Er, actually I'm a historian who happens to teach economics......
"vikesrule" wrote:
Paul Krugman would not approve. ::wink:
"Wade" wrote:
Well, er...um...so? :)
I doubt Ben Bernanke would either. :)
"vikesrule" wrote:
Speaking of Bernake, what's your take on the Federal Reserve Wade?
......Perhaps a little Murray Rothbard? Money, Banking and the Federal Reserve
"Wade" wrote:
Rothbard and the Austrians get it about 1/3 right.
The problem isn't bankers. The problem isn't the lack of a gold standard. The problem isn't fractional reserve banking. That's 1/3 that they get wrong.
The problem is that the Fed has a monopoly institutionally protected. That we don't have free banking anymore. If a bank offers too many loans for its reserves, then it ought to fail. In a market with banks competing to have their notes accepted as money, there's a natural check in the system.
When you have one bank with special power -- e.g., the Fed -- there's no such check. Instead, you're dependent on that one bank getting the mixture of reserves and lending right by controlling the issue of its notes. Centralized policy making is great if you guess right. But if you don't get it right, you just destabilize the system more.
That's the 1/3 of story that the video gets correct. The intervention of the monopolist central banker, which is invariably imperfect in timing, amount, and direction of intervention, increases uncertainty and messes with people's expectations of the value of money.
The other 1/3 that the Austrians get wrong, however, is their equating "destabilizing the business cycle" with "controlling the money supply, inflation, interest rates". The central bank does destablize things...but not because it controls the economy, but because it doesn't. Because it
can't.
The amount of money, the value of each piece of money is determined primarily not by the Fed, or not even by the Fed and the great banks. The value of money and interest rates are determined by the people who use it (or don't use it). Borrowers as well as lenders, producers and spenders.
The "dollar" has value not because the Fed says it does, but because _WE_ agree it does. And whether we agree that it does depends primarily on what kind of production capacity we have.
Weimar in the 20s, South America in the 70s and 80s, Zimbabwe today....they countries "money" lost their value as a medium of exchange not because they lacked "gold". They lost value because their economies weren't capable of producing enough value.
Despite huge increases in the money supply between 1980 and 2005, we saw no serious decline in value of the dollar because the productive capacity of America and the world (the transactions that give the dollar its value) grew to unprecedented levels.
And the Fed -- or all the central bankers of the world combined -- simply don't have power to shape that productive capacity in a predictable way. They can have effects on its growth, but only via increasing uncertainty.
What do I think of the Fed? I don't think the solution is "getting rid" of the Fed -- even if I could resist my natural scorn and skepticism that government is capable of doing such a thing.
I think the solution will have to be far more revolutionary. It is to ignore the Fed and its notes. If you want to take dollars in payment of debts, fine. If you don't, don't. The Fed only has power to the extent we accept its notes.
The underground economy is likely already in the tens of trillions of dollars. Add in the ease of transacting electronically, just make money like any other competitively provided good. Contrary to "Gresham's law," the system now gives _us_ -- not the central bankers, but we who would borrow and lend, produce and spend -- the power to drive out the bad money with good.
We no longer have to wait for a Weimar disaster followed by greater tyranny.
And do not be conformed to this world, but be transformed by the renewing of your mind, that you may prove what is that good and acceptable and perfect will of God.
Romans 12:2 (NKJV)