Have a constitutional amendment that specifically limits the role of the FED to that of ensuring price stability. Germany has an article in their convention that limits the roll of the Bundesbank to that of price stability.
Why would you want price stability? The German rules limit the amount of inflation the Bundesbank can cause, but why would you want it to cause any inflation? Central banks aren’t a bulwark against inflation, they are its principal cause.
Privatize currency (or at least allow for private/commercial currency), let the market decide on competing currency systems.
Let the government continue to print money, but return to the gold standard. I know that sounds stupid — gold has no real intrinsic value to civilized humans — but the point is just to put a hard upper limit on how much money it can print, and on the speed with which it can do it. It might as well be a platinum or lead or redwood lumber standard, anything which is in finite supply and very hard to suddenly triple the amount of in government hands.
This has the additional benefit in that whenever the government wants to devalue the currency — as they have been doing like gangbusters for the past year, with obvious consequences that are showing up in the price of gasoline and food now — it has to do so much more explicitly, by restating the amount of gold (or lead) a dollar will by. You can’t hide behind polysyllabic pontifical bullshit like “quantitative easing.”
Maybe we should tie the currency to the level of domestic power production — since energy seems to drive civilization and the economy, that might be the only way to get the government to actually WANT to product more energy….
That way, if they manage to double the “money” supply, at least we’d be enjoying the benefits of cheap and abundant power while suffering from the effects of inflation.
I just want to know if we’ll see Dorthy and Toto again.
Unfortunately, the posts reflect your personal belief (gut feeling) and are not backed by any (scientific) data.
Suppose, that country A has a federal bank while country B has free banking. After 200 year, country A progresses significantly much faster than country B (as measured by some obvious number). Would you still choose country B?
Now do the same with Chinese Communism vs. American Democracy. Suppose that in 200 years the Chinese have surpassed Americans by a factor of 20 in GDP. Would you still want American Democracy?
Miklos
Suppose that in 200 years the Chinese have surpassed Americans by a factor of 20 in GDP.
To heck with that. If we’re supposing, I’m going to suppose I’m hung like Secretariat. It has more basis in reality.
Time To End The Fed?
Do us little people even have a say in the matter?
Suppose, that country A has a federal bank while country B has free banking. After 200 year, country A progresses significantly much faster than country B (as measured by some obvious number). Would you still choose country B?
Why do you think there would be a significant advantage to country A rather than country B?
Even in a universe perverse enough that continually and coercively violating the will of people trying to go about their business (communism) somehow leaves them better off than allowing them to pursue their desires and form their own agreements between them (capitalism); I would still be a capitalist.
I would place higher value on not being continually forced, frustrated, and stopped (and jailed and killed, ect, ect) by armed government officials than I would on almost any level of economic wellbeing above subsistence. In short: freedom is almost always more important than prosperity.
I’m with McG. As long as we’re supposing, I’m going to suppose someone just brought me a ham on rye with a pint of Newcastle Brown and a decent dill pickle.
And my word what I suppose she’s wearing!
Excuse me for a bit, gentlemen.
As far as the tradeoff between central banking and free banking goes – back in the old west, there were tons of free banks. The responsible ones managed to return modest interest and remained stable. The irresponsible banks promised a lot of interest but went bust more often. People investing money in these banks could lose their savings (because that is ultimately what you are doing when you are depositing money in a bank account: investing it).
Then a bunch of bankers started a cartel in New York – if any of them started having difficulty with their reserve payments, the others would pitch in to support it on the idea that they would make good on their investments eventually and pay it back. The rationale was this would prevent runs on banks (painted as irrational hysteria – but it was actually a pretty good idea to get your funds the heck out of a bank whose investments were falling through.)
It also shielded banks from the problems associated with maintaining too little reserve (moral hazard). So a lot of banks ended up gambling with too little reserve on the idea that the other banks would bail them out in a run. Then, since bigger is better right, they mandated that all banks be a part of this system. The irresponsible banks had a field day – then people started withdrawing too much money – there wasn’t enough reserve to cover it, in any of the banks, since they were *collectively* delinquent on their reserves. This lead people to lose confidence in the more responsible banks as well (and with good reason! they were all tied together now!) and try to get their savings out. No luck, because, being yoked into the collective scheme, they were all tapped out at once. Cue the great depression.
So basically we can have banks go bankrupt one at a time here and there, or we can have entire countries go bankrupt at once (with added incentives to be irresponsible).
For anyone who wants an excellent history and rigorous critique of the banking system and the feds role in it, I would recommend “A History of Money and Banking” by Murray N. Rothbard. He is about as pro-market as one can be.
Since Carl’s jumped the shark I guess ya need my voice of reason? 🙂
We can certainly eliminate the fed, but what we really need to do is stop the government from playing wealth redistribution games. It may not have been so bad when the numbers were a lower percentage but those days are gone (and they weren’t that long ago.)
They’ve made it clear they will not tolerate competition (calling someone who legally printed certificates backed by silver coins a terrorist.) They couldn’t legally be called coins (and he didn’t) because only government can legally make legal tender coins, but his precious metal medallions were his property and the government took them (estimated to be worth up to $20 million and actually belonging to thousands of certificate holders around the country.) It’s not illegal to hold something of value for others and give them a receipt for it.
Others are looking at their own precious metals and wondering when the government will seize theirs as well.
I’m back. What did I miss?
The problem with abolishing the Fed is, what to replace it with? The monetary situation before the Fed has little to recommend it.
And, while the Fed’s role in the Great Depression was not particularly helpful, it was more a feedback effect on the wealth destroying policies of the New Deal, which kept the downturn going for over a decade until some of it could be repealed. Ditto the current malaise.
Others are looking at their own precious metals and wondering when the government will seize theirs as well.
Well, I have a personal stock of precious metals the US Treasury might be interested in some day: lead and brass.
The monetary situation before the Fed has little to recommend it.
You mean other than two full centuries of strong economic growth?
Good point. Without a central bank run by Our Betters in Congress and the incestuous close-knit Wall Street banking community, there is very little in the way of opportunities for political corruption and exploitation, such as we’re seeing now, where the Fed can inflate our currency into worthlessness, so that the Obama deficits vaporize without a tax increase and any of those selfish bastard capitalists sitting on savings intead of propping up the housing bubble investing in new property, or foolishly ignoring the anti-business regulatory nightmare out of Washington confidently Winning The Future by aggressively hiring.
gold has no real intrinsic value to civilized humans
I dunno, it makes a pretty decent electrical conductor…
Carl Pham Says:
March 24th, 2011 at 12:26 pm
“You mean other than two full centuries of strong economic growth?”
In which parallel universe? Per capita GDP in the US exploded after WWII which, coincidentally or not, was also subsequent to the creation of the Fed. If you plot it, it’s a bloody hockey stick! (Um, well, forget I said that…)
And, those pre-Fed years were often extremely painful, with harsh boom/bust cycles.
If we use Bart’s data and plot the log of “Real GDP per capita” from the beginning, say 1790, we see several features. First, that economic growth was consistent throughout the history of the US (the Great Depression being the single big exception. Second, after the Second World War, economic growth was a bit higher sloped and much smoother than economic growth prior to the Great Depression.
The Fed probably is responsible for part of that.
Nonsense, Bart. Real GDP per capita is simply a reasonable exponential from 1800 on (just use your data page to plot the log series, you’ll find a pretty straight line). It just looks like it “exploded” after 1945 when you plot 1800 to 2000 on a linear scale, because that’s what exponentials look like. If you plot the data from 1800 to 1900, it looks like it “exploded” after 1875, and so forth.
Furthermore, the Federal Reserve System was created in 1913, not 1945, and it is during its existence that the United States has suffered the longest and deepest recession (the Great Depression), and the second (the present one). Those are pretty damning facts, however well the Fed “works” (or perhaps fails to screw things up) when the economy is booming.
Also I believe the canard about “severe” boom ‘n’ bust cycles marring 19th century growth, a frequent trope of the Progressives during the early 1900s agitating for massive central command of the economy, has long been debunked. 19th century monetary crises and business downturns were no worse than those of the 20th century. Indeed, by some respects they may have been better, as they tended to be much shorter, and however bad a bout of unemployment and negative growth is, it is much worse when it lasts and lasts, cf. the 1930s.
The problem with abolishing the Fed is, what to replace it with? The monetary situation before the Fed has little to recommend it.
Perhaps replace it with legislation, either 1) a Friedmanite rule that sets money-supply growth according to productivity growth or 2) a rule along the lines of: “The US Treasury will buy or sell gold as needed to maintain the spot dollar price of gold within a range to be determined by Congress no more frequently than once in ten years.”
Carl Pham Says:
March 24th, 2011 at 7:03 pm
Carl, really… you’re lecturing me about exponentials on this blog? The slope, as Karl H. notes, visibly increases post war. What you see 1913-1945 is the learning curve.
Most of the rest of what you say is post hoc ergo propter hoc. I maintain that it has more to do with the policy choices pursued by the given administration at the time.
And, just because a system exhibits undesirable behavior when tuned one way does not mean you should crank the knob hard over the other way. The whole field of engineering well nigh boils down to tuning for the optimum.
Jonathan Says:
March 25th, 2011 at 5:06 am
Constraining the range of responses does not generally make for a robust system design.
Constraining the range of responses does not generally make for a robust system design.
Systems that constrain government’s range of responses have a better track record than do systems that give government officials more power and discretion. Why should it be an different for the Fed, whose track record includes the Great Depression, ’70s inflation and other exceptionally bad events that resulted from or were exacerbated by policy errors?
“Most of the rest of what you say is post hoc ergo propter hoc.”
Ohh boy….once they start slinging the Latin you know the argument is thinning…..
Jonathan Says:
March 25th, 2011 at 7:52 am
“Systems that constrain government’s range of responses have a better track record than do systems that give government officials more power and discretion.”
Do they, now? Was Jamie Gorelick’s imposition of limits on sharing information between law enforcement and intelligence agencies prior to 9-11 a good thing? Was the Davis-Bacon Act, which constrained the government to pay “prevailing wages” on government contracts, an unalloyed good? Our government is currently facing a funding crisis, brought on in large measure by the creation of mammoth entitlement programs which the government forbids itself to modify or scale back. Is this part of your excellent track record?
Or, are you willing to consider that it may not be best to go hard over one way or the other in, at least, some matters? If not, then why not abolish the federal government entirely, which would be the ultimate constraint on its responses to, well, anything?
“Why should it be an different for the Fed, whose track record includes the Great Depression, ’70s inflation and other exceptionally bad events that resulted from or were exacerbated by policy errors?”
So, bad economic events or intervals never happened before the Fed, and the Fed is the only entity whose actions have an effect on economic activity. Got it.
Have a constitutional amendment that specifically limits the role of the FED to that of ensuring price stability. Germany has an article in their convention that limits the roll of the Bundesbank to that of price stability.
Why would you want price stability? The German rules limit the amount of inflation the Bundesbank can cause, but why would you want it to cause any inflation? Central banks aren’t a bulwark against inflation, they are its principal cause.
Privatize currency (or at least allow for private/commercial currency), let the market decide on competing currency systems.
Let the government continue to print money, but return to the gold standard. I know that sounds stupid — gold has no real intrinsic value to civilized humans — but the point is just to put a hard upper limit on how much money it can print, and on the speed with which it can do it. It might as well be a platinum or lead or redwood lumber standard, anything which is in finite supply and very hard to suddenly triple the amount of in government hands.
This has the additional benefit in that whenever the government wants to devalue the currency — as they have been doing like gangbusters for the past year, with obvious consequences that are showing up in the price of gasoline and food now — it has to do so much more explicitly, by restating the amount of gold (or lead) a dollar will by. You can’t hide behind polysyllabic pontifical bullshit like “quantitative easing.”
Maybe we should tie the currency to the level of domestic power production — since energy seems to drive civilization and the economy, that might be the only way to get the government to actually WANT to product more energy….
That way, if they manage to double the “money” supply, at least we’d be enjoying the benefits of cheap and abundant power while suffering from the effects of inflation.
I just want to know if we’ll see Dorthy and Toto again.
Unfortunately, the posts reflect your personal belief (gut feeling) and are not backed by any (scientific) data.
Suppose, that country A has a federal bank while country B has free banking. After 200 year, country A progresses significantly much faster than country B (as measured by some obvious number). Would you still choose country B?
Now do the same with Chinese Communism vs. American Democracy. Suppose that in 200 years the Chinese have surpassed Americans by a factor of 20 in GDP. Would you still want American Democracy?
Miklos
To heck with that. If we’re supposing, I’m going to suppose I’m hung like Secretariat. It has more basis in reality.
Time To End The Fed?
Do us little people even have a say in the matter?
Suppose, that country A has a federal bank while country B has free banking. After 200 year, country A progresses significantly much faster than country B (as measured by some obvious number). Would you still choose country B?
Why do you think there would be a significant advantage to country A rather than country B?
Even in a universe perverse enough that continually and coercively violating the will of people trying to go about their business (communism) somehow leaves them better off than allowing them to pursue their desires and form their own agreements between them (capitalism); I would still be a capitalist.
I would place higher value on not being continually forced, frustrated, and stopped (and jailed and killed, ect, ect) by armed government officials than I would on almost any level of economic wellbeing above subsistence. In short: freedom is almost always more important than prosperity.
I’m with McG. As long as we’re supposing, I’m going to suppose someone just brought me a ham on rye with a pint of Newcastle Brown and a decent dill pickle.
And my word what I suppose she’s wearing!
Excuse me for a bit, gentlemen.
As far as the tradeoff between central banking and free banking goes – back in the old west, there were tons of free banks. The responsible ones managed to return modest interest and remained stable. The irresponsible banks promised a lot of interest but went bust more often. People investing money in these banks could lose their savings (because that is ultimately what you are doing when you are depositing money in a bank account: investing it).
Then a bunch of bankers started a cartel in New York – if any of them started having difficulty with their reserve payments, the others would pitch in to support it on the idea that they would make good on their investments eventually and pay it back. The rationale was this would prevent runs on banks (painted as irrational hysteria – but it was actually a pretty good idea to get your funds the heck out of a bank whose investments were falling through.)
It also shielded banks from the problems associated with maintaining too little reserve (moral hazard). So a lot of banks ended up gambling with too little reserve on the idea that the other banks would bail them out in a run. Then, since bigger is better right, they mandated that all banks be a part of this system. The irresponsible banks had a field day – then people started withdrawing too much money – there wasn’t enough reserve to cover it, in any of the banks, since they were *collectively* delinquent on their reserves. This lead people to lose confidence in the more responsible banks as well (and with good reason! they were all tied together now!) and try to get their savings out. No luck, because, being yoked into the collective scheme, they were all tapped out at once. Cue the great depression.
So basically we can have banks go bankrupt one at a time here and there, or we can have entire countries go bankrupt at once (with added incentives to be irresponsible).
For anyone who wants an excellent history and rigorous critique of the banking system and the feds role in it, I would recommend “A History of Money and Banking” by Murray N. Rothbard. He is about as pro-market as one can be.
Since Carl’s jumped the shark I guess ya need my voice of reason? 🙂
We can certainly eliminate the fed, but what we really need to do is stop the government from playing wealth redistribution games. It may not have been so bad when the numbers were a lower percentage but those days are gone (and they weren’t that long ago.)
They’ve made it clear they will not tolerate competition (calling someone who legally printed certificates backed by silver coins a terrorist.) They couldn’t legally be called coins (and he didn’t) because only government can legally make legal tender coins, but his precious metal medallions were his property and the government took them (estimated to be worth up to $20 million and actually belonging to thousands of certificate holders around the country.) It’s not illegal to hold something of value for others and give them a receipt for it.
Others are looking at their own precious metals and wondering when the government will seize theirs as well.
I’m back. What did I miss?
The problem with abolishing the Fed is, what to replace it with? The monetary situation before the Fed has little to recommend it.
And, while the Fed’s role in the Great Depression was not particularly helpful, it was more a feedback effect on the wealth destroying policies of the New Deal, which kept the downturn going for over a decade until some of it could be repealed. Ditto the current malaise.
Well, I have a personal stock of precious metals the US Treasury might be interested in some day: lead and brass.
The monetary situation before the Fed has little to recommend it.
You mean other than two full centuries of strong economic growth?
Good point. Without a central bank run by Our Betters in Congress and the
incestuousclose-knit Wall Street banking community, there is very little in the way of opportunities for political corruption and exploitation, such as we’re seeing now, where the Fed can inflate our currency into worthlessness, so that the Obama deficits vaporize without a tax increase and any of those selfish bastard capitalists sitting on savings intead ofpropping up the housing bubbleinvesting in new property, orfoolishly ignoring the anti-business regulatory nightmare out of Washingtonconfidently Winning The Future by aggressively hiring.gold has no real intrinsic value to civilized humans
I dunno, it makes a pretty decent electrical conductor…
Carl Pham Says:
March 24th, 2011 at 12:26 pm
“You mean other than two full centuries of strong economic growth?”
In which parallel universe? Per capita GDP in the US exploded after WWII which, coincidentally or not, was also subsequent to the creation of the Fed. If you plot it, it’s a bloody hockey stick! (Um, well, forget I said that…)
And, those pre-Fed years were often extremely painful, with harsh boom/bust cycles.
If we use Bart’s data and plot the log of “Real GDP per capita” from the beginning, say 1790, we see several features. First, that economic growth was consistent throughout the history of the US (the Great Depression being the single big exception. Second, after the Second World War, economic growth was a bit higher sloped and much smoother than economic growth prior to the Great Depression.
The Fed probably is responsible for part of that.
Nonsense, Bart. Real GDP per capita is simply a reasonable exponential from 1800 on (just use your data page to plot the log series, you’ll find a pretty straight line). It just looks like it “exploded” after 1945 when you plot 1800 to 2000 on a linear scale, because that’s what exponentials look like. If you plot the data from 1800 to 1900, it looks like it “exploded” after 1875, and so forth.
Furthermore, the Federal Reserve System was created in 1913, not 1945, and it is during its existence that the United States has suffered the longest and deepest recession (the Great Depression), and the second (the present one). Those are pretty damning facts, however well the Fed “works” (or perhaps fails to screw things up) when the economy is booming.
Also I believe the canard about “severe” boom ‘n’ bust cycles marring 19th century growth, a frequent trope of the Progressives during the early 1900s agitating for massive central command of the economy, has long been debunked. 19th century monetary crises and business downturns were no worse than those of the 20th century. Indeed, by some respects they may have been better, as they tended to be much shorter, and however bad a bout of unemployment and negative growth is, it is much worse when it lasts and lasts, cf. the 1930s.
The problem with abolishing the Fed is, what to replace it with? The monetary situation before the Fed has little to recommend it.
Perhaps replace it with legislation, either 1) a Friedmanite rule that sets money-supply growth according to productivity growth or 2) a rule along the lines of: “The US Treasury will buy or sell gold as needed to maintain the spot dollar price of gold within a range to be determined by Congress no more frequently than once in ten years.”
Carl Pham Says:
March 24th, 2011 at 7:03 pm
Carl, really… you’re lecturing me about exponentials on this blog? The slope, as Karl H. notes, visibly increases post war. What you see 1913-1945 is the learning curve.
Most of the rest of what you say is post hoc ergo propter hoc. I maintain that it has more to do with the policy choices pursued by the given administration at the time.
And, just because a system exhibits undesirable behavior when tuned one way does not mean you should crank the knob hard over the other way. The whole field of engineering well nigh boils down to tuning for the optimum.
Jonathan Says:
March 25th, 2011 at 5:06 am
Constraining the range of responses does not generally make for a robust system design.
Constraining the range of responses does not generally make for a robust system design.
Systems that constrain government’s range of responses have a better track record than do systems that give government officials more power and discretion. Why should it be an different for the Fed, whose track record includes the Great Depression, ’70s inflation and other exceptionally bad events that resulted from or were exacerbated by policy errors?
“Most of the rest of what you say is post hoc ergo propter hoc.”
Ohh boy….once they start slinging the Latin you know the argument is thinning…..
Jonathan Says:
March 25th, 2011 at 7:52 am
“Systems that constrain government’s range of responses have a better track record than do systems that give government officials more power and discretion.”
Do they, now? Was Jamie Gorelick’s imposition of limits on sharing information between law enforcement and intelligence agencies prior to 9-11 a good thing? Was the Davis-Bacon Act, which constrained the government to pay “prevailing wages” on government contracts, an unalloyed good? Our government is currently facing a funding crisis, brought on in large measure by the creation of mammoth entitlement programs which the government forbids itself to modify or scale back. Is this part of your excellent track record?
Or, are you willing to consider that it may not be best to go hard over one way or the other in, at least, some matters? If not, then why not abolish the federal government entirely, which would be the ultimate constraint on its responses to, well, anything?
“Why should it be an different for the Fed, whose track record includes the Great Depression, ’70s inflation and other exceptionally bad events that resulted from or were exacerbated by policy errors?”
So, bad economic events or intervals never happened before the Fed, and the Fed is the only entity whose actions have an effect on economic activity. Got it.