What We Need is More Economic Ignorance
A bizarre letter to the editor in the Business section of the Boston Globe:
Current Fed chief isn't the walrusI was making a purchase at a pharmacy in Harwich and a conversation with the manager of the store turned to the economy and he said something that made sense: "I liked that guy. You know the one who I didn't know what he was talking about. He made me feel like everything was going to be all right.
Like a dress hemline, there are really only two ways the economy and stock market can go - up or down. Chairman Greenspan could make this reassuringly complicated. His statement before a subcommittee during a troubling interlude might go something like this: "Investor confidence will wane slightly for the time being, resulting in a somewhat lower strength in the market; however the atmosphere of consumer awareness of available spending capacity will lead to a greater sense of commercial robustness and flexibility, eventually returning the economy to its fundamental stability." And all of us "Joe Mailbox" investors would say, "Well, OK, I'm not sure I understand what he's talking about, but if he's not worried, I'm not worried."
The current Fed chairman needs to step in there from time to time with sonorous sophistry like Lewis Carroll's walrus, "talk of many things, of shoes and ships and sealing wax and cabbages and kings, and why the sea is boiling hot, and whether pigs have wings.
Vis A. Liepkalns
Harwich
Comments (16)
That letter is especially bizarre when I recall that the "cabbages and kings" nonsense was delivered to a bunch of oysters, apparently to lull them into complacency.
The walrus later ate the oysters.
Insofar as many people believe market crises are caused by no more than a collective bad mood, I maybe could find it justifiable to have someone important make vague, throughly measured pronouncements for the purpose of allaying fears.
However, considering that this "sonorous sophistry" indicates how the Federal Reserve will later see fit to manipulate the currency and the banking system, I think most on this blog are more concerned with making sure we aren't on the menu!
If one is going to look for a character most befitting the chairman of the Fed in that poem, I humbly submit the Sun:
Perhaps the walrus is a better stand-in for the legislators eagerly proposing a solution to the current crisis:
http://www.jabberwocky.com/carroll/walrus.html
Published: August 27, 2007 8:24 AM
What made Greenspan interesting is that in the 1960's he advocated a return to the gold standard (his essay on this subject was included in Ayn Rand's "Capitalism: The Unknown Ideal"). He never officially recanted this position, but if he still believed in the gold standard, this didn't seem to have any bearing on his actions as Chairman of the Federal Reserve. Still, when Greenspan testified before Congress, it was fun to watch Ron Paul quiz him regarding the gold standard and listen to him dance around the issue. What was great about it is that he could justify his actions as the head of a government institution that would not exist if a true gold standard were adopted, yet he would not formally renounce his prior views. The current Fed chairman, who apparently always supported fiat money, is much less fun to watch.
Published: August 27, 2007 9:09 AM
I see. Inflating the crap out of the currency from a central command post has no appreciable long-term harm to the economy, but talking about it causes all the problems.
Brilliant.
Published: August 27, 2007 9:44 AM
Might Greenspan be the modern day John Galt? Perhaps he still believes that the economy should revert back to the gold standard. May be that's why he has inflated the US $! Perhaps he has intentionally created an environment where the balance has tipped and we absolutely have no choice but to go back to gold! Isn't there a strong parallel to what Galt did when he quietly and systematically stopped the motor of the world? Just a thought...
Published: August 27, 2007 10:56 AM
Perhaps Olev, and he did it in a smart way because he'll be dead before things get really bad so he won't have to go through the bad times. He can just mutter a few words now and then to prop the market up until he's gone.
Published: August 27, 2007 12:01 PM
nixon said: "we are all keynnesians now".
keynes described the market as moved by "animal spirits" that when things are well they thrive with so much enthusiam that they overshoot prices to irrational levels and when pesimism appears just the oposite happens therefore, government intervention is called for to restrain those "animal spirits".
of course this is nonesense, the product of seeing markets as a unitary mass that goes up and down according to their moods a not a structure of production.
markets need to clear malinvestments and as those mal-investments are cleared , this will open oppurtinities for other good-investmensts that are better required by the economy. and this has nothing to do with irrational behaivior but with the structure of the economy and as Peter Schiff well says "there is always a bull market somewhere".
olmedo
b
Published: August 27, 2007 12:16 PM
Number Six:
A slight technical correction:
The full "true" gold standard--does not actually require a 100% reserve; the requirement is simply that the monetary authority be prepared to exchange their notes, certificates, and coinage for specie whenever requested and without undue delay. Mises and Rothbard disagree as to whether
issuance of any amount of these media beyond actual reserves need constitute a criminal (fraud) offense or not--with Rothbard taking the narrower position.
Under the monetary conditions which have existed historically, I believe that "sound money," for all practical purposes, need not hew the narrower way a la Rothbard; however, the only purpose in producing more of the other media than exists "cover" is essentially fraudulent--an honest authority wouldn't do it--at least knowingly and deliberately.
The problem is essentially insoluble; no monetary system yet developed, devised, or suggested can avoid all the problems already experienced. I believe Mises biggest mistake was to have advised a return to a system which had already proven its corruptibility repeatedly--in fact, every time it got the chance (given the understanding, "sooner or later"). The fact is that, even were we to manage the difficulties of returning to a true gold standard under present conditions, such action would in no wise prevent degradation in the future. And, under a democratic system of governance, there is not even very much chance for such resurrection in the first place.
There is only one system that may possibly avoid these problems and that one is MINE (and I have not yet explained its particulars here or anywhere else). I can't say for sure that mine is even workable; but, if it's not, there's nothing else on the horizon except more of the same.
The enormous problem with "more of the same" in our present situation is that the entire world presently (and since 1974) operates on a system of inconvertible fiat currencies and is thus liable to total collapse--conceivably within hours, given the speed of world communication via the internet. Such collapse is likely to initiate complete breakdown in the specialization of labor on which operation of the modern world depends. No city in the US (or anywhere else) contains sufficient food for more than a few days survival; some entire countries are in the same situation. Yet, without a currency regularly accepted, even the transportation of foodstuffs from place of production to that of consumption is a precarious matter. Who'll pay the farmers? And with what? And the truckers? And so on. Martial law might be necessary but with what will soldiers be paid and from whom will even they be able to obtain neccessities of life? And, even if emergency supplies may be obtained for many by commandeering, how will further supplies of the same and other necessities be provided for the rapidly-approaching "future?"
Published: August 27, 2007 2:02 PM
that has been bush and cheneys method on the war the whole time. just say everything will be alright and it will be. unfortunately their positiv words had far less effect on Iraq than greenspans did on the stablity of the stockmarket. maybe because they can't inject "victory" into baghdad via the fed
Published: August 27, 2007 3:52 PM
Gene: "There is only one system that may possibly avoid these problems and that one is MINE (and I have not yet explained its particulars here or anywhere else). "
Now's a better time than any.
Published: August 27, 2007 6:41 PM
No thank you, Anthony. Not just yet. But I will invite you to send your e-mail address to me: gene.berman@verizon.net
I've got a short list of those to whom I intend to explain when I get ready. Actually, my ideas are ready--but I'm not. And can't really promise when that will be (but soon, I hope).
Published: August 28, 2007 2:36 PM
I agree with the premise!
If people were more ignorant of economics, we wouldn't have keynesian central planners trying to tell us they know what the economy needs. Imagine if anyone who claimed to know what money was and how to make it work better was considered a superstitious nut! In a world where everyone thought only in the micro, trouble makers would have little power.
Published: August 29, 2007 6:38 PM
If people were more ignorant of economics, we would have even more Keynesian central planners trying to tell us they know what the economy needs.
Take a look at history.
Fortunately the Mises Institute is there to counter these ne'er-do-well's.
Published: August 29, 2007 10:03 PM
I agree with James - ignorance of economics is the root of the problem, not its solution.
Published: August 29, 2007 10:51 PM
Only those ignorant of economics would call for a gold standard. As a commodity, its price has not been particularly stable, with a good bit of deflation in the US circa the mid 19th century followed by a good spurt of inflation.
And to focus on real asset values rather than derivatives would destroy all opportunity to get rich in the stock market. After all, the stock in the stock market are priced on the underlying company's revenue growth and profit margin forecast on a per share basis; it has absolutely nothing to do with any real asset value.
Published: August 31, 2007 3:49 AM
Au contraire, only one ignorant of economics would at this point in time still back fiat money.
Published: August 31, 2007 7:17 AM
Mulp:
There's an interesting graph floating around somewhere--I think it's at least 20 years old, maybe significantly more. It was done by someone whose name i can't remember exactly but was similar to Jastrow or Jastrum--something like that. The graph itself tracked the "prices" of an assortment of major commodities in a manner designed to express their relative (to each other)
volatility--across some lengthy span of time, several centuries if I recall correctly.
Anyhow, the graph was being offered to show that gold was the--by far--least volatile.
Also, while stocks are priced in the market more or less as you describe, it's misleading to say they have nothing to do with "asset value." Those have something to do with the price of a share if only because such values have something to do
with the projected future potential earning of the share itself (and the proportionate influence of such values will vary greatly from one type of business to another). Ultimately, both are present guesses as to the shape of certain prices in the future.
I'd like to interject here a somewhat more forceful argument in favor of a true commodity being considered and used as the principal referent in monetary schemes for both our nation and the world in general (and for that to be the best known thus far--gold).
What I say now is an interjection, though not extraneous to full understanding. I want to assure you that those in the highest positions of monetary and political responsibility believe almost exactly as I do, though their public statements have not, do not, and will never reflect their awareness. The first thing to consider is that what we call value is subjective--the valued thing deriving such value as a means for the satisfaction of one or another human wants. The uses to which a particular commodity or thing can be put form additive parts of what is perceived as its value.
In ancient times, gold was valued chiefly as a material for ornamentation; certain of its specific characteristics caused it to be desirable (thus valuable) for this purpose and, subsequently, for usage in exchange; later, it became (more or less) to be used most commonly for that latter purpose (while yet retaining the former) and, to a much lesser degree, for certain technical applications involving conductance, chemical resistivity, etc.
We might conjecture that, had not gold been so widely sought for ornamentation, it would likely have escaped attention as a common medium of exchange; I seek only to emphasize that the value at the present is the sum of its attractiveness for its several potential uses, the chief one being, from ancient times until the present, as a common, nearly-universal "medium of exchange." The importance of the foregoing is to understand that, were gold to lose its appeal and utility for its monetary function, it would lose the --by far--greatest part of its value. And, except for some small "strategic" purposes, would serve no useful purpose in hoards or reserves of world governments.
An opposing "school" of thought holds that choice of monetary materials and their very value is ultimately a product of--and a legitimate function of--authority; the view is widely held, might be said to be dominant, and is heavily propagandized by nearly all such authorities.
If it were true, gold would have lost almost all of its value between the time at which the last nations severed any official relationship between their currencies and the metal and began a regime of inconvertible currencies. The question must arise--to whomever thinks about such things--just why would nearly all continue to hold reserves of the now (supposedly much less valuable) non-money? The questions seem to admit of only two answers. The first is that such authorities were (and are) not sure of their own pronouncements in the matter in dispute. They weren't (and aren't) sure that a regime of inconvertible paper could be made to persist over time, regardless of the unanimity of authority and despite their exercise of the most draconian possible measures in furtherance of that objective. The other is that they were aware (convinced) that their public opinions on the matter were untenable from the beginning, that the new system couldn't be made to last for any great length of time--say a generation or two--but that disposal of the reserves would possibly jeopardize the validity of the new monetary regime with which their authority was inextricably associated. I simply want to point out that, in neither scenario do such authorities come across as honestly motivated by the general good and in one (the latter) seem nothing more than rapacious scoundrels--confidence men preying on the unwary. Personally, I lean to the first view (that they're somewhat less criminal in actual intent).
Furthermore, the monetary authorities in a number of countries belie their announced views by taking various actions to suppress the market price of gold (whose rise throws into more proper relief the instability of the authoritarian paper
regime) and to financially punish those who've taken positions reflecting lack of confidence in such regimes. Several governments have auctioned off large amounts of the metal (at ruinous prices, in retrospect). Others have taken to coining essentially bullion coins for sale to the public at substantial premiums. And the US has "leased," at extraordinarily low rates, vast (but unknown to me--I don't follow such matters) quantities (whose ultimate return is questionable at very best).
My own particular concern (though by no means personally-motivated) is that, under the current regime, there's no apparent method for combatting the (potentially world-wide) effects of a crisis of confidence in the existing currencies and the certain disruption, not only in ongoing financial relationships but in the very division of labor depending on such relationships and the consequent physical dependency of billions on the reasonably smooth exercise thereof. Nothing to have occurred in world history has ever come so close to promising death and destruction on so wide a scale (and with so little warning, given the potential for the spread of panic through the medium of the internet in mere hours).
Published: August 31, 2007 10:57 AM