Help me respond to this assertion: president should run economy / sound money is bad

[mrchubbs]

In a discussion a person replied to me with this:


A president should have solutions to problems associated with a highly advanced and complex economy. Since the industrial revolution, our economy has evolved beyond anything the founding fathers envisioned. Our economy can't handle the gold standard, and will be dangerously destabilized without taxes. This is one reason why I think RP is radical and unpractical.

So how should one answer this?

[BLS]

The economy is complex because we are not on the gold standard.
It's also very unstable because we are not on the gold standard.
Gold and silver are intended to be legal tender because you can't CREATE it.

Our dollar is based on NOTHING. have him read a book.
Without taxes?? He's not saying to get rid of all taxes. He's just being naive.
Ask him if he thinks we'd be better off not paying income taxes?
Ask him if he thinks we could cut spending at the Federal Level to what we were spending in 2000. That's all we'd have to do in order to abolish the IRS.

Ask him when the last time he bought ANYTHING of significance, he paid for it in CASH?
Why do you think there are SO MANY banks popping up everywhere??

[RPinSEAZ]

That's just econo-speak for an inablility of governments to tamper with the economy. I don't consider that a virtue. The whole reason why fiat money exists is because nations and bankers both want to be able to spend their holdings and still pretend they're holding them. The entire system is designed to try to make fractional-reserve banking work, when it is fundamentally flawed. The only way to avoid bank panics, crashes, and the like, is full-reserve banking, which comes with private coinage and currency.

All we've done with fiat money is set ourselves up for a bigger crash. It will happen eventually, when the US government's guns can no longer force people to accept scraps of paper for value. That may be a long way off, but that's the endgame of fiat money systems. In the meantime, the fiat money system exists for governments and bankers to slowly steal money from the rest of us through inflation.

[drain]

tell him to read some of Greenspan's speeches. Hard to ignore the guy that used to chair the Fed. Or tell him to watch that latest video on financial times with jim rogers.

And it has more to do with competing currencies and fiat money than tying it back to gold i think.

adrian

[RPinSEAZ]

The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion, policemen, customs guards, penal courts, prisons, in some countries even executioners, had to be put into action in order to destroy the gold standard.
--Ludwig Von Mises



"Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess."
--Irving Fisher

...

[schmeisser]

My response:

If you think Austrian economics is a simpleton's view, I would suggest that you really do not understand the issue as well as you think. Which other candidate has a more detailed plan and background in economic thought than Dr. Paul?

I am not an expert on the gold standard, but I do know that printing money out of thin air cannot be good and must necessarily devalue all other money in circulation. How can you be so in love wih this concept?

Less taxes destabilize the economy? I think the verdict is in on this already - lower taxes increases productivity and wealth for all. You cannot look at getting rid of the income tax as completely defunding government - it isn't. Spending must and can easily be cut to offset abolishing the income tax.

All I am asking you is to do some honest research on your own on what Dr. Paul's real positions are - not the soundbites you get from biased sources. I am convinced that if you look at all the information with an open mind you cannot come to any logical conclusion other than Ron Paul being the best candidate in the field. You don't have to agree on every single point of his, but in total if you agree with more of his positions than any other's, how could you not support RP?

[micahnelson]

Start with having him sing this song.


The Ballad of Fiat Currency
October 24th, 2007 . by Micah

(to the tune of, Do Your Ears Hang Low)

When Congress is in a Bind,
with a Bill they want to sign
But haven’t got the cash so they can’t sign the dotted line.
There’s no need to give up yet,
They just Monetize the debt
A fancy IOU will keep the books all set.

The Treasury issues a Bond
And it doesn’t take too long
For the Federal Reserve to find its way into our song
They put the Bonds into their stash,
turn the value into cash,
Thats how debt turns into dollars for the Congress in a flash.

But in case you weren’t aware,
The Fed doesn’t stop there.
For each dollar they give congress they pull 9 out of the air.
This gives banks the green light
to make loans out day and night
Collecting interest fees for nothing with no end in sight.

Though the Fed, you See
Is a private entity
They control all of the banks that are used by you and me.
For every dollar you put in,
The bank can loan out ten,
And they’ll never have a bank run, they can print it on a whim.

So it should come as no surprise
when you see the prices rise
The Market is reacting to the currency supplies.
Wages don’t keep up the pace-
So we work harder to replace,
The spending power taken by this financial disgrace.


Then, explain that our current system is a fiat currency system. Ask him how many fiat currency systems have ever lasted more than a few decades. If he says "We have had this working since the turn of the century" explain to him that we did not have PURE fiat until 1971.

That means our economy has only been running this way for 35 years.

Then, have him look at inflation rates since 1971.

Now, what seems more foolish- gold as money or paper as money?

[bdmarti]

In a discussion a person replied to me with this:


A president should have solutions to problems associated with a highly advanced and complex economy. Since the industrial revolution, our economy has evolved beyond anything the founding fathers envisioned. Our economy can't handle the gold standard, and will be dangerously destabilized without taxes. This is one reason why I think RP is radical and unpractical.

So how should one answer this?

First, the person indicated should try reading Article 2 of our constitution. The president isn't supposed to DO much of anything dealing with "our complex economy" and even if he had "solutions" they would almost certainly be enacted via the legislative branch.

Ron Paul's proposed solutions are an exception because the things he suggests are actually putting an end to unconstitutional activities that the president and federal government shouldn't be involved with in the first place.

Next, I would suggest that the idea we couldn't have a gold standard in today's economy is absurd.

Credit and debit cards and related technologies make this type of economy all the easier to implement. One doesn't need to carry around pounds of gold in order to make transactions, and the amount of gold represented (or silver or whatever commodity is used) hardly matters, such that one could easily commit transactions with just a few grains of gold or thousands of an oz, because the book keeping could all be done electronically.

Changes in the market value of gold (or whatever the backing commodity is) could be rapidly propagated electronically such that even small merchants could have up to date price information.

There is NO reason we can't have a perfectly functional gold standard economy.

I would say that the individual in question should prove that a gold standard can't work in today's modern world.
Here in the US we used a gold standard for quite a while, and we even managed to hold together an absurd arbitrary weighting of gold to silver for decades.
Even after Bretton Woods, and with our Federal Reserve printing money faster than ever, we managed to hold onto a gold standard for decades.

I think the onus is on the individual in question to show that absent an absurd, arbitrary weighting of silver to gold, and absent a Federal Reserve printing near limitless amounts of paper bills redeemable in gold, why it is a gold standard can't work.

The "it's too complex" is a BS excuse. Shall we pretend that the president, or congress, or even the board of the Federal Reserve can deal with market demands better than the market itself? I'd like to see the proof of that.

[bdmarti]

double post...

[Kregener]

"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen.”—Samuel Adams

[Cindy]

Ask him questions in your reply.

Start like this-

Do you know which tax specifically out of dozens, Paul wants to get rid of?

Do you know it was created to cover the interest owed on the National Debt?

Do you know which private parties get to put that money in their personal bank account, for loaning money to the American Government that they were able to print from thin air?

Do you think this is fair, should be legal or right?

Do you beleive it is wise for our government to spend beyond it's means, thereby, devaluing the dollar and or putting the Country at risk of bankruptcy to foriegn private banks over seas, who have our property as collateral if we were to default on the loans, or if they claim, are cash is no longer good, but your land is and we are going to take it, as we can by law?

Did you know that his plan for phasing out the Federal Reserve is to create a competing currency backed by hard assets?

Would you rather own currency backed by a hard asset such as gold, or a currency whose value is backed by debt?

Make sure he answers that last question.

Case closed!!!!

[murrayrothbard]

Lol, the fact that the economy IS so complex is a major reason why it is impossible for one person to "manage" it and trying to "control" it only leads to problems.

On the other hand, the economy is not very complex at all. If you look at society from some bird's eye perspective, yes it looks incomprehensible, but the reality is that what you call an "economy" is just a vast network of transactions taking place between individuals. I give you this, you give my that. Or I do this, you do that, etc. It really is that simple.

All the large scale strucutres that you percieve in society are the result of these simple interactions. It's emergent and trying to fasten your own predefined idea of what structures should exist, or how they should operate is doomed to failure.

[tanstaafl]

Keep it simple:

"We need to understand that the more government spends, the more freedom is lost...." -Ron Paul

If they need more to chew on, ask them if they favor ALL parts of a Communist, centrally planned economic system. Ask them if they think the Fed should also be put in charge of regulating the price of tomatoes.

You could hand them a graph of the dollar before and after the Fed. If they are of that school that "feels" easy credit and fiat money has accelerated the economy, you might want to point out that, on average, GDP grew at a much faster rate in the decades before the Fed.

Many people living in America really don't care much for the Constitution; they happen to live here by accident of birth or convenience, and may have voting rights currently enforced by the State, but are not really Americans. The are enemies of the Constitution and, ipso facto, enemies of the United States. We don't need to argue with them, as they aren't amenable to logic. I suggest that when you encounter one of these you point this out but you not invest much time in them. Just move on; you aren't going to convert a committed Socialist.

And remember, "..it does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds.." -Samuel Adams

[mrchubbs]

Some great responses here. Thanks. I will now put some of these ideas in to use.


Enjoy.

[JaylieWoW]

Ok, I have a rather absurd statement to make but something keeps tugging at the back of my head telling me there is some kind of correlation.

As my name suggests, for those who don't know, I'm an avid participant in World of Warcraft, an online roleplaying game of considerable success. (Disclaimer: I'm not here to contend the superiority of game play as it compares to other online games, everyone has their own opinion of what is fun and not fun to them).

I would LOVE to see an economist, particularly of the Austrian school, do a study on the career of "gold farming" in any of the more popular online roleplaying games, especially Second Life where players are not restricted by the EULA for selling in-game assets.

As is common in most of these types of games, money is measured in units of gold, silver and copper (some even include platinum as the highest valued coinage). There are "marketplaces" available wherein players can exchange money earned from questing and monster slaying into items to help their avatar become nearly "god-like" in a gaming sense. This "god-like" complex not only affects the players ability to slay stronger monsters, but also draws envy and admiration from other players.

I'm really not sure what the correlation is between this method of monetary measurement and the "gold standard" of real world money, but again, something is tugging at the back of my brain and I just haven't figured out what it is yet. Then again, it may be nothing at all.

Regardless, there are real world players who actually make a living from collecting these software created funds and selling them for real world money on the internet. I've seen a few stories lately indicating the growth of the "gold farming" industry, as it is called, has become. In particular, this industry seems to have found greater profitability in China. (This trend does not surprise me based on what I know of wages vs. work conditions in China.)

Though I understand this creation of cyber-world wealth is probably very similar to real world fiat currency, there still seems to be some kind of connection or intelligent reasoning worthy of investigation.

Consider the following summation from Wikipedia (http://en.wikipedia.org/wiki/Farmer_(gaming)) (yes, I know it doesn't make it fact but it is still interesting to ponder).


Awakening to this wide-spread practice in many online games governments are now investigating these practices[15]. In Australia the ATO has already stated it views all such income, whether from the real economy, or virtual, as taxable income[16]. The U.S. Congress, too, in a turn-around on its views in 2006 is now contemplating once again applying a tax on virtual goods which are traded for real world money, similar in a sense to the tax applied to goods traded online[17]. MMO Companies that wish to allow any legtimate trade may then be required to build in systems to track all such trades.[18]. For the IRS in the United states taxation of virtual assets has become not a matter of if they will be taxing them, but when taxation will begin.[19]

Law Enforcement Agencies have also begun to take and interest in investigating and tracking these activities, not only because of fraud and money laundering opportunities [20], but because these agencies will be required to take a view since public policy has shifted to include virtual assets as real world income revenue for many governments. Internet Security Company Symantec recently made predictions that that "These transactions can be conducted worldwide without the oversight that typically accompanies international bank remittances." They then gave the example of how the China Central bank & finance agencies has called upon companies to stop trading in QQ coin "presumably to curb the unregulated exchange of currency."[21]. Apparently a lot of the activity so far has been targeted at Second Life and World of Warcraft known to be popular targets for trading in game gold & items.[22] Further according to Symantec increasing use of tools claiming to enhance player's gaming is being used to illegally install software on players computers to steal players accounts, "Gamers will also use cracked software that allows them to run games without having the disc in the machine. These all make it much easier for cyber criminals"[23].

The Korean government recently has enacted legislation that has banned the exchange of virtual goods for real money[24]. Though websites who conducted this trade banded together to mediate with the legislators which eventually resulted in the bill only outlawing use of game exploits, prosecution for which could result in a $50,000 dollar fine and jail for up to 5 years[25].

In more significant development for gold farming operators throughout China, the authorities' concern over recent fraud cases has led, according to its news agency, to "growing calls for virtual property to be defined and bound by laws that will protect it from theft and plagiarism". Wang Xiaodong, a lawyer on intellectual property rights (IPR) from C&I Partners (Guangdong), told China Daily yesterday believes a specific law crafted by the Supreme Court of the People"to protect virtual property in the future."[26]

In a recent move the British Government is now seeking "firmer hand in policing activities within virtual worlds":

Issues such as child pornography, identity fraud, money laundering and copyright infringement in virtual worlds are all "causes for concern" that need to be controlled, a government minister said. ... Lord Triesman refused to be drawn on whether specific legislation was planned, and also declined to comment on one of the issues most keenly debated by observers of virtual worlds, namely whether money made in such worlds should be taxed. That was a matter for the Treasury, he said.[27]

Moves by governments to further involve law enforcement in virtual worlds could conceivably have a direct impact upon 'gold farming' especially where the trade in currency or items is unlicensed and therefore illicit in the of income revenue agencies.

Further pushes to regulate 'virtual currency' now are being argued for in online law services, such as Internet Business and Law Centre:

From the perspective of law enforcement, it is important to know the location of servers which provide virtual money services, especially since they may be located in a different country. Law enforcement needs to influence legislators when drafting future legislation. This is important as law enforcement will need powers to recover data which is stored in a different jurisdiction from where the offence is being investigated. Barriers need to be broken down and trust built up between industry and law enforcement to make service providers more accountable for data crossing their networks.[28]

Making MMOs accountable for data-exchange tracking virtual items & currency will likely require a very different approach towards gold farming, both in games where sale of items of permitted by the terms of service such as Second Life, and where item trade is prohibited by a virtual world's Terms of Service. Whatever the outcome of these changes it's likely that what goes on in virtual worlds will be of greater interest to governments and law enforcement alike.

Maybe these types newly valued "assets" are a direct result of fiat currency. That is to say, when a currency reaches the point of being traded so casually for "game generated assets" what does that say about the value of the currency itself?

Anyway, I think the biggest misunderstanding about economics is that there isn't really a steadfast rule for measuring what individuals place value on. Therefore our current egotistical attempts at regulating via currency creation or taxation the needs of all individuals is doomed to fail. It is precisely because we all have different desires and needs that "it is, what it is".

I hope I haven't put anyone to sleep and I know this is only loosely related to the topic, but I'd love to exchange ideas about this particular subject. As I said above, none of us have the same interests, needs or desires and this is one of those things that just gets me to thinking...

[mhipshir]

Not meaning to belittle (or belabor) the point, but nobody, not the president, nor even the chairman of the Federal Reserve can "control" the economy (although for certain the president will always get the blame when it is poor and try to take the credit when it is good). One poster commented that the economy is "complicated", and yes it is, however; to understand it, one need not venture much more deeply into matters than basic old Econ 101 - supply and demand (for money). In other words, nothing happens in a vacuum. If someone(s) mess around with the supply (or demand) for money, then certain predictable results will happen.

Fiat money systems can work fine for a while - until the inevitable "crisis of confidenec" in the currency occurs. One of the main reasons hard money advocates want a commodity money is to take away people's ability to manipulate the value of the money. It takes away the ability to arbitrarily change the value of the currency vis-a-vis other currencies from one time period to another. I.e., an ounce of gold is an ounce of gold anywhere and only contains a certain number of atoms of gold - period. If we can start from an unchangeable baseline, then we can determine the value of any and all other goods and services - and currencies too.

Ask your friend if (s)he would rather know that the dollar in his or her pocket today will still be worth a dollar in a year, or would they prefer to play the guessing game year after year of; "will this year's cost of living raise offset the decline in my standard of living due to having to pay a higher price for gasoline, groceries, entertainment, etc?" Most people would agree that having stable prices is a much preferable alternative! The only way to prevent price increases is to prevent people from being able to water down the value of the dollars in your pocket (true inflation) by being able to print more of them at any time. And the only way to ensure that that doesn't happen is to bind the currency to a hard commodity.

A final note, though the commodity doean't necessarily need to be gold per se, the ultimate choice for money should fit the definition of money itself. It should be:

Something that has an intrinsic value in and of itself.
It must be easily divisable.
It should be relatively easy to transport and exchange.
And, it should be relatively scarce (i.e., you can't just saunter over to your office copy machine and make more of it...)

Hmmm? What commodity comes to mind when you consider the above?

Cheers, mdh

[murrayrothbard]

Hey, I play WoW too. The thing to remember about WoW is that it is a totally controlled economy and massively inflationary. There is no limit to the amount of gold that exists in the economy. Just look at the price of WoW gold in dollars. The price continues to fall. You can always dump vendor trash for a fixed amount of gold. Vendors always have unlimited money available. NPC vendor prices never change. However, the auction house does offer a good example of supply and demand dynamics. I've made a nice chunk of change buying low and selling high. ;)

I always thought it would be real interesting to have a MMORPG that tried to implement a more realistic economy. Like the NPC had their own things to do, they had eat, get clothes. Someone's got to make them, etc. Fully dynamic economy. Would also maybe attract people that didn't want to just grind and quest all day. Could be a farmer, carpenter, etc. Who knows.

There was an article on the Mises web site a few months back in regards to the monetary policies of second life. Will see if I can find it...


Ok, I have a rather absurd statement to make but something keeps tugging at the back of my head telling me there is some kind of correlation.

As my name suggests, for those who don't know, I'm an avid participant in World of Warcraft, an online roleplaying game of considerable success. (Disclaimer: I'm not here to contend the superiority of game play as it compares to other online games, everyone has their own opinion of what is fun and not fun to them).

I would LOVE to see an economist, particularly of the Austrian school, do a study on the career of "gold farming" in any of the more popular online roleplaying games, especially Second Life where players are not restricted by the EULA for selling in-game assets.

As is common in most of these types of games, money is measured in units of gold, silver and copper (some even include platinum as the highest valued coinage). There are "marketplaces" available wherein players can exchange money earned from questing and monster slaying into items to help their avatar become nearly "god-like" in a gaming sense. This "god-like" complex not only affects the players ability to slay stronger monsters, but also draws envy and admiration from other players.

I'm really not sure what the correlation is between this method of monetary measurement and the "gold standard" of real world money, but again, something is tugging at the back of my brain and I just haven't figured out what it is yet. Then again, it may be nothing at all.

Regardless, there are real world players who actually make a living from collecting these software created funds and selling them for real world money on the internet. I've seen a few stories lately indicating the growth of the "gold farming" industry, as it is called, has become. In particular, this industry seems to have found greater profitability in China. (This trend does not surprise me based on what I know of wages vs. work conditions in China.)

Though I understand this creation of cyber-world wealth is probably very similar to real world fiat currency, there still seems to be some kind of connection or intelligent reasoning worthy of investigation.

Consider the following summation from Wikipedia (http://en.wikipedia.org/wiki/Farmer_(gaming)) (yes, I know it doesn't make it fact but it is still interesting to ponder).



Maybe these types newly valued "assets" are a direct result of fiat currency. That is to say, when a currency reaches the point of being traded so casually for "game generated assets" what does that say about the value of the currency itself?

Anyway, I think the biggest misunderstanding about economics is that there isn't really a steadfast rule for measuring what individuals place value on. Therefore our current egotistical attempts at regulating via currency creation or taxation the needs of all individuals is doomed to fail. It is precisely because we all have different desires and needs that "it is, what it is".

I hope I haven't put anyone to sleep and I know this is only loosely related to the topic, but I'd love to exchange ideas about this particular subject. As I said above, none of us have the same interests, needs or desires and this is one of those things that just gets me to thinking...