Tuesday, May 1, 2012

"Lord Keynes" corrects Ron Paul

(1) At 1.07 onwards, Ron Paul tells us that he wants a “natural rate of interest.” I have news for Paul: there is no such thing; it is a fantasy, a myth.

(2) Paul tells us that inflation is theft. Well,why isn’t deflation theft, committed against debtors?

(3) Paul’s comments on the Roman empire are misleading. Paul implies that the Roman empire was destroyed by inflation, but that is false.
Read the whole thing at Social Democracy for the 21st Century (short)
Ron Paul versus Paul Krugman
by Lord Keynes

6 comments:

Bob Roddis said...

These hapless "Lord Keynes" assertions demonstrate that Ron Paul won the debate. LK absolutely positively cannot or will not fathom the central concept of the Austrian School, economic calculation. Austrians talk about "a natural rate of interest" or "natural rates of interest" simply to describe what interest rates might/would occur if determined 100% by market participants when not distorted by government or central bank interference (and whether that is a good idea or not is a separate issue). Nothing more, nothing less. LK locks his little mind onto the idea that Hayek described A natural rate of interest as opposed to NUMEROUS rates of interest which might obtain for various transactions. "The natural rate of interest" is nothing but a mental construct to explain the different ways interest rates would be set absent government interference. That's it. LK in his delirium is claiming that because there is actually no SINGLE NATURAL RATE OF INTEREST that the entire edifice of the Austrian Business Cycle Theory collapses. LK, you can't be serious. And you MMT guys demonstrate your complete ignorance of everything Austrian by citing LK.

Regarding inflation as theft, the operative reality of the creation of fiat funny-money is that those who get the new money first are stealing purchasing power from those holding the existing money without the victims knowing what hit them. Theft plus fraud, which Krugman said he does not understand. Ultimately, the creation of funny money will distort the price, investment and capital structure so that various unsustainable lines of investment will collapse. There will be no one around to buy these goods and assets at the prices which most people thought they would sell for. That is deflation. No one stole anything at this stage. People simply cannot find the buyers they thought they would be able to at the former price. It's the inevitable but secondary effect of the initial creation and injection of funny. To the extent you seek to pump up those collapsed prices and fight reality with new injections of funny money, you will again be stealing purchasing power from those holding existing money. Usually the people holding these assets with collapsed prices are the elite and wealthy, so you would be stealing from average people.

Regarding the Romans, they did fraudulent shrink the size of their coins and they did enforce price controls with execution. So what's the problem with what RP said? Hell, PK's statement about going back in time 150 years was phony in the first place because as RP has explained ad nauseam, the gold standard of 150 years ago allowed for significant fractional reserve banking which distorted the price, investment and capital structure much like funny money does today. With the quip about 150 years ago, Krugman again demonstrated that he does not understand the first thing about Austrian School ideas.

Hell, the chapter on pre-Fed banking from "End the Fed" has been online for free since 2009.

http://mises.org/daily/3687

Lord Keynes said...

Bob Roddis is wrong. Let's see how easy it is to refute his comments above.

(1) He says:

"Austrians talk about "a natural rate of interest" or "natural rates of interest" simply to describe what interest rates might/would occur if determined 100% by market participants when not distorted by government or central bank interference (and whether that is a good idea or not is a separate issue). Nothing more,"

No, they don't. The term "natural rate of interest" as used by many Austrians like Hayek, (early) Mises and De Soto to refer to the Wicksellian natural rate of interest:

http://socialdemocracy21stcentury.blogspot.com/2011/06/natural-rate-of-interest-wicksellian.html

To refute Roddis, let us note just one example of this: Mises in 1928 in Monetary Stabilization and Cyclical Policy:

“In conformity with Wicksell’s terminology, we shall use ‘natural interest rate’ to describe that interest rate which would be established by supply and demand if real goods were loaned in natura [directly, as in barter] without the intermediary of money. ‘Money rate of interest’ will be used for that interest rate asked on loans made in money or money substitute.” (Mises, L. von. 2006 [1978]. The Causes of the Economic Crisis and Other Essays Before and After the Great Depression, Ludwig von Mises Institute, Auburn, Ala. pp. 107–108).

And certianly this is the sense in which Hayek used it:

http://socialdemocracy21stcentury.blogspot.com.au/2011/06/austrian-business-cycle-theory-and.html

(2) Roddis says:

"LK ... is claiming that because there is actually no SINGLE NATURAL RATE OF INTEREST that the entire edifice of the Austrian Business Cycle Theory collapses."

No, I am not: I am claiming that all versions of the ABCT that rely on the unique Wicksellian natural rate are unsound and
must fail as theories: e.g., the ABCT of early Mises, all of Hayek's versions, Roger Garrison's and De Soto's versions. And that's pretty much the major players.

That the non-existence of the unique Wicksellian natural rate severely undermines the classic Hayekian and Misesian versions of ABCT is even admitted by Austrians such as J. G. Hülsmann and Robert P. Murphy:

socialdemocracy21stcentury.blogspot.com.au/2012/02/hulsmann-on-misess-business-cycle.html

http://socialdemocracy21stcentury.blogspot.com.au/2011/07/robert-p-murphy-on-sraffa-hayek-debate.html

Lord Keynes said...

"Regarding inflation as theft, the operative reality of the creation of fiat funny-money is that those who get the new money first are stealing purchasing power from those holding the existing money without the victims knowing what hit them. "

(1) this pre-suppposes that fiat money is somehow fraudulent (note the the word "funny-money"): but that is just begging the question.

(2) Anyone who engages in purchasing of commodities while others hold money as savings could be accused of "stealing purchasing power from those holding the existing money" - so it would make ALL purchasing of commodities while some people still hold savings immoral, a totally hare-brained idea that entails that virtually all transactions are immorally unacceptable.

(3) Roddis's real objection, then, simply reduces to the assertion that fiat money (or even fractional reserve banking debt money) must be fraudulent, an assertion he has not proven and that is unconvincing.

When pressed to say whether he objects to free and voluntary fractional reserve banking and fiduciary media, he has repeatedly shot himself in the foot, by saying he objects, but can think of no real reason to ban it (which entails that in his Rothbardian world what he calls "funny money" would exist anyway).

Bob Roddis said...

1. “I want a natural rate of interest. I don’t want the government or Federal Reserve fixing the rate of interest. That’s price fixing…This idea that somebody or some group might know what the proper amount of money might be or what the proper rate of interest should be is sort of presumptuous. I don’t where they get this knowledge…When we talk about electing a president or a Congress to run the economy better, they’re missing the whole point. Governments aren’t supposed to run the economy. The people are.”

The people are to set their own prices. It's not that complicated of an idea. The SWAT team-backed bureaucrats do not and cannot have superior knowledge to set interest rates. Yawn.

2. If there is an auction down the street, and I have 96 cents in my checking account and my friends and I write checks on my account and we bid up and make off with the entire auction at the expense of other people who have actually saved their money, we have engaged in essentially the same activity as fiat funny-money creation.

3. I'm perfectly fine with you guys making these pathetic excuses for nefarious asset and wealth transfers. Go ahead. Keep arguing your side to the public like this. They don't even understand yet that inflation is a purposeful government program.

Lord Keynes said...

(1) Having been totally destroyed on the Austrian's belief in the Wicksellian natural rate of interest, you quote Paul as if Paul cannot mean here a Wicksellian natural rate. Of course he can. And even if he doesn't, there is nothing morally or economically superior about unregulated markets, or a market based interest rate

(2) Your analogy is worthless. Elsewhere you imply that you don't object to voluntray FRB:

"If the depositors aren’t misled and the payees aren’t misled, who cares?"

http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html?showComment=1317650068819#c5701869836754102910

Which is it?

Bob Roddis said...

1. I've never had any particular interest in the Wicksellian rate of interest. Interest rates should be determined by the parties to transactions. Messing with that process (as funny money must and is designed to do) impairs economic calculation. We might quibble about how, when and where the distortions will occur but occur they will. It's not complicated or obscure. Haven't I said that about 7,000 times?

2. there is nothing morally or economically superior about unregulated markets, or a market based interest rate

Interest rates set by SWAT team backed bureaucrats are immoral because they are based upon the immoral initiation of force. They are inferior because they impair the pricing process that provides individuals with the best knowledge available to set their own prices and interest rates. My position on this isn't complicated or obscure either and I've said it about 7,000 times before. Your bizarre assertions are based on your continuous refusal to comprehend catallactics, human exchange and economic calculation upon which everything Austrian depends.

3. Voluntary arrangements of FRB where all parties are aware of the nature of the beast and the terms of the agreement are quite different than a government issued currency which is legal tender backed only partially by gold or silver but payable in gold or silver upon demand without the participants really understanding the process. I'm big on insisting upon a real "meeting of the mind" in contractual arrangements. As an outsider to these voluntary FRB transactions, they are not my business. Since your world has no humans or scarce resources, you speak only in terms of broad aggregates and historical epochs. Like all “progressives”, you cannot differentiate coercion from non-coercion and fraud from non-fraud.