Monday, August 26, 2013

Religion and Monetary Policy: Is There a Difference?

According to former Moody’s VP Chris Mahoney, certain religious groups are simply incapable of understanding monetary policy

Why is the Right so in love with hard money, low inflation, and high unemployment? Here is my answer: because they do not believe that there is such a thing as a free lunch. You could spread out a smorgasbord of caviar, salmon, lobster and Dom Perignon, and they would turn their heads and eat a cheese sandwich. Reflation is easy and thus sinful. It’s that Protestant thing. The only people who understand monetary policy are Jews and Catholics.

As a Catholic, I certainly find this theory flattering. But I wouldn’t carry the religious angle too far. William JenningsBryan, for example, somehow managed to be both a devoted Protestant and a firm advocate of expansionary monetary policy, while the two biggest defenders of the Austrian School approach to monetary policy (Mises and Rothbard) were both Jewish.

Still, I do think Mahoney has put his finger on one reason why many conservatives and libertarians view monetary expansion with such a jaundiced eye. If there is one economic lesson the Right has internalized, it is Heinlein’s aphorism that There Ain’t No Such Thing As AFree Lunch. And attempts to improve the economy by what is often derisively described as “printing money” can at first blush seem like, if not a free lunch, then at least as free lunch money.

Appearances, though, can be deceiving. Heinlein excepted, there is probably no figure more responsible for popularizing TANSTAAFL than Milton Friedman. And Milton Friedman, firm libertarian that he was, also urged Japan to engage in quantitative easing, condemned the Austrian School, and argued that a lack of monetary action was responsible for the Great Depression.

So what gives? On one level, the idea that you can make a society richer by printing out green pieces of paper (or, even worse, by changing a few digits on a computer screen) sounds absurd. But then, the idea that a giant metal tube could float through the air sounds pretty absurd too. Technology is like that, and money (including fiat money) is a technology just as much as air travel.

I don’t think opponents of “money printing” would deny that the existence of money can make a society richer. Barter is inconvenient, after all, and societies that don’t have a commonly accepted medium of exchange tend to be a lot poorer, for obvious reasons, than those that do.

Likewise, just as the use of money can make society wealthier, a well-functioning monetary system can result in a society that is wealthier than if the monetary system is somehow out of whack. On some level opponents of QE get this too. Hence the references to Zimbabwe. But where they often seem to fall short is in realizing that just as a monetary system can get out of whack if there is too much money, so can it be suboptimal if there isn’t enough money.

Suppose, for example, that America was hit with a computer virus that substantially lowered the balance of checking and savings accounts throughout the U.S. If nothing was done to counteract this, businesses throughout the country would find themselves unable to meet payroll, and would be forced to lay off workers or declare bankruptcy. Individuals would be unable to make their mortgage payments, and even those not directly affected would be harmed as the effects of this deflationary virus rippled through the economy.

Of course, eventually prices and wages would adjust downward to reflect the lower quantity of money. But this would be a long and painful process. It would be much better, if possible, to simply counter-act the effects of the virus, by “printing money” to cover the losses. Far from being a “free lunch,” things like QEWhatever are simply an attempt to avoid the disinflationary impact of the financial crisis and its aftermath.

52 comments:

  1. John S8:03 AM

    just as a monetary system can get out of whack if there is too much money, so can it be suboptimal if there isn’t enough money.

    Yes, this is the key point. GMU Austrian George Selgin said it best on Glasner's blog, I think:

    "It’s quite incorrect to assume that to assert that there’s merit to the Austrian view is to deny that busts can also be caused by monetary contraction–as if the Fed and other CB’s weren’t capable both of encouraging booms with overly easy money and of contributing to busts by making money overly tight.

    A man is rescued from drowning, his lungs full of water. He is revived, but then given nothing to drink. Must we say of such a man either that he is suffering from having taken in too much water, or that he is suffering from taking in too little? Can we not say that he has suffered first from one thing and then from the other?"

    http://uneasymoney.com/2012/10/10/on-the-unsustainability-of-austrian-business-cycle-theory-or-how-i-discovered-that-ludwig-von-mises-actually-rejected-his-own-theory/#comment-10251

    Btw, not all Austrians are opposed to monetary easing in the present circumstances. The GMU/Free Banking Austrians (more academically prominent than the Mises Institute Austrian wing) endorse NGDP targeting as a second-best alternative to a free banking system (i.e. one w/o a central bank).

    http://www.freebanking.org/2013/06/18/the-ngdp-experiment/

    http://www.freebanking.org/2013/06/19/free-banking-and-ngdp-targeting/

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  2. I have yet to meet someone who is in favour of "hard money, low inflation and high unemployment" who is not themselves either rich and employed, or so rich they don't need to be employed. Protecting their wealth is more important than the livelihoods of others.

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    1. On the contrary, inflation benefits only those who receive the new money first: Primary dealers, i.e. the wealthy. The rest will be left to twist in the wind.

      And high employment is not something that anyone is in favor of, people just have different ideas as to how productive employment is generated. If I was a Keynesian in charge of the U.S. economy, there would be no employment, just like they had in the old Soviet Union. Everyone would be given a job working for a government contractor if they didn't already have one. I'm sure I could find something for everyone to do.

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    2. Sorry, I mean "no unemployment" not "no employment."

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    3. This, yes. It's just as rare to meet a libertarian in favor of a 100% inheritance tax, which would engender a more level playing field.

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    4. Most people I know who favor hard money and low (no) inflation believe that this is perfectly compatible with low unemployment and favor low unemployment as well. As a historical note, in the 19th century, working people insisted on being paid in "hard money," (silver coins) rather than "bank credit," (paper money.) Just recently, I spoke to someone who has been very much underemployed for the last 5 years, yet he supports "hard money."

      You just need to broaden your horizons.

      I am employed and middle class (an economics professor.) I favor targeting the level of nominal GDP. Currently, I favor a Volcker/Reagan nominal recovery (about 10% nominal GDP growth for a year,) and then a 3% growth path from then on out. My view is that this would lead to low inflation in the medium run and perhaps even zero inflation in the long run. I don't think it would involve "high" unemployment at any point.

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    5. Keynesians, Neil, recognize there are *types* of unemployment. The point of Keynesian Economics is not necessarily to encourage a large welfare state or to achieve 100% employment, but rather to minimize cyclical unemployment through fiscal and monetary policy. Theoretically, this smooths the adverse effects of a negative shock.

      Economists, weigh in and correct me if I am mistaken! I think Neil just has a misconception here.

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  3. Speaking as one who is Austrian minded, I'm somewhat surprised, but not completely shocked, at the recent posts on this blog praising "money printing" and inflation. I suppose that when a nation starts down the road of "printing" currency to stay afloat, with no apparent end in sight, the only thing left for Friedmanite supporters to do is defend it openly as if it is an economic panacea of sorts.

    Using Mahoney's comparison, if Austrian theory is like Protestantism, then Keynesian theory is like hedonism, where everything is free and there are no real consequences for our actions.

    I'm not saying I don't understand the reasoning. I do. I suppose if you're going under, you'd might as well go out with a bang instead of just rolling over. So in that spirit, I raise my glass to Friedmanites and Keynesians everywhere. Cheers. But as you revel, I will be more subdued, knowing that, with more prudence, what looms could have been avoided, that it will not be pleasant, and that most will be surprised by what comes later.

    Technologically speaking, the only difference between now and the Weimar era is the ease of creating new currency via computers. If there is a new technology that allows the effects of a bursting asset bubble to be avoided by currency creation, it is clear that Gideon Gono was not made aware of its existence. Perhaps Bernanke forgot to send him that memo.

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    1. This sounds more like a sermon/ morality tale than a proper analysis of how a credit based monetary system functions. Rather than believe a whole group of intellectual thinkers, who have probably spent a huge chunk of their life studying, are incompetent, maybe it is you refusing to see the reality using a different framework?

      By studying Mises, Keynes, Friedman, and the Post-Keynesians one can create a more robust mental model of how reality may operate while also appreciating how others think. The credit and monetary system is much more complex than what you let on in your criticisms.

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    2. The credit and monetary system is very complex, and I don't pretend to understand it fully. I just know that this one in the U.S. has gotten to the point where it cannot function without continuous QE. I am simply relaying the Misesian view of how these things end up in the long run. Nobody likes to hear that the party is ending, and that is why it sounds like a Puritan preaching hell fire sermons from the pulpit. It is simply economic reality according to Austrian theory.

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    3. " I just know that this one in the U.S. has gotten to the point where it cannot function without continuous QE."

      This is not certain. Secondly a monetary system being a social system constructed via man made laws, can change in a way that makes this not so. It is up to those that have the ability to change the regulatory framework to do so if the credit structure cannot be supported without QE, which again is debatable.


      "Nobody likes to hear that the party is ending, and that is why it sounds like a Puritan preaching hell fire sermons from the pulpit. It is simply economic reality according to Austrian theory."

      According to your interpretation of Austrian/ Mises' Theory you mean. Also party ending for whom? Whose party is about to get ruined? Even the use of such a phrase has little value for someone trying to understand the real economy, monetary system, and the reality they find themselves in.

      In my reading of Mises' Theory of Money and Credit, although not perfect, still does a good job of differentiating between the creation of bank deposit (fiduciary media) and state money. It is not so much a critique of "money printing" by a nation. It is important to remember that most of the 'money' people transact with in this system is in the form of bank deposits which come into existence when loans are created.

      So it really doesn't sound like you are relaying the Misesian view as presented in one of his best books.

      "Using Mahoney's comparison, if Austrian theory is like Protestantism, then Keynesian theory is like hedonism, where everything is free and there are no real consequences for our actions."

      This does not sound like monetary analysis whatsoever. Please point me to a where Keynes writes such things.

      "you'd might as well go out with a bang instead of just rolling over. So in that spirit, I raise my glass to Friedmanites and Keynesians everywhere. Cheers. But as you revel, I will be more subdued, knowing that, with more prudence, what looms could have been avoided, that it will not be pleasant, and that most will be surprised by what comes later."

      What are you specifically referring to here? It is clear that QE is not 'money printing' right? QE swaps Fed reserves for treasury securities and MBS. Fed reserves are part of a closed loop system between banks to clear interbank transactions.

      Also what looms? What should policy makers think to avoid? Can you be specific?

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    4. Anonymous8:51 PM

      "I just know that this one in the U.S. has gotten to the point where it cannot function without continuous QE."

      Really? Last I checked, QE can be traced to about $85 billion a month in T-bill purchases. That sounds like a lot, until one learns the market in Treasurys is $4,000 billion a month. Which is to say, $3,915 billion of T-bill transactions have absolutely nothing to do with QE. Strangely enough, 98% of monthly transactions manage to function without QE.

      QE is a marketing gimmick. It has zero impact on the overall system. It's the Fed doing something to be able to say they're doing something. Only people who believe the Fed shouldn't be doing anything at all seem to believe it has any real-world impact.

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    5. Keynesian theory can't be like hedonism. The very idea of it makes too many people wince. I think of it more as having to floss.

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    6. Some comments on what was said above. Yes, QE is money printing, currency creation, making money out of thin air, etc., and using that money to purchase assets. This is common knowledge to anyone who has even remotely been paying attention.

      The Fed is purchasing an enormous amount of treasuries. It's not just a token amount as you are implying. Current QE purchases are roughly equal to the Federal deficit. The Fed currently owns 30.5% of the U.S. Treasury market. It is on track to own all of it by 2018.

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    7. Rafael, the quote by Mises which is important in today's environment is this one:

      "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
      http://mises.org/humanaction/chap20sec8.asp

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    8. QE is in part a swap for interest bearing national securities issued by the treasury in exchange for Fed Reserves which now pay interest. The distinction between reserves and treasury securities, although quite important, are not as drastic as they once were. Treasury securities are money-like or can be used to acquire more money-like financial securities especially for non-bank intermediaries.

      Referring to QE as 'money printing' is too vague. From the private sector's perspective, QE creates reserves which can only be held by banks while "uncreating" treasuries. Again, your view of the monetary and financial system are too simplistic.

      Also that Mises quote "boom brought about by credit expansion" CREDIT expansion is key. In "The Theory of Money and Credit" Mises differentiates between state liabilities, 'money' and bank liabilities (faduciary media) 'credit.'

      Credit expansion will lead to a collapse to Mises. You keep referring to a nation "money printing" leading to some dire situation that looms. This is quite different than what your quote is referring to.

      Again what do you think is looming? What should policy makers think to avoid? Can you be specific?

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  4. Anonymous9:23 AM

    How about stopping the real problem - big government. Get rid of it and back to small and limited government and then banks don't get bailed out for reckless behaviour - so they act properly or they go bust. Get rid of bug government and there will be no more wasting of money on pointless wars and useless military funding. Get government out of schools and innovation in education can take place. Get government out of university funding and suddenly scientific results will matter again instead of pointless research that no one cares about because it doesn't matter. Give people back their money and let them choose how best to spend it because they know their circumstances - big government cannot. Get big government out of welfare because all it does is keep people dependent, taking their will, their independence and stealing from them the impetus to get up and do something about their circumstances. Big government is the cause of the problem, not the solution, so whatever big government chooses to do, be it print money or taper or whatever, it won't work because it interferes with the market regulating itself.

    Big government is the religion. It is ever-present in our lives. It has destroyed families, and made the individual dependent on it as though it were mother and father. Big government educates us to its own benefit, it gives us work to expand its influence and power, it gives us welfare to show everyone how good it looks, but it is a poison slowly killing the human spirit.

    Any dissenters get to enjoy its wrath like the Old Testament God. Go straight to jail.

    By all means talk about what government is going to do. You are like jehovahs witnesses trying to get through everyones door to bring all the good news. Fact is, you are sheep, goverment is the shepherd, and you are all lost in a wilderness.

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    1. I bet you want government to keep its hands off Social Security, too, right?

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    2. Anonymous9:41 AM

      I'll bet you see government as a benevolent hand guiding all of us to better lives, like the obedient believer of the politician priests. Big government is much more powerful than any of the worlds old religions have ever been. It is the new god and you are one of its dedicated followers. Accept it or change your mind set. That is voluntary. Your taxes are not.

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    3. With that kind of naivete and scornful rhetoric, I bet Anon never took econ above 101 or 102.

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    4. "Give people back their money"?

      Wait, so you are a counter fitter? Cause last time I looked, people don't actually "make" money - the earn it, as the result of an exchange with another entity.

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    5. Anonymous8:53 PM

      This would be more persuasive if every single symptom you list of big government hadn't also existed for millennia in small governments. It's almost as if that isn't the variable, or something.

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    6. The *get rid of big gov* suggestion & *drowning/dying of thirst* analogy if combined & applied with some logic & balance would go a good way towards resolving economy issues. QE in carefully disciplined doses may be a necessary evil when those whose responsibility it is to keep it real havent kept it real & regulators haven't regulated effectively. But it is and will always be a departure from common sense economy management. Some risk may be necessary from time to time but logic dictates that constant & ever expanding risk is a recipe for disaster. Try managing a family budget like that. Your children would starve

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  5. So, is this post about the relationship between religious preference and monetary policy or...?

    I mean, I think Mahoney is completely wrong. Correlation between religious preference and views on monetary policy are probably spurious, and not at all explanatory. But that would be an interesting full-post topic. You seemed to have drifted from that topic after the first couple paragraphs...

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  6. Anonymous10:09 AM

    "Religion and Monetary Policy: Is There a Difference?" Currency is stored energy born from transactional result of delivering a good or service. Money printing except for kick starting is not a religion but a simple rejection of hard science, and a control fraud off the track of sustainability, eating its seed corn.

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    1. Anonymous4:18 PM

      Yes, now that's some hard science. Debt-based money and seed corn, that analogy is going to take you far. Run with it. Run. Run.

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  7. Another great post.

    In a situation when the natural real free market rates for safe and liquid investments are lower than the pace of devaluation of money, it is the cash savers that are getting lunch for free.

    Those that want inflation never to go much above 2% are effectively saying that if the market can’t provide safe liquid investments at better real rates than -2% they want the central bank to subsidize an artificial one made of paper or electrons.

    Of course this subsidy to savers creates horrible distortions, it pushes investments with fundamental intrinsic value out of the market and destroys an immense amount of wealth creation opportunities but hey, we couldn’t have people’s accumulated wealth be subject to free market forces, could we? For some reason a lot of people feel entitled to central banks artificially shielding their liquid assets. How’s that for an entitlement problem? If the market can only provide a -4% safe real return on people’s savings, cash shouldn’t artificially return -2%.

    It is not always easy to know when money has been keeping its value too high and pricing intrinsically valuable, market based investments out of the market but a good sign is when people, banks and businesses are keeping a lot of their assets in the form of cash, bank deposits or government bonds instead of stocks, private loans or new equipment.

    Currently low inflation is a huge fed subsidy to savers and established businesses that don’t depend on loans. The wealth is extracted from small entrepreneurs and innovators that rely on loans to buy new equipment to jump start their businesses. No wonder few jobs get created.

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  8. "simply an attempt to avoid the disinflationary impact of the financial crisis and its aftermath."

    Without any serious attempt to address the underlying reasons for the financial crisis and at best a limited understanding of how the markets work. For the most part QE is just pushing on a string and all the extra money is just winding up in excess bank reserves reflecting increased holdings by the wealthy.

    Basically - the regulators and the politicians are not smart enough, knowledgeable enough or honest enough to be anything more than lackeys of the wealthy.

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  9. There's a distinction between an Austrian methodology and the typical "Libertarian" beliefs held by many who espouse Austrian economics. One can also take a Marxist approach without being a Communist. Austrians tend to emphasize history and morality, while Marxists tend to emphasize sociology. Neither are mathematical approaches but can be helpful, especially for people who aren't comfortable with mathematics, data mining, statistical regression....

    But if you get into the Libertarian+Austrian literature, what you'll find is that most of the smart ones recognize that the outgrowth of their preferred policies would be a much smaller amount of money in circulation. Not only would prices within the formal economy be lower, the formal economy itself would encompass fewer transactions--in short more transactions would be by barter and fewer by cash and credit. Furthermore, the executive branch, regulatory agencies, and military would be much smaller. But since there would be no way to go bankrupt and anyone could be financially liable for any damage to another person or his or her property, the court system would be larger by at least one order of magnitude. Probably more.

    There is also belief going back for ages that the wealth of individuals and societies is related to morality and knowledge. This belief is held by tens of millions of people in the US, and the argument takes many forms--rich people have "top talent", they know The Secret, they follow God's Laws and so He delivers them prosperity, they have superior genes and it's Survival of the Fittest. If you believe any of these things, you have to believe that having abundant currency foils the plans of God, Nature, the Universe, etc. A pity, since we know it's lack of formal opportunity that leads to moral collapse (as defined by work ethic, violent crime, child abuse, etc), not the other way around.

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    1. Anonymous10:24 AM

      "But since there would be no way to go bankrupt and anyone could be financially liable for any damage to another person or his or her property, the court system would be larger by at least one order of magnitude. Probably more."

      Good heavens, if that is what the "smart" ones believe, I'd hate to see what the less smart ones are saying. Do none of them see the contradiction between "no way to go bankrupt" and "financially liable for any damage"? What if I cause damage that is more than the value of my financial assets? Note that just about anyone who is less than enormously wealthy and operates a motor vehicle is at risk of exactly that. I suppose we could change the name from "bankrupt" to "courtrupt" but the end result would appear to be the same.

      Oh, and who pays for this 10X or 100X court system? Who enforces its judgements and who pays for the enforcers? What penalties accrue to those who don't (or can't) comply with its decrees?

      I understand that the enforcement of property rights is a key component of the libertarian utopia. Excellent. May I sue my neighbor if he trespasses onto my property? Do I have to show specific damages or is his mere presence against my wishes sufficient to receive a judgment? What if he trespasses by throwing his daily trash over my property line? What if he trespasses by generating toxic fumes on his property and allows them to cross my property line? What if he trespasses by operating a motor vehicle and allows his emissions to cross my property line? Can I sue the operators of every car that passes by my house? (Perhaps we'd better up the estimate of the increase of the court system to 1,000X or 10,000X.)

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    2. You're exactly right, Anon. In addition a Libertarian world would not have legal structures like LLPs, LLCs, Corporations....all of which are designed to limit liability losses to investors, owners, and shareholders. The real problem with a Libertarian society wouldn't cruelty or aristocracy, it would be liability and enforcement.

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    3. Anonymous4:29 AM

      Actually, it would have a aristocracy, because whoever has the power over enforcement would run the roost to they were defeated. It is the Rothbardian degeneration of the old ancient order. Whether it be Egypt, Rome or China.

      Lets note that "private property" is a government service. Without the governments backing property laws begin to fall apart. I could be like Alexander and confiscate properties, abolish state governments and build a mighty empire out of "old" America and Canada. My guess "Libertarians" would be quite scared by that point.



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  10. "On one level, the idea that you can make a society richer by printing out green pieces of paper ... sounds absurd."

    I think that hits the nail on the moralizing head and maybe we need a new analogy. Let's think of dollars as flash drives (that the government produces). People will produce data to fill the flash drives. If the supply of flash drives is insufficient, there will be data that isn't produced (potential AD that isn't realized). If the supply is too great, flash drives will go empty (i.e. sit in a "room"/vault somewhere).

    http://informationtransfereconomics.blogspot.com/2013/08/visualizing-diminishing-marginal.html

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    1. Anonymous11:29 PM

      Nice analogy. Lets carry that analogy a wee bit further, lets also mandate that only the government or a specific quasi-government (government plus some ultra rich private companies that just happen to be in the business of making / exchanging flash drives/ putting data on flash drives) can manufacture and distribute the said flash drives, and any data storage of more than 10000 bytes need to be reported to the government and can only be carried out by these entities and their subsidiaries.

      Oh, did I mention that making unauthorized flashdrives, say called bitDrive, can land you in jail?

      Lets not even start describing the last look the government has on all data you put in the flash drives, because people might confuse that for reality.

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  11. Anonymous2:01 PM

    "Suppose, for example, that America was hit with a computer virus that substantially lowered the balance of checking and savings accounts...
    ...eventually prices and wages would adjust downward to reflect the lower quantity of money. But this would be a long and painful process. It would be much better, if possible, to simply counter-act the effects of the virus, by “printing money” to cover the losses. "

    This may be true, however this is not what's happening in the real world. In "The Real World USA", for instance, the newly printed money ends up in the bank accounts of 19 primary dealers, then trickles down to the top 0.01%, causes asses bubbles, and none of it whatsoever goes to the people whose bank accounts were wiped out.
    In "The Real World Europe) there's Cyprus: how many trillions did the ECB create since 2008? And how much of that the average Cypriots get?

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  12. There is nothing wrong about Austrianism other than the facts.

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    1. Anonymous8:57 PM

      Well... Other than markets don't like it very much.

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  13. Facts you say? How about the fact that most Americans have less in their pockets than they did prior to QE infinity, ad nauseum? Higher taxes, higher fuel costs, higher grocery bills, rent is higher, etc. Oh and for the savers? Enjoy that 0.48% interest rate on your savings account. Face the real facts, friend. QE has been a massive boon to the fraudulent big banks, Wall Street and the ultra-wealthy, and a complete scam for the rest of the world.

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    1. 1) The Federal Reserve does not set tax rates.
      2) The Federal Reserve does not set gas prices.
      3) The Federal Reserve does not set food prices.
      4) The Federal Reserve does not set rent.

      Note that you are also mistaking changes to gas, food, and rent prices for inflation. That is incorrect. Please see Noah's articles on Inflation. Real facts: gas is down from prior to the crisis; rent might be higher, but that could be due to a shift in demand, away from home ownership to renting apartments; and so on.

      Before you jump in and post all this screed, how about you do your homework first.

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    2. I said nothing of inflation or the Federal Reserve. I'm describing the impact of Federal Reserve policy on the average American. I understand the technical definition of inflation perfectly. Who cares what the textbooks say? How about you step outside your glass tower (or university office) and pay some visits to the elderly, or perhaps spend some time volunteering at a food bank to get a taste of the real world for a change?

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    3. Anonymous4:22 PM

      There are ongoing disputes about the "technical definition of inflation." It is logically impossible to understand it "perfectly."

      And how do you know who gets a taste of the real world and who doesn't?

      Rhetoric Tip o' the Day: Anger not compelling.

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    4. Actually, inflation does have a precise definition: "An increase in the price level". A Price Level is a price measure of all goods and services, normalized. A Price Level is approximated with a price Index, such as the CPI or PCE.

      My response is still valid. The Fed's policy does not increase the price of food, etc, but even if it did it would not be inflation.

      I actually have volunteered in a soup kitchen numerous times, among other similar activities. I do not see how your outburst relates to any discussion here.

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    5. Anonymous9:02 PM

      "I'm describing the impact of Federal Reserve policy on the average American."

      Really? You're someone with internet access, posting to an econoblog, about Fed policy. It's possible you know average Americans, but the evidence suggests it ain't likely.

      "I understand the technical definition of inflation perfectly. Who cares what the textbooks say?"

      Wah, wah, wah. Sounds like someone had their textbook manuscript rejected by a publisher.

      "How about you step outside your glass tower..."

      Splendid advice. You first.

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  14. I think that the basic thesis of this post is wrong. To the extent that there is some kind of connection ideologically/theologically between a hard TANSTAAFL view and Protestantism, it is only to a certain variety of Protestantism, namely Calvinism. The Anglicans and Baptists and Lutherans and evangelicals (see W.J. Bryan) are theologically just fine with whatever. I also see no particular a priori for Jews at all on this matter.

    As for Catholicism, a little history here will upend this pretty quickly, and I note that no Catholic economists have been invoked in the discussion at all. Indeed, the traditional view, expressed curiously enough by Friedrich Engels, but noted by many others, including the estimable Max Weber. is that Protestantism was associated with support for credit and paper money in the historical development of banking, whereas it was Catholic nations where one found the strongest support for hard money bullionist gold standards. It was argued that this reflected a view of belief in salvation by faith for Protestants versus salvation by works on the part of Catholics.

    Now, the historical situation is complicated. Scotland was where Calvinist bankers did indeed substantially develop credit and paper money-based banking. OTOH, officially Protestant UK was the enforcer of the international gold standard in the 19th century. Where the story becomes more fixed is in France, where it was the Calvinist Scot, John Law, who introduced credit and paper money big time in the early 1700s, which was followed by the Mississippi bubble, following which Catholic France would become the hardest defender of the gold standard until the final breakdown of the shadow of that system in the early 1970s.

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    1. Anonymous4:40 AM

      No surprise. The basis of credit and money goes back to the Templer's return from the holy land and the deadly secret they had which would have destroyed the Catholic Church(and Christiandom in general). Queen Elizabeth gives them special status inside the Angelican Church and the "Illumanti" is born..............which is where the confusion sets in.

      The Catholic Church is powerful. Much more than people think. About every "conspiracy" theory in the modern world about "Illumanti's", "economic systems" stems from the Church's propaganda. The 2 outward fingers pointing up, the middle ones curled under and the thumb pointing out.........Bill Clinton shows it, so does Ron Paul, Pope Benedict did it a ton.........it is the sign of the Church and the hand signature Paul used in his evangelical crusades about the "Christ". This fact would blow people away.

      The Hegelian dialect is the Church's dualism. The Knights of Malta have Pat Buchanan and Ted Kennedy as/were members. Think about it.

      Most "Calvinists" on the web would be blown away if they knew the truth. Their pathetic attempts at piecing together the real conspiracy would be blown away as were their world.

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  15. Anonymous10:15 PM

    I don't see how Quantitative Easing, if it helped the economy, could ever be interpreted as a free lunch. Same thing for Keynesian stimulus, or stimulus of any kind. An economy that produces more has obviously done more work. That is nothing but a tautology. If Quantitative Easing doesn't seem hard, well, maybe that's because the decision seem simple. Yet the ultimate (supposed) result of QE is really just a whole hell of a lot more people getting up and going to work every morning, doing things like building houses or roads or cooking food, etc. If QE works, it works because it leads to more people doing more work. Where in the hell is the free lunch? Its so obvious as to be baffling as to why someone would not understand it.

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  16. For me, the key is inflation. If QE is providing extra base money to cover the extra demand for money as a safe asset, that would otherwise disrupt the medium of exchange function of money, then QE is a free lunch. Depending on how you define inflation, you can make the case that QE has been a free lunch in the US for at least before US asset prices started hitting new highs. It is harder to make that case in the UK, where even consumer price inflation has been generally well above its target all along.

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  17. Life is a free lunch forever. Most economists do not understand this simple fact; however, Darwinians understand this well.

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  18. Anonymous7:40 PM

    Christian and Islamic prohibitions of lending money at interest weren't necessarily driven by the social cost of usury.

    Creation ex nihilo is a prerogative of the Deity, and when I give you x amount of money, and you give me x plus a bit more back, someone along the way has made more money out of nowhere, and that's not something mortals get to do.

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  19. as a monetary system can get out of control if there is too much money

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