The Return of the "Golden Age" -- a short story

[donsutherland1]

Country: United States
Year: Around 2040

During its largest outbreak of inflation coming out of the 1970s and then an historic financial crisis, the Federal Reserve had demonstrated its mettle in heroic fashion. Fed Chairman Paul Volcker slayed the inflation dragon, even as critics of a fiat currency felt that the fiat system itself had failed forever. A generation later, Ben Bernanke engineered an extraordinary burst of innovation, preventing the collapse of the nation’s banking system and onset of a new Great Depression. In a rational world, the Fed had proved its immeasurable worth.

But rationality does not always prevail. It is not always the normal condition. The irrational Gold bug, seduced by the metal’s glitter and a romanticized view of its perfection, had not gone extinct. Feeding on the long-period of sluggish growth that typically follows the collapse of a highly-leveraged real estate bubble, they multiplied in number. Every fiscal decision that contained a whiff of Keynesian backing drew increasing swarms of gold bugs. Every FOMC monetary policy statement was followed by what grew to be a deafening buzz of the gold bugs.

By the late 2020s, the Congress fell to the gold bugs. By 2032, in the face of growing fiscal imbalances from mandatory spending programs, the gold bugs won the White House. What had started as a seemingly moderate initiative to “audit” the fed (even as it is regularly audited), became a full-fledged abolition movement. By 2035, the Fed was gone. In its place, was a renewed gold standard.

Economists had warned more than a century earlier that gold supply constraints could only lead to long-run economic strangulation. The Gold Bugs brushed aside such heresy. Nevertheless, the laws of supply and demand proved beyond the control of even the Gold Bugs. Economic growth stagnated and prices fell.

As prices fell, real household, corporate, financial, and government debt burdens rose. More and more, households and businesses diverted cash from consumption to debt payment in a desperate bid to avoid drowning in rapidly rising real debt burdens. As an enormous consumption drought took hold, the rate at which prices fell accelerated. Real debt burdens rose even faster.

A rush for the exits was soon underway. Cell phone service collapsed as people began withdrawing funds from banks. Banks were shuttered. Stock prices collapsed. Real estate prices plunged. A fiscal crisis exploded. Vicious feedbacks led to intensifying deflationary pressures.

There was no central bank any more. No one could play lender of last resort. The notion of fiscal stimulus had been driven into extinction by triumphant Gold Bugs in the 2030s. The Austrian doctrine had rendered fiscal policy powerless and irrelevant.

Now, a howling storm of vanishing consumption, massive deleveraging and plunging prices was raging. The Category 5 deflationary hurricane was battering the American economy, bringing misery, hardship, and despair across households, industry, and government. No one was spared.

Furthermore, this deflationary storm was rapidly overspreading the globe (except for North Korea, which remained locked in a strait jacket of misery of its own making), as deflation ripped through the world’s intensively interconnected financial and trade linkages. Where Depression had not yet arrived, Depression was imminent. Given the vast size of the imploding American economy, the world’s economies were being sucked into Depression with about as much hope of escaping ruin as matter has when swirling into a black hole.

A new “Golden Age" had dawned.

 

[csbrown28]

opcorn2:

 

[rhinefire]

It is?! Damn it all, just yesterday I threw out my alarm clock. The trouble with coins is that the price is not just based on the metals. Historical value counts too. Dealers charge a premium. Then there is the charge for storage Plus commodities don't pay interest or dividends. While gold can go up it tends to trade on fear. If you insist on having gold as a small part of your portfolio choose SPDR Gold Shares (GLD) or iShares North American Natural Resources (IGE)

 

[mmi]

All that glisters is not gold. Often have you heard that told.

If you insist on having gold as a small part of your portfolio choose Company X or Company Y.

Very spammy. Should be removed.

 

[Moot]

Economists had warned more than a century earlier that gold supply constraints could only lead to long-run economic strangulation. The Gold Bugs brushed aside such heresy. Nevertheless, the laws of supply and demand proved beyond the control of even the Gold Bugs. Economic growth stagnated and prices fell.

"...Gold supply constraints could only lead to economic strangulation."

That's what I think would happen, too. With a finite resource and the inevitable hoarding, how could it not?

 

[Onion Eater]

a full-fledged abolition movement. By 2035, the Fed was gone. In its place, was a renewed gold standard.

You are judging Ron Paul by his bumper sticker slogans and sound bites. But Paul is a legislator and - like all legislators - he should be judged by the legislation that he introduces into Congress.

Rep. Paul introduces bill to cancel $1.6T in debt held by Federal Reserve | TheHill

There is nothing in Paul's proposed legislation about a renewed gold standard. Ron Paul believes in the Debt Virus Theory - straight out. The bumper stickers and sound bites about the gold standard are a stalking horse.

Observe that Ron Paul's book End the Fed has over 200 pages of bumper-sticker-style writing intended to get people riled up about how awful the Fed is and how wonderful the gold standard is but without any substance, which you would expect from a book written by a legislator. Then, on page 204, we finally get to Ron Paul's actual proposal:

While a gold standard would be a wonderful thing, we shouldn’t wait for one before we end the Fed… An end to the money-creating power and a transfer of remaining oversight authority from the Fed to the Treasury would be marvelous steps in the right direction.

Stalking horse!

So we see that what would actually happen if the gold bugs succeeded in eliminating the Fed is that the Treasury would just print money and spend it into existence. Through a bizarre twist of logic, this is supposedly not inflationary because bonds are not involved. Of course, while people can be incredibly stupid, the level of stupidity that Ron Paul's proposed legislation reaches means that it is probably not going to get passed even by 2040.

However, your story is wrong. What would actually happen if the Fed was abolished is hyperinflation, not deflation.

P.S. In the unlikely - very unlikely since neither Paul nor anyone else has proposed such legislation - event that a gold standard is implemented, then it would indeed be deflationary. But, being a practical man, I only concern myself with legislation that has actually been proposed, so I don't care.

 

[donsutherland1]

You are judging Ron Paul by his bumper sticker slogans and sound bites. But Paul is a legislator and - like all legislators - he should be judged by the legislation that he introduces into Congress.

Rep. Paul introduces bill to cancel $1.6T in debt held by Federal Reserve | TheHill

There is nothing in Paul's proposed legislation about a renewed gold standard. Ron Paul believes in the Debt Virus Theory - straight out. The bumper stickers and sound bites about the gold standard are a stalking horse.

Observe that Ron Paul's book End the Fed has over 200 pages of bumper-sticker-style writing intended to get people riled up about how awful the Fed is and how wonderful the gold standard is but without any substance, which you would expect from a book written by a legislator. Then, on page 204, we finally get to Ron Paul's actual proposal:



Stalking horse!

So we see that what would actually happen if the gold bugs succeeded in eliminating the Fed is that the Treasury would just print money and spend it into existence. Through a bizarre twist of logic, this is supposedly not inflationary because bonds are not involved. Of course, while people can be incredibly stupid, the level of stupidity that Ron Paul's proposed legislation reaches means that it is probably not going to get passed even by 2040.

However, your story is wrong. What would actually happen if the Fed was abolished is hyperinflation, not deflation.

P.S. In the unlikely - very unlikely since neither Paul nor anyone else has proposed such legislation - event that a gold standard is implemented, then it would indeed be deflationary. But, being a practical man, I only concern myself with legislation that has actually been proposed, so I don't care.

The thread was labeled as a short story. It is a purely fictional account aimed at providing a quick sketch of a world in which the gold standard were restored, as some such as Jim Grant, have advocated. It draws upon the work of Barry Eichengreen, Irving Fisher, Gustav Cassel, et al.

It was not intended to describe only a situation where the Fed was eliminated and monetary policy authority was merely shifted to the Treasury or some other government entity. If that were the case, politics not macroeconomic conditions would drive monetary policy. Evidence from cases where central banks were not independent suggests that such an outcome would be heavily biased toward monetary policy accommodation and, therefore, materially increase the risk of inflation or, in extreme cases, hyperinflation.

Given the empirical evidence related to the benefits of an independent central bank and the inherent shortcomings of a gold standard, I don't expect any serious effort to abolish the Fed or reinstate the gold standard. Neither outcome would be viable. Each would create serious long-term issues.

 

[DA60]

A generation later, Ben Bernanke engineered an extraordinary burst of innovation, preventing the collapse of the nation’s banking system and onset of a new Great Depression. In a rational world, the Fed had proved its immeasurable worth.

There is ZERO unbiased, factual proof that the Fed prevented another Great Depression OR a nationwide banking collapse...only speculation. It is impossible to know how a past event would have turned out under different circumstances.

The Great Recession was minuscule in comparison to the Great Depression. GDP drop during the Great Depression was from (1929) $104.6 to $57.2 billion (in 1933)...a whopping 45.3%. The 'Great Recession' was a GDP of (in 2007) $14.7 trillion to $14.4 trillion (in 2008)...less then 3%. So, in terms of GDP drop, the Great Depression was over 15 times worse then the 'Great Recession'.

Plus, if the banks were in such horrible shape, then how come the Bush administration had to force the major banks to take TARP money?

At Moment of Truth, U.S. Forced Big Bankers to Blink - WSJ

Imo, America was NEVER in any danger in 2008 of a major banking collapse OR a Great Depression. I beleive the Fed's toxic asset purchases were little more then them trying to help their banker buddies. And, naturally, the Fed screamed 'panic' to scare people into letting them.


And as for the Fed helping the economy. History has shown that government intervention during major economic downturns actually (probably) delays a full rebound.

During/after the Great Depression, under massive government spending by BOTH Hoover and FDR; by 1939, 10 years after the initial market crash, the unemployment rate was still 5 times worse (then 1929) and the DOW never rose higher then 55% of it's pre-crash level. Plus, the national debt had sky rocketed by almost 2 and 1/2 times.
Though, during the 1920/21 depression (according to Wikipedia, the 2'nd worse depression in American history), Wilson/Harding balanced the budget and more or less stayed out of the way. Result? Within 3 1/2 years, both the DOW and the unemployment rate were near pre-crash levels AND the national debt had shrunk by 10%....proving the idea that governments have to spend their way out of recessions/depressions is totally erroneous.

http://www.debatepolitics.com/break...ct-w-123-a-post1060907468.html#post1060907468


As for a gold standard (which I do NOT think is the answer, btw) destroying an economy?

The following is from a Forbes article about the 1870-1914 gold standard era:

'The world gold standard did not produce some sort of “balance” in the “balance of payments” – in other words, no current account deficit or surplus. There was no “price-specie-flow mechanism.” These so-called “balance of payments imbalances” are another word for “international capital flows,” and capital flowed freely in those days. With all countries basically using the same currency – gold as the standard of value – and also with legal and regulatory foundations normalized by European imperial governance, international trade and investment was easy.

It was the first great age of globalization. Net foreign investment (“current account surplus”) was regularly above 6% of GDP for Britain, and climbed to an incredible 9% of GDP before World War I. From 1880 to 1914, British exports of goods and services averaged around 30% of GDP. (In 2011, it was 19.3%.) In 1914, 44% of global net foreign investment was coming from Britain. France accounted for 20%, Germany 13%.

This river of capital flowed mostly to emerging markets. The United States, which was something of an emerging market in those days although one that was already surpassing its European forebears (much like China today), was a consistent capital-importer (“current account deficit”). Most British foreign capital went to Latin America; Africa accounted for much of the remainder.

Gross global foreign investment rose from an estimated 7% of GDP in 1870 to 18% in 1914. In 1938, it had fallen back to 5%, and stayed at low levels until the 1970s.

In 1870, the ratio of world trade to GDP was 10%, and rose to 21% in 1914. In 1938, it had fallen back to 9%.

...

During the 20th century, and now into the 21st, no central bank in the world has been able to match this performance. They are not even in the same galaxy. No world monetary arrangement has provided even a pale shadow of that era’s incredible successes.'

The 1870-1914 Gold Standard: The Most Perfect One Ever Created - Forbes


Say what you wish about the gold standard, but the idea that it must result in economic collapse is not supported by history...quite the contrary.

 

[donsutherland1]

There is ZERO unbiased, factual proof that the Fed prevented another Great Depression OR a nationwide banking collapse...only speculation. It is impossible to know how a past event would have turned out under different circumstances.

The Great Recession was minuscule in comparison to the Great Depression. GDP drop during the Great Depression was from (1929) $104.6 to $57.2 billion (in 1933)...a whopping 45.3%. The 'Great Recession' was a GDP of (in 2007) $14.7 trillion to $14.4 trillion (in 2008)...less then 3%. So, in terms of GDP drop, the Great Depression was over 15 times worse then the 'Great Recession'.

Banking system collapses have been followed by much sharper contractions than what took place. There's little doubt that fiscal and monetary policy responses helped mitigate the situation.

https://research.stlouisfed.org/publications/review/10/03/Wheelock.pdf

Another paper: https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf

Summary of the paper: http://www.imf.org/external/pubs/ft/fandd/2010/12/pdf/Blinder.pdf

The following is from a Forbes article about the 1870-1914 gold standard era:

'The world gold standard did not produce some sort of “balance” in the “balance of payments” – in other words, no current account deficit or surplus. There was no “price-specie-flow mechanism.” These so-called “balance of payments imbalances” are another word for “international capital flows,” and capital flowed freely in those days. With all countries basically using the same currency – gold as the standard of value – and also with legal and regulatory foundations normalized by European imperial governance, international trade and investment was easy.

It was the first great age of globalization. Net foreign investment (“current account surplus”) was regularly above 6% of GDP for Britain, and climbed to an incredible 9% of GDP before World War I. From 1880 to 1914, British exports of goods and services averaged around 30% of GDP. (In 2011, it was 19.3%.) In 1914, 44% of global net foreign investment was coming from Britain. France accounted for 20%, Germany 13%.

This river of capital flowed mostly to emerging markets. The United States, which was something of an emerging market in those days although one that was already surpassing its European forebears (much like China today), was a consistent capital-importer (“current account deficit”). Most British foreign capital went to Latin America; Africa accounted for much of the remainder.

Gross global foreign investment rose from an estimated 7% of GDP in 1870 to 18% in 1914. In 1938, it had fallen back to 5%, and stayed at low levels until the 1970s.

In 1870, the ratio of world trade to GDP was 10%, and rose to 21% in 1914. In 1938, it had fallen back to 9%.

...

During the 20th century, and now into the 21st, no central bank in the world has been able to match this performance. They are not even in the same galaxy. No world monetary arrangement has provided even a pale shadow of that era’s incredible successes.'

The 1870-1914 Gold Standard: The Most Perfect One Ever Created - Forbes


Say what you wish about the gold standard, but the idea that it must result in economic collapse is not supported by history...quite the contrary.

The U.S. spent almost half the 1870-1914 period in recession or worse.

http://www.nber.org/cycles/

IMO, being in recession nearly half the time isn't an "incredible" success. Since 1914, even when one includes the Great Depression and Great Recession, the U.S. has spent less than half as much time in recession or worse.

 

[DA60]

Banking system collapses have been followed by much sharper contractions than what took place. There's little doubt that fiscal and monetary policy responses helped mitigate the situation.

https://research.stlouisfed.org/publications/review/10/03/Wheelock.pdf

a) I will say again, it is IMPOSSIBLE to know how a past event would have turned out under different circumstances. Plus, there is ZERO unbiased, factual proof that had the Fed done nothing that the economy would not have rebounded much faster.

b) your evidence that the Fed did such a great job in 2007-2009 is a report from the Fed? That's like the Obama administration putting out a report about how good a job it has done since 2008...TOTALLY biased.

The facts are that there is no proof that the Fed prevented anything in 2007-8. And that from 1929-1939, the government massively intervened and the result was the recovery was FAR slower and far more costly to the national debt then the 1920-21 Depression when the government balanced the budget and more-or-less let the economy fix itself.

The U.S. spent almost half the 1870-1914 period in recession or worse.

http://www.nber.org/cycles/

IMO, being in recession nearly half the time isn't an "incredible" success. Since 1914, even when one includes the Great Depression and Great Recession, the U.S. has spent less than half as much time in recession or worse.

Imo, those recessions were far more the result of the nature of the economy back then then to do with the gold standard. Also, there was no government safety nets for private citizens. And economic monopolies were FAR larger then today.

Besides, the fact remains, that that period saw high overall GDP growth, huge increases in international trade and relatively low inflation overall.

And please save the 'America boomed after WW2' argument (assuming you were). America had the entire world to herself from 1945 until the 70's. After WW2, Russia and China were communist. Japan and Germany were destroyed. Britain was flat broke. And most of Europe was a complete mess. Whereas America came out of the war virtually unscathed. Of course America boomed - how could she not?


No offense, but I am not getting into some pointless argument with you on this as I assume your mind is made up. Believe whatever you wish, but...

There is ZERO unbiased, factual proof that the Fed did ANY good For America overall during the 'Great Recession'. And considering that since the start of the 'Great Recession' (over 7 1/2 years ago); there are over 5 million fewer Americans employed in the two highest income age groups today, there are over 16 million more people on food stamps and the M2 velocity of money is at historically low ratios and continues to plummet - one could argue that they have actually made things worse then had they done nothing.
It is a fact that the two largest depressions in U.S. history were within 20 years of the Fed's creation (granted WW1 had a lot to do with the first one).
It is a fact that of those two depressions, the one where the government did the least meddling enjoyed by far the quickest and least costly recovery.

If you want to speculate that a gold standard will ruin America (when the last time it was on one, America - and the world - prospered overall) - go ahead.

Even though I am NOT for a gold standard. I am TOTALLY against the kind of Keynesian nonsense that has more-or-less prevailed since the Great Depression and especially so since the 'Great Recession'. Imo, all it does is prop up the rich, increase the numbers of poor and destroy the middle class...which is EXACTLY what has been happening since the Fed started massively intervening back in 2007 (as shown by the stock market boom, the huge growth in food stamp usage and the reduction in the two highest income age groups, respectively).

 

[donsutherland1]

If you want to speculate that a gold standard will ruin America (when the last time it was on one, America - and the world - prospered overall) - go ahead.

Even though I am NOT for a gold standard. I am TOTALLY against the kind of Keynesian nonsense that has more-or-less prevailed since the Great Depression and especially so since the 'Great Recession'. Imo, all it does is prop up the rich, increase the numbers of poor and destroy the middle class...which is EXACTLY what has been happening since the Fed started massively intervening back in 2007 (as shown by the stock market boom, the huge growth in food stamp usage and the reduction in the two highest income age groups, respectively).

The literature highlights the gold standard as one of the mechanisms that impeded monetary and financial adjustment contributing to the Great Depression.

http://aida.econ.yale.edu/~nordhaus/homepage/documents/goldenfetters_C1and5.pdf

http://www.nber.org/chapters/c11482.pdf

As noted in the past, during the height of the financial crisis, non-Keynesians had a chance to come up with a constructive alternative when TARP was initially defeated and fiscal stimulus was still months away. Typical of the non-Keynesian approach, Congressman Paul and some others railed against possible Keynesian solutions. When their big moment arrived, they had no solutions. They offered no legislation of any kind as an alternative to TARP. That omission was an implicit concession that much as they loathed it, they had no better solutions when presented with an opportunity to provide them.

In fact, Paul predicted that the stimulus would turn the recession into a depression (» Ron Paul: Stimulus Packages Will Turn Recession Into A Depression Alex Jones' Infowars: There's a war on for your mind!) in late January 2009. Instead, the recession ended in June.

 

[mmi]

there is ZERO unbiased, factual proof that had the Fed done nothing that the economy would not have rebounded much faster.

Other than the following:

the recession ended in June.

Perhaps the Gold Fairy ended it.

>>there are over 5 million fewer Americans employed in the two highest income age groups today

You keep posting this and I keep noting that you are disregarding both bubble highs and demographic shifts. You don't seem to care about the facts.

The employment-population ratio for 35-44 was 79.6 in Q3 2003. It rose in the housing bubble to 80.7 in Q4 2007. It fell to 76 in Q4 2009, and has now increased to 78.5 in Q2 2015. I'd say this 1.1% decline is consistent with the trend over the past decade of more women delaying parenthood and then choosing to not work while they raise young children.

The employment-population ratio for 45-54 never got about 79% 2002-2005. It then stayed above 79 through Q1 2008. By Q3 2010, it had dropped to 74.7. It had returned to 76.7 by Q1 2015. I'd say much (half?) of this two percent decline is explained by the increasing tendency of workers to retire earlier than in previous years.

So the claim that the labor market is still far from recovering for those in their "prime working years" is unsupported by the evidence. There are five million fewer workers in those combined cohorts because the figures from late 2007 are bubble highs, and because of demographic trends — more women choosing not to work, more people retiring early, and the aging of the baby boomer population.

>>there are over 16 million more people on food stamps

• A higher percentage of households eligible for SNAP benefits are now claiming them. This is especially true for those with relatively higher incomes that receive a relatively small benefit.
• "State-level changes that allowed more people to apply for the program explain about 18 percent of the increase." — WaPo
• Studies show that, historically, "decreases in participation typically lagged improvement in the economy by several years. (CBO) This is especially true in the case of the Great Recession, which was not a typical business cycle recession. The recovery has indeed been slow.

>>the M2 velocity of money is at historically low ratios and continues to plummet

At 1.5, it is well below the level seen 1992-2008, when it stayed above 1.9. But it's not far from the 1.7-1.8 level of 1959-91.

>>one could argue that they have actually made things worse then had they done nothing.

One could argue a lot of things, some of them credible and some not. And more to the point, one could continue to post the same misleading statistics over and over. But that doesn't change anything.

 

[donsutherland1]

Other than the following:

The employment-population ratio for 35-44 was 79.6 in Q3 2003. It rose in the housing bubble to 80.7 in Q4 2007. It fell to 76 in Q4 2009, and has now increased to 78.5 in Q2 2015. I'd say this 1.1% decline is consistent with the trend over the past decade of more women delaying parenthood and then choosing to not work while they raise young children.

The employment-population ratio for 45-54 never got about 79% 2002-2005. It then stayed above 79 through Q1 2008. By Q3 2010, it had dropped to 74.7. It had returned to 76.7 by Q1 2015. I'd say much (half?) of this two percent decline is explained by the increasing tendency of workers to retire earlier than in previous years.

So the claim that the labor market is still far from recovering for those in their "prime working years" is unsupported by the evidence. There are five million fewer workers in those combined cohorts because the figures from late 2007 are bubble highs, and because of demographic trends — more women choosing not to work, more people retiring early, and the aging of the baby boomer population.

Very good points.

A recent piece published by the Chicago Federal Reserve indicated that two major trends have been driving a large share of the decline in the labor force participation rate: retirement of the Baby Boom generation and long-running decline in teen work activity, which accelerated during the latter 2000s. The decline in teen work activity is projected to continue through 2020. Workers who are college graduates have a substantially higher labor force participation rate than those who are not. Shifting demographics are projected to maintain downward pressure on the labor force participation rate for the foreseeable future with approximately two-thirds of the projected future decline due to the retirement of the Baby Boom generation.

https://www.google.com/url?sa=t&rct...bntagJ&usg=AFQjCNEA3A3DnPuI-CMWhaZbFoYbNAGLFw

Another fairly lengthy paper can be found at: http://www.brookings.edu/~/media/Projects/BPEA/Fall-2014/Fall2014BPEA_Aaronson_et_al.pdf?la=en

All said, analyses that attribute most or all of the recent decline in the labor force participation rate to macroeconomic conditions are incorrect. Demographic changes currently explain nearly half the reduction and will account for two-thirds from now through 2020. Therefore, using a declining labor force participation rate to automatically assume that the economy is "terrible" to pick a negative adjective is a flawed exercise.

 

[JP Hochbaum]

For some reason I am unable to like things here anymore, but MMI and DonSutherland killed it.

Edit: I just discovered they moved the like button!

 

[JP Hochbaum]

If you want to speculate that a gold standard will ruin America (when the last time it was on one, America - and the world - prospered overall) - go ahead.

Even though I am NOT for a gold standard. I am TOTALLY against the kind of Keynesian nonsense that has more-or-less prevailed since the Great Depression and especially so since the 'Great Recession'. Imo, all it does is prop up the rich, increase the numbers of poor and destroy the middle class...which is EXACTLY what has been happening since the Fed started massively intervening back in 2007 (as shown by the stock market boom, the huge growth in food stamp usage and the reduction in the two highest income age groups, respectively).

You present yourself some serious cognitive dissonance here.

When you say we prospered under the gold standard you have to define what era you are referring to. If you refer to the post WW2 era to the early 1970's you have to realize that although we were under a gold standard we were also not really on a very strict one, we printed a lot and spent a lot and exported a lot. There weren't any strict federal lawws saying we should have a certain amount of currency out there in relation to gold, we just said you can change your currency in for gold at any time. But no one wanted to do that because our currency was the PEG FOR THE ENTIRE WORLD. (Breton Woods system).

Also in that era you seem to promote here: "when the last time it was on one, America - and the world - prospered overall)"

We were also in a hyper Keynesian mode, even going so far to the point where even Friedman said we were all Keynesian now.

So how can your head hold such conflicting information where we were a Keynesian economy and also in an era in which you think the world and American prospered overall? And then in the next few sentences claim to say this very system is a system that doesn't work, when evidence you stated shows it did!

 

[Onion Eater]

As noted in the past, during the height of the financial crisis, non-Keynesians had a chance to come up with a constructive alternative when TARP was initially defeated and fiscal stimulus was still months away. Typical of the non-Keynesian approach, Congressman Paul and some others railed against possible Keynesian solutions. When their big moment arrived, they had no solutions. They offered no legislation of any kind as an alternative to TARP. That omission was an implicit concession that much as they loathed it, they had no better solutions when presented with an opportunity to provide them.

I wouldn't call debasing the currency a solution, but Congressman Paul did introduce legislation that was meant to be an alternative to TARP:

https://www.congress.gov/bill/112th-congress/house-bill/2768/text

In this thread I offer an explanation for what motivated Congressman Paul to propose debasing the currency:

http://www.debatepolitics.com/econo...ng-horse-stephen-zarlenga.html#post1064842425

 

[donsutherland1]

...Congressman Paul did introduce legislation that was meant to be an alternative to TARP:

https://www.congress.gov/bill/112th-congress/house-bill/2768/text

Paul introduced his legislation in August 2011, nearly three years after the start of the financial crisis and just over two years after the Great Recession had ended. TARP was adopted in October 2008 (TARP Programs). At the time of the 2008 debate when the nation was in the grips of a rapidly intensifying financial crisis, Paul offered no alternatives.

 

[Onion Eater]

Paul introduced his legislation in August 2011, nearly three years after the start of the financial crisis and just over two years after the Great Recession had ended. TARP was adopted in October 2008 (TARP Programs). At the time of the 2008 debate when the nation was in the grips of a rapidly intensifying financial crisis, Paul offered no alternatives.

HR 2768 is called the Debt Crisis Resolution Act because Ron Paul claimed that TARP had caused the U.S. Government to take on ruinous levels of debt which they would be unable to pay unless HR 2768 was passed. Of course, this was not true, but the fact that all of Congressman Paul’s propaganda was anti-TARP has left the indelible impression in people’s minds that HR 2768 is emblematic of Austrian economics and that TARP is emblematic of Keynesian economics.

So perhaps I should have said “response” rather than “alternative,” but the fact remains that HR 2768 vs. TARP defines the Austrian/Keynesian debate in modern times, at least since 2009 when Ron Paul published End the Fed and wrote:

While a gold standard would be a wonderful thing, we shouldn’t wait for one before we end the Fed… An end to the money-creating power and a transfer of remaining oversight authority from the Fed to the Treasury would be marvelous steps in the right direction.

Indeed, Ron Paul had been talking about ending the Fed and transferring the money-creating power from the Fed to the Treasury at least as far back as 1990. He might have been a follower of Rothbard when he wrote The Case for Gold in 1982, but by 1990 he was a dyed-in-the-wool proponent of the Debt Virus Theory.

Critique of Austrian Economics From 1930 To 1990

When I wrote this critique in 2003, I initially meant to set the end date at 2000. But I could find no journal articles published in the 1990s that met even the most minimal standards for academic writing and much of what I did find was Marxists posing as Austrians. Amazingly, as long as they avoid the taboo words “Marxism” and “socialism,” the Mises Institute will publish their work even if that is exactly what they are promoting. So – charitably – I set the upper cut-off date at 1990.

The facts are that modern Austrianism is defined entirely in terms of the Ron Paul political campaign and that Mr. Paul has no formal training in economics. Austrianism is not an academic subject anymore.

 

[JP Hochbaum]

Austrianism is not an academic subject anymore.

There is good reason for that.

 

[Onion Eater]

There is good reason for that.

For the first and possibly last time ever, I “liked” a JP Hochbaum comment.

The Austrians despise me, probably even more so than the socialists, Marxists, Debt Virus proponents and other people in whose pots I have pointed out the glaring cracks.

Critique of Austrian Economics From 1930 To 1990

Austrians hating on me for this paper typically accuse me of cherry picking those rare occasions when an Austrian economist stumbled in his otherwise devastating critique of Keynesianism, which they seem to assume is the only other school of thought in existence.

But the fact is that I was very charitable when I set the cut-off date at 1990 so I could ignore the low-quality writing that was produced after they degenerated into a bunch of camp followers to a lone congressman. Also, this cut-off date allowed me to ignore the Marxists posing as Austrians.

1930 to 1990 is the heyday of Austrian economics and, within that period, I was careful to cite only the best work produced by men with PhDs. (The Mises Institute is attached to a college with a master’s program in economics.) The Austrians have always had a crackpot fringe (Gary North comes immediately to mind) and if I really wanted to cherry pick, I could have come up with some jaw-dropping quotes from almost any year of the calendar.