InflationFollow

I am assuming that very few people will actually read Mises "Theory of Money and Credit" so I will post a forward to the document from Murray Rothbard since it is such an important and fundamental part of our "world."

http://www.econlib.org/library/Mises/msT0.html#Preface

More copy and paste, I think.

I figured out how the filters work and discovered your post shadow. I appreciate your input and value your opinion even if I disagree with it, we can all learn from each other. With regard to your post, I fail to see how money would be created and then not spent. I do agree that the level of inflation would be determined by how it is spent (e.g. creating jobs is an increase in goods and/or service so it MAY not cause inflation if done correctly.)

My points are:
1. The way we create/print money from private banks/the federal reserve system necessarily leads to inflation over the long run, or the devaluing of the relative purchasing power of the US dollar.

2. The way we just handed banks hundreds of billions (which will turn into trillions) will necessarily lead to inflation because of how they will manage the money. The rule of modern money mechanics is that the banks can create up to 10 times the amount of capital that has been deposited (its called multiple expansion).

http://www.truthsetsusfree.com/ModernMoneyMechanics.pdf


It is a shame that the insecure egotists on these boards simply resort to calling people names and rating them down without ever actually addressing any of the evidence or theories that are presented.

It is like they are filtering themselves into ignorance.

Odd that you latch blindly to one component of the economic school of thought espoused by Mises, but then directly disagree with another one.

Profit motive does not cause wages to fall. Too many laborers capable of doing any given task does. Wages will naturally adjust to the relative value of the product of the labor. Always. Everything else is smokescreen largely created out of whole cloth in order to make it appear as though there's someone to blame for wage discrepancies and in turn to convince people that government must intervene on behalf of labor.




I'm sorry. But yes, you are. There's a difference between reading and then parroting what someone else wrote and actually understanding the concepts they're talking about.

While I'm not sure which *exact* bits from Mises you're basing your post on, I'm going to go out on a limb and guess that he wasn't talking about inflation caused by natural economic expansion, but rather artificial inflation of the sort Smash refers to which some theories believe can help to alleviate the symptoms of an economic downturn.

For historical reference, using inflation as a tool to help control the economy was the same sort of economic principle that President Carter ascribed to, with disastrous results. That's a particularly "liberal" economic concept and methodology, so it's not surprising that Mises would rail about it.

"Normal" rates of inflation are more or less unavoidable in any expanding economy. Whether economic growth is real or artificial, you will experience inflation to some degree. When it's real though, the inflation is natural, typically low (2-4% range), and doesn't cause any negative effects (certainly not when compared to the positive effects of the expansion in the first place). When it's artificial (generated deliberately to help reduce the symptoms of some economic factors like debt), it causes problems exactly because productivity hasn't kept up with it, leading to larger lags between sectors, larger inflation rates, and the risk of out-of-control inflation if not carefully managed.


But if you'd read Mises and understood him (or any of a number of writings based on the same school of conservative economic thought), you'd know this.



Of course it's not fixed. But that does not mean that this is an actual problem. It only becomes one when someone decides to use that fact to artificially inflate or deflate that value. Course, technically, we do that all the time and can't really prevent it (who says what the "right" ratio is?). Again though, what Mises is most bothered by is the use of the Fed to deliberately and dramatically shift this ratio in order to create economic effects in the market. Small adjustments to try to keep that ratio "close" to consistent isn't really a problem. Even small adjustments to make (or correct) for minor changes isn't all that bad (Mises is a bit more dogmatic on this than I think is practical).

Conservatives tend to prefer using the Fed to adjust lending rates rather than making changes to the money out there (although sometimes that's hard to separate). Honestly, this subject alone is way too involved to deal with in any single post (even one of mine). Knowing what sorts of adjustments are "ok" and which aren't is really more involved then just saying that doing one thing is always "bad" while doing something else is always "good". IMO, that's just the wrong way to approach things.



Honestly though, this is where I part ways with the more dogmatic conservative economic theorists out there. IMO, that just doesn't matter. What really matters isn't the medium of exchange, but the ratio of goods to services to wages to population, etc... I really think that the proof is in the pudding. Compare what someone in the X percentile of wage earners life is like in one economic situation or time period to another and you can judge whether the economy has improved or gotten worse. It's really that simple.

Take a guy earning in the 30th percentile today and compare him to someone in that same percentile 25 years ago, or 50 years ago, or 100 years ago. If he's better off today then the economic result has been positive. Everything else, especially dogmatic comparisons of relative dollar values, is entirely irrelevant.



Huh? Are you sure you're not thinking that "money" has (or should have) intrinsic value? Your argument appears to be circular. You say that inflation is bad because the relative value of a dollar to goods and services is lower today then it was back in the past. Um... That's essentially a definition of inflation, but it doesn't tell us if that effect was bad or not. Just that it happened.

The real question is: "How much quality of life do I get for every hour I labor?". Seriously. Stop thinking about the number of dollars. While we can speculate about things in a fixed dollar economy, we don't live in one. Merely pointing to that fact isn't sufficient to say that the trend has been negative, much less that "inflation" is the enemy.

It's just hard for me to get past the assumption that you're just not understanding some very very basic economic concepts here. Makes it hard to debate the issue...



Again. At the risk of repeating myself. That's just what inflation is. That doesn't say that this is "bad" though.



Interesting timeline there. You should write a work of fiction though, because that's not even remotely close to what happened.



This is the natural cycle of economics. It requires no "they" to make it work. Some people succeed. Some fail. It's a good thing. And this is really a bizarre argument for someone parroting Mises to be making IMO...



That "someone" bought them out? Not at all. That it happened to be that company instead of someone else? Absolutely. There's always going to be some operatives who make good decisions and flourish and others who make bad decisions and fail.

Seriously. Why do you think JP Morgan was able to buy while Bear Sterns was the firm failing? Did "they" make it happen? Or did the decisions made by the executives of each determine the result? If the latter, then what exactly is the problem? Is it a conspiracy when people and businesses succeed or fail as a result of their own actions? I don't think so. I think that's the way things should be in fact.



First off. I was just talking about creating jobs in general.

But... If the value of the productive output generated isn't sufficient then *yes* it's "busywork". If we hire half a million people and put them to work building infrastructure to provide alternative energy that costs 5x more to the consumer than what we're using today then we've wasted money. Not only did we hire people to produce a product that wont sell in the marketplace, but we'll likely follow it up with some form of government subsides (or penalties on the current forms) to make it competitive, costing us yet more money.


Again. It comes down to relative values of goods and services. Mucking around with those doesn't help you much and usually hurts you. No amount of hiding the real relative value makes those things actually more valuable. You're paying for it one way or another. If we hire people to do nothing, we're paying for it right off the top. If we hire them to do something that doesn't produce something that is naturally valued by consumers, then we could play with the numbers to make it look valued, but we're still paying for it right off the top. It's just a little harder to see...


[quote]I am talking about the taxpayer bailout. The Federal Reserve's goal is to bankrupt the United States and they are doing a damn good job of it.[/quote]

Yes. I'm sure that's the Feds real super sekrit goal there.

Remember when I mentioned something about bizarre paranoia? I'm not even going to respond to the remaining diatribe... It is amusing though!

Edited, Dec 5th 2008 2:56pm by gbaji

I'm sorry. But yes, you are. There's a difference between reading and then parroting what someone else wrote and actually understanding the concepts they're talking about.

The hell you say. The "understanding" part comes when you completely mangle them when you try to paraphrase, right?

On the other hand, a poster has appeared who has less understanding of economics than you. I owe Nexa $1.

We've spent more money on infrastructure in the last five years than we have in half a century. Sure, it's Iraq..but still. Jobs are jobs.

Sweet, so we just ship job applicants to Iraq. I see absolutely no problem with this approach.

Is it surprising that someone can agree with part of another person's theory but not blindly follow their every word? I suppose thinking for yourself is out of habit these days.



It does not have to cause them to fall, just to not rise. Coupled with inflation that will cause a decrease in the purchasing power of the US dollar and the quality of life. We will have inflation due to the banks being given money which they will deposit and then loan out (they only need to keep 10% of the original deposit according to modern-money-mechanics and the rest they can loan out) which will mean they can create roughly 10 times the amount of money that was initially deposited due to the multiple expansion loan method. If these loans end up defaulting, you have the "worthless assets" or what I call fake money on the market today which is what most people believe to have been the problem that caused this. I believe it is the underlying philosophy of our economic system that is at fault.



If you had read Mises, you would have understood that he is advocating the use of "sound money" with no inflation. I will quote the relevant passages from Chapter 23 entitled "The Return to Sound Money":



It seems like right now, when this economic system has been proven to be a complete disaster and failure, would be a good time to return to "sound money."



You obviously don't understand that most of the people in the world live in poverty, or don't care. Quality of life has decreased in the 20'th century, especially when compared to what we potentially could have achieved with the technology and information revolution (imagine human progress adjusted for inflation.) There are many other factors that caused this besides our economic methodology, but thats another discussion.



No? Look it up before you post, genius, this is public information. Thats exactly what happened, I will cite the evidence below.

http://www.the-privateer.com/rates.html

Jan 3rd 2001 - %6.00
June 25th 2003 - %1.00
June 29th 2006 - %5.25



So the Federal Reserve, a private entity whose main stakeholders happen to be the same people who have large stakes in other private banks, especially JP Morgan, manipulates the market causing business to fail and then uses the Federal Reserve as a quasi-government entity to loan their private bank money to buy out failed businesses out at rock bottom prices, and you see that as a normal part of the capitalistic system, eh? I find that to be an immoral, corrupt, and reprehensible power grab enabled by our politicians.

Below is some more information about the JP Morgan Bear Sterns buyout and what a "steal" it was. They bought it for $2 a share when it was trading for $172 a share last year.

http://www.npr.org/templates/story/story.php?storyId=88405777



Are you looking at it purely for a short term profit motive from the perspective of a company or investor? What about the moral, social, and ecological costs of continuing to do the same thing? What is the long term cost of destroying our environment or going into an insane amount of debt to fight proxy wars for oil?

Our energy infrastructure does not need to be rebuilt so that companies can make profit or so that we can avoid paying more taxes. That is not the point. Can you see past your own delusion of wealth and consider what actually matters in this world? It is not money or profit.

I've got to head out for the weekend (and I've exhausted my "long post" quota for the moment), so I'll just respond to the first point:



It's the exact opposite. I understand (and largely agree with) many aspects of Mises's economic position. I just don't agree with every single application he proposes. There's nothing at all inconsistent with recognizing that government's artificially manipulating inflation rates isn't desirable but not agreeing that going back to the gold standard is the only alternative.


In your case though, you're talking about some basic concepts that you really can't disentangle from the more broad economic school of thought. If you agree with Mises in terms of the idea that inflation is bad, it's hard to see how you can also think that wages fall as a result of corporate greed, or that businesses failing in an economic downturn is "bad". Those are all pretty core and related concepts.

I'd explain why, but I promised to be brief...

I don't think that wages necessarily fall as a result of corporate greed or that business failing in an economic downturn is bad in most cases, I hope that makes it easier to see.

Amusing tirade, but you failed to mention 1 fact or 1 claim that is wrong or false.

I suggest you seek some mental health therapy.

Smash's rainbow post makes me think he's using Nexa as a route to nail her ex-husband in the botty

Nexa

That post makes me think Smash ate a sheet of acid while watching Horton Hears a Who.