's palaces. The rest of the world thought Saddam had nothing that required an immediate invasion. The French were right about that, and RC Dean, et al were wrong.

[joe]

Best - the administration's public diplomacy in support of the "people power" movements in Ukraine and Lebanon.

Worst - using wedge politics tactics to whip up culture war hostilities, and tie them to support for the war, when he knew he would be sending troops into a warzone. He set up our military for another Vietnam end game.

[Scott]

I sincerely hope you won't resort to the logical fallacy of "Well, we haven't had anymore attacks since 9-11; that's entirely due to Bush's wise leadership!"

Particularly since another attack would just lead to "see how dangerous the world is - this is why we need Bush's strong leadership". The WOT, like all govt programs, is either successful enough to prove the govt deserves more power, or enough of a failure to prove the govt needs more power.

[Jason Ligon]

Good thoughts joe.

[Ruthless]

"First, They Came for the Supply-Siders..."

They came for the supply-siders the day Bush, Senior, called it "voodoo economics."
That is the worst legacy of the Bush Dynasty.
(I'm an Arthur Laffer groupie.)

[quasibill]

"There is a finance bubble, but we don't see a lot of real measured inflation year over year."

That's because the "measured" inflation numbers are crap in themselves. They cherry pick certain numbers, subtract ones that they don't like, and then publish it. It's a virtually meaningless number.

Besides, one reason why it hasn't had much effect yet is because the Chinese have been buying the greenbacks and saving them. Sooner or later, they'll want to spend them. If they're smart, they'll try to spend it all at once (inflation has the least effect on the first party to spend the newly minted money - the effects grow larger as the money gets circulated) - perhaps by making large purchases like oil companies?

And yes, if you check the numbers, the last four years have been a perfect example of an inflationary monetary policy. Check the fed numbers, not just for interest rates, but others, too. And again, saying "we can grow out of it" presumes inflationary monetary policy in the future.

[Hakluyt]

joe,

The U.S. wasn't all that involved in the Ukraine.

Culture-war hostilities don't need to be whipped up; they exist a plenty no matter what Bush does.

[joe]

quasibill,

re: paragraph three -

YIKES!

[R C Dean]

If the govt can lie w/ impunity to get its way w/ "it's for your own good" as justification for Dean's war, it can do so for things RC Dean doesn't support.

One of those unbridgeable divides - that the international (near-)consensus on Saddam's WMD was a "lie" coming out of Bush's mouth.

Of course I don't think its OK to lie "for your own good." But I don't think the case for war based on a lie, either, partly because it wasn't based solely on WMD.

[theOneState]

Goodness, Bartlett WAS the NCPA as far as output and the spread of ideas goes. But look, they've hired Dick Morris for a lecture...

[Jason Ligon]

"And again, saying "we can grow out of it" presumes inflationary monetary policy in the future."

I don't follow the necessary connection. Growth is not dependent on inflation per se.

[Scott]

One of those unbridgeable divides - that the international (near-)consensus on Saddam's WMD was a "lie" coming out of Bush's mouth.

I clearly said I was referring to specific WMD claims by the Bush admin, not a general "he's bound to have something". Like I said, the rest of the world thought Saddam had nothing that required an immediate invasion (or they would have come along), and they were right and Bush was wrong.

But I don't think the case for war based on a lie, either, partly because it wasn't based solely on WMD

WMD was the thing that sold the war to the general public at the time. You not caring about that doesn't change that. Bush wouldn't have gotten your war w/o false WMD claims, thus making the war based on a lie.

[drf]

Ruthless:

how about this blow to the supply siders -- keynesian based demand stimuli were being passed off as "supply side". or the myth that the t(max) = t(optimal). or that we were at the part of the laffer curve where the cut would matter for laffer's reasons, for that matter.

we have so many things here... sigh.

joe - but... but... mankiw said that deficits don't matter (he also claimed that the tax credit check was "supply side", barf). he did. and a man of gawd hired him. so it's true. at least per my uncle bob's "reasoning"........

[joe]

"The consensus on WMDs" was "Maybe. Worth keeping an eye on. Could be dangerous."

Bush's statements that there were certainly WMDs, and that he had proof of that there were WMDs, were lies.

[theCoach]

Probably the worst is trying to parlay 9-11 approval gains into an ill advised war for political advantage.

The best is probably that Bush did not turn 9-11 into a more general war against Islam.

[Hakluyt]

joe,

Or they were reasonable mistakes tinged with a lot of groupthink.

[Scott]

Bush's statements that there were certainly WMDs, and that he had proof of that there were WMDs, were lies.

Then outing someone at the CIA working on WMD proliferation issues, to get back at someone for exposing the Niger story as BS - that's RC Dean's Manly Leader Who Keeps Us Safe.

Thank you, RC Dean, thank you.

[Hakluyt]

theCoach,

Which is likely what the Michael Savages' of the world would have perferred.

[Jason Ligon]

Dammit, another WMD thread ...

[thoreau]

joe-

I see your point, but be careful. "We know exactly where they are" (paraphrase) could have been a deliberate lie, or it could have been everybody convincing themselves of what must be going on.

Dishonesty takes many forms. One is a deliberate, bald-faced lie. Another is a refusal to make a sober assessment of your assumptions, deluding yourself into thinking that you know it all. They may have been guilty of the second form of dishonesty, deceiving themselves along with everybody else. That form of dishonesty may very well be more dangerous than the outright lie, but it's also close enough to a "mistake" that people are more willing to forgive it. Which makes it all the more dangerous.

My point? I dunno. Just something worth keeping in mind.

[quasibill]

"Growth is not dependent on inflation per se."

No, depending on your definitions, it is not. However, the concept that the government can achieve gains in taxes without an increase in tax rates is a concept dependent on inflation. If the amount of money in circulation remains constant, the only way to increase tax revenue is to increase rates.

Printing more money in a fiat system is inflationary. Period. Sometimes you won't notice it very much because productivity gains will hide the devaluation of the currency, but the devaluation occurs regardless - you lose the gain that you would have made from the increased productivity. In other words, absent the "new" money, the dollar you have in hand would buy more today than yesterday while productivity is increasing. When the "new" money is printed, you lose that increase. This is especially important with respect to capital investment, where this loss actually has an impact on the rate of return that investors require (the time preference of money).

Inflation is the most insidious tax possible, as most people don't understand it and usually don't pay attention to it at low to moderate levels.

[thoreau]

Dammit, another WMD thread ...

Good point, Jason.

And I'm just as guilty as anybody else.

[joe]

But inflation is not the only way for there to be more money in circulation. Population growth and increases in productivity (while jobs state constant or growing), for example.

[Johnny Clarke]

Now, I know 9/11 "changed everything" and we're currently fighting a war (undeclared) to the death with evil, vicious terrorists that will last forever. So my concern may not be completely bush's fault.

But every time I post something now, a tiny voice in the back of my head asks "Is this going to get my name on a list? Should I be afraid to say this in public?". For the first time in my life I worry about saying what I believe, and that is wrong. And the best part is none of us will ever know if my fear is justified, or paranoia.

[Jason Ligon]

What joe said.

[Hakluyt]

Johnny Clarke,

We don't have to declare war to be involved in international hostilities.

quasibill,

How do you explain Schumpeterian growth then?

[quasibill]

"But inflation is not the only way for there to be more money in circulation."

So the stork brings us more money?

As I said, you are only looking at half of the equation. You are ignoring the fact that you are losing value from gains in productivity when more money is printed. The actual value of the economy (in a universal term) stays the same, regardless of how much money is in circulation. So if productivity increases, and therefore the value of teh economy increases, but money supply stays constant, the value of each dollar would increase. That is value that you, as an owner, lose when new money is printed. And again, the best place to look at it is in capital markets, where the time value of money is of critical importance.

[drf]

"Inflation is the most insidious tax possible, as most people don't understand it and usually don't pay attention to it at low to moderate levels."

ask five economists about that, you'll get seven different answers. 🙂

[joe]

"You are ignoring the fact that you are losing value from gains in productivity when more money is printed."

But "you" (assuming you is an average composite of a person in the economy) is making more money because of those gains in productivity.

"The actual value of the economy (in a universal term) stays the same, regardless of how much money is in circulation." That's just factually wrong. The economy grows, during growth periods, in absolute, inflation adjusted terms.

[Warren]

I think we're loosing sight of the key point here. GWB has up until now been able to keep his supporters on board despite the fact that he betrayed every promise and principal he articulated while campaigning in 2000. Now that the house of cards economy is about to collapse, some of that support is eroding. We should keep in mind as the winds of fashion begin to blow cold on this administration, that the evil they did was only possible because of the support they enjoyed. Too many friends of George have been too friendly for too long, and even his opponents have been too limp wristed.

[Johnny Clarke]

Hakluyt,
Understood, but this is all part of a general "war inflation" in my mind. They USE the word "War" because it sounds good, but they will NOT go to the effort needed to actually declare war. Haven't done that since 1942, against Romania.

So I call bullshit. If you're not willing to declare war, it's not a war. They need to use some other word for whatever it is we're doing now.

[Hakluyt]

Warren,

Well, Bush did cut taxes by signing into law the tax cuts passed by the Congress, so that is one promise he did keep.

[Scott]

Too many friends of George have been too friendly for too long,

Bush blew shit up, and blowing shit up looks kewl on tee-vee (and gives vicarious macho thrills), hence the support.

[Hakluyt]

Johnny Clarke,

I think you don't understand much about how these things work. The Congress and the Executive have the power to engage in all manner of international hostilities short of a declared war and that has been the case since the start of the Republic. See, the "quasi-war" with France in the 1790s as an example.

Warren,

Well, Bush did cut taxes by signing into law the tax cuts passed by the Congress, so that is one promise he did keep.

[Kevin O'Reilly]

One horrible aspect of the Bush presidency not yet mentioned: He turned the country into a torture state.

Also bad, though not outstandingly bad in any way:

* Tarriffs on steel, textiles, etc.
* Screwing up the campaign to reform Social Security

[scott]

I voted for Bush, but though I am very disappointed in him, I can't honestly say I'd do anything differently if I had it to do all over again. More so than usual, the choices in 2004 were just awful. The last time I had such a miserable choice in major party canidates (Dole v. Clinton) I pulled the lever for Harry Browne (who turned out to be a disappointment on a different level but that is another story). There is a limit to the nutiness I can endure in a candiate, so the LP was not an option the past time around. Which left me with just three real choices- not vote, vote for a guy who I disagree with on over half the issues and will probably dissapoint me on the ones I don't, or the vote for the guy I disagree with on nearly every issue. Since I did want to vote because of some local referendum issues I wanted to do my part to kill, not voting wasn't an option. So I chose the lesser of two bad choices. Disappointed, yes, but this is no Nelson Muntz moment. I made the best of a raw deal.

[Hakluyt]

Johnny Clarke,

Indeed, to be more blunt, declaring war is an outdated procedure for international conflicts and it is unlikely that we will ever have a formal declaration of war again.

[drf]

Quasi-

are you in favor of the gold standard,then? 🙂

As he's saying, growth in money supply is the factor that's mainly emphasized in looking at inflation in the longer term. M/P = L(i,Y)
M - Money Stock
P - Price level
i - nominal interest rate
Y - real income
L(*) - demand for real money balances

Romer (2nd ed of his book) gives income elasticity of money demand is "about one" and the interest elasticity is -0.2 (page 470).

with flexible prices (this is LR analysis, so this is reasonable), money supply does not affect real output or the real interest rate. The real interest rate is given by: (i - pi(expected)) -- the fisher identity.

Under the modeling assumption M/P is constant (both are growing together, so expected inflation = inflation). A permanent increase in money growth at a given time causes a jump in P; i jumps and the quantity of real balances falls discontinuously (ibid).

Change in inflation is reflected one-for-one in the numinal interest rate (Fisher Effect).

Increase in growth rate of nominal money causes a reduction in the real money stock. expected inflation increases, and i increases. This is the increase in the opportunity cost of holding money, and it causes individuals to reduce the quantity of real balances. P rises more than M. With transactions costs, this does not happen immediately. The impulse response function describing this would show what's going on. No power point, today.

The immediate effect of monetary expansion is lower short-term nominal rates (negative 1st derivative is the "liquidity effect"). The LM curve shifts to the right. "If the decline in the real rate is large enough, it more than offsets the effect of theincrease in expected inflation" (ibid, page 474).

Friedman worked with this in the 60s, too.

Since i'm not a macro guy, i relied heavily on Romer's book for this. If anybody out there is better with Cagan and Tobin, please take it away...

cheerio.

[Dave W.]

If government uses its powers to grow the economy, then it seems like a powerful moral argument for progressive taxation. You pay for the growth in proportion to the benefit it confers upon you (the taxpayer).

If growth means more money in poor people's pockets, then they should foot the bill. On the other hand, if it mostly means more money in rich people's pockets . . .

[drf]

"If government uses its powers to grow the economy, then it seems like a powerful moral argument for progressive taxation."

that overstates the government's role greatly.

[British Libertarian]

RE: Bush and WMD's, i was under the impression, that bushes lies, were due to fualty, and skewed intelligance fed to him by the british governent opposed to comming from an internal source.

[drf]

- and -
[channeling someone close to us]
"moral argument"? wouldn't that be just an argument?
[end channel - heiter ohne zu verletzen]

countries with this aren't as wealthy as the US. the variance in incomes isn't as great, but per capita income is greater in the US.

that line of thought is used for policy choices, as the reducing the spread of income distribution in scandinavia through such taxation, but for pure growth, the role of the gov't is overstated.

Sidrauski's models, i think, have taxation and money etc. in them - and nothing in current growth theory suggests increased redistribution causes more growth. That seems counterintuitive. It might be prefered policy, and you'd maximize growth with that constraint, but....

[Uncle Sam]

When the gov't prints money to pay it's bills, it devalues the currency. No new wealth is created by that action.

The benefit of productivity increases are nuetralized relative to the amount of legal counterfeiting that occcurs.

In other words, it's a really sneaky way of stealing wealth from the productive.

[Johnny Clarke]

Hmmm. I understand that the federal government has various options available to it when choosing to engage in international conflicts. I understand that the gauntlet-smacking "I declare war on thee" is a thing of the past. I notice that you are using words such as "hostilities" and "conflicts".

Possibly I'm being pedantic, but I think that, as there is a process in place to declare war, and we no longer follow that process, then whatever international hostility/conflict/crisis we might be involved in at the moment should not be called a "war". I believe "police action" has been bandied about in the past.

[quasibill]

"But "you" (assuming you is an average composite of a person in the economy) is making more money because of those gains in productivity."

not necessarily, and this should be front and center in the mind for you as a liberal joe: wage workers always get the worst of the deal when inflationary monetary policy is at play. The big boy fat cats who are well connected to the state get the money first, before it is circulated in the economy to a great extent. Therefore they get nearly full value of the money. By the time it filters down to wages, the money has been devalued in the economy, but wages haven't yet compensated. Several far left economists have done a very good job of demonstrating this process. I'll try to get some cites for you if I can find them.

"That's just factually wrong. The economy grows, during growth periods, in absolute, inflation adjusted terms."

I'll assume that was an unintentional misunderstanding of what I actually said: A snapshot of the economy at any point in time, there is some value in universal terms. That universal value is independent of the amount of money actually in the economy, if it's one dollar, fractions of a penny will buy a lot; if it's a trillion dollars, the dollars won't buy as much value. Now, granted, in the case of one dollar being in circulation for a large value economy, that is probably not a good currency ratio. However, the point is that growing the money supply ALWAYS takes value away from the owner of the money. As I said, you may not notice the loss, because it's a loss of income, as opposed to a loss of wealth, but it is a loss nonetheless.

drf gives you the econo-speak explanation, which I admit is not my strong point (I can follow what he says, but if you asked me to explain it in those terms, I would definitely need to quote from references).

And yes, drf, I support a gold-standard, not because it is perfect, but because it is better than fiat money controlled by the same people who control our government.

[bubba]

"P.S. No more scatalogical humor."

[Uncle Sam]

Further, taxes are always, eventually, paid by those who actually produce wealth though their labors.

Government has always been about raking off some portion of that wealth. Taxation and control of the money supply are the mechanisms for feeding on the labors of the productive.

[Jennifer]

I understand the gold-standard desire to have money be something with some inherent value, rather than have money be simply paper, which has value only because people say it does. But here's something I've never understood about the gold standard (though parts of my question were brushed upon earlier in this thread): how can you POSSIBLY have a strong gold-standard economy when the amount of gold in the world stays the same but the population is constantly increasing? Let's say that when the US last had a gold economy, there was one pound of gold in America for every American, but now, despite all the many wonderful inventions and discoveries that have increased productivity and made goods far more common than they were back then, there's only one-third of a pound of gold for every American, because the population has tripled. And if we import gold from other nations then their gold supply goes down, and we can only increase our gold-wealth by decreasing the gold-wealth of someone else, exactly like the extreme left-wing argument that nobody can get wealth without taking it from others.

So if there's still the technologically driven increase in the amount of food and manufactured goods available to consumers, does the G.S. economic theory state that goods will continue to be produced, but at ever-lower prices as the static gold supply is divvied up among an ever-larger number of people?

I know libertarians are fond of saying (and rightly so) that "wealth is not a zero-sum game" since the amount is not static; more can be created. Wealth--the possession of things of inherent value--is not zero-sum, but how can money or currency NOT be, in a gold-standard economy?

[joe]

qb,

You is right (heh, just looked at the language in my old post) about the inequitable distribution of economic growth under existing circumstances in the US. But the issue here is overall economic growth. While your observation is true, I fail to see the relevance.

I understand that inflation devalues the holdings of people with cash or on fixed incomes. But that's not the point - the economy as a whole is neither cash, nor on a fixed income. Not all growth is inflation. You keep acting as though productivity growth is just another word for inflation. It is not. If I build 6 robots this month (with my value-added at $10k per 'bot), and 7 the next month (at the same value added), and the amount of labor and inputs stays the same, I have actually increased the size of the economy. The extra $10k in value I added isn't the consequence of inflation. It doesn't devalue anyone's money. It is a real increase.

[joe]

"Uncle Sam," if that is indeed your real name,

"Productive," as you use it, is a meaningless mishmash that attempts to inject moral superiority based on whether one happens to be in a field that creates value, vs. one that makes creating value easier for others.

The crews that repave roads don't add any economic value to our society. Even if the same road with a fresh coat of asphalt is worth more than it would be if it was cracked and pitted, the cost of the project far exceeds this increase in value. However, because of the labor and capital invested by these public servants, other people, those who are in businesses that produce surplus added value, can do so more efficiently.

[Uncle Sam]

Jennifer,
Then the value of gold would increase accordingly.
Consider currency as a substitute good.

The main value of currency is realized when it flows, to enable the eficient exchange of goods and services.

It's interesting to watch old movies and movies of the gold rush etc.

In on H. Bogart movie, he goes into a diner and you can see on a poster how one could buy a meal for a dollar or two. Brother can you spare a dime

In gold rush camps, where everyone had a supply of gold but good meals were scarce, a meal would cost many times what it would have cost in long settled areas.

[Jennifer]

Uncle Sam--

So you're talking about the opposite of inflation--a permanent case of deflation throughout the world. Here and there you might have isolated places where gold was plentiful and therefore close to worthless, but overall money gets exponentially more scarce as the economy grows exponentially larger. How is that supposed to lead to a healthy economy?

Inflation has been such that in about a century we've gone from a country where you could make an average living on a dollar a day to a country where you need, at a minimum, dozens of dollars a day to make ends meet. Granted, that average lifestyle is more materially rich than it would have been a century ago, but even if you voluntarily settled for the material lifestyle of a person in 1905 you'd need more money to do it--property values and property taxes alone see to that.

But the gold economy would have the opposite problem--the amount of money available per capita gets smaller and smaller every year. Will there eventually come a time where an entire lifetime's supply of food and clothing and medicine and housing can be purchased for the amount of gold in a single wedding ring? We'd better hope so, because there will come a time where that's the average amount even available to a single person. What will compensate for the lack of actual currency--barter?

[drf]

OT (again)

type in the word

failure

into google and hit "i'm feelin lucky"

heh.

joe's comment: "Uncle Sam," if that is indeed your real name"

BAT GUANO! awesome STRANGELOVE reference!

oh yeah!

[gaius marius]

"Growth has been remarkably good, too, all factors considered," is an illusion based upon an inflationary monetary policy

oy. mr quasibill is absolutely right.

But inflation is not the only way for there to be more money in circulation. Population growth and increases in productivity (while jobs state constant or growing), for example.

the problem is that money supply isn't expanding with the population, mr joe -- is expands by some 6% per annum, destroying the value of savings. you wonder why we're an abject consumer economy? saving is so discouraged.

are you in favor of the gold standard,then? 🙂

anyone who isn't doesn't understand the massive and inevitable damage that comes from fiat scurrency systems. not one in history -- and there have been several -- survived without a hyperinflationary disaster. and we have created everything that is necessary in the american economy over the last 34 years -- since nixon ended convertibility -- to start one. it's coming.

how can you POSSIBLY have a strong gold-standard economy when the amount of gold in the world stays the same but the population is constantly increasing?

actually, the gold supply does expand by about 2% a year. it's great virtue is the fact that it cannot be expanded by more than that.

it's not as if it doesn't work. the british empire ran on specie, for example -- indeed, 95% of the history of money involves specie. the other 5% is horrifying, i assure you.

[Jennifer]

but overall money gets exponentially more scarce as the economy grows exponentially larger. How is that supposed to lead to a healthy economy?

That is supposed to read: money gets exponentially more scarce as the population grows exponentially larger. How is that supposed to lead to a healthy economy?

[gaius marius]

How is that supposed to lead to a healthy economy?

deflation can be healthy, ms jennifer -- in fact, most economies perform best under circumstances of mild deflation. (not the company line i know, but that's the history.)

the idea that a dollar could grow more valuable encourages savings. savings encourages the responsible use of debt. responsible debt use limits catastrophic deleveraging events and economic volatility.

in effect, in engaging in an inflationary policy since 1971 (largely because we didn't have the money to pay for the great society and vietnam), the government of the united states has told people that 1) your money will grow worthless if you don't spend it, 2) you should go into debt because you'll be able to pay it back in worthless dollars later on, and 3) trust us to manage the economy (ie, print money) in the event of a catastrophic deleveraging.

it surely increases the velocity of money and makes a lot of people FEEL rich -- but it is a strategy of eventual and inevitable impoverishment.

[Jennifer]

the gold supply does expand by about 2% a year. it's great virtue is the fact that it cannot be expanded by more than that.

But the population grows a lot faster than that. The per capita decrease still applies, just at a slightly slower rate. We're still basing the economy on a substance that is extremely rare, relative to the number of people who desire it, and can only become more so in the future.

Also, if alchemy becomes a fad again, should it be outlawed on the same grounds that counterfeiting is outlawed now? What about those people who try to find economically viable ways to extract diluted gold from seawater? If I figure out how to either turn junk into gold or pull it effortlessly out of the ocean I can either make myself very, very rich or I can utterly destroy the world economy, depending upon my mood.

[gaius marius]

moreover, it's unsustainable -- as we are shortly to find out, once a huge amount of systemic debt has been built into the system because of the encouragement to borrow, control of the system fades out. when deleveragings occur, they get more and more sharp and severe, necessitating larger and larger surges of inflationary liquidity to be pumped through the system.

this works, as with a heroin addict, for a while. but at some critical point, banks catch on that their return on investment will be destroyed because they get repaid in ever-more deteriorated currency. this becomes a strong disincentive to loan -- thus encouraging further balance sheet correction among lenders -- forcing more currency printing -- and the cycle begins.

the result is hyperinflation, a get-out-of-debtor's-prison-free card -- essentially a national debt default -- but one which ruins the banking system, makes credit all but impossible to obtain and eradicates all savings by driving the price of a loaf of bread up to something like $7 million.

i should emphasize -- this is not a possible outcome of fiat currency, but an *inevitable* one. every fiat system ever attempted has ended in some variation of this manner.

[Jennifer]

Cross-posted with Gaius--as someone who has no debt and a nice chunk stashed away in the bank, I too would like to see some deflation despite the official warnings about it. But I'm not talking about mild deflation--I'm talking about extreme and PERMANENT deflation.

I'd love it if a house that is now $200,000 deflated to $100,000. (That would hurt a lot fo people, but it would help a lot of others.) But I can see where deflation can go too far. What if thouse house deflates to $50,000? That's still awesome for me right now. Forty thousand? Ten thousand? Five hundred bucks? Fifteen cents?

In a gold-standard economy, that level of deflation would eventually arrive.

Think of this: I don't wear jewelry much, but over the years I've acquired a bit of gold nonetheless--a bracelet here, a pendant and chain there, some earring posts--maybe an ounce or two overall.

It's no big deal. Every American woman, even the poor ones, probably has an ounce or two of gold floating around. And even if we switched to the gold standard today, I don't think those couple ounces of gold will ever be enough to make me rich.

But more people are born each generation, and gold becomes more scarce, and someday my tiny gold collection is enough to make somebody wealthy for life? In a strict gold-standard economy, that's bound to happen eventually.

[Tom Crick]

I'm an Arthur Laffer groupie.

Me too.

I suspect the present batch of Republican leaders has forgotten what a "supply-sider" is. ...Maybe they lump them in with the "Paleocons"--I dunno.

...But if this is indicative of what's going on inside the conservative movement, the Republican Party suffers a brain drain, it should be an opportunity for libertarian groups to pick up some talented adults. ...In the "the adults are in charge" kinda way. ...The Republicans really shouldn't leave their Evangelical leaders unsupervised.

As an old school, Ronald Reagan, supply-side Republican, I've felt unwanted in the Republican party for a long time now. I was pissed about it for a long time--I suppose I still am. But I've got some perspective on it now, and from the outside, I'm actually enjoying the view as the Republicans stubbornly insist on marginalizing themselves. Once Bush is out of office, I suspect there will be a deep, dark, lonely valley for them to walk through.

Who's left, Evangelicals and Security Moms? Security Moms will someday become Soccer Moms again, and--although I know this doesn't play well around here--plenty of Evangelicals don't want their own wacky leaders running things either, believe it or not.

[Uncle Sam]

I lost connection and had to reinstall my tcp/ip protocol to get back on. But I saved the response I had been typing so I could reboot. So, for Joe:
Joe,
That's what my nephews call me and you infer too much.

I disagree with your statement about roads. Roads are in fact, capital goods, an idea that is obscured by government ownership of most of them but is more easily seen in the case of private roads.
Putting a new surface on roads may indeed add economic value by reducing maintainance costs of transport and improving safety. Things which we do value.

BTW, roads are almost always initially constructed by private firms but then lousily maintained by government stewardship. Government ownership is just another way to rake off a little more of our wealth.

[Jason Ligon]

The value of currency backed by gold fluctuates with the price of gold. Supply and demand (as Jennifer points out), as well has hoarding and the geopolitics of gold mines all determine the value of your currency. Uh, yay?

The savings rate is too low, but I think it is really hard to make the case that this is because inflation adjusted return on investment has been poor since we've had fiat money. Hyperinflation is NOT a necessary result of fiat money. It can happen if the government always chooses to print more money and never tightens up.

[gaius marius]

In a gold-standard economy, that level of deflation would eventually arrive.

very, very slowly -- if at all, given declining birth rates. once the rate of reproduction goes less than 2% or so in the society, gold supply expands faster than people. and slow change is just fine. is there anything morally wrong with a house costing fifteen cents? nothing that i can see.

But more people are born each generation, and gold becomes more scarce, and someday my tiny gold collection is enough to make somebody wealthy for life? In a strict gold-standard economy, that's bound to happen eventually.

the antithesis of a disposable society, isn't it?

[Tom Crick]

I remain dubious of any logic that would handle the money supply in some better way--other than those that would cut government spending.

I would throw out there that pressures on currency are expressed internally as an interest rate--and some of you seem to have strong opinions about that--but let's not forget about external pressures as expressed in the exchange rate.

Consider what happened when Asian currencies deflated against the US Dollar. ...When the Asian Currency Crisis hit, it exacerbated a world deflationary trend. ...but it didn't look like deflation to the people of Indonesia or Malaysia--suddenly they had to pay huge premiums in their currency for basic commodities.

I'm not sure we're all using the same terms here, but I like low inflation--deflation, I'm not so wild about.

[gaius marius]

Hyperinflation is NOT a necessary result of fiat money. It can happen if the government always chooses to print more money and never tightens up.

you speak as though the second statement isn't a refutation fo the first, mr ligon.

[Uncle Sam]

Our improved standard of living has been made possible by improved productivety. In other words, things have been made less expensively.

We enjoy a higher standard of living than medieval nobility. They probably had more gold than either of us, but they didn't have toilets, showers, or refridgeration among many other things.

Jennifer
Currency's value is as a medium of exchange. The only reason one would support a gold standard or similar is to prevent government from cheating by fabricating cheap substitutes.

Silver can be used as well as gemstones, etc.
It doesn't really matter, as long as counterfeiting can be minimized.

[Dante]

Landy
Hello fellow
Just call me
Landy 'cause I'm
Quite handy 'n' dandy.
So sing a tune,
Juggle some jokes,
An' I'll crack a
Quip, so you'll
Skip like slick.
We'll have fun
Here, there, an' everywhere.
So I'll lecture,
Poke a picture or two
Joke about them,
Then she'll list it.
Dave may save the day now and
Then, but that won't be
Necessary, for I'm not too
Serious. So hello
Fellow, just call me Landy 'cause
I'm still pretty dandy.
Sam
Sam I am,
The most disorganized
Man on the planet.
Paper, pencils, pads everywhere.
Where am I to b found?
There, here, or nowhere?
I'm fat as a pack rat
And I can't find my way back.
So follow my tracks
An' you won't get back.
Lucky
Here I lie
Lurking, lurking,
On the couch,
Crouching quietly as a mouse.
Here I sit
Watching for table scraps.
Here I lie, waiting, waiting.
Jay
Skip, skip, green light, red light
Turn right
Step left
No cops come
Coast clear
Skip, Skip, no crossing
This walk
Look, look
You not stop
Cross, cross
See Jay walk
See Jay jump
See Jay cross the stop
See Jay walk up the pack
Rejoice, rejoice
The journey does not stop
But watch for cops
An' don't get caught
Or then you will not
Reach these trees see
To keep this feeling of utter joy
Sassy
Yellow, mellow,
I have no sorrow.
So feed me
An' scratch me
Well so I shall
Not trouble you so,
But beware my claws,
For fur flies if you
Do not pet me so
Or my pestering paw
May hang low on that
Knee. Then you'll see
What I mean or I
Sting thee with the
Piercing gaze of these
Deeply grown, brown
Eyes, but beware
My stare an' feed me.
I have no sorrow
For I am
Yellow, mellow.
Susan Mcnally
Landy laughs at his jokes
As does everyone except I.
But I don't like them one bit.
Try as I might, they won't
Stop coming. And contrary
To what they say, I have
My humor and rather enjoy
A pun or two, but I find
Landy to be quite corny
And with little tact.
So sue me in haste for my good
Taste. So if I find the quips corny
Or crude, then I will list it an' it
Will provoke it all.
So look here in
Due consideration and remember
That I too was
Once happy.
Danny Damishky
I'm no bigot.
I find beauty a plenty though
I may see none in you.
You're blind because
You don't believe like
I do. But I'm no bigot because my
God loves you still though
You may wind up in hell.
I'm no bigot,
So please do not berate me for my
Beliefs though I may do the same
To you.
You may be a Jew, you may
Be a Mormon, but either way,
You may wind up in Hell.
I'm no bigot.
Pagans pray and Atheists debate,
Yet no matter how you
Live, you will not see Jesus's
Mercy if those beliefs remain unchanged.
The fire will fry you and the brimstone will
Break you if this not be so for
You may wind up in Hell.
I'm no bigot.
I pray for your sake
Even Yahweh damns you
For his own. But just
Remember you may be Hindu
Or you may be gay but either way
It's not okay. So
You may wind up in Hell.
I'm no bigot,
But please forgive me
If I worship one.
Taylor

[Dogzilla]

It's interesting to see a "conservative" think tank spike someone for being..a conservative. If the NCPA wants to just be a partisan shill, it has no reason to exist.

[Uncle Sam]

Imagine a future where advances in technoly make the production of stuff cost free. Say nanotechnology enabling us to grow homes and food from mud and by recycling all our waste. The main input required is energy.

How much would stuff cost?

Virtually nothing. The sun can provide enormous amounts of energy and humans would not have to toil to provide basic needs. This would eliminate labor costs which are the main costs of living today. I won't try to fill in all the details, as there would be many.

What would we do then?

What problems would then confront us?

[Tom Crick]

But more people are born each generation, and gold becomes more scarce, and someday my tiny gold collection is enough to make somebody wealthy for life? In a strict gold-standard economy, that's bound to happen eventually.

The story on gold goes something like this.

...We have it from several sources that at the beginning of the Roman Empire, around the time of Christ, the cost of a man's civic/business attire--not the best but good enough--was about one ounce of gold.

...Since then, we've seen the fall of the Roman Empire, the discovery and population of a new continent, we've gone through the industrial revolution, fought at least two world wars, seen the rise and fall of Communism, experienced a world population boom, invented the microprocessor, globalized, etc. We've gone through a lot of things that have had huge impacts on the world economy...

...and if you check the price of gold--right now--it's at about $460 an ounce, which just so happens to be the price of a good men's business suit.

My point is that even if the price of gold explodes over the next 200 years, I think it unlikely that your decedents will be able to buy anything more with the gold you leave them than you can.

[gaius marius]

My point is that even if the price of gold explodes over the next 200 years, I think it unlikely that your decedents will be able to buy anything more with the gold you leave them than you can.

an excellent point, mr crick.

[quasibill]

"Wealth--the possession of things of inherent value--is not zero-sum, but how can money or currency NOT be, in a gold-standard economy?"

Well, gm (or as he was referred to yesterday, consul lowercase :)) is right in that gold supply does increase (although it will probably have a finite limit at some point), just slowly.

But even ignoring that, there is nothing wrong with having currency be zero-sum, and in fact, it is preferred. As you note, value is independent of currency, so while value grows (assuming currency is static) so does the buying power of currency. So if your grandpa put a dollar in savings for you when you were born, it would actually be worth more today than when he saved it. This phenomena has the greatest effect on the least-well to do, who have the least ability to save in the form of large assets (which are essentially inflation proof - their values will rise in close correlation to inflation).

As I noted earlier, there can be an argument that too little currency is a problem. But the better way to deal with the problem is to subdivide currency further, not print more existing currency.

As gm notes, our economy is biased towards overspending because of our inflationary policy. That can't be sustained long-term, either at the national level or at the personal level. A zero-sum currency would remove this bias, and make saving - true saving - more attractive to everyone.

[Eric the .5b]

I understand the gold-standard desire to have money be something with some inherent value, rather than have money be simply paper

Well, not inherent value (gold is a good, so it can, does, and will change in market value), but value beyond "full faith and credit". Ie, not fiat currency, but currency you can trade for the amount of gold backing it. The dollar, after all, was originally tied to a specific weight of gold (also called a "dollar").

While I don't think it would be a bad thing at all to go to a gold-back currency again, I can see a big thing in the next several decades that is worth considering for its impact on any precious-metal specie - asteroid mining.

[quasibill]

"Not all growth is inflation. You keep acting as though productivity growth is just another word for inflation."

No, I'm not. Productivity growth is a variable largely, if not entirely, independent of inflation or increase in money supply.

For example: If right now, there is 100 million dollars circulating and the economy produces 100 million productivity units, the value of your dollar is one productivity unit. 1 minute from now, there are 200 million dollars circulating because of monetary policy, and still 100 million productivity units in the economy. Suddenly, your dollar is worth only 1/2 a productivity unit.

Now, yes, by the time you spend your dollar, productivity may have increased to 175 million, so you won't really notice the problem. But the real problem is not that you lost 1/4 productivity unit, it's that your dollar should be worth 1.75 units!

And as I noted, the people who really get the shaft in this situation are the people who don't have large accumulations of wealth that can be invested in large assets (the value of which will keep pace with inflation to some extent). To these people, it's spend it or lose it.

Voila! The magical debt-ridden U.S. consumer economy! With ever-widening gaps between wage earners and the propertied wealthy.

[Tom Crick]

My point is that even if the price of gold explodes over the next 200 years, I think it unlikely that your decedents will be able to buy anything more with the gold you leave them than you can.

I should add that even if her gold increases in value only with inflation, Jennifer herself will always be precious.

[gaius marius]

As you note, value is independent of currency, so while value grows (assuming currency is static) so does the buying power of currency. So if your grandpa put a dollar in savings for you when you were born, it would actually be worth more today than when he saved it. This phenomena has the greatest effect on the least-well to do, who have the least ability to save in the form of large assets (which are essentially inflation proof - their values will rise in close correlation to inflation).

for those compelled to wonder why usury is a sin in most (all?) religions, this is precisely why. the lending of money at interest implies that the value of money is depreciating and the lender need be compensated for his lost opportunity to possess goods with it. over the ages, experiments with inflation and the significant interest rates that symbolize the condition were painful enough to the masses to work their way into the holy texts of the religions they subscribed to.

[zero]

Scott,

I really don't buy the whole "I had to choose one of two candidates that I did not like" thing. If you didn't like either of them you had another choice. Write in a candidate.

[Tom Crick]

As gm notes, our economy is biased towards overspending because of our inflationary policy. That can't be sustained long-term, either at the national level or at the personal level. A zero-sum currency would remove this bias, and make saving - true saving - more attractive to everyone.

I've long expected a new electronic currency to appear. An electronic currency backed by gold.

It could be private. ...issue account holders a credit card with transactions denominated in whatever currency, and handle the real time exchange rate for transactions on the back end. Customers would get the exchange rate they drew with their transaction summary.

I think the required encryption technology already exists. I think such a bank would just need a tolerant host country and a whole lot of gold.

[joe]

Uncle Sam,

" Roads are in fact, capital goods, an idea that is obscured by government ownership of most of them but is more easily seen in the case of private roads." Yes, as I said, the roads have value, and a resurfacing job can make them more valuable. But that added value is nowhere near the cost of the resurfacing job.

"Putting a new surface on roads may indeed add economic value by reducing maintainance costs of transport and improving safety. Things which we do value." Yes, certainly. But, and this is my point, that added value does not come from the road itself, which is a net cost. It comes from those using the road. In other words, the DPW that maintains the road is not productive - they consume much more value than they create. However, in doing so, they allow others to create more value than they would be able to otherwise, and that value gained far outweighs the cost of the new pavement.

[quasibill]

"...and if you check the price of gold--right now--it's at about $460 an ounce, which just so happens to be the price of a good men's business suit."

Not that I entirely disagree with your point, but you are leaving out the fact that a good men's business suit encompasses significantly more value (productivity) than the comparable roman outfit.

Meanwhile, the number of calories of food that you can buy with that gold is significantly more. Or if you prefer, that ounce of gold will buy you a dinner the quality of which would have made Ceasar drool.

Or, you could purchase a 6 hour flight to Europe (well, I did 8 years ago, haven't check prices lately, but you get the point). The value of that service would have been virtually unlimited in the Roman Empire.

Your descendants will likely be able to buy substantially more productivity with the same amount of gold, but depending on subjective valuation, relative value will probably be approximately the same.

[Jason Ligon]

quasibill:

"And as I noted, the people who really get the shaft in this situation are the people who don't have large accumulations of wealth that can be invested in large assets (the value of which will keep pace with inflation to some extent)."

What's one share of an S&P Index fund cost these days? An unwillingness to save is the inhibition to saving, not the rate of return available to lower income Americans.

[quasibill]

"the lending of money at interest implies that the value of money is depreciating "

Not necessarily, although it is easy to see why many, historically speaking, would make that connection. Actually, the existence of interest is merely an acknowledgement that, given my druthers, I'll consume now rather than in the future. (If I can have my iPod today or in 2 months, I'll take it right now, thank you) So interest is a phenomenon that isn't dependent on inflation, although the existence of inflation certainly has a large impact on the market interest rate.

[M1EK]

"What's one share of an S&P Index fund cost these days? An unwillingness to save is the inhibition to saving, not the rate of return available to lower income Americans."

Yeah, and those S&P Index funds are as easy to get into as the savings accounts of yore. Why, I see signs for them right next to the Check Cashing establishments which are so well patronized around our poorer parts.

[Uncle Sam]

Hence, a capital good. We do not value the capital good, but that which it produces. It is a cost which is paid off in the price of the product. Most real costs are labor costs.

What we are really paying for is transportation, so in that view our cars are one cost of transportation even though we tend to think of them as having value, but a car that does not move has no value or even a negative one if it must be disposed of.

[R C Dean]

Tom, your tale of the businessman's suit seems a little too good to be true.

I see this story retailed in various gold bug sites, but if you have anything authoritative, I would love to see it.

[gaius marius]

An unwillingness to save is the inhibition to saving

which is to assume that people are, again, merely rational actors, mr ligon. they obviously aren't. people are animals who can and are conditioned by their circumstances, including their managers. and when they're told to spend often enough, they do. i submit to you that our entire environment -- from television sitcoms to monetary policy -- is engineered to condition the masses to spend heartily and save later, if ever.

people have been taught not to save, and so they don't.

[gaius marius]

So interest is a phenomenon that isn't dependent on inflation, although the existence of inflation certainly has a large impact on the market interest rate.

agreed, mr quasibill -- perhaps i should have said "the lending of money at interest CAN IMPLY that the value of money is depreciating".

[quasibill]

"What's one share of an S&P Index fund cost these days?"

And what is the return (in dollars) from one share? Averaged out, what is the rate of return minus inflation, even using the rigged government number?

Note that I won't argue that some of it is in fact an unwillingness to save. But at the same time, that attitude arises in part from an inflationary policy, because the rate of return on saving is less than it should be. And it can't be seriously argued that inflation harms the wage earner more than the Paris Hiltons of the world. One need only look at the Weimar Republic to see who suffered the most from hyper-inflation.

In the absence of inflationary policy would there still be those that didn't save? Of course. But they would be fewer, because the pay-off of saving would be higher. And, perhaps most importantly, government spending would be restrained, because it couldn't pay off its debt by devaluing the currency it pays in.

[joe]

Uncle Sam,

OK. My point is only that the conservative tactic of dividing the world into the productive class and the unproductive class often includes the providers of capital goods like roads, libraries, education, and quality public planning services under the heading "unproductive," despite the fact that they provide Capital Goods and (I'm not sure if this is an accepted term) Capital Services.

[R C Dean]

the lending of money at interest implies that the value of money is depreciating

Well, at least in part interest is charged to reflect the risk that your loan won't be repaid.

Put another way - if I cannot charge you interest, why on earth would I let you use my money?

And, just for fun, compare the economic progress of cultures where interest is outlawed with those that actually allow it, and see which one's citizens are better off, inflation and all.

It is my quick impression that the lending of money at interest is an essential feature of any economy that has made it out of a pre-technological state.

Finally, as noted, charging interest does not drive inflation; rather, it is the other way around - inflation drives higher interest rates.

[gaius marius]

And it can't be seriously argued that inflation harms the wage earner more than the Paris Hiltons of the world. One need only look at the Weimar Republic to see who suffered the most from hyper-inflation.

or the european nobility who were reduced to penury by the influx of gold from the new world in the 16th-17th c, leaving the field open for the rise of a merchant class. it hurts everyone who rely on savings.

agreed, mr dean -- as i noted to mr quasibill above perhaps i should have said "the lending of money at interest CAN IMPLY that the value of money is depreciating".

[Tom Crick]

I see this story retailed in various gold bug sites, but if you have anything authoritative, I would love to see it.

I thought there were references in Plautus and/or Terrence, which I've been reading recently. ...but I didn't find 'em where I thought they'd be, which means I'm gonna have to dig deep.

I'll post what I find here later.

[quasibill]

"The value of currency backed by gold fluctuates with the price of gold. Supply and demand (as Jennifer points out), as well has hoarding and the geopolitics of gold mines all determine the value of your currency. Uh, yay? "

Missed this one. It appears your confused about how prices are set. How is the price of gold established in U.S. dollars? Well, to put it simply, the supply of U.S. dollars is balanced against the supply of gold.

As gm said, the world gold stocks increase approximately 2% per annum. So all other things being equal, we should assume gold would become slightly less valuable each year. Has it?

If it becomes more valuable, it can only be because the supply of dollars is increasing faster than the supply of gold.

But essentially, yes - the value of gold (and therefore gold specie) is determined by the market, not by a politician or some deified central planner. Imagine that - a libertarian supporting market based valuations over politically based valuations. Kinda out of character, isn't it?

[Jason Ligon]

"Well, to put it simply, the supply of U.S. dollars is balanced against the supply of gold."

You can divine prices by looking at global supply only? Really?

[quasibill]

"You can divine prices by looking at global supply only? Really?"

No, as I qualified "to put it simply". If you want to get into details, there are several multi-volume books that do a fairly thorough job. But since demand for gold is relatively inelastic (because of its historical status), a good approximation IS derived from comparing supply of dollars vs. supply of gold.

Which of course is all just a distraction from the real point...

[quasibill]

"I see this story retailed in various gold bug sites, but if you have anything authoritative, I would love to see it."

Don't confuse those who advocate a gold standard with those who advocate investing in gold. They are not identical positions. (Not saying that you do, but many people do, and there is a large difference between the two camps, even if the reasoning is somewhat related.)

[Jason Ligon]

"But since demand for gold is relatively inelastic (because of its historical status), a good approximation IS derived from comparing supply of dollars vs. supply of gold."

I've heard somewhere that past performance is no guarantee of future results, or something like that. Gold's historical status is just that - historical. What concerns me is precisely what you like about it, the lever is out of our hands. If faux gold becomes very good, or people just lose their fascination with it, you are done.

[Tom Crick]

What concerns me is precisely what you like about it, the lever is out of our hands. If faux gold becomes very good, or people just lose their fascination with it, you are done.

I would argue, once again, that the most important and most effective lever is in our hands. It's called the budget!

You're right about past performance being no guarantee of future results, but there aren't many things you can point to that do guarantee future results. ...and in the absence of a better indicator, gold has quite a history goin' for it.

P.S. I'm havin' a heck of a time findin' a reference for the price of togas in Roman times. ...If anyone else here has a reference, please post it. ...I'm takin' a class in Roman Art and Architecture from an anthropologist who specialized in Roman culture, and I've e-mailed asking for references. ...I was in class last night actually--wish I'd had the question then.

[Abe]

Gold standard debate: Murray Rothbard answered all the standard objections to the gold standard (including hoarding, deflation, etc.) in his book, "What Has Government Done to Our Money?"

You can buy it at Amazon, or read it online here:

http://www.mises.org/money.asp

[Jennifer]

I'm havin' a heck of a time findin' a reference for the price of togas in Roman times

I've always thought the best way to measure the relative cost of things was not through commodoties but through time--how much time does the average person have to work to either make this item himself or earn enough money to buy it? In terms of man-hours necessary to acquire it, clothing (and gold, too) are a hell of a lot cheaper nowadays than they were in Roman times, but then the amount of gold known to humanity is also bigger.

(In Colonial times a man's shirt took so long to make that his old one would often wear out completely by the time his wife made him a new one.)

Oh, and thank you, Tom. I guess you've forgiven me for grossing you out vis a vis Bruce Campbell?

[mediageek]

Yeah, and those S&P Index funds are as easy to get into as the savings accounts of yore. Why, I see signs for them right next to the Check Cashing establishments which are so well patronized around our poorer parts.

*ahem* There are no less than a metric shitton of companies whose sole reason for existing is allowing the common man the ability to by stocks, bonds, and mutual funds and thereby both he and the company investing his money profit from it.

And what is the return (in dollars) from one share? Averaged out, what is the rate of return minus inflation, even using the rigged government number?

It's generally stated that a decently managed investment portfolio should grow by about about 10% of its value per year. That doesn't include inflation and whatnot, that's just sort of the eyeball estimate that gets bandied about.

Gaius, I know I ragged on you pretty heavily in the other thread, but your info in this one has been quite enlightening.

[mediageek]

Incidentally, something I've been wondering about lately: in the event of hyperinflation, why is it that other ways to exchange value don't arise?

Either a return to the barter system, or private currencies?

Are there any records of this happening in Germany post WWI?

[gaius marius]

how much time does the average person have to work to either make this item himself or earn enough money to buy it?

labor theory of value, ms jennifer? i didn't know you were a marxist. 🙂

Either a return to the barter system, or private currencies?

they do -- it was a result of the mississippi scheme fallout, for example, and certainly also in the collapse of the weimar currency.

[quasibill]

"It's generally stated that a decently managed investment portfolio should grow by about about 10% of its value per year. That doesn't include inflation and whatnot, that's just sort of the eyeball estimate that gets bandied about."

Turn that into dollars, and you get what, 10 cents on the dollar per year, pre-tax (assuming no inflation at all). Add in inflation, then capital gains tax, which ignores inflation and calculates gain from straight basis, and you get a whopping 2 or 3 cents. But depending on your timing, you might get more, or less. You might even suffer a loss. So the less well off, who might only have 50-100 dollars to save per year (i.e. not needed for day to day consumption) can expect to gain somewhat over 20 dollars over 10 years (sorry, not compounding right now), and that's without inflation or tax.

And we're surprised that people don't save more...

[Kahn]

Inflation is the most insidious tax possible, as most people don't understand it and usually don't pay attention to it at low to moderate levels.

Insidious, yes, but I've always thought there was also an ironic justice to it.

A few people at the front of the line may be a little better off, but in the end everybody gets screwed about in proportion to what you'd get with a flat tax.

I like that much better than hiking taxes on just "the rich".

Consider what happened when Asian currencies deflated against the US Dollar. .

Oh yeah, I remember now, I was working for Bell Labs. Lucent Technologies, do you remember them? I was working there in the telecom industry and damned near got laid off. Changed jobs just soon enough. Talk about the good old days. Not all my friends managed to get out soon enough.

The sun can provide enormous amounts of energy and humans would not have to toil to provide basic needs.

The idea that we get enourmous amounts of energy from the sun is an urban legend.

There is a lot of incident energy from the sun, but if you do a second law analysis, you'll find that most of that energy is not available to do useful work. In terms of useful energy, sunlight is a very diffuse energy source.

Sorry, but we're never going to power the world with sunlight. Still, supposing we could meet our material needs without laboring,

What would we do then?

What problems would then confront us?

I expect there will always be shit to worry about, now matter how advanced technology is. How about this?

I really don't buy the whole "I had to choose one of two candidates that I did not like" thing. If you didn't like either of them you had another choice. Write in a candidate.

I do buy the "choose one of two rotten candidates" thing, being a persistent victim of it. Writing in your own candidate is about as effective as not bothering to vote.

As technology and civilization advance (if I dare say this anywhere near gauis :), politicians will develop ever-more diabolical ways to screw people.

And then Batman will arise to save the world. Because I heard it in the Zorro movie, "when the people are ready a leader will arise".

[Uncle Sam]

"The idea that we get enourmous amounts of energy from the sun is an urban legend."

We get just about all of our energy from the sun.

We are really not able to anticipate what technologies will become available to us in the relative near term, but if the cost of producing solar cells can be reduced, and storage density increased, that will help a lot, as will more efficient devices.

I once suggested to a technically oriented fellow that someday we would commuunicate much more efficiently over optical fibers, he ran a whole list of why is wasn't feasible. He was right, at the time, but eventually plastic fibers were developed that made him wrong.

[Kahn]

Uncle Sam,

I hate to debate the government, but

We get just about all of our energy from the sun.

mmmm, sort of, yes. But if you're going to make that argument, then you must also understand the indirectness of many of the processes involved.

The essential questions are energy density, and "available energy" or "available work", which ever you like to call it.

I took a two year sequence in second law energy analysis in grad school. We went into excruciating depth and detail on the whole subject of potential energy sources.

I once suggested to a technically oriented fellow that someday we would commuunicate much more efficiently over optical fibers, he ran a whole list of why is wasn't feasible.

Well, yes, but here is a mistake I've often seen made by technical and non-technical people both. Computer, electrical engineering, and some physics types seem to be most prone to it, in my experience.

Fiber optics falls within the realm of entirely man made technologies, like computer software. I agree, in that realm who knows what somebody may figure out how to do.

But energy conversion as related to fundamental, "prime mover" energy sources, is right next to the realm of basic, natural processes. In a man-made world there are possibilities that don't exist in the natural realm.

More efficient solar cells, and more efficient batteries, could enable lots of neat concepts currently impossible. I agree.

I could prove it to you, if you have the mathematical background (how's your differential equations?). The problem with solar as a major primary energy source still comes down to available energy. The available energy in sunlight is low enough that in order to match what currently comes from a coal fired power plant, you'd need enough solar collectors to block the sun on a huge fraction of earth's surface.

Talk about creating environmental problems!

I think it far more likely somebody will figure out how to make fusion work, or some creative source of hydrogen, or something like that.

[Kahn]

There may be one possibility though. If we overcame the long materials problems of putting solar collectors above the atmosphere, and could fiugre out how to transport energy from there to earth's surface, then, solar could do the trick.

Okay, so I have corrected myself.

[Uncle Sam]

We could also derive energy from waste currently buried in the ground or from crap. We might design bacteria to convert our crap and garbage into usable fuel.
If we could double the low efficiency of solar cells, homes could have roofs that are solar electric converters.
LED lighting can reduce a fair amount of electric consumption.
Perhaps we can modify trees to turn turn leaves into eletricity producers.

Who knows what we'll be able to do.

I do think we'll be able to improve efficiency a great deal. We've already come a long way with the internal combustion engine, and they are still less than 20% efficient.

We shall find out within our lifetimes, I think.

[Uncle Sam]

" you'd need enough solar collectors to block the sun on a huge fraction of earth's surface"

Assuming what efficiency for the solar collectors?
The efficiency when you were in school?
Their efficiency today? What efficiency would be needed to make solar collectors competitive with fossil fuels? (Not eqivalent, competitive)

[Kahn]

Making solar "competitive" gets into some pretty complicated economic analysis. Do you want power only when the sun is out, or do you want convention electric back up the rest of the time? If back up, then you need to syncronize with the power grid. The equipment to do this was expensive, maybe it's cheaper today I don't know.

I would have to go pull out some many-year old class notes and refresh my brain. But while very high efficiency solar converters might serve most of your needs in a house, it'll never do the trick for industrial purposes.

It has always been a broad misconception that residential energy consumption is some large fraction of the total enery pie. It isn't, industrial production takes up the lion's share of energy consumption and always has. The big money in energy is in manucfaturing and production.

The problem here is that solar energy density (in a power per unit area basis) is not high enough to meet industrial needs -- say an aluminum processing plant for example -- even if you had 100% efficient solar converters. And I'm assuming that you cover the surface of the entire plant site with converts, too.

You would still need another energy source to keep the plant running.

But I also agree with you, in our life times we're going to see some pretty cool stuff become possible. We've got so many people working so many angles, it's impossible to predict who will dream up what next.

I read an article back in the early 1990's, where this guy said that 85% of the researchers who have ever lived and worked, in all of recorded history, were alive and working at that time.

Maybe his 85% number is debatable, but it's probably a good order of magnitude. This has always impressed me as a very powerful fact.

[Uncle Sam]

Even in industry, much of the heat generated is thrown out the stack. Perhaps a more efficient method of ore extraction will come about.
We need nanobots to process our junk heaps.

[Kahn]

Even in industry, much of the heat generated is thrown out the stack.

True, but the majority of it is unable to do any useful work. Do you know where the biggest energy loss is in a fossil fired power plant? It's not the condenser, where all the "waste" heat gets dumped. The biggest inefficiency is actually in the boiler.

Anyway, I think we're talking along the same lines. Who knows what technology is coming?

[Uncle Sam]

It wouldn't even be appropriate to address the efficiency of the condenser. The waste heat is delivered there for dispersal.

The Metcalf Energy Center (http://www.metcalfenergycenter.com), near me was completed in June and is a combined cycle generator using 40% less fuel per watt than single cycle plants. Two high pressure gas turbines and a steam turbine generate up to 600 MW.