Hello Captain,
Longtime reader of your site here. I remember when it had the black background. Back then, you used to do more econ heavy site, which is why I, as an economist, was drawn to it. Although you've since changed direction, I find myself still reading. I don't always agree with you, but I continue to read to get your take on things.
I have some questions though that have been bothering me and I thought I'd send them your way to get some insights. Like you, I am libertarian minded when it comes to the economy. I favor smaller, decentralized government, a minimal welfare state, and balanced budgets.
I used to be a big Austrian. The Austrians, as you know, have been predicting for some time that massive inflation would follow the Fed's printing efforts. The logic, as I understand it, is that inflation is a monetary phenomenon, and the expansion of the monetary supply would accordingly result in massive price increases.
But... this hasn't happened. Except for in commodities like food (whose prices have been risen for a variety of supply reasons), inflation has been relatively stable. What gives? To paraphrase the Wendy's lady, where's the inflation?
1. The reason we haven't see inflation is because the marginal propensity to consume and invest has gone way down. In other words, Obama, the debt, and the general socialist direction we are going is scaring away any investors, businesses and entreprenuers. Also, many people are just simply not spending any money as they're afraid of the cripplling effects of government debt AND the future taxation that would imply. Because of this you can pump the banking system FULL of money, but that money will remain unlent and in reserves, never seeing the light of day in the real economy AND THUS not cause inflation. Also, banks are pretty much prevented from lending out any money now due to Dodd Frank and their own incompetence (ever try to refi a house today?) So in short, the money is tied up in the vaults of banks and not until it is lent out will it cause inflation.
TO see this look at the velocity of money at the FRED database. This mathemtically shows just how little faith we have in the future.
My second question concerns the debt. With Reinhart-Rogoff's excel error, everyone is pronouncing the end of austerity. I don't think that's the case, but I'm starting to wonder whether the Keynesians have a point. It seems impossible to cut our way out of the debt. We're still paying off debt from WW2. Isn't the more logical answer to grow the economy, and thus reduce the size of the payments relative to GDP.
I am not stupid enough to recognize that growing the economy is easier said than done. Though I have been straying from the libertarian gospel for sometime now, I know that the government multiplier effect is non-existent at worst and exaggerated at best. Even if the Keynesians have a point about growth, they don't have a point about fiscal led growth.
2. Yes, the logical choice is to grow the economy to dwarf the debt, but to do that in today's economy would require government spending because the private sector is basically scared into inaction. Of course, there's a problem. Government doesn't really produce anything. AND on top of that the problem the Keynesians face is a psychological one. Again, the debt, the general hatred towards production, success, wealth, and innovation Obama and leftists have in this country is scaring the producers into inaction, meaning most government spending will be symbolic, ineffectual, and never spurring real economic growth. The pump will never be primed.
Another problem the Keynesians face is that to get the economy growing again means getting the productive people producing again. But, bluntly, these are the enemies Obama and leftists hate and want to punish. I don't credit Obama or the democrat leadership with the knowledge of economics or intelligence to piece this together and realizing they'll never get the economy to grow because their policies are antithetical to economic growth. However, this no doubt is causing some traditional Keynesian economists (who DO want the country to succeed) to pull out their hair...or what little hair economists have.
Finally, my last question concerns the heterodox nature of libertarian economics. Given that the economics field is dominated by neo-Keynesians or some variant of that, isn't it odd that the supposed correct answers, the Austrian/libertarian school, are so outside of the grain? I guess what I'm saying here is a reformatting of a tired leftist argument on global warming. So many of the experts believe it, therefore it must be true and if you deny it you are insane/stupid/ignorant/pick your slur here. How could it be that those who have dedicated their lives to the study of economics are so wrong about it, if they really are?
3. Economics, like all the other liberal arts, has been co-opted and hijacked by lesser minded people who use it as a means to avoid real work. It is no coincidence they spew (typically) leftist solutions because that is how they get paid in government-financed academia, leftist-non-profit think tanks, and government itself. What angers me most is the hypocrisy and arrogance of these people. On one hand they claim to be trying to help people, but while on the other hand they are selling nearly a billion westerners down the river so they can advance their own faux career.
The end WILL COME and I say that not out of some kind of religious zealot prophecy, but simply because their current economic model/system/ideology is not sustainable. With no production and government expected to resolve all problems AND having that government merely act as an agent for wealth redistribution one of these days our creditors will turn off the line of credit, call our debts due and the life blood that supports the system (other people/countries' monies) will stop flowing and the system will crash.
I believe this is the way to go because, as you point out, everybody is believing the lie and the stupidity. And not just the professionals and leaders of our country, but the idiotic masses of voters who are truly some of the dumbest people in the history of human kind.
So I say light up a cigar and enjoy the decline. There's nothing you or I can do to stop stupid or ignorant. But we can enjoy watching the welfare class revolt when their EBT cards don't buy jack or their welfare checks bounce OR there just plain isn't anything in the shelves of grocery stores to buy.
Cpt.
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