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Discussion: (68 comments)

  1. Whenever Jimmy P. trots out Milton Friedman to pretend like there’s some free-market basis for reckless money printing, I usually make these same two points:

    1. Milton Friedman advocated ending the Federal Reserve because of how thoroughly it has destroyed the value of the dollar since its inception. http://www.youtube.com/watch?v=m6fkdagNrjI

    2. Milton Friedman is not God. He’s fallible. While he was great in explaining the value of markets, he erred terrifically on monetary policy. Just because he is smart in some respects doesn’t mean people should blindly follow him in every respect. For a pretty good debunking of Milton Friedman’s monetary views, read David Stockman’s “The Great Deformation,” which is excerpted here: http://www.zerohedge.com/news/2013-06-28/when-milton-friedman-opened-pandoras-box

    1. Exactly. Thank you.

    2. I agree with both that. Friedman error. Government control over money in inferior to free-market monies.

  2. Yes, QE is the reason we are growing…~1.75% and that we are adding jobs…..enough to sustain a 7.5% jobless rate. All the while adding trillions to the debt. Yeh, that’s the ticket.

    1. Keynes reply to his critics was, “in the long run , we are all dead.” Sad fact is many of us do not deserve to pay for his or uncle Milty’s sins, but we do.

  3. Ken Van Doren

    For the first time since I started reading his stuff, JP is finally correct. To his eternal damnation, Uncle Milty was indeed an expansionary monetarist. One of several tenets of his faith that he got entirely wrong. (Negative income tax, and payroll deductions among the others of his fundamentally wrong policies.)

  4. “…Most investors now believe three things about the Federal Reserve, money and interest rates. They think that the Federal Reserve is artificially depressing rates below what would be a “normal” level. They believe that in the process of doing so the FED has enormously increased the supply of money and they believe that the USA is on a fiat money system.

    All three of those beliefs are incorrect. One benchmark rate that he Federal Reserve has absolute control of is the rate paid on reserves deposited at the FED. That rate is now 25 basis points, after being zero since the inception of the FED in 1913 until recently. If the FED had left that rate at zero t-bill rates would now be even lower than they are now. The shortest t-bills rates would now probably negative.

    Paying interest on reserves combined with the subsidy to the banks of providing free unlimited deposit insurance on non-interest bearing demand deposits is keeping t-bill rates positive. Absent those policies the rate on t-bills would be actually negative. The Chinese and others all over the world are willing to pay anything for the safety of depositing funds in the USA. Already, Bank of New York Mellon Corp. has imposed a 0.13% charge on large deposits.

    An investor who believes that interest rates are headed up may respond that the rate paid on reserves is a special case, but that the vast increase in the money supply resulting from the quantitative easing must result in higher rates when the Federal Reserve reverses its course. The problem with that view is that the true effective money supply is still far below its 2007 level.
    Money is what can be used to buy things. Historically money has first been specie (gold and silver coins), then fiat money which is paper currency and checking accounts (M1) and more recently credit money. The credit money supply is what in aggregate can be bought on credit. Two hundred years ago your ability to take your friends out to dinner depended on whether or not you had enough coins (specie) in your pocket. One hundred years ago it depended on the quantity of currency in your pocket and possibly the balance in your checking account if the restaurant would take checks.
    Today it is mostly your credit card that allows you to spend. We no longer have a fiat money system. Today we have a credit money system. Just because there is still some fiat money does not negate the fact that we are on a credit money system. When we were on a basically fiat money system there was still a small amount of specie in circulation. Even today a five cent piece contains about 5 cents worth of metal, but no one would claim we are still on a specie money system.
    Fiat money is easy to measure; M1 was $1.376 trillion in 2007 and was $2.535 trillion in May 2013. The effective money supply is the sum of fiat money and credit money. Credit money cannot be precisely measured. However, When the person in California whose occupation was strawberry picker and who had made $14,000 in his best year was able to get a mortgage of $740,000 with no money down and private equity could buy a company like Clear Channel in a $20 billion leveraged buyout, also with essentially no money down, the credit money supply was clearly much higher than today. A reasonable ballpark estimate of the credit money supply is that it was $70 trillion in 2007 compared to $50 trillion today.

    The effective money supply is the sum of the traditional fiat money aggregates plus the credit money supply. Thus, despite the clams of Ron Paul and Rick Perry to the contrary, the effective or true money supply has fallen drastically over the last few years.
    The decline in the total effective money supply is why the recovery from recession has been so sluggish. Those who think interest rates have only one way to go may be in for a surprise. This is especially true for short-term rates that are the keys to the prospects for the leveraged Mortgage REITS.
    Now that the Federal Reserve has indicated that it will be reducing its purchases of longer-term treasuries and mortgage securities, if the economy were to stumble, a face-saving way for the Federal Reserve to react would be to reduce the rate paid on reserves deposited at the FED. That would remove an incentive for banks not to make loans and lower all risk-free rates. …
    http://seekingalpha.com/article/1514632-federal-reserve-actually-propping-up-interest-rates-what-this-means-for-mreits

    1. Charles R. Williams

      Much of what you write is quite correct. One thing, though, how does the fed buying debt with excess reserves do anything to increase the credit money supply? Isn’t credit money endogenous?

  5. Charles R. Williams

    I am old enough to have heard Friedman many times in the sixties and seventies, read his books and understood his thinking. The main theme of his macroeconomic proposals was that monetary policy works with long and variable lags and that the best policy approach is some kind of predictable rule. In this context he proposed a fixed rate of growth in the money supply believing that this would eliminate policy-induced economic instability. Friedman and most monetarists subsequently concluded that such a rule was destabilizing and abandoned the quantity theory of money. Parenthetically, some of his work deals with the ideal rate of inflation where he concludes that a slow, steady deflation is optimal.

    In the overall context of Friedman’s thinking his proposal for the Bank of Japan is uncharacteristic and may have been motivated by his insight that low interest rates do not equal expansionary monetary policy. In any case, the US economy is nowhere near deflation.

    Even if it were true that the BOJ could have met its policy goals, it does not follow that the Fed could do it today. There is good reason to believe that the Fed has effectively lost control of money. Money has become endogenous. In fact, no monetarist a decade ago would have imagined the scope of the Fed’s current QE programs or the infinitesimal effect they have had on the price level and the economy.

    Friedman was above all an empiricist. The final test of all his theories is reality and the reality of the sixties and seventies that spawned the quantity theory is not the reality of today.

    1. The key difference between a recession and a depression is that a recession can be ended by monetary policy alone.
      If every few years you got the flu and now you had a strep throat it would be incorrect and possibly dangerous to think that you just had a bad case of the flu this year. Over the last hundred years there have been numerous recessions but only two depressions, the depression of 1929-1941 and the depression that began in 2007. The symptoms of strep throat and scarlet fever may be similar to that of the flu or common cold. However, causes of the former are the streptococcus bacteria while influenza is viral. Hence, strep throat and scarlet fever require antibiotics which are useless against viruses. Likewise, believing that the depression that started in 2007 is just a severe recession is quite dangerous to both investors and policy makers. As long as many policy makers appear not to realize the distinctions between recessions and depressions, investors ignore those distinctions at their peril.

      The effects of the 2007 depression are much less severe than the 1929-41 depression because of safety-net benefits now provided. Consider the horrendous, though not uncommon situation of a household in 1932 comprised of elderly grandparents being supported by their working-age children with young children of their own, when the breadwinners became unemployed. The 1932 family would be destitute. Today the grandparents would have social security and Medicare benefits. Their working-age children could now collect unemployment benefits for up to 99 weeks. Additionally, the entire family could also be eligible for food stamps, Medicaid, rent subsidies, heating fuel subsidies, free school lunches and other benefits. The 1932 family might also have had a bank account in one of the many banks that failed and lost their savings. Today, Federal Deposit Insurance protects such bank accounts. You might say we are now in a depression with benefits.

      The difference between a depression and a severe recession are not just semantic. Recessions occur when the Federal Reserve raises interest rates in an effort to slow down an overheated economy. Most importantly, recessions end when the Fed lowers interest rates. In a recession the pent-up demand for housing and durable goods means that monetary policy alone can cure the recession. Just as antibiotics can be effective against bacterial infections but not against viruses, monetary policy alone cannot end a depression. Furthermore, modest fiscal stimulus and the automatic stabilizers that can hasten the end of recessions cannot end a depression. There can be ups and downs in the unemployment rate during a depression. However, the unemployment rate remains elevated. It was 14.5% in 1940 and 9.7% in 1941.

      If we are in a recession, economic activity will fully resume just from the monetary and fiscal stimulus that has already occurred. Ultimately interest rates will rise. However, if we are in a depression, even one with safety-net benefits that mitigate the hardships, interest rates will remain relatively low for decades as was the case in Japan and the USA of the 1930s, where only World War II ended the depression. The ideal investment for an extended period of low interest rates is agency mREITs.

      Depressions occur after investment bubbles burst. In free-market capitalism, capital generates income for the owners of the capital which in turn is used to create additional capital. This is very good. Sometimes, it can be actually too good. As capital continues to accumulate, its owners find it more and more difficult to deploy it efficiently. The business sector generally must interact with the household sector by selling goods and services or lending to them. When capital accumulates too rapidly, the productive capacity of the business sector can outpace the ability of the household sector to absorb the increasing production.

      The capitalists, or if you prefer, job creators use their increasing wealth and income to reinvest, thus increasing the productive capacity of the business they own. They also lend their accumulated wealth to other businesses as well as other entities after they have exhausted opportunities within the business they own. As they seek to deploy ever more capital, excess factories, housing and shopping centers are built and more and more dubious loans are made. This is overinvestment. As one banker described the events leading up to 2008 – First the banks lent all they could to those who could pay them back and then they started to lend to those could not pay them back. As cash poured into banks in ever increasing amounts, caution was thrown to the wind. For a while consumers can use credit to buy more goods and services than their incomes can sustain. Ultimately, the overinvestment results in a financial crisis that causes unemployment, reductions in factory utilization and bankruptcies all of which reduce the value of investments.

      If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.

      It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increased savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.

      Since 1969 there has been a tremendous shift in the tax burdens away from the rich and onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers….”
      http://seekingalpha.com/article/1543642-a-depression-with-benefits-the-macro-case-for-mreits

      1. Steve Bradley

        According to IRS figures for 2009, the top 1% of income earners pay roughly 36% of federal income taxes. The top 25% pay about 87%. The bottom 50% pay less than 3%. Please explain how “…there has been a tremendous shift in the tax burdens away from the rich and onto the middle class.”

    2. It is no more surprising to hear Milt advising what the Japanese central bankers ought to do in any given crisis than to hear him advise what our fed ought to do. All of that advice comes under the qualifier that, in Milt’s view, no human being ought to be trying to do these things in the first place.

  6. Milton Friedman won the Nobel prize primarily for his work discrediting (or as I like to say, disproving) the Phillips Curve. The Phillips Curve is the idea that there is a tradeoff between inflation and employment. Friedman showed (proved) that while fiscal stimulus (inflation) can produce a short term illusory decrease in unemployment, there is no actual long run tradeoff, and contrary to what Keynesians say, in the long run is a few months away, and we will hopefully not all be dead.

    What does this mean for the current debate? It means that team Krugnankbama cannot claim Milton Friedman as one of their own. All three are proponents of using fiscal stimulus to decrease unemployment. In fact, Obama recently said that he wants a Fed Chair that believes in full employment, ie the Phillips Curve.

    Which brings us to the original question: would Friedman support the current bond buying? I’m not the foremost expert on Dr. Friedman’s work, but he and his monetarist contemporaries believed that given the existence of the Federal Reserve (they never delved deeply into the “should the Fed exist” question), it should either a)inflation target or b), and this is what Friedman was a proponent of, INCREASE THE MONEY SUPPLY AT A SET RATE ANNUALLY so that people can make accurate plans about the cost of money. Either scenario a or b has a lot less uncertainty for market participants, but both are based on the rejection of the notion that the Fed can effectively use monetary policy to influence employment in any meaningful way.

    1. Many who have been vociferous in criticizing income and wealth inequality such as Paul Krugman and Joseph Stiglitz have not pointed to the increase income inequality as the cause of the depression. Those on the left who might be the natural proponents of a more progressive tax system have not connected the dots. They have a different theory as to the cause of the depression. They are adherents to the regulatory fallacy, the belief that the depression was caused by insufficient regulation.

      To determine if someone is an adherent of the regulatory fallacy ask this question: Do you believe that given the degree that the tax burden was shifted from the rich to the middle class, was there any type of regulatory policy which would have prevented the financial crisis and subsequent depression? If they answer yes, they are adherents to the regulatory fallacy
      In Paul Krugman’s 2012 book “End this Depression Now!” he comes heartbreakingly close to connecting the dots between the reduction in the progressivity of the tax system and the cycle of overinvestment that caused the depression. He states that the book is much less concerned with the cause of the depression than what should be done to end it. His prescription is fiscal stimulus focused on the spending side that has even less of a chance of being enacted than the tax cuts suggested above.

      Those on the right have their own version of the regulatory fallacy. They blame the government sponsored enterprises Federal National Mortgage Association Fannie Mae (FNMA.OB) and Federal Home Loan Mortgage Corp. (FMCC.OB) and the Community Reinvestment Act. According to their theory, regulation such as the Community Reinvestment Act resulted in a vast increase in subprime mortgage lending that caused the financial crisis. Possibly the non-bank private entities that originated and securitized most of the subprime loans mistakenly thought the Community Reinvestment Act applied to them.

      A slight variation on the regulatory fallacy is the financial innovation fallacy. As with the regulatory fallacy, both left and right versions, there is a miniscule grain of truth to it. Financial innovations such as credit default swaps and regulatory changes like repeal of the Glass-Steagall Act slightly affected the exact timing of the onset of the depression. However, once the tax burden was shifted from the rich to the middle class it was just a matter of time before middle-class consumers became unable to absorb the increased production and service the debt that accompanied the overinvestment. Different regulatory policies might have shifted the bubble more towards commercial real estate rather than residential real estate or vice-versa but the outcome would have been similar.

      Blaming regulatory policies and financial innovation for the depression is like blaming the armaments manufacturers and soldiers for World War II. In order for the war to occur there had to some weapons made and some soldiers to fight. If those particular armaments manufacturers and soldiers were not available, others would have taken their place.

      Equally unhelpful in terms of addressing the income and wealth inequality which results in the overinvestment cycle that caused the depression are those who emphasize various non-tax factors. Issues such as globalization, free trade, unionization, problems with our education system and infrastructure can increase the income and wealth inequality. However, these are extremely minor when compared to the shift of the tax burden from the rich to the middle class. It is the compounding year after year of the effect of the shift away from taxes on capital income such as dividends over time as the rich get proverbially richer which is the prime generator of inequality.

      Even if it was widely understood that the shift of the tax burden from the rich to the middle class was the cause of the depression, it would still be extremely difficult to remedy the situation. The enormous shift in tax policy favoring the rich has been a world-wide phenomenon going on for many years. After the Socialist party candidate François Hollande won the presidential election, France enacted tax laws that gave France the most progressive tax system among the 20 largest industrial nations. However, world-wide the tax systems have become so much less progressive in the past decades, that if the tax code that France has today were applied to France in 1969, France would have had the most regressive tax system among the 20 countries in 1969.

      A major component of the shift of the tax burden from the rich onto the middle class involves the corporate income tax, whose incidence falls entirely on the owners of corporations. Corporate income taxes were 4% of GDP in 1969 and are now less than 1%. The reduction in corporate taxes has not necessarily been the result of political power on the part of corporations. Rather it was part of an international “bidding war” among countries to induce corporations to move from one country to a jurisdiction with a lower corporate tax. Even if it were politically feasible, the United States could not unilaterally reinstate the corporate income tax back to 1969 levels….”
      http://seekingalpha.com/article/1543642-a-depression-with-benefits-the-macro-case-for-mreits

      1. So why have you ignored the reply to your above post, re inequality from Steve Bradley (which I am quoting below). Doesn’t the fact that 50% of the population does not pay any taxes, and the top 25% pay mostly all taxes make our tax system progressive enough? You are posting long professionally-sounding messages, but could you address that common-sense-simple question for use mere mortals? Thank you.

        Steve Bradley | August 13, 2013 at 7:07 pm

        According to IRS figures for 2009, the top 1% of income earners pay roughly 36% of federal income taxes. The top 25% pay about 87%. The bottom 50% pay less than 3%. Please explain how “…there has been a tremendous shift in the tax burdens away from the rich and onto the middle class.”

        1. According to IRS figures for 2009, the top 1% of income earners pay roughly 36% of federal income taxes. The top 25% pay about 87%. The bottom 50% pay less than 3%. Please explain how “…there has been a tremendous shift in the tax burdens away from the rich and onto the middle class.”

          There clearly hasn’t been any such shift. Of course, some of the top 25% make a lot of their money by being put in privileged positions by the Fed and Congress so a real free market would be preferable to the crony capitalist system that is in place today.

          1. “…Depressions occur after investment bubbles burst. In free-market capitalism, capital generates income for the owners of the capital which in turn is used to create additional capital. This is very good. Sometimes, it can be actually too good. As capital continues to accumulate, its owners find it more and more difficult to deploy it efficiently. The business sector generally must interact with the household sector by selling goods and services or lending to them. When capital accumulates too rapidly, the productive capacity of the business sector can outpace the ability of the household sector to absorb the increasing production.

            The capitalists, or if you prefer, job creators use their increasing wealth and income to reinvest, thus increasing the productive capacity of the business they own. They also lend their accumulated wealth to other businesses as well as other entities after they have exhausted opportunities within the business they own. As they seek to deploy ever more capital, excess factories, housing and shopping centers are built and more and more dubious loans are made. This is overinvestment. As one banker described the events leading up to 2008 – First the banks lent all they could to those who could pay them back and then they started to lend to those could not pay them back. As cash poured into banks in ever increasing amounts, caution was thrown to the wind. For a while consumers can use credit to buy more goods and services than their incomes can sustain. Ultimately, the overinvestment results in a financial crisis that causes unemployment, reductions in factory utilization and bankruptcies all of which reduce the value of investments.

            If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.

            It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increased savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.

            Since 1969 there has been a tremendous shift in the tax burdens away from the rich and onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers.
            …”
            http://seekingalpha.com/article/1543642-a-depression-with-benefits-the-macro-case-for-mreits

          2. “…Most investors now believe three things about the Federal Reserve, money and interest rates. They think that the Federal Reserve is artificially depressing rates below what would be a “normal” level. They believe that in the process of doing so the Federal Reserve has enormously increased the supply of money and they believe that the USA is on a fiat money system.

            All three of those beliefs are incorrect. One benchmark rate that the Federal Reserve has absolute control of is the rate paid on reserves deposited at the Federal Reserve. That rate is now 25 basis points, after being zero since the inception of the Federal Reserve in 1913 until recently. If the Federal Reserve had left that rate at zero t-bill rates would now be even lower than they are now. The shortest t-bills rates would now be probably negative.

            Paying interest on reserves combined with the subsidy to the banks of providing free unlimited deposit insurance on non-interest bearing demand deposits is keeping t-bill rates positive. Absent those policies the rate on t-bills would be actually negative. The Chinese and others all over the world are willing to pay anything for the safety of depositing funds in the USA. Already, Bank of New York Mellon Corp. has imposed a 0.13% charge on large deposits.

            An investor who believes that interest rates are headed up may respond that the rate paid on reserves is a special case and that the vast increase in the money supply resulting from the quantitative easing must result in higher rates when the Federal Reserve reverses its course. The problem with that view is that the true effective money supply is still far below its 2007 level.

            Money is what can be used to buy things. Historically money has first been specie (gold and silver coins), then fiat money which is paper currency and checking accounts (M1) and more recently credit money. The credit money supply is what in aggregate can be bought on credit. Two hundred years ago your ability to take your friends out to dinner depended on whether or not you had enough coins (specie) in your pocket. One hundred years ago it depended on the quantity of currency in your pocket and possibly the balance in your checking account if the restaurant would take checks.

            Today it is mostly your credit card that allows you to spend. We no longer have a fiat money system. Today we have a credit money system. Just because there is still some fiat money does not negate the fact that we are on a credit money system. When we were on a basically fiat money system there was still a small amount of specie in circulation. Even today a five cent piece contains about 5 cents worth of metal, but no one would claim we are still on a specie money system.
            Fiat money is easy to measure; M1 was $1.376 trillion in 2007 and was $2.535 trillion in May 2013. The effective money supply is the sum of fiat money and credit money. Credit money cannot be precisely measured. However, When the person in California whose occupation was strawberry picker and who had made $14,000 in his best year was able to get a mortgage of $740,000 with no money down and private equity could buy a company like Clear Channel in a $20 billion leveraged buyout, also with essentially no money down, the credit money supply was clearly much higher than today. A reasonable ballpark estimate of the credit money supply is that it was $70 trillion in 2007 compared to $50 trillion today.

            The effective money supply is the sum of the traditional fiat money aggregates plus the credit money supply. Thus, despite the clams of Ron Paul and Rick Perry to the contrary, the effective or true money supply has fallen drastically over the last few years….”
            http://seekingalpha.com/article/1514632

          3. “…The enormous shift in tax policy favoring the rich has been a world-wide phenomenon going on for many years. After the Socialist party candidate François Hollande won the presidential election, France enacted tax laws that gave France the most progressive tax system among the 20 largest industrial nations. However, world-wide the tax systems have become so much less progressive in the past decades, that if the tax code that France has today were applied to France in 1969, France would have had the most regressive tax system among the 20 countries in 1969.

            A major component of the shift of the tax burden from the rich onto the middle class involves the corporate income tax, whose incidence falls entirely on the owners of corporations. Corporate income taxes were 4% of GDP in 1969 and are now less than 1%. ..”
            http://seekingalpha.com/article/1543642

    2. Kim Bruce

      While the Fed is trying to use monetary policy to influence employment, Obamacare is killing small business with high taxes.

      Friedman never dreamt the National debt would exceed $16.5 Trillion.

      1. Neither did Keynes for that matter.

  7. The short answer to Mr. Pethokoukis’ lengthy comment is that Friedrich Hayek has a Nobel Prize also.

  8. Benjamin Cole

    Excellent blogging.

    The tight-money crowd worships a type of theomonetarism, and confuse their prayers with reality.

    Japan has tried tight money. It did not work. In addition, in any economy in which people borrow to buy real estate, instituting tight money will result in a depression. See 2008.

    Mild inflation is the economy’s best friend.

  9. Dave Janes

    As an engineer and not an economist I will not argue economics either way. I do however see a similar history in the two eras. In the run up economic stimulus was to lower the tax on corporations and the rich; the idea being that they would create jobs. The end of that affecting jobs seems to be over.
    We have more money due to the feds practices now they are stuck because to raise interest rates will affect the national debt if deficit spending continues as it has always in modern times per a previous article I read. Right now we have a lot of money that was given to the banks and they have invested in negative things like corn futures. This instance combined with our president mandating we increase ethanol production when we have more oil than the arabs and much more natural gas will cause starvation in Mexico and high food prices here. From an engineering standpoint and also a farm standpoint we need to grow food not ethanol. The banks is where the money went and they have caused an artificial stock market boom. The money needs to go to the needs of the nation which will give everyone a job although not the one they want. for instance Obama spent money on solar cell companies and battery companies that failed because they could not compete. We need to invest in energy that runs 24/7 and we want clean energy so build tidal plants. They can be built on each coast and on the east and west sides of the great lakes which also have tide this gives regional distribution. We also need electrical infrastructure because we have foolishly said not in my land and stalled them. We need roads and bridges because the last time we did any stuff like that was the last time we had to have jobs. Within 5 years we will have a competitive solar cell but not many permanent jobs will be created because they are for people who want to make their own energy not for load demand. With 3D printing coming on we need to dig up and recycle materials. We need to send our smart mechanical unemployed to CAD school there will be openings galore. With older people we need medical service people because the country owes them their social security and medicare. We who had decent jobs paid a hell of a lot into those programs and savings wise it is inconvenient to have to retire now a depression kills savings that are in 401k accounts because my company did not give me choices that I could hide my money in when the market was so high I knew it would crash. I’m no economist but I know if the foundation is weak the thing will fall and I believe it will fall again.
    If we use the money we have created to build up american roads railroads and especially electrical grid and power plants. First tide next nuclear because the concern about waste is phony politics. We have a lot of fuel sitting around that needs to be recycled and the fuel used in Nuclear plants and the Radioactive waste bound into new fuel rods and used for heating water or steam in cities. This will cause jobs and is safe because the short lived waste is gone and the max energy can be computed at the beginning and will slowly go down from then so make them sized to be air cooled if power is lost. enough of that waste can generate power itself and the recycling and the heating plants need workers of higher caliber than construction. The banks and some of the richer folk are the culprits here. Tax the Banks and folk making so much in stock market and build things here with our money. One economist type thing I have been thinking about is the global value of our money cannot make us poor if we spend the money here. We in the USA are fortunate because we can grow manufacturer and use our own things without anything lacking. We have the manufacturing infrastructure sitting there. My son works at a former Bethlehem steel plant making the pipes for the new gas and oil we have found. Even if we export oil and gas some we need oil to make everything that is synthetic, our clothes, tires any plastic or nylon, rayon the list is endless and we can grow oil too in several ways not foodstuff; the best being algae then grass and wood grown on lands we are paying people not to farm.
    Lastly we must turn America back to God like it was founded or we could be Babalon. That may be controversial but it is true.
    To do all of these things first we have to remove the main problem we have today, Barack Obama. Every thing he has done has been to kill the economy example Obama care, to weaken the public and strengthen the Government, or to kill Christianity. He has committed many crimes but I will just list one. He allowed the folks in the Benghazi Embassy die, hid it and has ignored everything radical Islam has done, Plus have the IRS impede the grass root movements that would have lost him the last election. Once elected he still is covering it up and threatening the witnesses as if that is not enough he is making homeland security and police into an army complete with big brother only Orwell did not get all of our technology. Those are high crimes and misdemeanors my friends. Of course there is more much more. We elected a black president and that is wonderful. We just did not know until too late that he was a fraud. He hid that he likely is not an american, that his father and he are communists and that he was raised Muslim. Unfortunately we need to remove him at least and he deserves the penalty for conspiracy to commit murder. In his case it is a federal charge and may involve treason so I don’t know. The important thing is to remove him from office and reverse all the things he has done to create a tyrannical government here in the cradle of freedom. I think we need to rethink the so called progressive things we have been doing some of them are evil but even if we could create a condition where the government is responsible for everyones care it would remove our dignity and self respect. I believe we are responsible for ruining some peoples lives for generations if you can not get married and have several children and raise them with no father figure and no work ethic you have created a burden but most important someone who feels no self worth and does not know what to do except become a criminal to get a better life. I know their many who have climbed out of that and every one that I know is a noble person and most are Christian ie Martin Luther King Jr.
    The progressives have done that perhaps with good intention but we all need to fix that by removing the huge temptation. Not by busing them around but giving them excellent schools allowing them to have two parents who work. Enough look up the parable of the fish.
    There is no reason we cannot climb right back out of this and learn from it. A great challenge is coming for generation Y. Technology has come so far just with the things I have mentioned in here and spintronic computing all on the doorstep that they may not have any way to be impoverished. If we can print a working kidney and we can and transplant it to boot we are getting close to the star trek replicator. The show says that ended all war and poverty but learning to be productive is a major item of pride for people. God bless you!

  10. of course all of you are missing jim’s point as you pontificate on monetary policy and that is that rand
    paul is dangerous because he is spouting views that
    are incompatible with a capitalist system that indeed
    has a functioning federal reserve bank…and since there
    never will be a time when the FED does not exist
    policy has to deal with what to do when the financial
    system freezes and we go into a deep recession. Milton
    Friedman was a conservative economist who understood
    that the Fed had a role to play in preventing the financial
    markets from a complete collapse by purchasing long
    term bonds. Rand Paul is not a conservative in fact
    he is pandering to the ignorant uneducated voters who
    haven’t a clue how monetary policy works and only believe that spending is out of control and has to be cut
    of course when you tell them that its their tax break
    or entitlement that will be axed they don’t like it
    Rand Paul is a radical reactionary..he wants no government services and no national bank ..he wants
    to go back to the 1700’s when the states pretty much
    decided for themselves what policies to pursue…and in
    that regard jim p recognizes the danger in following
    an ayn rand acolyte down the primrose path to austerity
    and depression

  11. Milton Friedman spoke for himself so why not just listen. At his most experienced and wise age in life he said that the fed should be limited to providing a stable money supply and barred from tinkering. I paraphrase but anyone can look it up for themselves. No need for silly articles like this. So Rand is right. And James is right that Milt found all sorts of mismanagement in they way the fed does tinker. But Milt said his views of what the fed should have done in the Great Depression were based on the fact that the fed had, by then, brought about the calamity and, having done so, should have responded differently. Again, I paraphrase but listen to Milt on the internet, Free to Choose, or read his books. No need to listen to other people telling us what Milt would think.

  12. I have read the article and all of the comments. I wish people who were running the country had as much insight and knowledge as all parties including JP and RP.
    But no one has mentioned the most important items that Japan and the US has not done. We have created an environment of moral hazard and zero consequences for any and all parties that created and then nurtured the problems.
    Gov. spending should have never exceeded 17% of GDP and all of the grand social experiments that the left have tried for the last 70 years have not had the results needed to sustain them. The Republicans for the most part do not believe in fair market principles either so no matter what system is in place or where M1 or M2 levels are there is no support to change the current course. We now are in a moment where numbers are cajoled to fit the narrative that things are improving and they are not improving at all.
    We the people are to blame for we allowed the Fed and State bureaucracies to get bloated and ineffective and then we listened to the narrative that more regulations will help us.
    More citizen politicians are needed and not career politicans that do nto care a lick about what they are doing.

    CAN we also talk about results of polices and what if any ROI comes about. My goodness we have Head Start programs that have a negative ROI and nothing is done to shut them down or a Admiral or General that wants a new military toy that is not needed.
    I feel that we are headed for a major shift worldwide and when it occurs we should be prepared to finally abandoned this notion that any one person or party will turn this around and put smart capable leaders in place that are willing to step down before power corrupts them.

    1. Gov. spending should have never exceeded 17% of GDP and all of the grand social experiments that the left have tried for the last 70 years have not had the results needed to sustain them.

      Why 17%? I could easily argue that federal spending should not exceed 3% of GDP and that state and local spending should be in the same ballpark.

    2. Dave Janes

      I agree with Steve and that is why I pointed out what I can see that should be being done especially about Obama. There is return on investment available in the projects I laid out and many more not in my field of experience. All we need to do is elect citizen Senators, Representatives and Presidents. A situation of moral hazard means the evil things the left has been doing. The businessman knows that we cannot spend more than we can possibly produce or we will fail like other countries are doing right and left. Every country in the world that has socialized medicine is warning us against it especially Canada. They come here for medical attention and would have nowhere to go it must not pass but worries me anyway just like amnesty.
      Rand is dangerous because he wants to chop a whole bunch of agencies all at once leaving them unemployed as well and not taking time to think through one cut at a time not in what direction he wants to go but maybe how far and for sure how fast. But others, elected by the people instead of the lobbyists, are doing a good job of challenging those who are making the government into a self-preserving monster. Ted Cruz for example has not succumbed to the devil yet.
      The grass roots movements are not going to go away because the situation is so out of hand that anyone “ignorant and uneducated” can see we are in trouble and because they are right.
      Some of the poking fun at the 1700’s shows your ignorance. The states should be handling education with common core just not one that was written under the direction of Obama and Bill gates both of whom know nothing about education. We are slipping backwards in history, geography, core sciences, and language all of which are needed to compete in the global economy.
      Welfare of the needy is best handled at a county level with state backing. The county knows its citizens best and a state is big enough to level the burdin.
      Many of the social welfare stuff like that has been handled by churches. I was in tropical storm Agnes and those who were displaced went to friends and neighbors. Durring that the Red Cross was selling sandwiches and the Salvation Army was giving away complete meals.
      Paul and the people are right that Lobbying must be abolished. We should not put so much money that they can get just by doing something that benefits one over another; usually a company over the public. Much as it will cost us we need to have the country pay for the election process; otherwise we are governed by the rich or the ruthless or weak.
      Yes the states should be in charge of most things except the military and the taxation to support it. The states are in touch more than you think and competition in any area is good. My father said that every politician’s hand a dollar goes through a part sticks to; if for no other reason than to pay him. He was a smart man with very little education.
      Answers have been proposed and not adopted by the career politicians because of greed. Line item veto is needed to prevent attaching Pork to vital bills. No one doubts that but Ragen for sure and maybe Carter proposed it and it has not passed to this day. Term limits are needed to limit temptation to go to the dark side. Many other examples are clear but we should be discussing how to get an honest congress to vote out the things that turn politicians bad.
      Rand Paul was not bad but when you make the kind of waves he has people notice and want to elect him President so he is playing candidate instead of being the voice of the people he was elected to be. Congressional terms should be longer than the president because the learning curve is longer but limited to 12 years perhaps. The right things to do are well known but the congress will not pass them.
      I also agree that the people are to blame as well as the politicians because many especially on the left vote for free things.
      The courts have been legislating from the bench and that needs to be fixed but unless you change how they get there and their powers that will not change.
      The present government is a bloated money eating machine. Beware of poking fun at the constitution because those who wrote it knew more about tyrants and how to prevent them than we do. Not many places did they make things absolute but in the things that prevent tyranny like the 3 branches and the 1st 2ond 4th and 5th amendments they did because those are the last line of defense especially the 2nd and that is why is continually under attack by the president and the left be they democrat of republican.
      Tea party, Moral majority and all the other grassroots organizations are not going away! We are awake now and you should be helping us to deal with the over educated in BS not making fun.
      Perhaps I don’t belong here but all of you have posed no suggested no solutions except me and a couple others.
      Please try doing that I will spread the word as much as possible.

      1. Like the typical engineer you put too much faith in experts and ignore human nature when it comes to power. That is why your approach is doomed to failure. Men are not angels and term limits will not turn them into angels. As long as there is the power to meddle and to transfer wealth there will be some form of lobbying and special interest groups will try to get ‘their man’ elected so that they can get goodies from the public purse. The solution is to let people do with their own purchasing power what they want and to limit the size of government at all levels to around 3-5% of GDP maximum. (And yes, all you anarcho-capitalists out there can argue that is too much and as much as I would like to agree I would say that it is a good start.)

        1. Dave Janes

          You so called experts are the ones out of touch with reality.
          1. If you try to institute anarchy like you suggest all you will do is end up in camp FEMA. That is the mistake Obama is waiting for and the collapse of the dollar will give him the excuse he wants to start with martial law and go from there.
          2. You eggheads will be the first to starve to death moaning why will nobody help me!
          3. I was once an anarchist and then I lived to be 68 and saw the other nations (some) and then started putting some in the plate for missions.
          3. I have learned that disability insurance is a good thing to have.
          4. I do not expect the government to make me pay for anyone to set around. The accept work as you can get and do for welfare folks is a good step in my opinion.
          5. many things look good on paper but anarchy favors the ruthless. I can be that way but I doubt you could unless you are a former soldier and my guess is no. No soldier ever wants to kill and ravage again and your proclaimed ideology leads there.

          1. You so called experts are the ones out of touch with reality.

            What experts? I claim that it is the rule of ‘experts’ that have created the problems that we have today, not that we need to have a new set.

            1. If you try to institute anarchy like you suggest all you will do is end up in camp FEMA. That is the mistake Obama is waiting for and the collapse of the dollar will give him the excuse he wants to start with martial law and go from there.

            FEMA is only possible because of government overreach. It would not exist in a voluntary society.

            2. You eggheads will be the first to starve to death moaning why will nobody help me!

            You have me confused with the academics and political operatives. Most people will do much better in a free society and the worst off will still be better off than they are today.

            3. I was once an anarchist and then I lived to be 68 and saw the other nations (some) and then started putting some in the plate for missions.

            You are confused. Most other nations suffer because of an excess of government, not because of too little government.

            3. I have learned that disability insurance is a good thing to have.

            What prevents you from buying disability insurance in a free society? Don’t you buy house insurance already?

            4. I do not expect the government to make me pay for anyone to set around. The accept work as you can get and do for welfare folks is a good step in my opinion.

            But that is what you big government types do; you make some pay for the benefits of others. In the US there is one warfare/welfare party that has two wings. That party does not seem to have as bright a future as it did not too long ago. We have already seen the GOP fail to add members even during a weak economy. Unless it can resolve its internal conflict by purging the old guard that is so out of touch with the population the GOP will become irrelevant. The DP is not far behind as it has betrayed the principles that it was supposed to stand for.

            5. many things look good on paper but anarchy favors the ruthless. I can be that way but I doubt you could unless you are a former soldier and my guess is no. No soldier ever wants to kill and ravage again and your proclaimed ideology leads there.

            It does not favour the ruthless. It favours common law, customs law, natural law, or whatever you want to name it over arbitrary legislative law. That means that the power of government cannot be used to transfer wealth from some to others. I suggest that you learn a few things before you post on subjects that you are ignorant of.

  13. andy weintraub

    Milton Friedman would not have approved of the Fed paying interest on bank reserves created by its purchase of long term government securities. Paying the banks interest on those reserves discourages them from making loans to businesses and individuals, which would have a stimulative effect.

  14. “Higher taxes never reduce the deficit. Governments spend whatever they take in and then whatever they can get away with”.- Milton Friedman, economist

  15. So, the Bank of Japan eventually took Milton Friedman’s advice and began buying up long term bonds. How did that work out?

    1. The statists will argue that the BoJ acted too late and did not do enough, just as the argue that the reason why the stimulus failed to create new jobs was because it was too small.

      1. “…No monetary policy alone can end the depression. It would take fiscal policy as well. One way to do it would be to make the Federal tax structure as progressive as it was in 1969. Today, the wealthiest 3% of the people pay 50% of the federal taxes and the other 97% pay the other 50%. The marginal propensity to consume of the top 3% is around 0.4 while for the other 97% it is probably about 0.98. If taxes on the top 3% were increased by 50% and those on the bottom 97% were reduced by 50%, it would initially be revenue neutral. However, it would ultimately increase GDP by about 3% and reduce the unemployment rate to around 5%. That change in relative tax burdens would bring the degree of progressivity in the tax structure back to where it was in 1969.

        Another way to end the depression would be massive tax cuts for the middle class. The 10% and 15% Federal tax brackets could be temporarily reduced to zero. For married taxpayers this would exempt all net income below $72,500 from taxation. This would be a $9,982 tax cut for all couples with taxable incomes of $72,500 or more and less for others with less taxable incomes. Additionally, all personal payroll taxes could be suspended. As with the recently eliminated 2% payroll tax cut, the treasury would make the trust funds whole. This would put $6,120 in the pockets of a household that had $80,000 in wages. These steps would provide a total of about $15,000 to the typical middle class family. It would increase the deficit. However, with the current levels of interest rates and the possible profits made by issuing t-bills at negative rates, the long-term costs will be less than they were in WWII as a percentage of GDP.

        When Obama was campaigning for president he called for a $1,000 middle class tax-cut. On the day he took office the correct amount to end the depression was probably close to $15,000. Congress passed an $800 middle class tax-cut as part of the stimulus package…”
        http://seekingalpha.com/article/1543642-a-depression-with-benefits-the-macro-case-for-mreits

        1. The 10% and 15% Federal tax brackets could be temporarily reduced to zero.

          Why? Should people who are productive pay for the expansion of government as those that don’t pay taxes vote to expand it? The solution is simple. End the tyranny by firing 95% of federal employees and limiting Congress to the EXPLICIT powers that it has been delegated in the Constitution. If government gets out of the way people will find a way to improve their lot in life and strengthen the economy.

        2. Dave Janes

          The tax brackets would be better flattened because the tax structure conveniently makes small favors and return to the middle class go back into tax. Late last year I got a $2000 return from my life insurance just because that is the way my company benefits were written. In April it went back into the federal treasury. that is not the first time the social security max followed me for years. All classes need incentive to earn more to have a better life. Middle class is a bitch!

  16. You’re an idiot. First of all, Anna Schwartz who co-wrote a Monetary History of the United States with Milton Friedman is still alive and has lambasted the Fed over the last several years and said Milton would have opposed the vast majority of the Fed’s actions following the crisis. She is a much better authority on what Milton would or would not say than you are.

    Second, Friedman’s entire point he advocated over and over again was broad and base money targeting of a money supply growth rate equal to the economic growth rate. Since we’ve experienced substantially higher money supply growth than economic growth Milton would have never gone for asset purchases.

    Third, in the case of Japan **Japan actually had deflation** and their broad money supply hasn’t moved hence why he recommended asset purchases because they would increase the broad money supply growth rate in line with economic growth. Since the US doesn’t suffer that problem he wouldn’t have recommended here.

    Fourth, if you look at the surviving members of the Shadow FOMC(who are all monetarists) in addition to Schwarz such as Prof. Meltzer they all have been extremely critical of Fed asset purchases.

    So you don’t know what you’re talking about. It’s actually astonishing that AEI(a think tank I appreciate) would ever let you write such dog crap on their site.

    1. Oh yeah she did pass away last year, but prior to that she was very vocal about her dislike of Bernanke’s actions.

      Milton didn’t ‘tolerate statism’. You couldn’t possibly look at his body of work and say that. The problem with you Peter Schiff types is that you might have the right end goal, but you’re terrible at coming up with solutions to move from where we are today to our mutually desired end.

      For example I would love it if there was no social security, but there is no way abolishing it would ever pass so the appropriate solution is to just get it off the government balance sheet via privatization or Milton’s strategy of bonding each persons value at that stage of their life to allow for the transition.

      But something tells me that the lack of anything, but platitudes in your response tells me that you don’t really understand policy details and just hide behind an ‘everybody is a statist besides me’ mentality to mask your lack of knowledge on these matters.

      1. 1) So your a gold standard bug A? Let’s see how bright you are. What kind of gold standard? There have been several in history.

        2) A negative income tax is a very smart step in the right direction from where we were then and where we are today. If we did negative income tax in 96 it would have been better than the otherwise good bill we produced at that time. I know you don’t want to acknowledge this, but there is no way congress will completely end all welfare and all unemployment insurance immediately in one bill. You know that is true regardless if you will admit it. If you move to negative income tax as a replacement for unemployment insurance, SSDI, whats left of welfare, etc. we take a giant leap in the right direction. By calling such a proposal ‘statism’ it is you who is helping ‘statism’ by allowing the current system to stay by not supporting anything that moves us a huge step in the right direction except complete appeal(which will never pass). So it’s you that is helping statism by being such an all or nothing type of guy. That is the definition of naive and childish.

        1. 1) So your a gold standard bug A? Let’s see how bright you are. What kind of gold standard? There have been several in history.

          I would not impose any standard on the market. I would let the market choose what is to be used as money and would get rid of the legal tender laws and the government’s monopoly on the creation of money.

          2) A negative income tax is a very smart step in the right direction from where we were then and where we are today.

          Really? Why should hard working people pay those that choose not to work?

          I know you don’t want to acknowledge this, but there is no way congress will completely end all welfare and all unemployment insurance immediately in one bill.

          I do not expect Congress to do much that would be wise until the currency collapses and the government can no longer borrow and spend as it has. You want to see your future? Look to Greece and Spain.

          1. 1) Okay maybe you’re not as completely foolish as I thought there. Something tells me that you would have no clue what that would like. And you definitely have no clue how to go from here to there. Hint: There is a lot more too it than just ‘abolishing legal tender laws’ which is only scratching the surface. I could list 500 specific issues that would also have to be transitioned and I bet you couldn’t give a reasonable answer on how to do that with any one of them.

            2) But you’re already paying people not to work. Be honest do you actually think that society will abolish welfare in 1 piece of legislation? It would take likely at least 3 steps to get voters to agree to either completely remove welfare or have it be so minuscule that it no longer matters. So question was the 1996 Welfare to Work bill a step in the right direction? If you don’t say yes than it’s you that is the statist.

            Purists like you are the defenders of statism because you never actually allow your side to take steps in the right direction you only stifle their efforts by claiming that either the entire government shrinks 99% tomorrow or your not happy and if it were to shrink 98% you’re still pissed.

            I work in finance and understand markets much better than you do. If you invested based on the stupid crap that comes out of your mouth you would get crushed and someone like me would be the one to do it.

          2. 1) Okay maybe you’re not as completely foolish as I thought there. Something tells me that you would have no clue what that would like. And you definitely have no clue how to go from here to there. Hint: There is a lot more too it than just ‘abolishing legal tender laws’ which is only scratching the surface. I could list 500 specific issues that would also have to be transitioned and I bet you couldn’t give a reasonable answer on how to do that with any one of them.

            Your faith that some individual has a clue about how to plan something for the entire society would be somewhat amusing if it weren’t so sad. I could list issues too. But what I am sure of is that the market would handle the issue of money creation better than a government monopoly. What you fail to realize is that the real destruction of the American standard of living began in December 1913 when the Fed was given control over the creation of money and credit. Along with the passage of the 16th and 17th amendments to the Constitution the Federal Reserve Act allowed Congress to rob savers and productive workers while it transferred wealth to the financial system. The only way to correct the problem is to get rid of the legal tender laws that give the Fed its monopoly on money creation.

            2) But you’re already paying people not to work. Be honest do you actually think that society will abolish welfare in 1 piece of legislation? It would take likely at least 3 steps to get voters to agree to either completely remove welfare or have it be so minuscule that it no longer matters. So question was the 1996 Welfare to Work bill a step in the right direction? If you don’t say yes than it’s you that is the statist.

            A negative income tax makes it a lot easier for those that choose not to work. Friedman was wrong as he was wrong on withholding of taxes.

            Purists like you are the defenders of statism because you never actually allow your side to take steps in the right direction you only stifle their efforts by claiming that either the entire government shrinks 99% tomorrow or your not happy and if it were to shrink 98% you’re still pissed.

            I have made it clear that I am not a purist. While I prefer anarcho-capitalism I have no trouble with a starting point that fires half the government workers within a year or two. I have no trouble with cutting taxes in half in a year or with getting rid of 75% of the military related spending before we get serious about real cuts. I have contempt for RINOs who talk a good game but can’t seem to find anything to cut or Democrats who talk about helping people even as they destroy the productive class as well as the underclass they pretend to care about.

            I work in finance and understand markets much better than you do. If you invested based on the stupid crap that comes out of your mouth you would get crushed and someone like me would be the one to do it.

            As the crash showed, few in finance understood the markets better than I did. I called the housing bubble just as I am calling the current bond, equity, housing, and shale bubbles.

            I retired 12 years ago, in my early 40s and have lived off my investments ever since. That makes me quite comfortable with my approach and understanding of what is going on. When you can make a living by only investing your own money in your own account I might begin to pay some attention. Of course, it would help if your postings showed that you actually understood economics.

          3. Okay I’m officially calling MASSIVE Bull$hit on you. Not only are you obviously a liar(because of such a large disconnect between the lack of quality you claim and the performance claims you pretend to have had which I’m sure is no where near as good as you claim it to be), but you’re also obviously an idiot.

            I don’t engage in intellectual discussion with liars, charlatans, and the stupid.

            P.S. You actually have to pass legislation to systematically hand over the money supply to the free market. A legal tender law is only scratching the surface. What about bank reserves and liquidity requirements? Capital requirements? Taxation laws(can someone just create a currency of human hair and pay that to the US government for taxes? or are taxes only paid in US dollars?)? How about collateral requirements? How about exchange pricing in what currency? There are laws on all of this stuff and every single one of them would be changed in order to move to a ‘free market currency system’. Otherwise all you succeeded in doing with abolishing legal tender laws is creating a bitcoin like side show that never could get adopted into the financial system.

            You’re out of your league and you don’t even realize it. You’re a liar and I’m not wasting any more time.

          4. Okay I’m officially calling MASSIVE Bull$hit on you. Not only are you obviously a liar(because of such a large disconnect between the lack of quality you claim and the performance claims you pretend to have had which I’m sure is no where near as good as you claim it to be), but you’re also obviously an idiot.

            You can claim whatever you want. But before we migrated to Mark’s old blog there were a number of us at the Daily Reckoning blog. We had the same type of arguments that are seen with Perry. My point at the time still remains; the best long term strategy was to hold physical gold and silver, agriculture and energy shares, and have some of your money parked in natural resource sector juniors, most of which will fall to zero over the long run. The winners in the junior market will make up for the losses while the bullion and energy shares will provide some stability in a sea of volatility. Since then most commodities increased by several hundred percent. Many of the juniors were taken out at several hundred to several thousand percent gains and made up for the ones that failed or are about to fail. The energy trusts returned all of the original investment in monthly payouts and are still higher than the original purchase price.

            That is a much better performance than what the financial sector idiots were recommending.

            I don’t engage in intellectual discussion with liars, charlatans, and the stupid.

            I guess you don’t talk to yourself much.

            P.S. You actually have to pass legislation to systematically hand over the money supply to the free market. A legal tender law is only scratching the surface. What about bank reserves and liquidity requirements? Capital requirements?

            You don’t seem to understand what the term ‘free market’ means. There is no legislation that tells anyone what reserves should be or what is supposed to be acceptable as capital. Given the fact that the reason why the financial system is in so much trouble is the regulatory regime I don’t understand why you want more of it. There were more than 120 regulators before the crash. Would a few more have really made a difference? The Basel rules allowed banks to claim that Greek or Spanish bonds were Tier 1 capital. The free market would not make that error.

            You’re out of your league and you don’t even realize it. You’re a liar and I’m not wasting any more time.

            The fact that you are clueless is not my problem. It is yours. As I said, most finance people are empty suits who have no clue how an economy really works. They are Keynesians who have a very limited education and a lower understanding of the principles that are needed to figure out just how little they actually know. That is why they keep making the same errors over and over again and cannot spot bubbles even when they are all around us. Right now they don’t seem to have figured out that the Fed has created another bubble in real estate, equities, and the bond market. The financial sector cheers things like shale gas and oil even as the producers show themselves incapable of making an economic profit and cannot self finance. It cheers the financial sector even though it is leveraged to the hilt and still engages in mark to fantasy accounting. It cannot figure out the fact that the QE operations cannot end without breaking the economy but that they must end if the currencies are to be saved. The clocks are striking thirteen and the finance fools have yet to notice.

          5. edit: “Between the lack of intellectual quality in your comments and performance claims…” .

      2. And Milton was a young 30 year old non senior member of the group that suggested tax withholding during WWII *as a war time measure*. The members of that team were naive in thinking that it would only be using during WWII and then removed because that is what they were told.

        Looking back on it Milton has repeatedly said it was the single biggest mistake of his professional life to even be associated with a team that produced such a thing. He admits he learned a painful lesson from that to not trust what the government says; a lesson he followed the rest of his life.

        1. Dave Janes

          Not trusting what the government says is a great and possibly life saving idea in this day and age.
          Seems it is not new but there is a real need to invent one that is more likely to be honest.
          First all unconstitutional actions must be stopped.
          1. Congress needs the power to step on the courts for legislating from the bench. or do they already have it?
          2. Won’t you scholars fill in the next need?

          1. First all unconstitutional actions must be stopped.
            1. Congress needs the power to step on the courts for legislating from the bench. or do they already have it?
            2. Won’t you scholars fill in the next need?

            Congress and the Oval Office can ignore the courts when they try to legislate. And the states can nullify any laws that are not constitutional. If they grow a set of balls to stop judicial activism you will find that the judges will fall in line as they see the writing on the wall.

            And scholars are pretty useless because they are too arrogant and too statist. What is needed is liberty that comes from a very small (or better yet no) government, not a new set of rulers that we hope are better than the old set.

        2. You also have to realize the time period that was though. Keep in mind that the US government was very restrained leading up to the Great Depression. The Commerce Clause didn’t receive much legal blows from the Supreme Court until the mid 30s. During WWII people in the US legitimately feared the consequences of losing to the Japanese and Nazi Germany. In today’s environment it’s well known that power given to the government would never be given back, but back then it wasn’t as obvious. Keep in mind that a lot of economists even believed that a lot of the New Deal would be rolled back after WWII. Also, don’t forget that during WWII there was price controls, rationing, effective nationalization of private businesses to support the war, and all of that stuff was rolled back following the war. Given the context you could understand someone thinking that tax withholding could be rolled back as well especially when everybody was telling them that it would be temporary.

          You keep on waxing on about his ‘methodology’, but you have failed to show really any decent understanding of his views or signified any sophistication on the topic to be considered credible. Instead you probably heard from some very bad follower of Mises that Milton wasn’t free market enough and just assumed it to be true. What you should know was that Mises and a young Milton were friends and used to attend conferences and meetings together in Switzerland right after WWII. Hayek and Milton were long time friends. The Chicago School is really nothing more than an outgrowth of the Austrian School that sought to prove what the Austrians were saying using “Praxeology” through quantitative methods and then to focus on practical solutions that would move a system from where they were at that time back to a more free market system. The Austrian school always spent all it’s time focusing on the ‘ideal situation’, but never really spent time on how to go from where you are to that ‘ideal situation’. A rift between the Chicago School and the Austrian School is a new phenomenon predicated on very bad followers of the Austrian School who don’t know what they’re talking about and the fact that Bernanke keeps on calling himself a protege of Milton when he is anything, but. But really that isn’t any different from Greenspan spending his entire life as an Austrian Schooler when clearly he acted nothing like one in 2001-05. Both schools have had bad Fed Chairmen claiming to be members of said school when really they both were acting as Keynesians.

          1. You keep on waxing on about his ‘methodology’, but you have failed to show really any decent understanding of his views or signified any sophistication on the topic to be considered credible.

            As I said above, he was a moral relativist who did not believe in principles. That is why he was much more comfortable trying to make government more efficient than he was trying to eliminate it. He called Greenspan a genius who got things right as he tried to control the economy by using the Fed’s power to intervene. That is hardly a man who favours free markets.

            What you should know was that Mises and a young Milton were friends and used to attend conferences and meetings together in Switzerland right after WWII. Hayek and Milton were long time friends.

            I think that you are unaware that it was Milton Friedman who blocked Hayek from getting a full time position at the University of Chicago. Hayek’s salary was paid by the Volcker Fund but there would be no pension and no tenure. That is why Hayek went back to Europe.

            The Chicago School is really nothing more than an outgrowth of the Austrian School that sought to prove what the Austrians were saying using “Praxeology” through quantitative methods and then to focus on practical solutions that would move a system from where they were at that time back to a more free market system.

            This shows just how little you know about the subject. Try to compare “The Epistemological Problems of the Sciences of Human Action”, which is Chapter two in Mises’ book, Human Action to Friedman’s paper, “The Methodology of Positive Economics”, and you quickly find a huge difference in methodology. Mises argued that the essentials of economic theory could be logically deduced from the axiom of human action while Friedman argued that economists need to develop models that could contain false assumptions. The two approaches are very different.

            The Austrian school always spent all it’s time focusing on the ‘ideal situation’, but never really spent time on how to go from where you are to that ‘ideal situation’.

            This is not true. The Austrians do not need an ‘ideal’ situation because they rely on logical deductions based on human’s making preferences. It is the Chicago school that relies on simplifying assumptions to make its models yield results. They are the ones who assume equilibrium and use linear equations to try to explain the workings of a complex system like the economy.

            You really need to stop listening to what others are telling you and start to look at the original material yourself.

          2. “…It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increased savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.
            Since 1969 there has been a tremendous shift in the tax burdens away from the rich and onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers.
            In an interview about the proposed “Buffett Rule”, T.J. Rogers the CEO of Cypress Semiconductor Corporation (CY) inadvertently illustrated the potential perils of overinvestment for an economy. Warren Buffett the CEO of Berkshire Hathaway Inc. (BRK.A) (BRK.B) had proposed the “Buffett Rule” which would impose a minimum tax of 30% on incomes above one million dollars. Rogers explained to Larry Kudlow on CNBC’s Kudlow Report on May 16, 2012, why he opposed the Buffett Rule. Rogers said that he spends less than 1% of his income on his living expenses and invests the other 99% in creating new businesses and increasing the productive capacity of the businesses he already owns. If he had to pay taxes pursuant to the Buffett Rule he would not be able to invest as much. Clearly, someone who invests 99% of their income will see his wealth grow exponentially as long as his investments are at all productive. It would not take too many members of the top 1% investing 99% of their income before they would be unable to deploy their capital productively. This would be a classic example of capital accumulating faster than consumers’ incomes. Consumers would not be able to buy all the goods and services produced by the over investment…”
            http://seekingalpha.com/article/1543642

          3. …It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions.

            It was not a coincidence that a cut in taxes and a cut in spending got the country out of a depression in 1921-1922. And the last time I looked the 1929 and 2007 crashes were created by a liquidity happy Federal reserve that inflated the supply of money and credit.

            You do remember that, don’t you? That was the liquidity that the Austrians said was creating a bubble but the Monetarists and Keynesians said was great for the economy.

          4. Nice technical discussion and shows a lot of knowledge here. I still like Friedman and his comment, “Higher taxes never reduce the deficit. Governments spend whatever they take in and then whatever they can get away with”.- Milton Friedman, economist

            It certainly fits this administration.

          5. It fits all administrations over the past 60 years. Remember when Reagan kept talking up Hayek and the Austrian School? That was for show because when the chips were down the chose the big-government path of the Chicago School. And if St. Ronnie did not have the guts to go for small government why would we expect anyone else in either mainstream party?

          6. that’s true.

          7. Sadly, many in the GOP do not bother to admit it and to look for a better way forward. That is why the party wound up losing an election that it had no business losing. It chose an empty suit who supported the same old empty ideas even as he alienated most of the left that should have supported a candidate who stood on principle. The US will remain lost as long as either of the wings of the Warfare/Welfare party controls Congress or the Oval Office.

          8. Well from the looks of all the scandals, looks like Obama had some help from the media winning the election. Don’t forget Candy Crowley won the debate for Obama, and Benghazi was buried by the media. A recent study indicates had the IRS not stalled conservative groups from organizing Romney had an excellent chance of winning.

          9. The GOP leadership won Obama the election. They rigged the game so that Romney would come out on top because they did not have the courage to debate what the party really stood for. As a result a weak and stupid president wiped out their guy and the voters got exactly what they deserved. The way things are going it looks as if Hillary has a good shot during the next election because the old guard is doing its best to alienate principled young people and working and middle class families.

        3. I should also point out that both Milton’s son and grandson are anarcho-capitalist libertarians. Milton’s son devoted his life studying the virtues of a society with *no* government(even where police is contracted).

          His grandson started an institute dedicated to creating autonomous city states out in international waters. They have the backing of billionaire libertarian Peter Thiel. And I believe they’re behind the green lit project to put large boats in international waters off of Silicon Valley for the purposes of attracting foreign talent and entrepreneurs who have trouble getting visa’s to work in the US. From there they would get temporary visa’s when they need to take a ferry into Silicon Valley for business. The institute calls it “jurisdictional arbitrage”.

          So if Milton was such a ‘statist’ why is his kid and grandson more libertarian than most Austrians? I mean they advocate no government whatsoever.

          1. You also have to realize the time period that was though. Keep in mind that the US government was very restrained leading up to the Great Depression.

            But the Fed wasn’t. The last half of the 1920s was one of credit creation that caused a great boom in the stock market. When the Fed reduced the rate of credit creation the stock market crashed. Instead of allowing the markets to liquidate malinvestments Hoover meddled by propping up prices, preventing the labour markets from clearing, and encouraging cartelization in a number of sectors.

            In today’s environment it’s well known that power given to the government would never be given back, but back then it wasn’t as obvious.

            Of course it was. Government had never given back any of the powers that it took for itself.

            Given the context you could understand someone thinking that tax withholding could be rolled back as well especially when everybody was telling them that it would be temporary.

            No I can’t. I am a person who believes in principles. As such I would never support anything that violates natural rights. But Milton was a moral relativist. To him there is no such thing as natural rights and all power flows from government power. Everything is relative and positivism rules. That is why Friedman was so dangerous to the free markets; his methodology is consistent with authoritarianism, not liberty.

          2. I should also point out that both Milton’s son and grandson are anarcho-capitalist libertarians. Milton’s son devoted his life studying the virtues of a society with *no* government(even where police is contracted).

            But David is a moral relativist like his father and shares some of the same methodological problems with him. Yes, a great deal of his work is great, which is why I read his books and pay attention to him. But his tolerance for statism is still far too high for my liking.

            So if Milton was such a ‘statist’ why is his kid and grandson more libertarian than most Austrians? I mean they advocate no government whatsoever.

            His grandson took Milton’s arguments to their logical conclusion, which is anarcho-capitalism. The problem was that Milton could never abandon his methodology and his moral relativism and could not get there himself. Isn’t it ironic that the grandson is philosophically much closer to Murray Rothbard than to Milton Friedman?

  17. Although these “moot courts” discussing what the dead would have done are interesting, I wonder if Jimmy P is familiar with the Friedman book “Money Mischief”?

    I’ve always thought that if Friedman were today able to put out an updated edition, he’d dedicate a chapter to QE.

  18. I don’t know why everyone seems to misinterpret Friedman’s opinion of this. He is against the fundamental principle of the Federal Reserve, but he recognizes that the Fed didn’t do what it was initially tasked to do during the great depression.

    It is simply him stating that they didn’t do what they agreed to do, so in light of the banks and other financial entities expectations and actions that were altered by the existence and actions of the federal reserve, Friedman felt the Fed should have done their job in the context of their creation

    Also remember that decreased government spending is very different that tight monetary policy. Friedman is for people working in their individual interests and low government spending, independent of budget deficits

    1. Milton was clear that he thought that Greenspan was the best chairman ever and that he produced a stable period of economic growth. He was a fan of what the Fed was doing for more than a decade before he died.

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