The U.S. Government is NOT a household or a business

Posted: January 14, 2011 | Author: | Filed under: U.S. Economy, U.S. Politics, Voter Ignorance, We are so F'd | Tags: , , , , , , | 11 Comments

Gold bug in the garden of eden on a perfectly flat earth.

I’ve noticed the high level of economic illiteracy in the country since the day I started seriously studying economics.  I’ve also noticed that faith-based economics rules the thought processes of many politicians.  It always reminds me of those folks that believe in a literal garden of eden and a 7 day creation story over the facts that science hands us day-in and day-out. Molecular Biology has pretty much trumped their views but they persist in sticking their fingers in their ears and going la la la la la.

A variety of misguided notions have taken up residence in the brains of the same people, so I suppose it’s not surprising that the same groups that scream war on christmas also think the US will go bankrupt if we don’t up the debt ceiling or some such nonsense.  The problem is that anti-intellectual flat earthers control a political party in this country. That problem extends to people who now sit as chairs of congressional committees that deal with the real world and real people.  Then, there’s the fact that the other political party doesn’t really fight for the truth.  It’s just all very distressing to me.

There are two stories today that I’d like to use as evidence to point to the incredible amount of lunacy floating around today’s Republican Party.  The first comes from Paul Krugman.  The second from The Economist.   Krugman talks about the persistence of gold buggery. (Yes, I’m using a double entendre.)   The Economist about the persistence of federal deficit and debt myths.  They write on the number of people that don’t seem to understand what it takes for the US to ‘default’.  Both myths need airing.

Paul Krugman writes political op-ed as well as information on economics.  Economists are trained to separate the two. We even have two names for the circumstances. It’s called discussing  positive and normative economics.  You teach principles of economics students how to distinguish between the two on the very first day of class.  Some times I think Dr. Krugman forgets that most people and politicians are economic illiterates.  You see and hear constant confusion on his writings.  People don’t seem to distinguish between his op-ed with the liberal bent (normative) and when he’s actually talking economic theory (positive).  His op-ed today talks about the fact that there are many issues in politics today that are so polarizing that there is no third way or middle ground.  I don’t want to point to that, but his blog post ‘Monetary Morality’ that takes this notion of no compromising with idiots which points to the absurdity of gold buggery or something he called paleomonetarism in an early post.

In those two posts, he points out that there is a narrative out there–mostly preached by the Pauls–that the Fed is evil and we need to be hung on a cross of gold (with apologies to William Jennings Bryan).  If you read the two posts you’ll see that this issues isn’t a conversation or liberal issue at all.  Economists have a shared understanding of theory that doesn’t include the Paul money narrative.  The Paul monetary narrative is not about economics, it’s about some idea that the government and a central bank is some how confiscating something from you.  It’s a philosophy of paranoia more than an economic statement.

You see, if you’re the kind of person who views being taxed to pay for social insurance programs as tyranny, you’re also going to be the kind of person who sees the printing of fiat money by a government-sponsored central bank as confiscation. You may try to produce evidence about the terrible things that happen under fiat currencies; you may insist that hyperinflation is just around the corner; but ultimately the facts don’t matter, it’s the immorality of activist monetary policy that you hate.

And this is also why politically conservative economists arguing for something like nominal GDP targeting, and pleading with their perceived political allies to stop talking nonsense, are going to be disappointed. If you’re in the intellectual universe where monetary policy is to be evaluated by results, you’re already out of the true believers’ moral universe. At a fundamental level, Milton Friedman and John Maynard Keynes are on one side; Ron Paul is on the other. And it’s not a debate in which evidence really matters.

The Pauls–and others–dwell in the land (Kentucky, I think) where you can create a theme park and put Neanderthals and all sorts of Dinosaurs that lived millions of years apart with modern animals in the Garden of Eden.  All that’s needed in these narratives is the idea that the sun revolves around the earth or the earth is flat.  It’s not science, it’s not data based, it’s just you wanting to believe your little view of the world is the correct one for no other reason than it appeals to your outlook on life.

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All Eyes on Ben

Posted: July 27, 2009 | Author: | Filed under: Bailout Blues, Global Financial Crisis, The Great Recession, U.S. Economy | Tags: , , , , , , , | Comments Off on All Eyes on Ben

bernakelargeI’ve been Fed watching again. That’s something of both an occupational hazard and a weirdish hobby for me. Usually, Fed chairs stay off the lecture circuit until they retire and write their biographies. Ben Bernanke, however, is not your usual Fed Chair and these are not usual times. I think you may recall that part of his observations with being in charge of monetary policy when there’s no room drop interest rates (ZIRP) has to do with communicating future Fed actions to a nervous public. This continues.

Bernanke was in Kansas City over the weekend speaking to normal people and Jim Lehr of the PBS program News Hour. There were several things from this exchange worth mentioning. The first is a response to the meme circulating around the libertarian circuit that there is no accountability between the FED and any one in Washington. That is untrue for several reasons. First, because the majority of appointments (including the Fed Chair) to the FOMC are made by POTUS and approved by the Senate. Second, the Fed Chair makes biannual trips to the Hill to speak with both houses of Congress and take questions. Third, they publish their internal records as well as their research continually. It’s a matter of public record. The only thing Congress doesn’t get to see is the rationale behind monetary policy which is perfectly in keeping with the idea of independence supported overwhelmingly by evidence and theory. They have to the right to see the Fed balance sheet and items now. What they do not have is the right to ‘audit’ monetary policy. Something that would be a disaster.

“The Federal Reserve, in collaboration with the giant banks, has created the greatest financial crisis the world has ever seen,” Representative Ron Paul, Republican of Texas, said at a House hearing last week in which Mr. Bernanke testified about the state of the economy.

Republican lawmakers portray the Fed as the embodiment of heavy-handed big government, and have called for scaling back the central bank’s regulatory powers. But liberal Democrats, like Representative Dennis J. Kucinich of Ohio, have accused the Federal Reserve of caving in to demands by banks for huge bailouts, for failing to protect consumers against dangerous financial products and for being too secretive about its emergency rescue programs.

More than 250 lawmakers have signed a bill sponsored by Mr. Paul that would allow the Government Accountability Office to “audit” the Fed’s decisions on monetary policy — a move that Fed officials see as a direct threat to their political independence in carrying out their central mission of setting interest rates.

A lot of the complaints at the appearance came from the audience who basically aired Kucinich’s view that the Fed appeared all too willing to bail out the reckless big guys while letting the little guys go belly under. Bernanke did not shy away from the questions at all.

When a small-business owner asked Mr. Bernanke why the Fed helped rescue big banks while “short-changing” small companies, Mr. Bernanke answered that he had decided to “hold my nose” because he was afraid the entire financial system would collapse.

“I’m as disgusted by it as you are,” he told the audience of 190 people. “Nothing made me more angry than having to intervene, particularly in a few cases where companies took wild bets.”

He used a most interesting metaphor when explaining why he had to hold his nose and bail out the gamblers. He basically said, if an elephant falls it crushes the grass beneath it. Wow, a zen moment from a Fed Chair. Who’d have thought that was possible? He also said that the main reason he did it was because he didn’t not want to be the Fed Chair at the time of the second Great Depression. I’d say that was succinct enough.

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