Stuff is cheaper? Time to panic
At least that is the message of this NYT article. The one saving grace of the current economic moment--downward pressure on prices due to unsold inventories and the non-entry of new money into circulation--these people decide is the very core of the problem and a trend that must be smashed no matter what. We once marveled that the New Dealers could have been so confused as to believe that low prices were a problem that needed to be solved rather than the best part of the downturn. But here we have a "consensus"-style article that says exactly this.
Comments (39)
Where's all the folks on the affordable housing bandwagon?
[In October 2008, Sharon Halligan] moved into her $260,000 two-story home in Stockton after losing seven other bids on foreclosed homes. Thirty months ago, her new house appraised for $608,000. "Isn't it amazing?" she says.
http://www.usatoday.com/money/economy/housing/2008-10-24-stockton-mortgages-foreclosures_N.htm
Published: November 1, 2008 12:57 AM
Some months ago everyone was panicking about evil businessmen raising prices. This is funny and sad at the same time.
Published: November 1, 2008 1:35 AM
"Some months ago everyone was panicking about..."
It's astounding how short the American media memory is.
Much like global warming, vs global cooling, and one twist I read which said that human-caused global warming would lead to cooling.
And all reported without them breaking out laughing.
Published: November 1, 2008 8:58 AM
A whole lot of red and sell a lot of black and white. The media makes these unabashed sky-is-falling attempts in order to sell their product. No wonder traditional subscriptions are falling in number.
Published: November 1, 2008 9:10 AM
I guess it's time for the "experts" to start telling us that gas is too cheap and that we need to boost its price.
Published: November 1, 2008 10:18 AM
We once marveled that the New Dealers could have been so confused
That's your fundamental problem Jeff. You don't understand what's going on. The most prevalent delusion on the planet today is the belief that these people are well intentioned but they are just stupid.
All of this is intentional and they know exactly what the results will be.
They aren't stupid. They are evil. And the sooner that coincidence theorists stop repeating the line that any of this is an accident, the sooner we can wake up to what is really going on.
Published: November 1, 2008 10:33 AM
These are our experts? Demand is falling, inventories are building up...God forbid we let prices fall. It's like people can't think in periods of time longer than a week. "Prices will fall and BAM, global depression." Forget that prices have to fall in order to get people buying again. Oh yeah, here is the genius quote of the week:
“If you print enough money, you can create inflation,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.
Thanks for the insight, Kenneth.
Published: November 1, 2008 11:11 AM
Wasn't one of the roots of the crises over leveraging (which was caused by the moral hazard government creates) and isn't deflation just the markets attempt at leveraging our economy.
And I don't think it will take experts to say that gas prices are to low, that will be the heads of the global cartel that calls itself OPEC. Why a cartel like that still exists in our modern world is mindblowing.
Published: November 1, 2008 12:42 PM
Okay, so is the NYT actually trying to sell the concept of an inflationary recession? I am pretty new here, and trying to learn as much as possible, but doesnt it only seem logical that when the economy contracts, a lower cost of living is one of the 'beneficial' side-effects? I am trying to get my mind around all the concepts, but this is truly bizarre.
Published: November 1, 2008 1:51 PM
Phil,
it is not you who is confused. The New York Times and their economics pundits have subscribed to a very flawed understanding of economics. Their theory comes greatly from Keynes, despite the inability of his theory to account for action in the real world. It is accepted by and large because it provides a fine set of clothing for the emperor and his desire to manipulate the economy in his favor. Economic theory based on a firm foundation of human action leads to the inevitable conclusion that the best policy (assuming we take as our value the increase in satisfaction of wants) is no governmental policy, a.k.a. Laissez-Faire. Since the Times is an official court paper of record, they will spout nonsense that is favored by the state, even if these claims and proposals would be contrary to the objective stated elsewhere in the article.
In the Keynesian way of thinking, falling prices are anathema because they will lead inexorably to unemployment and then a downward spiral of lower consumption and deflation (see Keynes' Paradox of Thrift). However, not only does theory prove this wrong, but the period of slight deflation following the industrial revolution until the turn of the 20th century, showed empirically that increased production and standards of living are the norm during periods of falling prices. I think that it was the ridiculousness of Keynes Theory, as well as its total lack of coherency with both theory and history which prevented his friend Hayek from decimating it as he had done to Keynes prior attempt. Unfortunately, Hayek's reluctance to debunk the General Theory at its unveiling has left us to fight with its far reaching tentacles even to this day.
Published: November 1, 2008 4:30 PM
Chris Folsom: "That's your fundamental problem Jeff. You don't understand what's going on. The most prevalent delusion on the planet today is the belief that these people are well intentioned but they are just stupid.
All of this is intentional and they know exactly what the results will be.
They aren't stupid. They are evil. And the sooner that coincidence theorists stop repeating the line that any of this is an accident, the sooner we can wake up to what is really going on."
I'm glad somebody finally came out and said it. Or have we forgotten that the Fed came into existence in 1913, a full 23 years before Keynes published his General Theory. As scholars who have taught me so much about economics, it surprises and saddens me that you cannot even apply your own theories of human action consistently and accurately.
Just think about it. Politicians are unscrupulous and corrupt. The very nature of the system, encouraging competition in bads -- as Hoppe corretly notes -- pretty much assures that. Special interests lobby, yes, and we see it; but what about the lobbying we do not see? Are these politicians not bought and sold out of public view? Who really controls the government and the democratic process? Bush is puppet and so is Obama. I suggest you start with Edward Griffin's excellent book on the true origins of the Fed. As Austrians you are in a better position than most to truly understand the conspiracy. From there you can move on to 9/11 and other topics.
Good luck.
Published: November 1, 2008 5:33 PM
i maybe am just a newbie to economics, but why exactly do kenyesians believe deflation will cause a decrease in consumer and business spending? is it because according to them less money=bad? why does deflation have to be a positive feedback loop?
i might just be high, but in a world where we are so interconnected and commercially dependent in almost every aspect of our lives, wouldnt falling prices create an enormous opportunity for many entrepreneurs(who would have more purchasing power thanks to deflation)?
and even if you subscribe to keynes, wouldnt deflation also increase the purchasing power of consumers and promote circulation and spending- driving up demand in many areas of the commercial sector and creating new business opportunities?
Published: November 1, 2008 11:56 PM
Deflation at the consumer level will eventually be felt at every level of the market. Production costs will have to be permitted to adjust for lower prices at the store to be sustainable. Regulations, fees, taxes, salaries, stocks, overall prices and profits, etc. must deflate, too.
This threatens the power and control of special interests, monopolies might begin to break down, the uber rich may have to make more constructive use of there time and money as people may not feel so much need to gain their favor. Not to mention that the ways to become and stay uber wealthy would diminish. Doctors, lawyers and the insurance racket would lose their hold on people because their risks wouldn't be so burdensome, their stress reduced, and their health improved.
Otherwise, we'll start experiencing mass shortages in consumer goods and the governent will have to alite upon us like the god it pretends to be and pretend to rescue us from the hole it dug for us - just as it is in the midst of doing.
And though I believe that certain personalities are very calculating for the sake of their own self-interest, others are cluelessly led along by appeals to their mistaken sense of self-worth and/or benevolence. Still others have learned their school lessons well and defer uncritically to the "experts," not realizing that 2/3 of them were emotionally manipulated and flattered into swallowing the current intellectual rhetoric.
It's like the emperor with no clothes, "I guess you're not as smart as we thought you were if you're not convinced of the truth we taught you." And most everyone else just goes along in one fashion or the other in an attempt to not appear stupid or incur the wrath of others - whether they believe it or not.
Published: November 2, 2008 1:53 AM
Ok..I am a noob and am learning the Misean arguments relative to business cycles and the role of the Fed in administering monetary policy. I have along way to go before I am able to speak with authority. So I am submitting a post from another site written by a man who evidently has training in economics and am hoping his comments will stimulate other's thoughts and insights from the Misean point of view. I look forward to your comments. Thanks. Tim
“"If you print enough money, you can create inflation," said Kenneth S. Rogoff ... or maybe not.
Newly “printed” money must move into the economy. Because currency is only about one-tenth of the US “money” supply—and two-thirds of that is held overseas—the money supply is increased via lending.
The Federal Reserve has a checking account in which they can set the balance at whatever they wish. Subsequently they write a check on that account to inject in into the economy. Up until a few months ago, those checks almost always went to Fannie and Freddie, who then used the new funds to purchase bundles of mortgages on the secondary market.
The secondaries (think Countrywide) used the proceeds to buy up even more bundles of mortgages from places like the East Gopher Gulch State Bank of Nebraska. When Herbert and Wilma sold their house to move into a rental, they took the proceeds of their sale and deposited them into a money market account.
That money market fund, in order to back its deposited, bought stocks and bonds issued by Fannie and Freddie. The new money was thus laundered and injected. That process, however, has ground to a halt.
In today’s economy, “printing” money requires a lot of people both willing and able to borrow. That pathway pretty much no longer exists. People don’t want to borrow, or the banks don’t want to lend.
Attempted injections of new money fail for lack of borrowers, and the deflationary forces continue to coalesce, whilst the Fed is powerless to change the dynamic without new borrowers. In classic economics this is called a Liquidity Trap ... and we’re almost there.""
Published: November 2, 2008 2:20 AM
Chris, Raja, sorry but I can’t agree with you.
I have two objections.
First, if the current mess is made by Them ( whoever “they” are) deliberately this supposes they understand consequences of their actions, that means they understand economics and have some sound theory. I doubt it is the case. Politicians are virgins about economics and I don’t think Big Bankers are much better. They don’t have good advisers and experts either, at least I never heard about Austrian economists working for Big Govt and Big Business. So how can they know?
I guess it is not a conspiracy of evil guys but rather a kind of quasi-market process. Kinda spontaneous order. “ Product of their actions but not of their design” as Hayek would say. Every one of them (and every group) pushes for some particular agenda not understanding what they are doing together.
Second, there have been, are, and will be bad guys, forever. But they are helpless without public support. And they can’t gain it by themselves. They need somebody to do this dirty job for them. These “somebody’ are of course Left intellectuals. But they are not too evil but rather really, really stupid! It’s hard to imagine that all government advisors, WMF councellors, Nobel Laureates, popular columnists, authors of textbooks are just conscious liars. They are rather plain fools.
Bad guys, money, weapons don’t rule the World.
Ideas do.
Bad social and economic theories (Mercantilism, Marxism, Keynesianism etc.) and bad ethical systems ( Egalitarianism, Nationalism, Religious Fundamentalism, Environmentalism) and their adepts, false prophets, and stupid true believers are responsible for all blood, dirt and sufferings the humankind have experienced.
So I think Jeff is right. It’s not evil groups and personalities but rather bad ideas that should be targeted at first place.
Published: November 2, 2008 6:44 AM
Adherents to the Keynesian economics believe consumption is what runs the economy. Naturally, deflation is something to fight against, instead of realizing that low prices would encourage people to buy. To be fair, I can see one way deflation could be a bad thing: when people are prevented from buying or selling during such a period. And this can only be accomplished through government's intervention (At least, as far as I can imagine). Unfortunately, some economists cannot see that.
Published: November 2, 2008 6:55 AM
Alexanka - Thanks for your reply. Unfortunately, you seem to be filling in blanks as I did not intend for them to be filled in. I never said the housing bubble and the credit crisis are by design. They are the consequences of other actions that are by design. I think it is best if you don't focus on current events, but rather look at the root, which is, of course, the Fed.
The Fed was created in 1913, long before Keynes and his silly ideas. In fact, central banks have existed since the 17th century. Do you really think they sprang up by accident? That would not be a very Austrian explanation. Things don't happen by accident. Human action is not random. All action is driven by incentives. Bankers -- just another special interest -- realized they could commandeer the powers of the state for their benefit, and did so. Why they picked central banking is also no accident. They were not stupid, but rather very intelligent. With everything I know about Austrian economics, I will tell you that if I was a wealthy banker and could have one wish, it would be for a central bank owned and controlled by me. Do you understand why?
Forget about the current crisis and focus on the Fed and the history of central banking. If you understand that, everything else will fall into place.
Published: November 2, 2008 11:04 AM
First, if the current mess is made by Them ( whoever “they” are) deliberately this supposes they understand consequences of their actions, that means they understand economics and have some sound theory. I doubt it is the case. Politicians are virgins about economics and I don’t think Big Bankers are much better.
Right. So I suppose that the politicians who killed hundreds of millions people last century were just stupid as well. Roosevelt must have been stupid when he was systematically exterminating the civilian population of Japan, just like Bush is stupid and really believed that there were WMDs in Iraq. Forget the facts about Downing Street. All evidence of intention is purely contrived and/or coincidental.
Sorry, but the facts are this is part of a plan; the realization of the Platonist's dream. If this isn't part of a plan, then maybe you can explain why the CFR and the TLC have been openly pushing for this for decades, and the bankers for centuries. It doesn't take a rocket scientist to figure any of this out. All you have to do is be able to read. The natural tendency of all sociopaths is towards more power.
The mental midgets who are paid to spew the lies of the state at your local university are no doubt suffering from stupidity caused by sexual impotence, but the people who are orchestrating the world financial collapse to consolidate their control are most certainly not.
They were smart and evil enough to get in charge and smart enough to trick the American populace into believing the things they are told in public schools. They're obviously smarter than you, if they got you to believe the line that they really are attempting to act in your best interest.Paulson will be a billionaire when this is all over and Bernanke will be promoted to a higher position within the global banking establishment. Do you honestly believe that they don't know what they are doing?
Coincidence theorists like to live in a fairy tale world that makes them feel better about themselves. It caters to their vanity and their ego to be able to say "Look how much smarter we are!!" But this isn't a matter of conjecture, no matter how much it satisfies their basic primate desires to make it that way.
Published: November 2, 2008 11:15 AM
Chris - what is your e-mail address. Or send me a message at rajamisc2@gmail.com
Published: November 2, 2008 12:00 PM
Did anyone see the interview with James Galbraith in today's (Sunday) NY times? In the magazine?
Published: November 2, 2008 3:49 PM
"That's your fundamental problem Jeff. You don't understand what's going on. The most prevalent delusion on the planet today is the belief that these people are well intentioned but they are just stupid.
All of this is intentional and they know exactly what the results will be.
They aren't stupid. They are evil. And the sooner that coincidence theorists stop repeating the line that any of this is an accident, the sooner we can wake up to what is really going on."
I think the best explanation is actually a combination of both, with varying degrees of emphasis depending on the crisis on question. In general, I do not doubt that there are cynical elites who act on a deliberate agenda to harm people in order to gain power and wealth for themselves. At the same time, however, their numbers are so few that they would never be able to succeed in their designs without being able to fool many well-intentioned but misguided people.
Published: November 2, 2008 7:08 PM
Agreed. Each action needs to be judged according to the actors. In the case of Keynes and the New York Times however, I think the evidence is clear. Keynes sold his soul to Satan for land and title, and the New York Times is arguably the most pernicious private enterprise the world has ever known.
When Barack Obama ascends to the throne, no doubt there will be people that will claim he is stupid even though he is evil incarnate and you could not create a greater monstrosity if you channeled up every horror from the pits of hell.
The point is that it isn't a matter of opinion. There are only people who are living in the real world and those who are living in a psychotic fantasy.
No doubt Jeff will still be claiming that the Amero is a hoax even when we have a consolidated currency for all of North America.
I suspect that if the trilateralists were to offer a gold standard under bank control, Jeff Tucker and a lot of the Mises people would gladly jump on board. But the hard money won't last. It will only be a way to sucker people into accepting a greater form of control.
Published: November 2, 2008 8:55 PM
J. Chris Folsom,
not to get this too far off topic, but the only way that Austrians and true liberty lovers might accept a new currency would be if it were introduced at the same time as the legal tender laws and other monopolistic features of monetary policy were eliminated (this is only the necessary step, it is not sufficient for the acceptance of this new money). Any other attempts at currency reform within a monopolistic system can only lead to redistribution of wealth as well as initiating an error cycle. The fact of the matter is that the elimination of the monetary monopoly will be sufficient to allow the market to produce a currency which fulfills the requirements of the market and not the machinations of the state and banking interests. Money handed down from above is most likely not in the interest of the market. Think of it as a trojan horse.
Published: November 2, 2008 9:59 PM
The fact of the matter is that the elimination of the monetary monopoly will be sufficient to allow the market to produce a currency which fulfills the requirements of the market and not the machinations of the state and banking interests.
I agree. A Trojan horse is exactly what it is. The only solution is to abolish the fiat laws. Once the private markets can create money. It will drive out the money of the state.
"as for the dollar, it would be a fantastic thing to see it replaced by a regional or even international currency that is sound and hard," - Jeff Tucker
Maybe you can explain the above to me, but it sounds like Jeff Tucker is endorsing the bankers dream of a global communist state.
A "regional or international currency" implies state money, and a world currency in bank control is far worse than a national currency in bank control no matter how "sound" it is.
Published: November 3, 2008 12:13 AM
On the subject of weather they are evil or stupid, I agree that the Fed is not stupid, and they know the consequences of their actions, but there is something that I just can't wrap my brain around. Alan Greenspan used to be one of the good guys. He wrote articles on the importance of the gold standard, and how it prevents totalitarianism. Then he became Fed chairman and everything changed. Did he think he could change the system from within? I just have a hard time believing that he cynically took the job in order to destroy the world, although that is how it seems to have turned out. How could someone as knowledgeable as he is go so wrong?
Published: November 3, 2008 12:22 PM
J. Chris Folsom..... "Maybe you can explain the above to me, but it sounds like Jeff Tucker is endorsing the bankers dream of a global communist state."
I suggest you look up some of Mr Tucker's other posts here or at www.lewrockwell.com. You'll probably want to take that comment back.
Not to put words into Mr Tucker's mouth, but I believe he means is the marketplace should decide what currency is used. Who cares if it is regional, local or global? The main point is the currency should be based on people's preferences, not governments. Gold would of course make the most sense; however, if people decided that we should use turnips, so be it.
Published: November 3, 2008 12:35 PM
Not to put words into Mr Tucker's mouth, but I believe he means is the marketplace should decide what currency is used.
If that's what he's saying then I agree, but it seems logically inconsistent that a free market currency would be "regional or international" since the constraints of geography implies a state.
I have noticed the usual suspects and even Stiglitz come out pleading for a single world money in state control in the last few weeks, and from Jeff's statements it sounds like he would be in favor of anything, even fiat money it was redeemable in specie.
If that is his position, then I don't agree. A private currency based on pinwheels and pixie dust is still preferable to a state monopoly of gold.
Maybe Jeff can explain what he meant, but I haven't seen him post a response here.
Published: November 3, 2008 1:42 PM
I am not now nor have I ever been a communist.
Yes, the marketplace should decide. The marketplace tends toward a single global currency. It used to be gold. That would be great again, but it has to be redeemable at all levels. This, anyway, is the Misesian/Rothbardian position.
Published: November 3, 2008 1:46 PM
I like the FRN's! buy, get in the elevator on the first floor and get off on the second floor sell, then take the stairs down to the first floor buy, get in the elevator on the first floor and get off on the second floor, sell repeat.
Published: November 3, 2008 2:47 PM
Gotcha. Thanks for clarifying. I understand Rothbard's position, but I wasn't sure if that was what you were arguing for. Apologies, if you were offended. I am just trying to learn and get the facts straight.
Here's a hypothetical question though... I heard Joseph Salerno make the same claim that the natural tendency of the markets was towards a one world currency in "A new currency for the world".
I am not really sure I understand. It seems logical that if there were a free market in money, that it would more likely lead to several currencies competing on the market, since people would be free to choose. There are after all, an infinite number of ways that gold in various weights and quality could be used to create money, not to mention other commodities like silver or even debt like we have now.
I guess I don't understand why a single currency seems like a foregone conclusion in a free market. We don't say that the natural tendency towards production of wheat, corn, or any other good or service tends toward a single provider. Why would money be any different?
Published: November 3, 2008 3:00 PM
W,
The human nature can be found in to states, fallen human nature and redeemed human nature.
Fallen human nature works to destroy its human nature. In deception or not.
A man can know what is best monetary system but chose against it.
Published: November 3, 2008 4:11 PM
W,
The human nature can be found in to states, fallen human nature and redeemed human nature.
Fallen human nature works to destroy its human nature. In deception or not.
A man can know what is best monetary system but chose against it.
Published: November 3, 2008 4:12 PM
Either state of human nature can step out of its own state of nature to the other state, but only in opposition with it own state of human nature.
Published: November 3, 2008 4:21 PM
J. Chris Folsom,
A very useful feature of money is universal acceptance. Being the medium of exchange, those moneys which are more universally acceptable will be more useful. This has a tendency to creating a single money where ever the market is free to operate. However, leaving the market free to operate, could see silver used in small transactions and gold for larger ones. The exchange ratio between the two allowed to fluctuate freely based on market demand would prevent the scarcity of bimetallism and fixed exchange rates. It is also entirely possible that gold could operate for small transactions through the use of tamper proof plastic encased micro coins, or even 100% reserve deposit notes. Keep in mind that the different national moneys under the gold standard were really just different names for various weights of gold. Rothbard covers this aspect well in, "What has the Government Done to Our Money. He also goes over some of the problems associated with numerous moneys, especially when they are enforced by government fiat over each state's particular domain.
Published: November 3, 2008 4:30 PM
Apologies for my typographical errors.
Published: November 3, 2008 4:38 PM
Thanks for the clarification Stanley. Any other books on free market money that you would like to recommend?
Also, it seems that with a gold or silver backed currency without a lender of last resort, people might have to pay a premium for the use of sound money. Do you think that there would be a hard separation between deposit and loan banking? If the institution creating the money were not engaged in loaning out deposits, it seems unlikely that deposits would pay interest.
Published: November 3, 2008 5:01 PM
to j chris folsom:
download huerta de soto's pdf in the literature section: "money, bank credit and economic cycles."
jeff tucker: communist. ha! now i've heard everything.
Published: November 3, 2008 6:19 PM
J. Chris Folsom,
I recommend "The Mystery of Banking" and "The Case against the Fed" by Rothbard too as well as De Soto's, "Money, Bank Credit and Economic Cycles." There is some overlap in each of the books, but they are all worthwhile and quite understandable to the layman. If you are interested in business cycle, I recommend Hulsmann's article, "Toward a General Theory of Error Cycles," and The excellent powerpoint presentation by Garrison and De Soto's aforementioned book. Of course a good background in Austrian Economics can be obtained in Human Action (Mises) and Man Economy and State (Rothbard).
You are right to assume that sound money would likely require some upkeep on demand deposit accounts. However this does not prevent banks from creating bundles and other techniques to hide the "out of pocket" expense of maintaining a demand deposit account. For example, a bank may offer a deal where a demand deposit account and a CD of a particular percentage of the deposit account are created at the same time. The result is that a portion of the CD's interest pays the fees on the demand deposit. The fact of the matter is that we don't know exactly how the market will handle demand deposit accounts other than the fact that they will not bear interest.
In a system of sound money, inflation would be so low that the purchasing power of money would rise over time as productivity increased. It would not be such a burden to pay a small fee for the deposit account knowing that your money is secure and growing in value every day, contrary to the conditions under which we operate today. Under conditions of very mild deflation (as defined by increased purchasing power), one need not obtain interest on his savings to maintain purchasing parity. Instead of today where investors struggle to break even after the depreciation of inflation is subtracted from their interest earned, all interest earned under sound monetary conditions contributes directly to increasing one's capital stock.
Published: November 3, 2008 6:22 PM
Something broke when I tried to link to Garrison's powerpoint presentation. So here it is as text.
http://www.auburn.edu/~garriro/cbm2006.ppt
Published: November 3, 2008 6:26 PM