Dr., Because that's where the money is. Why do I accept the FREE FORKLIFTS !!! that you gave me? Because that's where the money is. Why is a certain state (not Texas) going to give my employer THREE MILLION DOLLARS !!! to hire just 26 people there? (Because they're idjits, and they're not responsible for how they spend your money.)
The root of our current economic malaise, the weak dollar, the high price of oil, and the collapse of the housing market, comes about because almost no one understands what inflation is. Inflation is an increase in the money supply, which occurs by various methods, the printing of currency, low reserve requirements, Federal Reserve open market operations, etc.
But why would the government want to print more money?
Until the cause of inflation is understood, no effective strategy can be undertaken to combat it. The problem, however, is that the government does not want inflation to be done away with. Inflation benefits debtors and harms creditors, and the United States government is the biggest debtor of all. The United States government, the banking monopoly under the Federal Reserve System, and politically-connected firms and industries are the first entities to take advantage of new money injected into the system, before prices increase.
And who does this hurt the most?
As the increased supply of money begins to chase the same number of goods, prices rise, and the average American suffers. Poor and middle-class Americans are always the hardest hit by inflation, as the weakening dollar makes the imported goods that many Americans depend on more expensive.
Question re: Ron Paul's statement that "Inflation is an increase in the money supply."
I'm not an expert in that area, but I seem to recall from my macroeconomics class that inflation can also result from:
(1) holding the money supply constant while decreasing the goods available (e.g., a freeze that wipes out the Florida orange crop will increase the price of orange juice); or
(2) holding the money supply constant while increasing demand (e.g., the increase in prices of fuel-efficient cars during a period of rising gasoline prices).
Granted, the theory is simple and the real world is complex and messy. But to say that inflation comes solely from increasing the money supply seems like an oversimplification. Take oil prices, for example. Have they increased just because the fed has increased the money supply, or does increasing global demand also play a part? Factor in OPEC's 'adjustments' to the supply of oil, and things get complicated.
I'm not saying that Paul's statement is incorrect as much as it is incomplete.
Dr Ralph: I love how Boudreaux keeps railing against subsidies for green energy but not big oil--even when there was a major vote in the Senate about it. (Big Oil won, natch.)
Whitetrash: Boudreaux was a Koch whore long before the stimulus, so you can't link him to that.
Collectivists love to play the (re)definition game. Reductions in the amount of confiscatory taxes called "deductions" for any enterprise are called "subsidies" when evil "big oil" takes advantage of them. When real "subsidies" occur as in transfers of taxpayer cash to uneconomic but collectivist designated "good" businesses who just happen to be rent seekers happens we invariably are told: "mistakes were made".
Are we now allowed to designate collectivists of the leftist persuasion Marxist "whores"? Just askin'.
The economic definition of inflation is an increase in the money supply. Under most (but not all) conditions it will result in the prices of goods and services to increase in terms of monetary units. The average price of a gallon of gasoline today in the US is about 18 cents in honest undebased 1949 coinage.
7 comments:
Even on the rare occasion when I happen to agree with his point, Don Boudreaux still manages to come off sounding like a pompous, self-absorbed dick.
Say, why does he continue to suck at the teat of Virginia taxpayers instead of working in the private sector?
...Make that pompous, *hypocritical,* self-absorbed dick.
BTW - check out Thursday's Daily Show. You'll want to post a clip.
Dr.,
Because that's where the money is.
Why do I accept the FREE FORKLIFTS !!! that you gave me?
Because that's where the money is.
Why is a certain state (not Texas) going to give my employer THREE MILLION DOLLARS !!! to hire just 26 people there?
(Because they're idjits, and they're not responsible for how they spend your money.)
One last thing, from an old post....
Here's Texas Congressman Ron Paul:
The root of our current economic malaise, the weak dollar, the high price of oil, and the collapse of the housing market, comes about because almost no one understands what inflation is. Inflation is an increase in the money supply, which occurs by various methods, the printing of currency, low reserve requirements, Federal Reserve open market operations, etc.
But why would the government want to print more money?
Until the cause of inflation is understood, no effective strategy can be undertaken to combat it. The problem, however, is that the government does not want inflation to be done away with. Inflation benefits debtors and harms creditors, and the United States government is the biggest debtor of all. The United States government, the banking monopoly under the Federal Reserve System, and politically-connected firms and industries are the first entities to take advantage of new money injected into the system, before prices increase.
And who does this hurt the most?
As the increased supply of money begins to chase the same number of goods, prices rise, and the average American suffers. Poor and middle-class Americans are always the hardest hit by inflation, as the weakening dollar makes the imported goods that many Americans depend on more expensive.
Question re: Ron Paul's statement that "Inflation is an increase in the money supply."
I'm not an expert in that area, but I seem to recall from my macroeconomics class that inflation can also result from:
(1) holding the money supply constant while decreasing the goods available (e.g., a freeze that wipes out the Florida orange crop will increase the price of orange juice); or
(2) holding the money supply constant while increasing demand (e.g., the increase in prices of fuel-efficient cars during a period of rising gasoline prices).
Granted, the theory is simple and the real world is complex and messy. But to say that inflation comes solely from increasing the money supply seems like an oversimplification. Take oil prices, for example. Have they increased just because the fed has increased the money supply, or does increasing global demand also play a part? Factor in OPEC's 'adjustments' to the supply of oil, and things get complicated.
I'm not saying that Paul's statement is incorrect as much as it is incomplete.
Dr Ralph: I love how Boudreaux keeps railing against subsidies for green energy but not big oil--even when there was a major vote in the Senate about it. (Big Oil won, natch.)
Whitetrash: Boudreaux was a Koch whore long before the stimulus, so you can't link him to that.
Collectivists love to play the (re)definition game. Reductions in the amount of confiscatory taxes called "deductions" for any enterprise are called "subsidies" when evil "big oil" takes advantage of them. When real "subsidies" occur as in transfers of taxpayer cash to uneconomic but collectivist designated "good" businesses who just happen to be rent seekers happens we invariably are told: "mistakes were made".
Are we now allowed to designate collectivists of the leftist persuasion Marxist "whores"?
Just askin'.
The economic definition of inflation is an increase in the money supply. Under most (but not all) conditions it will result in the prices of goods and services to increase in terms of monetary units. The average price of a gallon of gasoline today in the US is about 18 cents in honest undebased 1949 coinage.
Because that's where the money is?
I thought we were talking about Don Boudreaux, not Willie Sutton.
I guess if the shoe fits...
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