… Currency reforms of the sort Diocletian undertook still happen sometimes in the modern era, but they almost always go in the other direction. When a country has in the recent past suffered a bout of serious inflation that’s just come to an end, sometimes the government will choose to put an asterix on the new regime by basically striking a zero or two off the old currency. So in 1960, France introduced a New Franc and announced that one New Franc was worth 100 Old Francs, and that 1 Franc Coin of the old vintage could stay in circulation as one New Centime. You could describe the impact of that switch as a giant one-off deflation, but that’s a pretty misleading way to think about it.
Old fashioned Keynesianism, as practiced by the likes of [Paul] Krugman, resembles a set of religious dogmas, not scientific propositions. Austrians view economics as a science, a body of theory and application that helps us understand the world. Keynesians see economics as a set of political tools useful to rationalize and justify an a priori faith in unlimited government. Krugman, like Keynes himself, dislikes businesspeople, consumers, and especially entrepreneurs and investors, and prefers a world in which an elite cadre of intellectuals and bureaucrats controls most investment, production, and consumption decisions. Fine, everyone has a right to his personal belief system. But let’s not pretend there’s anything scientific about the multiplier, the marginal propensity to consume, the liquidity trap, and the other relics and sacraments of the Keynesian religion.
We all know we’re more likely to go shopping when there’s a big sale going on. Retailers don’t try to entice customers by announcing price increases. The more expensive something is, the less people will buy.
But those pushing for a higher minimum wage pretend that labor is an exception to the rule. The administration can point to a few economists who claim to show that raising the minimum wage doesn’t raise unemployment among low-paid workers. Dean Baker and John Schmitt of the Center for Economic and Policy Research in Washington insist that when employers are forced to pay higher wages, they reap large benefits, in the form of higher productivity and lower turnover.
This is the liberal equivalent of the conservative belief that tax cuts always pay for themselves. Anything so ideologically convenient just has to be true.
But if businesses came out ahead by increasing pay at the bottom, they wouldn’t have to be forced into it. They would act on their own, in the relentless pursuit of profits. Instead, many employers have calculated—based on real-world experience meeting payrolls and competing with rivals—that higher pay for entry-level workers is not a free lunch.
Raising the minimum wage may indeed raise average worker productivity — not by inducing existing workers to work harder or smarter, but by inducing companies to get rid of less productive workers. If you raise the floor from $7.25 an hour to $9, employees whose work output is less than $9 an hour will be let go.
Saying that a higher minimum wage would increase productivity is like saying that banning anyone under 6-foot-10 will make NBA players taller. It will, but not because anyone will grow.
Even the famously liberal Nobel laureate economist Paul Krugman has pointed out these realities. On the blog EconLog, economist David Henderson of Stanford’s Hoover Institution cites a 1998 article in which Krugman ridiculed those who “very much want to believe that the price of labor — unlike that of gasoline, or Manhattan apartments — can be set based on considerations of justice, not supply and demand, without unpleasant side effects.”
Obama argues for an increase by saying no one who works full time should remain poor. One fact he doesn’t mention is that the great majority of people who earn the minimum wage are not poor. More often, they’re middle-class teenagers.
Another likelihood, which he denies, is that while some workers will go from $7.25 an hour to $9 an hour, others will go from $7.25 an hour to zero. They won’t be poor despite working full time. They’ll be poor because they’re unemployed.
Keynesian stimulus falls out of the sky in Russia.
There’s been lots of discussion lately regarding the minting of a “trillion dollar platinum coin.” The scheme was first promoted by Krugman less than a week ago, and has been discussed heavily the last few days - with “progressive” statists diligently supporting the cause.
Yesterday, Paul Krugman noted:
Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous.
So, Krugman is in support of minting a platinum coin and declaring its value a trillion dollars. And why wouldn’t he be? This is not, functionally, any different than what the Fed and Treasury do now. The Fed creates “money” as simply as typing on a keyboard.
Philip Diehl, “the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and oversaw the minting of the first coin authorized by the law,” explains how money can be simply divined out of thin air:
The accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the Treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.
Indeed: the same applies to all fiat currency. Therein lies the problem.
But back to Krugman: as is customary with him, it is a game of partisan politics. His opponents are, naturally, evil dolts who wish to see the world burn for their own selfish profits (in that very piece he calls them “ruthless” and “crazy”). In truth, this is a charade he must maintain so that people don’t catch on to how much the two major parties actually have in common. The alternatives are default and inflation, as he notes. But in truth, by paying debtors with money valued less than what was borrowed, inflation is merely a slower form of default. So Krugman makes a distinction without much difference.
What Krugman is peddling here - what he’s pretty much always peddling, to be honest - is magic:
Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.
Here, again, is Diehl:
Once the debt limit is raised, the Fed could ship the coin back to the Mint where the accounting treatment would be reversed and the coin melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.
So it’s like the coin never happened! It’s all make-believe money… so what, then, are the debtors “receiving”?
Diehl, too, believes in the magic of this make-believe money:
There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit.
This is magical thinking, and like Tinkerbell and Santa Claus, they need you to believe for the pixie dust and reindeer to take flight. How can such activity do “no economic harm at all” or have “no negative macroeconomic effects”? If I paid a debtor back with pennies on the dollar, would he feel no economic effects? Would our future economic activity not be harmed?
And if this works “just like additional tax revenue or borrowing,” then why must there be any taxes or borrowing at all? Why not just mint trillion dollar coins ad infinitum? And why not mint a quadrillion dollar coin and profit? And why don’t we all do this? If there are truly no negative economic consequences to simply declaring something with little value as having higher value and paying debts with this “money,” then why aren’t all homes installed with counterfeiting machines as a means to economic prosperity?
Explaining this magic Keynesian thinking, Krugman actually puts his foot in his mouth a bit:
It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.
For starters, he’s using the modern lie that monetary expansion is not inflation. As I have frequently noted: this is a purposeful shift in definition to obscure the cause (monetary policy) from the consequence (price increases): “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.”
But here he admits a couple of things he doesn’t tend to. Notably, he states that printing money does cause price inflation, just not “under current conditions.” Of course, he has a long track record of always finding ways to make “current conditions,” whatever those may be at the time, just right for printing money. Still, he’s exposed himself. Furthermore, he concludes that this process of turning government debt into “debt held by the public” as “doing no economic harm at all.” I wonder: if my student loan debt eventually turned into debt held by Krugman, whether he would conclude that it did him any economic harm.
In any case, let’s understand, specifically, this trillion dollar coin a little bit and why it is completely laughable.
First, let’s assume that it is a full one ounce platinum coin. Currently, such a coin has a spot price of approximately $1,500 (and is actually $100 less than a gold coin - but a gold coin doesn’t sound as impressive, does it?). So what is this coin’s true market value relative to the fiat value that Krugman and his cronies wish to “impart” on it?
$1,500 out of a $1,000,000,000,000 is 0.00000015%. That’s 3/2-billionths of a percent.
Most people have a hard time conceptualizing very large numbers, myself included, so let’s think of it another way. That is approximately the same relationship between one M&M and 400,000 5lb bags of M&Ms. Imagine eating ten pounds worth of M&Ms every single day (that’s a hundred ”servings” a day) for 550 years. That’s eating 35 M&Ms every single minute of every single day of every single month of every single year, without sleep, for nearly eight lifetimes. Now contemplate the value of a single M&M in that context. That’s the same relationship one penny has with the combined values of twenty $10 million mansions.
Its value is negligible. It is, essentially, zero.
So using a platinum coin is merely ceremonial. It is a way to give something the appearance of value since, again, most people have a hard time conceptualizing very large numbers.
In truth, the platinum coin has basically the same value, relative to a trillion dollars, as this:
But if monopoly money were used, then people might soon realize that the federal reserve notes in their wallets are hardly any different (as Diehl admitted: it is the same “accounting treatment”) - and as such people may begin to question the legitimacy of the entire Keynesian/monetarist enterprise.
And we can’t have people learning the truth, now, can we?
Hey, look - a comic book villain who’s a neo-Malthusian Keynesian, professing the virtues of broken windows.
Keynesianism: The Video Game
Here’s the tie-in video game for the upcoming Disney movie “Wreck-It Ralph.” In the game (made for the iPad/iPhone and stylized like an old-school 8-bit game from the 80’s), you play “Fix-It Felix” and gain points by fixing the windows that Ralph continuously breaks.
My hunch is that Ralph’s last name might be Krugman.
Scrub to 35:20 to enjoy Spanish economist Pedro Schwartz graciously take on Krugman and Keynesianism (in English) at a conference run by Fundacíon Rafael del Pino presenting Krugman’s new book. (via LvMI)
I got a good chuckle later in the video (after Krugman gets his rebuttal in) when Keynesian Manuel Conthe claimed that Krugman deserved a second Nobel for his latest book, but then I audibly laughed when he praised Krugman’s “easy-to-understand metaphor” of the babysitting co-op (which Conthe describes almost as if it were a new metaphor even though Krugman introduced it in a column at Slate almost 15 years ago, and has been using it in his textbook for years). If you want to know why it’s funny to believe that his metaphor is anything short of foolish, see here, here, here, and here.
My east coast vacation continues. And with the downpour outside, it was a perfect opportunity to catch up on internet reading and share some worthy links - there’s something here for everybody.
- With the bicentennial of the War of 1812 upon us, and “commemorations” already under way (I have to admit, there’s some pretty cool “Tall Ships” lined up at Penn’s Landing right now), it’s important to understand the truth about that wholly unnecessary war of imperialism (that led to the White House being torched).
- —> Justin Raimundo on 1812: The War Party’s First Success
- —> Jefferson Morley calls it America’s “first war of choice.” Charles Burris follows up with a few notes of expansion.
- Tom Engelhardt on secret kill lists and an imperial executive.
- Thomas DiLorenzo gives the latest update on the costs of Lincoln’s war.
- Bob Wenzel asks Is Ben Bernanke the New G. William Miller That Will Destroy the U.S Economy? And he follows up with How the Federal Reserve Manipulates Interest Rates and the Money Supply (definitely read this one).
- From Michael Rozeff: Why the FED’s Zero Interest Rate Policy Hurts the Economy. Also from Rozeff: “a great deal of economic hardship and suffering today is directly related to and caused by improper banking practices and a flawed monetary system created by bad government laws.”
- Peter Schiff explains that savings and investment - from individuals, not government - is the key to progress.
- The Obama Auto Bailout was a payoff to Labor Unions - at Taxpayer expense.
- Tom Woods responds to a critic who claims, of all things, that Austrians are shills for bankers.
- David Gordon reviews Krugman’s new book, saves you the trouble.
- Pete Earle on Krugman and Diocletian (thought I had already posted this one once before, but couldn’t find it).
- Jonathan Chait (and Bob Wenzel) on Romney’s Big Fat Wet Kiss to Keynesian Economics.
- The Daily Bell explains that a glut of 40 million unused homes is not a “market failure.”
- “[T]his is not a plutocracy of honest businessmen and women. It is a crony capitalist plutocracy linking politicians, bureaucrats, public union leaders, trial lawyers, Wall Street, and many other government dominated and directed industries. It is a crony capitalism that has been created and defended by the very economic policy ideas which [Keynesians espouse].”
- Cops receive special treatment, even when they commit murder:
Stanley Gibson, a disabled Gulf War veteran, was murdered in a Las Vegas parking lot last December 12. He was shot seven times in the back of the head, without provocation, by a stranger wielding an AR-15 rifle. The killer, 34-year-old Jesus Arevalo, remains at large and is easy to find: He’s an officer with the Las Vegas Metro Police.
Gibson was unarmed. He was not a criminal suspect and posed no threat to anybody. His killing was a clear and unmistakable case of criminal homicide. Yet Arevalo has not been charged with a crime. He is on an extended vacation called “administrative leave,” during which he continues to collect his taxpayer-funded salary and benefits.
- Video Shows Cops Tasing a Restrained Woman In Accordance With a Policy That May Not Exist.
- Dear Police: Please Stop Tazing Pregnant Women.
- Cellphone Video Shows Four Cops Beating Philly Motorist Charged with Aggravated Assault and Resisting Arrest
- There’s no way you won’t be angry after reading this account of an innocent young man being forcefully catheterized.
- Cop stops motorcyclist without Cause, later arrests him for “obstructed license plate” (which, undoubtedly, is a lie). Helmet cam reveals abundance of assholiness on display, and moreover, the cop actually gives the real reason for the stop: “The reason you’re being pulled over is because I’m gonna take your camera and we’re gonna use it as evidence of the crimes that have been committed by other bikers.” So arrest biker in order to confiscate his video camera, then comb through footage of possible violations of others. Sweet.
- “Informal, corrupt deference to cops accused of criminal misconduct is [bad enough]. But the idea that the government agents in charge of enforcing the law would get an official, codified set of rights above and beyond those afforded to the rest of us is really an affront to everything a democratic society is supposed to represent.”
- Austin Man Facing 10 Years in Prison After Photographing Cops Making Arrest.
- Law Lets New York Cops Keep Their Misconduct Secret.
- Eric Peters on Speeding Praetorians Above the Law.
- NYPD, like every other armed gang like it, employs a strict anti-snitching culture.
- When in Doubt, Handcuff Everybody.
- Seventy-Two Cops Were Shot and Killed in the Entire U.S. in 2011; LA County Cops Alone Shot and Killed 54 Suspects the Same Year.
- Allan Stevo on why it’s important to have A Healthy Disrespect of the Police.
- Surprise, surprise: No Charges for Miami Cop who Shot Unarmed Motorist.
- When even the union-dominated California Senate says enough is enough (regarding police secrecy), there may indeed be reason for optimism.
- Texas Police Chief Accused of Shooting Two Dogs and a House.
- Don Boudreaux: “industrial capitalism is history’s greatest anti-pollutant.”
- Free market environmentalists or enviropreneurs are the environment’s best bet, not government.
- Doug French: Private Property = Preservation.
- “[F]ree trade and innovation could help alleviate the suffering of the third world and improve the environment, if only people could be convinced these “unsexy” ideas were of greater benefit than sorting the glass and plastic in their garbage.”
- The EPA epitomizes stupid, tyrannical bureaucracy.
- Reason actually has a short piece on leftist delusions about Obama, with 4 Positions Obama Supporters Attribute to the President That He Doesn’t Actually Hold. (The four being 1. Barack Obama will end the war on drugs, eventually, 2. Obama’s support for gay marriage is groundbreaking, 3. Barack Obama’s immigration policies are compassionate and humane, and 4. Barack Obama’s foreign policy is not as destructive as George W. Bush’s was (or Mitt Romney’s would be).)
- Karel Beckman on The False Promise of Democracy (Related: my post on The Illegitimacy of Democracy)
- A Modern Timeline of Leftists Claiming That Opposition to Obama = Racism
- Kevin Gutzman on The Myth of ‘Executive Privilege’.
- An interesting poll reveals that pretty much everyone in the Eurozone thinks Germany “works hardest” (except, naturally, the Greeks, who have demonstrated how far up their own asses they like to store their heads) and the “least corrupt.”
- Stephan Kinsella points out some leftist hypocrisy on minimum wage - they understand the argument, but only when it suits them.
- Here’s one business that knows how to cater to customers’ interests: Comcast Refuses to Help Copyright Holders Sue Its Subscribers.
Yeah, that is a pretty misleading way to think about it. So why suggest it as “going in the other direction”? Coming up with a “new” currency with new denominations is not necessarily any less inflationary if the effect is still the same. If the U.S. government prints brand new money out of thin air, it doesn’t matter if they print five Dollarinos worth $1,000 each or simply five thousand dollars.
I’m not sure I follow your objection. The French monetary exchange didn’t involve just printing new money per se. Under the traditional definition of inflation (an increase in the money supply), the French deflated their currency. The old centime pieces were never circulated widely, and fell out of use under the new system. So under the exchange that took place, the total amount of practically usable legal tender was reduced. …
But it is. They created new money. They didn’t first extract existing currency to then replace it with the new. At least, I don’t believe they did (please, correct me here if this is the case). As I said, creating a new currency isn’t necessarily any less inflationary, particularly if it’s additive. And of course the old centime pieces were increasingly less circulated because their value was exceedingly low in relation to the new money added to the economy, especially since they were no longer being minted to keep up with the volume demanded to keep up with inflating prices. (This phenomenon of one under-valued currency being drawn out of circulation by an artificially over-valued one is known as Gresham’s Law.) When actual inflation becomes price inflation, there is a point in which the velocity of the lowest denominations, especially when said denominations become a smaller percentage of the overall currency, tends to slow down as such denominations become more cumbersome and less practical to use.
… I linked to Yglesias’s article because Ron Paul accused Krugman of supporting the economic policies of Emperor Diocletian. Krugman rejected that accusation, and I think the article demonstrates that Paul was being overwrought: I don’t believe I’ve ever heard Krugman calling for an overnight 100% doubling of the exchange value of the currency, which is what Diocletian did when he issued his final currency Edict. I think we can both agree that such a policy decision would be catastrophic and ruinous. …
This is only a matter of degrees. The point Ron Paul was making (and that I would agree with) is that Krugman’s preferred “tools” and “methods” are, essentially, the same as Diocletian - they only disagree in speed, as it were. One may advocate stabbing someone in the abdomen quickly, and the other may advocate a much more gentle stabbing. But the stabbee would rightly protest to both knives through his gut.
[I had to redact much of letterstomycountry’s argument as I only had time for a quick rebuttal of his main points. Please click here if you wish to see his argument in full.]
“[D]o you really think people use dollar bills because the federal government isn’t allowing them to use other stuff? That seems like a very strange point of view…You can do barter with all kinds of stuff…”
- Paul Krugman, in his recent televised discussion (hardly a “debate”) with Ron Paul.
For starters, of course the government “isn’t allowing [people] to use other stuff,” if we understand “stuff” to be what Ron Paul was arguing (and Krugman was immediately responding to): money. We need only look at the recent Bernard von NotHaus conviction for minting “Liberty Dollars,” both coins and gold and silver certificates. Further, as Ron Paul stipulated, there are taxes on gold and silver that make using it as a medium of exchange artificially more prohibitive and costly.
But this isn’t quite what Krugman was getting at. He explicitly conflated money/currency, which is what Ron Paul was discussing, with barter. This is such a fundamentally flawed proposition that it almost shocks me how little push-back the media has given Krugman.
As Bob Murphy explains in his economics book for middle-schoolers, Lessons for the Young Economist, “direct exchange, or what is also called barter, [are] exchanges that do not involve money”:
We only leave a state of barter and enter the realm of indirect exchange when people receive an item during a trade that they don’t plan on using themselves, whether for consumption or production. What happens in this case is that they plan on trading the item away to somebody else in the future. This is actually what happens in every trade involving money. When you sell a few hours of your leisure cutting your neighbor’s lawn for $20, you are engaged in indirect exchange. You don’t plan on eating the $20 bill, and you don’t intend to combine it with other materials in order to build something. The reason you value it, is that you expect to be able to find somebody else (in the future) who will sell you something you do directly value, in exchange for the money.
It’s pretty basic stuff. But Krugman was probably hoping the unthinking masses wouldn’t notice his deflection.
It was a toss-up between “a.” and “c.”…
Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis
Watch as Ben Bernanke and Paul Krugman embarrass themselves with their absolute cluelessness. Watch Peter Schiff speak truth while being ridiculed. I’m surprised there wasn’t more of Ron Paul; there’s so much material, the video could have gone on for quite some time.
This video makes this hysterical defense of Krugman/Keynesians and attack of Ron Paul/Austrians by ryking that much more comical - particularly in light of ryking’s use of a college “study” that not only had no Austrians in its pool of only 26 “pundits,” but had such non-economist ignoramuses (ryking made it a point to note that Krugman was an economist while Paul was merely a physician) as Chuck Schumer, Nancy Pelosi, John McCain, Lindsey Graham, and Sam Donaldson.
About the amazing prognosticative powers of Ron Paul.
The latest polls show Newt slipping in Iowa — but not to the benefit of Mitt Romney. Instead, it now seems possible that Ron Paul will win the caucuses.
Now, Paul is unique among the GOP contenders, or for that matter among politicians in general, in making monetary policy his signature issue. So it’s worth noting that he is among those who have been wrong about everything in this slump.
Paul fans always make a big deal about digging up some ancient video of Ron saying something years ago and triumphantly announcing that he’d predicted what’s happening today. There is no logic to this. Let me draw an analogy.
Imagine a weatherman who predicts a disastrous storm every night. You have to stock up on food and water, he says, and for good measure sleep in the basement. This goes on for a few years, until finally — and inevitably — there is a big storm that knocks down trees and cuts power and wrecks a house or two.
Now, does that make him a good weatherman or a shitty weatherman? Paul is actually worse than that, warning of an imminent economic collapse that still has not happened. They’re basically declaring the collapse of the housing bubble “close enough.”
“I’m sure that the Paulistas will find a way to claim that their man has been right about everything, even though his predictions have been all wrong,” Krugman writes. “But he really has built his political career around the notion that he’s an expert in a subject about which he actually understands nothing.”
Using Krugman as a source to attack Paul. Priceless.
This is hilarious.
I can’t even think of a proper analogy in which someone so consistently wrong calls someone so consistently right to be consistently wrong. And because Krugman espouses what some want to hear, the unthinking masses champion his falsehoods as truth.