What think ye...

of stimulus packages? well I know what you think, i.e. that the latest bailouts were necessary. Just thought I'd ask your thoughts on the following:

pg 21 "But the economy didn't grow because they consumed more. They consumed mored because the economy grew."

and pg 45 "Saving creates the capital that allows for the expansion of production."

A few years ago when I was first interested in economics I realized the fascination had a lot to do with the fact that the econ principles that made sense to me parallel'd gospel principles. Avoiding tough choices and taking the easy way out never seems to work in the gospel, and the same seems to apply in the economy, such as printing our way to prosperity. There is always a catch when it comes to the government's quick fix remedies. They are always about the pleasure now, pain later. I guess we voters are to blame, we put those kinds of politicians into power.

also on page 9

"Able had just increased his productivity, and that was a good thing for everybody..."

Good thing for everybody, cuz you benefit from the lower cost. Unless of course you are now the less productive company and you get to go bankrupt. Looks likes it's time to contact your local politician, you see There's a Bill For That!

So simple yet...

...so foreign to politics. On page 9 of Schiff's cartoon book it says thus "By doubling his productivity Able is now able to produce more than he needs to consume. From gains in productivity all other economic benefits flow." I added the emphasis.

How often do you hear of productivity being the main goal behind any sort of economic stimulus? Instead they tout tariffs that encourage domestic production, production which is less efficient. They pander to unions that are entirely less productive. They inject newly created funds (cuz they sure haven't underconsumed to procure those funds) as an effort towards stimulus, funds which only increase the money supply, which in my mind is the only genuine definition of inflation. Deficit spending? As if money is wealth. I'm obviously no Keynesian and I continue to struggle to see how deficit spending can do anything but prolong the necessary corrections.

I think a HUGE principle from this simple story thus far is simply the need for underconsumption to precede any sort of growth whatsoever, yet underconsumption goes against everything our government is built to do. Our government not only overconsumes (even the 90's show large increases in the money supply, according to "sources", and it's a lot easier to run a surplus when that happens) but it seriously discourages underconsumption in the private sector.

Government has managed to take every healthy incentive and pervert it. Moral hazards run rampant, thus disabling risk to function properly. Genuine savings is almost irrational due to inflation. Grow your earnings faster than inflation or die.

Anyway, tell me what I'm missing.

Next Book

Hey all,

I believe we all finished Player Piano a while back. I highly recommend Cat's Cradle as the next Vonnegut if you enjoyed Player Piano. And of course, Slaughterhouse 5 is a classic. Those of us who are lucky enough to have commutes and the book on CD/Audible can knock a book out in a week. I am thinking with the next book we will just skip the schedule and all read at our own pace. Once the posts and comments come to an end, we can start a new book.

Speaking of a new book, any suggestions? I just got "The Audacity of Hope" (Obama's book)from the library. Not because I love him or hate him, but I would like to understand how our president thinks. If anyone wants to join me, please let me know. If you have other suggestions, make them now and if we vote on something else, I will put Obama to the side for now.

Out with Outsourcing

Structural 10% unemployment, one outsourced job at a time. Until the government starts penalizing companies for outsourcing, this trend will continue, and the people of this country (except the top 1% in income) will be worse off. Out with outsourcing.

Any Rand vs. Kurt Vonnegut

I presume most of you are at least somewhat familiar with both these authors and would agree that at first glance they represent different sides of a spectrum, but in reading Player Piano I have come to believe that both authors fear the same evil. I specifically refer to Rand’s novel Atlas Shrugged. Both books talk about a future United States where the government seems to be united by its fear of sabotage and because of this the government passes legislation that makes the economy stagnant (meaning no creation of new jobs and industries and no changing of rates and wages), and this stagnant economy creates an unhappy and gloomy work force. I think both authors would agree that working in a functioning free market economy is the recipe for happiness in the common man. Though these two authors have different perspectives, they fear a common enemy: Stagnation.

Both Rand and Vonnegut have an intuitive understanding of government intervention and the law of unintended consequences. For example, when governments enact price floors/ceilings they often hurt the very groups they are trying to protect.

These are just my thoughts, I would love to here some of yours!

Beg your pardon, sir?

I don’t think Vonnegut is necessarily saying that the future is a society dominated soley by machines. His focus in this book is to identify the varying classes that were developing in the mid 1900’s. These divisions resulted in our caste, whoops, I mean class system today. However, in his defense, there are a lot of manufacturing jobs – think of the numerous warehousing computers and machines that operate in Walmarts inventory management system or Intels use of machines rather than humans to physically count and track computer chips. Another element to chew on that he doesn’t identify, but is a close relation – off shoring to low cost centers. Unskilled and skilled labor is off-shored in hordes. Current companies aren’t even going to India anymore, they are looking to lower costs centers, Malaysia. In the US alone we are on the verge of having an entire generation of unemployed manufacturing workers. Facotories that already have or should (US cars)be moved to lower cost centers. How much “work” will the government bail out/think up? Un-needed road construction, trail clean up, US cars? In Oregon it is currently against the law to pump your own gas. Gas pumping is now a career for thousdands in Oregon.

We live in a society dominated by educated folks i.e. managers, professors, engineers – look at those in our blog. To survive as middle class you need a degree in a relevant subject from a good school. We’re all middle class, yet we’re a fairly educated group. What about those that don’t “qualify” for schools? There are so many good points in this book that are spot on with how society is and how the government responds in “job” creation. I love when we get to the part about the educated guys son who doesn’t qualify for school, so he gets to take the test again. Can anyone think of people who fail tests or don’t score as high, but the influence of money gets them in anyway?

One for the Luddites...

It has taken me quite a few pages to get a feel for Vonnegut's purpose in writing this book, and I'm still not sure if I've got it right. Perhaps there isn't one particular message or purpose, which I'm fine with.

As I've been reading I am continually reminded of a short piece written in 1845 dubbed the Petition:

Petition

presented by
the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers,
and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

To the Honourable Members of the Chamber of Deputies

Gentlemen:
You are on the right track. You reject abstract theories and little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.
We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.
We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a consideration that he does not show for us. [A reference to Britain’s reputation as a foggy island].
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.
First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged? If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.
If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.
Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.
The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.
But what shall we say of Paris itself? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.
There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.
It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.
We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and the principle that guides all of your policy.
Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense?
We have our answer ready:
You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.
Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles.
- Yes, you reply, but the producer has a stake in their exclusion.-
Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction.
- But, you may still say, the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods. -
Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.
Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it?
But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have only half as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else’s would be tantamount to accepting the equation: + x + = - ; in other words, it would be to heap absurdity upon absurdity.
Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for.
If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.
Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris.
Now, it is precisely on the basis of its being semigratuitous (pardon the word) that you advocate it should be barred.
- You ask: How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest? -
But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal.
To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labour than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

First Impressions

I was hoping Brennen would begin so I could have something to attack, but alas, having a kid takes priority. We hope to hear from you again once you start sleeping through the night. For Evan and his Kindle, the new schedule with chapters has been uploaded but is now at the bottom of the page rather than the side because it is was too large.

My initial reaction to the book is a strong disagreement with what I think Vonnegut is trying to portray. 70 pages in, it seems like Vonnegut is making a prediction in the year 1952 of what he believes the post-WWII economy is going to look like. Basically, machines will do all the work with a few managers and engineers running them, with the rest of the masses unemployed and helpless to succeed. Looking at society 60 years later is strong evidence against his prediction. Machines have increased productivity and created numerous new industries. Thank goodness we will all have jobs that look very different than the majority of jobs pre-WWII (mostly factory and agricultural). The internet alone has created countless new types of jobs and many of the world's largest companies.

So, I would have to strongly disagree with the Vonnegut's future where only engineers and managers make a living. His other argument, again, seems to be that it leaves the rest of society, or laborers, struggling for existence and eternally bitter towards machines and management. Does this ring true to any of you? I don't believe this is a problem in the US. Unless you are a deadbeat, you can find a decent job even after your car factory in Detroit closes. You may have to move and make less than the union offered, but there are plenty of opportunities to make a living wage in our country. I can see a good debate on this phenomenon when comparing US vs. other nations. Dependency theory would argue that many countries primarily export raw materials. Most of these markets are commoditized and offer minimal, cyclical profits. We take these products, add value, and sell them across the globe creating massive wealth for our country. We then buy up the most productive assets across the globe and the dependency grows stronger. This is getting ahead of where we are in the book, but could make for an interesting discussion.

Player Piano

The schedule is posted on the top right of the blog. Kurt Vonnegut has always been a favorite of mine. There may be more reading this time each week, but that should be alright since the feedback last time was to move a little quicker. It should also keep the dialogue going more consistently. If you don't have the book yet get it soon and feel free to begin posting!

Financial Crisis

Feel free to still comment on my last post. I want to know if you all agree/disagree with the benefits of Fractional Reserve lending and the example I posted.

In reading the book and following current events, it seems the current crisis is a good way to acid test some of Rothbard's critiques. I am curious to hear everyone's thoughts on the the underlying cause, because I am still trying to clarify my own. The Crisis we went through, and may still be going through, had a cause. The debate is still out on what it was. Politicians are throwing around solutions and enacting legislation (like the financial legislation passed today) without ever explaining what the cause was. Here is what I think they each claim:

Democrats: Lack of regulation allowed banks to become over-leveraged and make bad investments, especially in housing. Basically, banker's greed did us in.

Libertarians: They blame the FED and the business cycle for over supplying money by keeping rates low from the dot-com crash to 2006. Easy money led to bad bets by banks. The Fed manipulating the money supply is to blame.

Republicans: I have heard them blame gov't regulation, like one that encouraged banks to lend to minorities (I think it was the community reinvestment act...or something) which I think is ridiculous. I would think that if you want to blame regulation, you could blame the FED like the libertarians do, but perhaps Republicans are too in bed with big business (banks) to suggest the FED could be responsible.

Any thoughts on what the party's views are? other views?

Progress vs. Inflation

Half-way through Rothbard's book, I think I understand his argument. The FED legalizes a banking cartel which acts as a lender of last resort and bails-out banks that are overleveraged (We have seen evidence that this is exactly what it does). The banks, having this ability to pool risk, are able to practice Fraction Reserve Lending to a far greater extent than the free market would allow. Fractional Reserve Lending creates new money and inflates our currency. The FED tries to do this in an orderly manner, but inflation no doubt occurs. Without the FED, banks would not take on the same level of risks. Let me know if you disagree with that line of thinking.

On the flip side, the banks have taken on a greater amount of risk than they would have without the FED. They have lent out 30 bucks for everyone 1 they had in reserve. This money went to entrepreneurs working on computers in their garages, to skyscrapers throughout the country, roads and bridges, Cell-phone networks, etc...

Would we have experienced the progess we have had if the banks could only lend what they had in their reserve? 1 to 1 ratio lending would not have built up the country we have now. Anyone disagree?

Postage III (bear with me)

another question concerning "legal tender":

In general, does not the Government force the use of a particular tender, then once we've accepted it, also force us to accept their privilege of counterfeiting?

"So you're going to force me to accept/work for a particular medium of exchange (legal tender), then proceed to counterfeit, thus robbing me of property...?"

For the moment let's disregard the counterarguments of "well you don't have to live here, go work elsewhere; or ask your boss to pay you in gold; or feel free to exchange your paycheck for whatever medium you would prefer; etc." unless of course those are the best arguments and you would like to expound.

Postage II

"...Counterfeiters are generally reviled, and for good reason. But what happens when government sanctions, and in effect legalizes, counterfeiting, either by itself or by other institutions? Counterfeiting then becomes a grave economic and social problem indeed. For then there is no one to guard our guardians against their depredations of private property."

There are many potent arguments for endowing government with the monopoly on the use of force. I have yet to hear a good argument for giving them the green light to legalize counterfeiting. I know it was somewhat touched on in the first post (see comments of http://ramblingmatters.blogspot.com/2010/04/something-for-both-sides-cuz-there-are.html) but I would like to hear more from you all.

Postage

I find my views growing ever narrower, thus it is great to benefit from everyone's fresh perspectives...

I would like to hear your takes on the following two paragraphs until I either disagree with them, or confidently agree. At the moment I'm afraid I'm just blind to something.

"...For this way, without actually breaking and entering the property of others, he can insidiously steal the fruits of their productive labor, and do so at the expense of all holders of money, and especially the later receivers of the new money. Counterfeiting, therefore, is inflationary, redistributive, distorts the economic system, and amounts to stealthy and insidious robbery and expropriation of all legitimate property-owners in society.

...Counterfeiters are generally reviled, and for good reason. But what happens when government sanctions, and in effect legalizes, counterfeiting, either by itself or by other institutions? Counterfeiting then becomes a grave economic and social problem indeed. For then there is no one to guard our guardians against their depredations of private property."

Prior to this book I hadn't given nearly enough thought to fractional-reserve banking, and I had no idea this book would discuss it so much. At the moment Rothbard seems to have gotten away from discussing the FED directly, but I'm guessing the underlying implication being that the FED, to a large extent, enables the continued existence of large scale fractional-reserve banking, primarily as lender of last resort (let's enable irrationality and extreme leveraging, yeah, that'll make for a stable economy, all while socializing the costs), but also as the number one regulator of the banking system. That is, it must be great when he who is called on to maintain a watchful eye on you, aides you in your unhealthy activities. Such an implication is not a bad case against the FED, with my current limited understanding.

I'm always hesitant to make any mention of Ayn Rand as I disagree with so much of her philosophy, yet one quote keeps coming to mind, "No political system can establish universal rationality by law (or by force). But Capitalism is the only system that functions in a way which rewards rationality and penalizes all forms of irrationality, including racism." -Ayn Rand, Racism, 19th paragraph, or pg 151 of Virtues of Selfishness.

Capitalism, as true capitalists define it (as true capitalists define true capitalists, so on and so forth), in no way advocates a central bank.

Ain't the new sound, just like the old sound

Why would banks exist if it wasn’t for the concept of Fractional Reserve Banking? Isn’t this the way banks make money? Why else would I want to be a bank unless I thought I could “invest” funds from depositors? This is how banks make money and pay an interest rate to those that have accounts, right? Am I missing something here?

I read further into our reading, I imagine Rothbard will get into the idea that banks can’t always cover their funding due customers or daily reserve requirements. To cover these balances, banks use “overnight loans” i.e. Federal funds, or fed funds. These are unsecured loans of reserve balances at Federal Reserve Banks that depository institutions make to one another. The rate at which these transactions occur is called the fed funds rate. This fed funds rate is the primary tool the Fed uses for monetary policy. If the economy is growing too rapidly and a bubble is forming, the fed will raise the fed funds rate. The effect is banks will have a tendency to “loan” less money. The inverse creates the opposite effect.

When in doubt, use a T-Account. As an accountant, I liked Roth’s use of T-Accounts to detail banking works. Visually this helped think through the balance sheet. I don’t like how he is analyzing the banks financial position. You can look at any publicly traded bank and you’ll see they do not hold much excess cash. ( http://finance.yahoo.com/q/bs?s=ZION+Balance+Sheet&annual )Banks tend to have a high amount of long-term receivables (other assets) - loans /etc. Banks’s have a high amount of current liabilities. Banks hold amounts due depositors as liabilities, classified as short or long term (pending the deposit terms). Thinking through the accounting of Fractional Reserve Banking, this is the banking business, right? A public banks will disclose its financial position to investors, anyone can see how leveraged a public bank is. You run a poor banking business.

In summary of the above, yes, we increase reserve requirements or let’s regulate the type or ratio (based on risk) of securities public banks hold. However, to argue the concept of fractional reserve banking, the very root of why a bank would exist - for profit, is garbage.

Through all this discussion and through what I’ve read thus far, its not so much that I question what makes the economy work (a central banks role in the economy, including the tools and methods used). My questions more concern how it has been working. Let’s question how the Fed 's monetary has worked and is working. How about the tech and housing bubble’s of the 2000’s?

Critics have long urged the Fed to intervene in bubbles - an argument that seems even stronger given the financial crisis. Had the Fed raised the fed funds rate more aggressively, it is possible that banks would not have made so many questionable loans. We can't know for sure, but we do know what did happen. From 2001 to 2003, the Fed lowered short-term interest rates 13 times. They rates stayed low for another year, and then rose at a sharp pace. With credit so cheap 2001-2003, people and institutions borrowed as if there were no tomorrow. And when the bust came, it spawned the worst recession in 75 years. This brings me to a comment I made in my first post “too much government interference does hurt capital markets. Capital markets do find balance naturally through supply and demand”

Moving the fight to another local

So I tried to comment but it wouldn't let me, not sure why. Thus a new post.

This is going to be really long, but whatever, its fun. But don't expect too much out of me just because I am studying economics; I only know the math behind macroeconomics (and its gross) and there is a gap between that and the political realities. However, I gotta say that I agree wholeheartedly with both Jeff and Matt (sorry Gee). And here's why.

As Jeff points out it is ridiculous to say that the Fed has created inflation and when I read it I imagined Rothbard leaning back on his chair and just laughing at the people who would believe that. There is no way that he can believe that, or if he does I'm just going to laugh at him. Inflation has existed since the inception of banking. And if we later try to pin the blame of speculative crises on the Fed lets just remember that they are older than the Fed too (the Mormon historians in the group - I'm talking to you Gee - will recall the year 1837 with the Kirtland Safety Society forming just a small part of a broader national run on the banks).

And as Matt asked, what else would we do? I've thought about that a bit and I'm going to continue to do so, but I can't think of anything better. The reason is that I think the incentives are aligned such that there is little reason to not perform in the office to the best of your ability.

If this weren't the case you would hear of scandals. And this is major complaint of mine with the text thus far (and I read a little further than the schedule). So much is made about the potential abuses of power BUT NO MENTION OF ACTUAL ABUSE IS MADE. So my question is, what has the Fed done wrong to warrant this? And I would posit that there really isn't much that they can do. Think about the potential sins that they could commit: greed and power.

First lets think about greed. One thing the members of the Fed could do is to use the knowledge they have of future measures to reduce/increase the money supply to do some insider trading. That could be done by buying/shorting stocks that are particularly sensitive to interest rate movements or buying/selling other currencies. So, a minimum requirement for me to believe that members of the Fed are exploiting their knowledge for their own personal financial gain is at least one allegation of "insider trading". To my knowledge there is none. It is true that both Volcker and Greenspan have made quite a bit of money for themselves AFTER leaving the Fed (both went on to work with various financial institutions like i-banks and to write memoirs and give speechs at exorbitant rates and Volcker is currently a member of the Obama administration) but there have been no public allegations of personal gains due to insider knowledge and none have been made about their underlings. In fact, I believe there are regulations in place to curtail this possibility. And as members of the society which they regulate they personally benefit from the stability and growth that are the goals of the Fed.

Now lets think about power. Members of the Fed could simply get drunk on power because, as the book rightly states, their organization is the most powerful on Earth and their chairperson the most powerful person on Earth (though most don't realize it). The most common misuse of power, apart from financial gain, is the exploitation and manipulation of other people. So the minute that Ben Bernancke gets his own TV show and starts televangelizing to the rest of American society then I will be the first person on this anti-Fed bandwagon but currently the exploitation of power does not appear to be a sin that members of the Fed are guilty of committing. So, either they are just way better than everyone else at hiding their abuses of power or this whole anti-Fed notion is overblown.

I will say that I am concerned about the growing connection between the Fed and the Treasury. With this most recent financial crisis and the Fed's joint cooperation with the Treasury in the bailout of the banks its been revealed that the Fed is not as separated from the political sphere as it was intended to be. Rothbard states that the separation from political oversight is a problem with the Fed and I couldn't disagree more. The disconnect between the Fed and party politics allows for an approximate benevolent social planner - and its not because the people are benevolent rather, as I've stated, the incentives are aligned such that there is little if any reason to exploit positions for personal gain (which is something that cannot be said for any political position). The more connected the Fed becomes with the Treasury and thus with the administration and thus with the parties and the Congress the more discriminatory bailouts we will see.

I'm out.

Something for both sides? (cuz there are only two sides ;)

It isn't often that I come across such a controversial matter that both progressives and capitalists might possibly agree on. From what little of this book we've read so far it seems as though the Federal Reserve is an extreme case of corporatism; business-government collusion in the worst way.

If there are arguments by one of the sides for the Fed, I would love to hear them. Rothbard mentions one of them: the Federal Reserve is our main weapon in the fight against inflation. Such an argument is dashed as Rothbard points out that the Federal Reserve is THE CAUSE for inflation.

Really? Is it that simple? What other causes of inflation might there be? I'm pretty sure the elementary definition of inflation is "the increase in the money supply." If that's the case, I know I'm not allowed to increase the money supply, at least not paper money. That power is reserved for the Fed, you know, the one engaged in the fight against "the increase in the money supply." Seems contradictory, no matter how many times I say it.

A lot of the money out there exists as digital numbers. How does that change things...?

How to Post: It took me a few minutes to figure out how to create a new post rather than just adding to the comment section.

1. Go to Blogger.com
2. Login
3. Create a post

You may have already figured that out, but I was a little frustrated when I was trying to figure it out. The reading should take less than 30 minutes this week. Enjoy.

Testing

This is my first attempt at creating a blog. I am now experimenting with the layout. Ideally, someone could post and others could reply to that post and have a conversation, or they could begin their own post.