Have conservatives always been this anti-intellectual?
Yes, I know about the famous JS Mill quotation. But when I was younger I thought the right had a lot of intellectual momentum. The world was moving away from statism and toward neoliberalism, and it seemed like conservatives had most of the good economic ideas.
Of course there has always been a anti-intellectual strain to populist conservatism, as when the right romanticizes the “Golden Age” of the 1950s, before all those evil liberation movements of the 60s gave rights to blacks, women, and gays. But at least on economics I used to think of conservatives as being relatively hard-headed. So what is one to make of this appalling column in Forbes magazine:
Amid the very reasonable handwringing about the Fed’s charitably naive attempts to stimulate the economy through “quantitative easing”, there’s an understandable drive among some Fed critics to severely reduce its mandate. Specifically, the Fed can’t create jobs as its defenders inside and outside the central bank presume, so better it would be limit its role to that of inflation watchdog.
All that is fine on its face, but in seeking to redefine the Fed’s doings, naysayers have happened upon the false notion of “price stability.” A recent editorial argued in favor of repealing the Fed’s dual mandate so that it can concentrate “on the single task of stable prices”, and then politicians such as Reps. Paul Ryan and Mike Pence have similarly called for price stability in working to redefine the activities of the world’s foremost central bank.
Sadly, handing the alleged wise men at the Fed control over prices is every bit as mistaken as allowing the central bank to manage unemployment.
Indeed, it is through prices that the market economy is organized. In that certain sense, prices rise and fall with great regularity as consumers tell producers what they want less and more of. Assuming the Fed could do what it cannot; as in fine tune economic activity on the way to stable prices, we would be much worse off if Bernanke et al were to actually succeed.
To see why, it has to be remembered that the cure for high prices is in fact high prices. Or better yet, high prices foretell low prices.
If producers create a consumer product that fulfills unmet needs on the way to high prices, the latter is the signal to other producers to enter the market for the same good on the way to lowering its cost. Gyrating prices are the necessary market signal telling businesses what we need.
Taking this further, if price stability were policy, it would still be the case that a phone call from Houston to Dallas would cost $15 for a half hour of conversation. It would similarly mean that we’d be paying thousands of dollars for flat-screen televisions, not to mention even more for computers that perform very few functions.
I’m not going to insult my readers’ intelligence by describing what’s wrong with the last paragraph. If you don’t know, go read someone elses blog. At first I thought this might be an innocent slip up. Nobody’s perfect. Editors are very busy people, they can’t spot all mistakes. But the rest of the piece is equally bewildering:
In that case, rather than price stability, the sole goal of monetary policy should be dollar-price stability. Fed officials would credibly argue that the latter is the preserve of the U.S. Treasury, and they would have a point. Be it Treasury, or Treasury working with the Fed, the mandate should be in favor of stabilizing the dollar’s value.
Um, isn’t the entire point of price stability (which I don’t favor, BTW) stabilizing the value of the dollar? Indeed isn’t true that, by definition, a stable value of money means a stable purchasing power? Not to John Tamny. He seems to define a stable value of money as a stable price of gold. Why gold? Why not a stable price of bricks, or toothpicks, or zinc? He doesn’t say. Nor does he seem to have the slightest intellectual curiosity about periods in history when the dollar price of gold was stable, like 1929-33, when we had severe deflation (which provided falling prices of electronic goods like radios!), and 25% unemployment, and so discredited capitalism that we elected exactly the sort of politician that Forbes magazine would despise.
Oddly enough, Marx once again had the answer there. Marx, much like the classical economic thinkers of his era, knew that for money values to be stable, they would have to be defined in terms of gold. Marx referred to gold as “money, par excellence.”
Looked at through the prism of today, the dollar lacks a golden anchor, and the result is a money illusion that distorts the real price of everything. Worse, with consumer prices sticky in concert with commodity prices that are most sensitive to dollar-price movements, the beneficiaries of the money illusion tend to be the hard, unproductive assets of yesterday (think housing, art, rare stamps, and oil) that are least vulnerable to currency weakness, and which in fact do best when the unit of account is devalued.
Well if Marx says money must be good as gold, who am I to argue? Reading this column I can’t help but wonder why all this talk about currency depreciation is occurring when inflation is at the lowest point of my lifetime, indeed lower than during 1896-1914, the so-called Golden Age of the gold standard.
The answer to all of this is very basic. Price stability is a utopian concept on its best day that would hamper innovation on the way to reduced living standards.
The greater, more obvious answer is dollar price stability of the gold kind that would allow investors to rate ideas on their actual merits, as opposed to how they’ll perform amid dollar policy since 2001 that has erred in an economically crippling way in favor of weakness. Fix the dollar, and you fix the U.S. economy. Simple as that.
Isn’t that wonderful! No need to worry about messy real world issues like macroeconomics. No need to worry about how nominal shocks can have devastating real effects. Gold is like a magic wand that will fix the US economy. But there is one huge flaw with this argument; there are two types of gold standards, and neither produces anything like satisfactory macroeconomic outcomes:
1. One type is a managed standard, such as we had in the US between 1879-33, and in a weaker form under Bretton Woods. In that standard the nominal price of gold is fixed (just as Tamny wants) but its real value is highly unstable, as the economy would often suffer from deflation. The most devastating example was 1929-33. It’s true that the supply of gold rises at a fairly steady rate, but central bank real demand for gold was highly unstable, and thus the price level was unstable. Of course you could argue that the central banks should have done a better job of stabilizing gold demand, but by that logic why not just have fiat money and then have them do a better job of stabilizing monetary policy. Even worse, if we returned to the gold standard almost no other country would be nutty enough to follow. In that case when people in places like China and India hoarded gold out of fear of inflation, America would suffer deflation. And from history we know that deflation in America would lead to fears of devaluation, which would cause gold hoarding in America as well, and even more deflation. Tamny doesn’t even think about those issues, but why should he when he considers deflation to be a good thing?
2. Some have advocated a laissez-faire gold standard. In this case the government simply pegs the price of gold, but doesn’t hold large stocks of gold. This would be even worse than a managed standard, as the relative price of gold would then be determined exactly as the relative price of any other metal is determined, by “industrial demand.” Rapid economic growth in Asia has been boosting the relative prices of other metals such as silver, copper and iron. If gold was just an industrial commodity, then its relative price would also be quite volatile.
So either way the gold standard offers no advantages. At best, a highly managed international gold standard might lead to rough price stability. But if central banks were really able to manage gold that well, they’d also be able to mange fiat money.
I suppose I am wasting my time with this post. If the right now believes that deflation doesn’t matter, that 1929-33 is like some bad dream that never really happened, then nothing I say will make any difference.
HT: Bruce Bartlett
Tags: conservatism
6. December 2010 at 08:19
“Of course there has always been a anti-intellectual strain to populist conservatism, as when the right romanticizes the “Golden Age” of the 1950s, before all those evil liberation movements of the 60s gave rights to blacks, women, and gays.”
I am sick of the characterization of conservatives as anti-women and racist. It is at best ad hominem and at worst slander; I expected better of you, Scott.
Also, the right isn’t economically anti-intelectual; arguments as such are merely attempts to frame the discourse in intellectually dishonest ways. The right isn’t anti-intelectual, but it seems that way, because the right is against central control and intellectuals are the only ones that think they can centrally control an economy.
Re: gold standard:
1. Not even Ron Paul favors a gold standard, but rather wants a dollar to be equal to a basket of commodities.
2. Gold demand doesn’t follow industrial metals directly. Once you adjust for expansion money supplies, it has more in common with currencies than it does with industrial metals (lately its been tracking AUD very very well.) This is why I think that it isn’t /just/ gold demand going up, but mostly the USD MB expanding that has driven up gold prices (this isn’t to say that there won’t be a gold crash as soon as the fed raises rates steeply, however.)
6. December 2010 at 08:20
Forbes is a ridiculous magazine. If you haven’t already, take a look at the Dinesh D’Souza piece on Obama’s “Kenyan anti-colonialist” philosophy, which is the product of mind control exercised by the spirit of his dead father who he only met once.
Forbes himself has bizarre views about monetary policy. I watched a speech he gave once, in which at different points he said that we need to maintain a (very) strong dollar, have free international capital flows, and somehow the Fed is supposed to miraculously tame the business cycle as well. Perhaps he should talk to Mankiw about the trilemma of international finance.
6. December 2010 at 08:22
One possibility you will have to consider is that the Right used to pretend to be intellectuals – which is to say, tried justifying their policies with consistency and appeals to the common good – but really always pushed policies that on the margin increased the wealth of the rich and powerful. Now, however, as you are learning, they have taken their strategy to new brazen heights by allowing huge giveaways to the rich in the form of making the Bush tax cuts permanent for them and thereby increasing the deficit by $700b over 10 years, while at the same time arguing that there is a deficit crisis and that we need to reduce benefits to the poorest of the poor.
These days when I want to embarrass a conservative I ask them why they want to reduce the deficit only when it comes to policies that affect the lowest quintile of the population and not the highest. He (She) generally has some contrived answer that really shows that he (she) has no answer whatsoever.
6. December 2010 at 08:50
Doc,
For better or for worse, even today social conservatives are the ones who oppose or at least criticise reproductive controls like the pill and abortion, and denounce Hispanic immigration. This is very arguably neither anti-women nor racist, but I’m sure you can see why it’s just as arguably anti-women and racist. And of course, in the 1950s Scott is talking about, I think it’s pretty undeniable that most conservatives — heck perhaps most societies — saw the woman’s place as in the home/kitchen, and the black’s place as inferior to the white’s.
I think both the American right and left are fairly anti-intellectual in that they selectively embrace the intellectuals with positions they support, and reject those with positions they oppose. Sometimes these intellectuals are the same people; when Joe Stiglitz defends Walmart leftists don’t back him up, but when he calls for greater government intervention in finance, it’s as if he’s the best economist in the world in leftist eyes. I see a similar issue with Hayek and Friedman on the right.
I think both left and right have decent intellectual underpinnings, but at the same time, when they’re boiled down to their populist aspects for public/voter consumption, there isn’t much but a facade of intellectualism left. What’s perhaps most terrible is that even when intellectuals can agree, when there really is a policy free lunch (like getting rid of the tax expenditures subsidising mortgages in the US), both left and right will oppose the idea.
6. December 2010 at 09:03
In the last few posts, Scott is finally seeing the real side of the Republican party. I especially liked this from him in a previous post:
“There are actually two Republican parties in America. One wants to do real deregulation, to actually reduce the role of the government in the economy. The other Republican party (which I fear is the more powerful one) wants to do “deregulation,” to remove all constraints on business, banking, the medical industrial complex, energy, for-profit colleges, etc, so that they can systematically loot the taxpayers by taking advantage of the enormous moral hazard that has seeped into almost all aspects of our modern regulated economy. ”
I am a realist and your choice between the Democrats and Republicans is as follows:
Republicans = Exactly as Scott describes them above. Tearing down some regulations so that companies can take advantage of the other regulations to their favor. In addition, spending tons of money on stupid wars and claiming that when they are in power being against them is being unpatriotic. Also, add in a bunch of stupid “conservative” social policies and having no clue about aggregate demand and its role in an economy
Democrats = Adding a bunch of stupid regulations that drag down growth but at the very least keep corporations in check so that they do not take advantage of the moral hazards as much as in a Republican system. Have knowledge of aggregate demand and although their views are not perfect (too much reliance on fiscal stimulus) they can much more easily be convinced of the need for monetary stimulus.
Its all a matter of degrees and picking the lesser evil. And when it comes to Republicans versus Democrats the answer is easy.
6. December 2010 at 09:22
Scott Sumner just gets better and better. What a great column.
6. December 2010 at 09:24
@Johnleemk
“What’s perhaps most terrible is that even when intellectuals can agree, when there really is a policy free lunch (like getting rid of the tax expenditures subsidising mortgages in the US), both left and right will oppose the idea.”
Very good point!
@Liberal Roman
“Democrats = Adding a bunch of stupid regulations that drag down growth but at the very least keep corporations in check so that they do not take advantage of the moral hazards as much as in a Republican system. Have knowledge of aggregate demand and although their views are not perfect (too much reliance on fiscal stimulus) they can much more easily be convinced of the need for monetary stimulus.”
I completely disagree with your characterization of democrats here. Democrats are just as much about rent seeking and looting as republicans…. sometimes even more. Look at farming subsidies or what happened when Bush tried to increase regulations on Fanny and Freddy to see what I mean.
The recent financial regulation bill is also an example of Democrats trying to enhance rent-seeking redistribution towards their corporate partners (which is why Goldman Sachs pushed it so heavily).
6. December 2010 at 11:08
I have a modern version of Mill’s quote (“Although it is not true that all conservatives are stupid people, it is true that most stupid people are conservative.”). I remember hearing a southern person defending their decision to vote Republican a few years ago by saying “We’re not all ignorant rednecks.” I immediately thought “While not all Republicans are ignorant rednecks, it is certainly true that most ignorant rednecks are Republicans.”
6. December 2010 at 11:34
johnleemk,
I think that’s a very good observation. I am inclined towards the right on a lot of issues and towards the left on a lot of other issues, but I would be overconfident if I didn’t think that there were a lot of very intelligent people on both sides of the debate. Error is a fundamental part of the human condition, so one should never be surprised when very intelligent people take views that one opposes.
So it doesn’t surprise me that I disagree with what William F. Buckley thought about foreign policy or what Joseph Stiglitz thinks about fiscal policy. I certainly don’t think it’s right to immediately assume that an intelligent person who holds a view with which one disagrees must be a dishonest corporate/union/whatever shill, nor that a seemingly honest person with whom one disagrees need be an idiot. Obviously, there ARE idiots and shills on both sides, but I don’t think they make up the majority on either side of almost any issue, if at all.
There is, of course, the problem that Friedman raised re: economists and public policy, which is that generally economists’ advice is sought the most on those issues where they agree the least. So the vast majority of economists oppose price controls, the War on Drugs and tend to favour indirect taxes on pollution over direct controls, but it’s on precisely these issues that people don’t seem to want think economically. On the other hand, on issues like central banking, international currency arrangements, deregulation etc., where there are genuine disagreements between very smart economists, people always want economists to back up their particular point of view.
@ Liberal Roman
Can you give some examples of regulations that have kept corporations in check? That’s certainly the INTENTION of regulations, but I don’t think it’s the result in almost any case, as Doc Merlin suggests.
Take anti-trust laws, which have very noble intentions but which have been an easy target for regulatory capture and can be used by corporations to attack successful competitors.
Of course, the same can be said about the Republicans, e.g. the War on Drugs is backed up by very noble intentions, but has had a lot of terrible consequences e.g. making easily trafficked hard drugs like crack cocaine into better business than bulky substances like marijuana which is less harmless (according to scientfic studies of personal and communal costs) than alcohol or tobacco.
6. December 2010 at 14:02
I know I know! Replacing Americans with Hispanics won’t change anything at all! Everyone is equal and fully atomistically replaceable, right? After all, if we replace all the native Dutch with Pakistanis, the country, its political institutions and its economy will remain the same! How dare you suggest otherwise you you you racistssssss.
6. December 2010 at 15:06
Did Tamney add this? Or did you miss it?
“The greater, more obvious answer is dollar price stability of the gold kind that would allow investors to rate ideas on their actual merits, as opposed to how they’ll perform amid dollar policy since 2001 that has erred in an economically crippling way in favor of weakness. Fix the dollar, and you fix the U.S. economy. Simple as that.”
6. December 2010 at 15:19
I believe we are entering an era in the US where intellectual arguments cease to matter because they are drowned out by the yelling and sound-byting on both sides. Such has always been the case to a large extent but the stupid and cynical — in both camps — are about to win total victory over the bright and intellectually optimistic.
Bright minds will continue to have intelligent debates — but they will be irrelevant to setting policy. Forbes is an example of intelligent debate throwing in the towel.
6. December 2010 at 16:20
Scott, it was the Democrats who stood in the of civil rights legislation (KKK Democrat Robert Byrd filibustered it in the Senate). Republicans overwhelmingly supported it.
http://en.wikipedia.org/wiki/Civil_Rights_Act_of_1964#By_party
6. December 2010 at 17:02
Doc Merlin: I am sick of the characterization of conservatives as anti-women and racist. So, I take it you are agreed that they are agin the queers. It is not hard to go back and find conservatives sneering at Martin Luther King Jnr and the civil rights push. Or go further back and find conservatives opposing votes for women. Or being against the Jews having legal and social equality. Indeed, the current arguments against queer emancipation — right down to the accusations made against the despised minority — just replicate previous opposition to Jewish emancipation.
If you want to make a case that current conservatives have abandoning repression of women, blacks and Jews: well sure (mostly). But they are still generally strongly against giving their queer fellow citizens legal and social equality and really, such denial looks like a continuing habit.
6. December 2010 at 17:03
I confess to having some sympathy for anti-intellectual conservatism. Let’s face it, intellectuals don’t always have a great track record, and do tend to jump from one fad to another. Taking a very slow moving average of fashionable opinion usually yields more sensible results.
But that Forbes column wasn’t anti-intellectual. It was just daft.
6. December 2010 at 17:39
Scott I don’t think its quite fair to characterize John Tamny as anti-intellectual. He is very well read in economics (he’s forever quoting Bastiat for example). It’s just that he has read virtually nothing that has been written since the Great Depression.
Tamny is a typical self taught Austrian (his formal education is in finance and government and to my knowledge he’s never even taken a course in macroeconomics). He holds academic economists in complete contempt and never lets the empirical facts get in the way of his dogmatic opinions (thanks to his adherence to praxeology).
As for how his writing got by the editor you forget that this is Forbes magazine. Steve agrees with John wholeheartedly.
6. December 2010 at 18:37
Doc Merlin, Who said conservatives are anti-women? I’ve heard conservatives trash the social changes of the 60s many times. They do tend to romanticize life in the 1950s.
A basket of commodities would be little better than a gold standard, all commodity prices have recently been rising in real terms. That means deflation if you peg your currency to commodities.
I don’t agree about gold, and would refer you to my earlier post. Gold prices have soared in terms of the AUS$ And money isn’t easy in the US, so easy money can’t be causing higher gold prices.
Ram, Yes I agree with you about Forbes’s monetary policy ideas. In his defense, I likes Forbes idea of blowing up the income tax system.
C, I favor abolishing the income tax, so I have no problem with making income tax cuts for the rich permanent. In any case I don’t believe the rich actually pay many taxes they are assumed to be paying. Much of the burden of taxes on capital falls on the workers.
Johnleemk, I agree, I was reacting to the amazing dismissal of all of macroeconomic theory in Tamny’s essay. It’s as if he thought all of macro is completely worthless. A Great Depression doesn’t matter as long as gold prices are stable, because consumers get lower prices!!
Liberal Roman, I wouldn’t say I am finally seeing the real Republican party. But I must admit I was naive before 2000. I never thought they were this corporatist until they got full control of government, which I had never experienced until Bush was elected in 2000. Until then I had lived under Democratic or split government my entire life. The Republicans kept saying that they couldn’t get spending cuts through Congress, or past the President’s veto. After 2000 I saw it was all a charade.
Thanks Benjamin.
DrJim, I am pretty sure there is almost no difference between the average IQ of Dem and GOP voters. But perhaps I am mistaken. Does anyone have data? And of course high IQ doesn’t mean well-informed.
Morgan, I did not quote his entire piece.
rob, I hope not.
Scott N, Yes, I often make that point myself. In those days Southern conservatives were Dems, and the GOP was moderate of civil rights.
Nick, I agree, I occasionally need an adrenaline shot of populist conservatism on talk radio. Today they were complaining about how schools no longer let children go out to play in the snow. I do get that sort of conservatism, and of course many intellectuals supported some of the great tyrants of the 20th century.
Mark, But this isn’t Austrian economics. Austrians don’t believe deflation is no problem as long as gold prices are stable. And they don’t believe that those advocating price level targeting are opposed to declines in the relative prices of electronic goods.
6. December 2010 at 19:00
Scott wrote:
“Mark, But this isn’t Austrian economics.”
Perhaps, but that isn’t exactly what I said. I said Tamny is a typical self taught Austrian. And unfortunately there are a lot of them.
6. December 2010 at 19:23
And furthermore, I don’t think I need to prove my respect for true Austrianism.
“Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place.”
F.A. Hayek
6. December 2010 at 19:53
If not for a use of English that would seem somewhat beyond her grasp, this could easily been written by Sarah Palin, our newest celebrity monetary theorist.
6. December 2010 at 20:25
Scott: is rising chinese demand unexpected? There is nothing destabilizing about expected changes in gold demand under a gold-parity regime–for the same reason that there is nothing destabilizing about expected changes in inflation.
Let me be provocative: why would would we accept monetary regulation when alternatively we could accept the direct regulation of fixed-rate contracts of any kind. Why not legislate that all annuities, in whatever kind, must be indexed.
Then you could concoct the index as needed–NGDP even. No need for strange mechanisms like future’s contracts to implement policy.
6. December 2010 at 22:00
Don’t forget about “leftwing” conservatives. Long they have been dormant, but I doubt forever. They will use nationalism and sensationalism much like Hayek expressed above.
“Austrians” are actually a intellectual movement itself. Just like self-taught “keynsianism”, it is all intellectual. I could argue that “free market liberalism” is a intellectual fantasy and gold standard internationalism is just a scam to destroy countries toward plutocracy.
7. December 2010 at 04:30
Mark A. Sadowski,
I think the test of how well someone has understood Austrian economics depends on how they analyse gold. If they’ve at least read von Mises’s regression theorem and fully endorsed Menger’s work on value, they won’t talk about gold having “intrinsic/real/inherent value”.
But let’s not blame the Austrian School for human prejudice. After all, it seems to be part of the human condition that we tend to forget that wages are the price of labour. The left forgets this and thinks about wages in moralistic terms, in a way that they wouldn’t do for the price of laptops; the right forgets this and thinks about prices less wages, which makes deflation an extremely attractive idea. We all want inflation of the things we sell and deflation of the things we buy!
7. December 2010 at 05:34
Most of the romanticizing of the ’50s I’ve seen lately has come from the Paul Krugman direction.
7. December 2010 at 10:40
‘…Sarah Palin, our newest celebrity monetary theorist.’
Whose quantity theorizing might turn out to be correct (only time will tell). What would the result be of a big drop in the prices of the assets Bernanke acquires, if not inflation?
And, is there any argument more ‘anti-intellectual’ than Hayek’s The Use of Knowledge in Society?
7. December 2010 at 11:17
@Scott:
“I don’t agree about gold, and would refer you to my earlier post. Gold prices have soared in terms of the AUS$ And money isn’t easy in the US, so easy money can’t be causing higher gold prices.”
I never said “easy” money causes higher gold prices, I said that increases in MB cause higher gold prices.
Yes, Gold has soared in AUD, but much less than in in most currencies, because it isn’t just US monetary base that matters but every country’s monetary base.
@Lorenzo from OZ
“If you want to make a case that current conservatives have abandoning repression of women, blacks and Jews: well sure (mostly). But they are still generally strongly against giving their queer fellow citizens legal and social equality and really, such denial looks like a continuing habit.”
While you are correct wrt gay marriage, historically its been progressives NOT conservatives that have been anti-black. It wasn’t until the 1960’s that progressives realized they could take the traditionally conservative “black vote” away from conservatives and began to use race baiting among blacks to raise racial tensions. Even Barry Goldwater, “Mr. Conservative” himself who opposed the Civil Rights Act, on the grounds that sections of it violated the commerce clause, pushed for a very similar act within his own state (and got it passed).
Nixon who was politically a social conservative also pushed for integration of schools, and actually sent the National Guard (us military reserve forces) to force recalcitrant schools in the south to accept blacks.
7. December 2010 at 19:22
Mark, OK, I see your point.
Mike, But I’m not sure even Sarah Palin would argue that a Fed policy of zero inflation would prevent the price of computers from falling. I don’t think even most college freshman would make that argument.
Jon, I think we know that rising Asian demand was unexpected, as it also drove up the price of all sorts of other commodities, such as oil. I don’t think one can claim people hoard iron ore as an inflation hedge.
Economists have often wondered why there isn’t more indexing, but since there isn’t it’s a moot point.
John Denver, I’m not sure what that all means, but I agree there’s lots of nuttiness all over.
W. Peden, Good points.
Paul, I was thinking about that as well. Krugman ignores the fact that the 1950s model started to fail all over the world, regardless of whether countries did neoliberal reforms or not. But at least one can say the 1950s had pretty decent economic performance.
Patrick, Is Hayek anti-intellectual, or anti-intellectuals?
Doc Merlin, OK, you said the base soared, but what’s the mechanism between the base and gold prices, if not monetary stimulus?
7. December 2010 at 21:32
Doc Merlin: I think you are running together Republicans and conservatives. There were a lot of anti-black conservative Democrats, for example.
8. December 2010 at 05:01
No philosophy is undermined by its least coherent supporters. I understand what Tamny is trying to say but not from reading this poorly expressed argument.
There is a case for the gold standard and there is a case against the fed. In 1929-1933 we had both a gold standard and a fed so the experience of the Depression does not on the face of it undermine Tamny’s position.
Gold is both an industrial metal and an alternative to fiat money. Gyrations in the price of gold over the last 40 years have been driven mostly by fluctuating demand for gold as money. It does not follow that remonetizing gold would lead to economic instability. Nor does it follow that the recent run up in the gold price is inflation, as Tamny would contend.
Tamny would like to get away from using indices like the CPI to think about inflation and use something like the gold price or the quantity of money to define inflation. This is behind his discussion of relative prices. I think this is a lost cause and becomes a barrier to getting his broader point across.
There is a risk in the use of macro-economic concepts like the general price level of losing track of relative price shifts. This accounts in part for the strange obsession certain economists have about drifting into a self-reinforcing deflationary spiral absent gross incompetence on the part of the central bank. Yes, changes in nominal prices have real effects but changes in relative prices can have even bigger effects. There is no way for governments to prevent these effects. Attempts to do this can only damage the economy.
8. December 2010 at 14:25
I’m just going to guess that Tamny, who often has reasonable ideas, is fixated on the ideas of money as a national and international standard and store of value. Of course you can argue how well even the best run gold standard does in that regard. He gives no consideration to the idea of money as a medium of exchange. Maintaining money neutrality, avoiding panic hoarding or disgorging of cash balances or more subtle problems, makes it easier for people to just focus on committing commerce. I thought that the comments by Anton Tonev were interesting in that light.
8. December 2010 at 16:42
I think that would be splitting hairs, Scott. But, Hayek was pointing out that articulated rationality–the stock in trade of intellectuals–has severe limitations as a decision making tool. Especially in economic decision making.
At the same time, that was a stupendous intellectual accomplishment.
8. December 2010 at 18:53
Charles, I can’t agree with any of your points. A gold standard is hunstable whether gold is used as money, or is merely an industrial metal. Either way it doesn’t work.
Nominal fluctuations are much more devastating than relative price fluctuations. No relative price shock has done anywhere near the damage of the falling price level in the Great Depression.
You said:
“Tamny would like to get away from using indices like the CPI to think about inflation and use something like the gold price or the quantity of money to define inflation.”
This would be idiotic. The price of gold was stable from 1929-33, do you want to argue the price level was stable? Or how about the hyperinflation that occurs when a government is near collapse and money is no as longer widely accepted (end of the Confederacy, Czarist Russia, etc) If we define inflation in terms of the money supply, and the money supply was fixed, then those hyperinflations never happened.
Howard, I’m no shocked the article was written, I’m shocked it was published. When I write articles for magazines, an editor looks at it before publishing it. Why wasn’t that done in this case?
Patrick, I’m not sure it is splitting hairs. When I was younger I was pro-intellectual and anti-intellectuals. So I saw a big difference. I am pro-intellectual in the sense that I think we need to take intellectual ideas seriously. I was anti-intellectuals in the sense that I trusted the views of average people more than most intellectuals.
9. December 2010 at 09:11
Scott,
I think you overestimate Palin. Check out the first minute of this video, for a laugh:
http://www.youtube.com/watch?v=1RuhdLYgToY
9. December 2010 at 10:40
Scott, pace Hayek, it isn’t the views of ordinary people that are to be respected, it’s their actions (as revealed in the marketplace). Their views can be just as misguided as those of intellectuals.
Mike, with the exception of Sarah’s remarks on Japan, she could have been reading out of a textbook. She’s giving a good ol’ girl’s explication of the Quantity Theory.
Maybe it was because she looked so cute in that dress that you missed that?
And, is this guy sounding any more sophisticated:
http://www.cbsnews.com/video/watch/?id=7120553n
What, we’re not printing money because we’re not using ink and paper? We just had $600 billion ‘in reserve’ sitting around gathering dust? And, I’ll bet Scott wouldn’t be too pleased with what was said about interest rates.
11. December 2010 at 15:18
Mike, I’ve seen that before, and I agree with her. Except I think the inflationary effect will be smaller than she does. Her comments are no worse than those of dozens of elite macroeconomists at top schools, who also fear high inflation.
Patrick, We think alike. My reply to Mike was similar to yours.
17. December 2010 at 20:23
Have university economics professors always been this petulant and moronic?
18. December 2010 at 00:04
And soon we’ll have the spectacle of that great monetary thinker, Ron Paul, leading the House ‘Domestic Monetary Policy Subcommittee.’
18. December 2010 at 06:08
Gold, Yes.
Phil, Yes, but on the other hand nobody else in Congress understands monetary policy either. And at least it should provide some comedy.
3. January 2011 at 16:41
[…] the gold standard a “knuckle-dragger.” I don’t recall making that accusation (in this post), nor do I believe it to be true. Indeed many highly intelligent economists favored the gold […]