laliberty: Hi. I hope you don’t take my response as an attack. If you want more information, I’d be happy to point you to some sources. I promise to not hold your being a Fighting Irish against you… (couldn’t help it, I’m a ‘Cane and remember the Catholics vs Convicts rivalry too well) :)
Absolutely not — I am all for reasoned debate and am more than happy to engage you on this.
I do disagree with you on a number of places, though, starting with the idea that the poll is a Keynesian one — the point of the IGM forum is to survey economists from schools as disparate as UChicago and Princeton (one neoclassical and one Keynesian). Furthermore, Monetarists and Keynesians rarely get along (see: Stephen Williamson and Paul Krugman).
My point was that they are all central banking apologists, all essentially monetarists of some sort - meaning all accept or advocate a governmental role in the supply of money. Being neo-classical, or Keynesian, or Chicago-Schooler, or Supply-sider, or even Socialist - like a Monetarist - is not mutually exclusive to being in favor of a centralized authority in monetary policy. That there are disagreements doesn’t negate this. Republicans and Democrats disagree vehemently on many things, but they are both, generally speaking, statists.
Basically, the question asked is a fairly defining one.
I’m an economics student myself, and I happen to take issue with some of your contentions. First, and this is a technical quibble, inflation isn’t an increase in the money supply, but rather an increase in price levels.
This is not, in fact, merely a quibble. This is actually a crucial point. I offered a link in my previous post that explained how inflation was always defined as an inflating of the currency or inflating of the money supply. Even Keynes himself defined the term this way. In fact, from 1864-2003, that’s exactly how Webster’s defined inflation: “undue expansion or increase, from over-issue; — said of currency.”
That this definition is less common today is a direct consequence of what can only be considered many years’ worth of Orwellian language restructuring. As I previously explained, “Inflation was and is definitionally printing money, or more specifically inflating the money supply. By divorcing the word from its literal origins, [central planning apologists] cloud the direct effect between money printing and the value of money.”
This is not unlike suddenly using the word dog to instead refer to dog piss.
Ask your economic professors why inflation had a set definition that has only recently changed. Why what once was inflation is now defined by its effects. I took a number of Keynesian courses in college and it was in challenging what seemed to be inconsistencies did I truly learn.
More to the point, your argument implicitly rests on the idea that the “falling value of the dollar,” as you term it, is intrinsically bad.
That is not necessarily what my argument rests on. I was countering the claim that monetary policy allows for more stability and less volatility than the value of gold. In fact, “stable prices” is one of the Fed’s primary purposes. I think I demonstrated the falsity of such a claim in my last post by showing how in 30+ years, “relative to the Federal Reserve’s “stable” dollar, the price of gasoline increased by 245%. Relative to “volatile” gold, on the other hand, the price of gasoline decreased by 0.5%..”
You neglect, of course, to realize that increases in price levels extend to the price of labor — that is, compensation (wages + benefits) increase with the price of goods. (Now, and this is something related to my biggest passion, healthcare policy, increases in compensation have gone almost entirely to insurance premiums — but I digress.)
If price levels eventually extend to wages, this merely means that wages are catching up to other price changes. The price changes that occur first are always in whichever preferred industry gets the new money, and thus benefits those favored cronies who are most connected. They get to circulate the new dollars before saturation and velocity cause prices to increase. In other words, they have more money before that money is less valued. Those lower on the economic ladder typically feel the price changing effects of inflation well before their wages catch up.
There, of course, are a number of other arguments against the gold standard. As a student of economics, it seems clear to me that monetary policy is, in fact, a useful tool for solving macroeconomic problems. My economics department is a neoclassical, free-market one, but it generally doesn’t deny the empirical evidence that monetary policy can and does have a moderating effect on the volatility of GDP.
There is a separate argument to be made for not intervening in the macroeconomy at all, and I’ll be happy to engage that one too. But as far as I see it, the gold standard is still a bad idea, and for far more reasons than the ones I have oh-so-briefly outlined here.
There’s an inherent problem in using GDP to measure the effectiveness of a central banks moderating effects, considering government spending is factored into “growth.” Even so, The Fed states 2% annual inflation as its goal, which means its ideal is a 2% drop in the purchasing power of the currency. And, I’d also counter that empirical evidence shows an overwhelming and consistent lack of success with regards to central banks’ abilities to mitigate recessions, avoid monetary volatility, and attenuate periods of high unemployment - the main reasons publicly offered for the existence of such central banks. And none of this even addresses the fundamental trouble with a monetary printing press: malinvestment.
But ultimately, this comes down to what my argument does rest on: the use of knowledge in society. I recommend my post on The Calculation Problem and Price Theory for the basics.
You may find this article from The Economist interesting, too.
To this, I’d simply say freedom ain’t easy. The question is whether or not a central bank is the most just, effective, moral, and productive answer for a wealthy, thriving economy and populace. Whatever logistical complications may exist to arrive at the ideal solution are, in my opinion, secondary to the long-term benefit. (Also, as a related side note: Democracy is illegitimate.)
And, yes: Go Irish!