What? No Austrian Prescription? Bloomberg Reporters Cannot Believe It

This is truly funny. Ahead of the FOMC decision, Ron Paul, who is well-known as an an implacable critic and enemy of the Fed and a fan of the Austrian School of Economics, was interviewed at Bloomberg as to “what the Fed should do”.

What makes it so funny is that the Bloomberg reporters seemingly cannot believe that Austrian economists simply have no “prescriptions” for the Fed. They keep pushing Ron Paul for giving them some advice. “But we do have a Fed…given that the institutional set-up is what it is and we cannot change it, what should they do? What’s the “Austrian” prescription?”

 

Dear Dr. Paul, please tell the Fed what to do! :)

Photo credit: Sean Gardner / Reuters

 

We happen to think Ron Paul could actually have handled the reply to this a bit better than he did. He could e.g. simply have told them that their question was akin to asking him “how many tractors should GOSPLAN produce this year?” It is simply an utterly nonsensical question. What inter alia makes Austrian economics unique is precisely that the theory leads to the inescapable conclusion that one cannot improve on the free market economy by means of statist intervention and central planning.

 

There Cannot Be a “Right” Fed Decision

Hence there cannot be any “advice” to a central bank, except the one Ron Paul actually gives: butt out and let the market decide. Of course this is tantamount to telling the Fed that it is surplus to requirements – which it indeed is. Ron Paul also mentions that the government should actually open money to competition – in other words, it should repeal legal tender laws and allow private money production to occur.

We would add to that: since the State could continue to insist that taxes be paid in its own scrip, it could always ensure a secondary market demand for its so-called “money”. But if competition in money issuance were legal, citizens would at least have a choice as to what kind of money they wish to use in exchanges. It could well be that the government’s scrip would over time become an also-ran medium of exchange, used exclusively for tax-related transactions and little else. It should be clear that without legal tender laws and the compulsory use of government scrip for tax payments, no-one would even remotely consider using irredeemable pieces of paper with ink slapped on them (or the associated digital entries) backed by nothing at all.

Note here that “unbacked” digital currencies like Bitcoin owe their existence precisely to the many drawbacks of government scrip, as well as to the fact that they are actually convertible into the latter. We have discussed Bitcoin in the context of monetary theory previously – see “The Bitcoin Bubble Deflates – But the Currency Continues to Evolve” (scroll down to the sentence “Is Bitcoin actually money?” and read from there). In fact, Bitcoin can be explained with Menger’s theory on the origin of money.

Anyway, here is the amusing interview:

 

How can there be no “Austrian plan”? Bloomberg reporters are stumped (if the video doesn’t play for some reason, here is a link to the the version on the Bloomberg page)

 

Conclusion:

This is a very good reminder on what has become of economics in modern times: these days it is assumed as a matter of course that representatives of various economic schools of thought should have ideas about the best way to centrally plan important aspects of the economy. However, this was never supposed to be the task of economic science. The science was once called “dismal”, mainly because economists used to tell politicians that they couldn’t hope to cheat the market or circumvent economic laws. Telling truth to power was regarded as one of the things an economist would frequently have to do on the side. These days the State has usurped economic science and made it part of its ever growing interventionist programs.

 

 

 

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27 Responses to “Tell us Ron, What’s the Plan, What’s the “Austrian” Plan?”

  • therooster:

    Packerfan …

    I fully appreciate your comment . In the spirit of the history of the US constitution, I fully appreciate the time that it was written in and the abilities and inabilities of the day.

    There was no real-time capability when the constitution was written. We have new wine and a new wineskin in the age of information with its real-time capabilities. The Spirit is still Omnipresent, however.

    Gold is money and currency, both, now that gold has been freed in such a way that the bullion has scaleable
    trade value (price) in real-time. Defining that a little more in detail, debt-free store of value has now married instant global liquidity in real-time where mass now acts as the unit of account. All are invited to this great wedding.

    As for the dollar, it is a debt based currency while I stand in the dark and a real-time measure for debt-free bullion (as currency) when I stand in the light. Be sure to traverse for the sake of the symbiotic vantage points.

    God bless

    By the way … my first domino fell on the 4th of July …. my birthday. :-)

    • PackerFan:

      I wrote in another reply of Hugo Salinas from Mexico. I agree with your assessment of money. My problem or quagmire is that too many people do not realize that our current system is debt in its entirety. Until they are aware of this, the bankers will continue the never ending monopoly game run by the fed. Sound money, I believe, is the only way out. And yes, it needs to start from the bottom. Utah is experimenting.

  • therooster:

    VB … With all do respect, I’m trying to be patient here. Central banks and/or government cannot and will not take a top-down approach by entering DEBT-FREE liquidity into the market by any means of legislation or any decree by fiat. Think of how the debt markets would react at such an abrupt and sudden shift ! Think of how debt currencies would crash on a reactive “rush to judgement” by individuals how have no insight into the desire to reach a liquidity yin-yang and suspect that “the end” is here for fiat currency. We read about this subterfuge all the time.

    It’s for this very reason that the market MUST ….. absolutely must be the instrument of change. It has to be an organic shift with each and every market participant coming to a sobering rationale in their own time. There is no rush to judgment in this manner and the market can work its unique magic by tempering rate-of-change as the market goes through its market osmosis of adding debt-free assets while debt servicing becomes easier due to the expansion of total liquidity (L1 + L2). It’s a win-win , even for banks and fiat currency.

    The theoretical principle of adding debt-free currency in order to displace debt based currency is not very difficult concept to grasp as theory. The practical challenge has always been how to implement this kind of change in a safe and responsible way, such that there are no devastating effects in the debt markets while the shift ifs going on as we traverse from a “debt only” practice (habit) to one that also incorporates the use of debt-free assets like bullion.

    The elite may have set the stage, but the market will close out the last act.

    We must be as wise as serpents, yet as gentle as doves. :-)

  • therooster:

    RE : The Austrian Plan

    All these guys fall into the same ole trap of thinking top-down. Old habits.

    The bottom-up market approach is inescapable if assets are going to be circulated and save the fiat system from total collapse …. yet the approach cannot be top-down because of the sensitive nature of real-time applications and the consideration that MUST be applied to rate-of-change.

    We need stealth.

    Bullion is a market currency…. in real-time

  • PackerFan:

    This is both hilarious and frightening. Logic and common sense have evaporated. Hopefully it rains someday.

  • therooster:

    VB … You appear to be loaded up with suppositions concerning the government’s/banks’ intention regarding liquidity and their intentions that surround it. It may be a good idea to think along the lines of capability before applying the axiom of intention. Government cannot directly stick their hand into the transparent support of bullion as a currency. We are operating in a real-time environment with floating values that create tremendous vulnerabilities for the whole debt paradigm , while both sides are required in the complete yin-yang model. The debt side of this equation MUST be insulated from any crash potential. The asset side can contend simply because an asset like gold cannot go bankrupt.

    Their role is the “necessary evil”. Did you not read “the script” ? I suspect that they did. Something to think about.

    You also appear to associate liquidity with that which is created from debt …. only ! Hard as it may seem, liquidity and debt are not exclusively synonymous with each other. You’re a creature of habit.

    You’re stuck on “the dark side” and inhibited at the prospect of stepping through to discover the full benefit of the developing yin-yang …. at least for this moment, anyway.

    Gold is a real-time currency. The market is speaking. It’s the only way for the yang to inflate while the debt can be withdrawn. As debt is withdrawn, the symbiosis will create an arbitrage as to which money is overvalued or undervalued, thanks to the real-time relationship between debts and assets.

    • VB:

      You are an idiot.

      The central banks CAN flood the market with liquidity and HAVE done so in the past. They are just an extension of their respective governments. Their “independence” is a sham. Each central bank chairman is appointed by the respective government. The government can revoke the charter of the central bank in a blink of an eye. The government HAS changed the way the central banks operate in the past. For instance, it FORCED the Fed to buy government bonds; originally the Fed was supposed to buy only commercial paper.

      And, of course, the government can do whatever it wants with any attempts to use bullion or Bitcoin or whatever as a currency. All they have to do is make the conversion to fiat illegal and/or tax it to death – or just make it illegal. In fact, one of the reasons why gold isn’t a currency is because of the capital gains taxes on it – it is stupid to transact in gold when you know that each transaction will be taxed (I mean, besides the usual taxes) if the price of gold in fiat currency happens to go up. Because of this, gold is no longer a good hedge against inflation, either – yes, it keeps value (buying power) but as the fiat currency depreciates, this looks as if gold has appreciated and you have to pay capital gains on something, the value of which has remained constant.

      Liquidity is the availability of the medium of exchange. Currently, the medium of exchange is fiat money, which is based on debt. While liquidity and debt are not synonymous (and I never said that they were), in the current financial system creating liquidity means increasing the debt.

      And, no, gold is NOT a currency (because it is not a medium of exchange), no matter how many times you repeat this wrong claim.

  • therooster:

    Crysangle …. Caesar does not wish to see an end to his contribution to the completed and sustainable monetary model, which means adding a new dimension (or allowing it) so that the old may survive. In current context, this translates into a need to save debt circulation by adding asset circulation. Just add assets and stir ….. gently.

    Hope is the precursor to action. Action will tell the story as to whether debt can be an effective and continual part of a liquidity yin-yang. The debt system cannot survive on its own. To think that those who created it are not aware of this balancing need would be naive, IMO. Their dilemma is that they must wait for the market to bring us the yang. The whole rate of change toward a workable and sustainable balance is a delicate process. The elite must appear as a “necessary evil” for this reason.

    No crashes…. please !

  • SavvyGuy:

    “Telling truth to power was regarded as one of the things an economist would frequently have to do on the side.”

    …sometimes with fatal consequences. RIP Kondratieff!

  • therooster:

    VB … Competing currencies is a wonderful idea.

    When referring to Gresham’s Law, it is more likely efficient and effective to use the terms “undervalued and overvalued” rather than confusing the issue with the description of “good money” and “bad money”. The latter tends to be too subjective for many people.

    Market osmosis will do its job in the arbitrage between the yin and the yang.

    Legal tender laws need not be repealed, but debt will be systemically removed as assets find their way into circulation. This will occur over time.

    If people wish to hoard their bullion, then we might need to see higher trade values. (Thank God the fixed peg is gone) ….. or …. something might have to occur to give people an appreciation that gold’s liquidity and added economic support (as currency) can save the economy and the classical debt based system, both.

    Market based capitalism is not so much flawed as it is incomplete. We can use a little yang with our yin. :-)

    Some believe that a total squeeze on debt based liquidity may possibly shift attention toward bullion as a source of liquidity on the basis that liquidity is in high demand. This is plausible , imo, because in the mindset of central banking , liquidity seems to come first and price tends to get a back seat. If we apply that to a yin-yang based philosophy, bankers might choose to ensure bullion based liquidity before we see bullion’s price manipulation subside.

    There are some “necessary evils” in “the script”, so it might seem.

    • Crysangle:

      Well though I understand what you are saying , I tend to agree more with VB . While government is able to prop up the fiscal balance with liquidity (much due to legal tender law) , use of assets will present value in comparison where legislation becomes overly restrictive . Examples we have of that are capital controls and the likes , those being brought on by a crisis in fiscal management/policy . Most often sovereigns achieve some kind of reset in the process , while the public adapt by using a medium that has a more stable value , often the dollar . If the dollar goes that way , then the next step is assets or transparent token , but by that time we would be in a different world , one that VB imagines – currency meltdown/revolution etc. . The fiscal planners may prohibit that step to assets , we may end up with martial law , who knows , and of course that would be all part of the same control of the distributive process that government oversees .
      A purposeful managed instability is another matter however , that would be something like a continuous programmed devaluation of the currency to the extent that asset payments would be primed due to their stability , they would become monetized over time … but I don’t think the Fed would be able to control the effect .
      Really what I am saying is that we underestimate the forces in motion in the world , that in spite of our attempts to manage them , even including the conflict of mankind , we are currently really no more than splashing the surface of a mighty ocean , thinking we are in control because the surface is calm .

      • therooster:

        As long as assets are monetized and introduced at a tempered rate, thus the market approach, debt currency and asset currency will move more toward a relationship built on symbiosis rather that polarization. There is nothing to fear other than a resistance to adding debt-free liquidity into circulation.

        Polarization is a perception that is long standing on the basis that we are so used to seeing bullion as a store of value or an investment, rather than that of a currency. Bullion’s circulation is the systemic friend and ally of fiat currency and actually saves the fiat currency system when it circulates on the basis that fiat does not have to shoulder the load of the economy all on its own, thus debt can be managed much more effectively, which includes its health enhancing removal and destruction, without fear of economic calamity. This must be viewed from the perspective of the liquidity “yin-yang” and cannot simply be looked at from the old vantage point of a “dark side” perception (yin).

        The rules change because the whole structure changes, not simply the content of the “old” structure.
        You cannot pour new wine into old wineksins.

        In the process of creation and completion, it is light that comes out of darkness. Nothing new.

        • Crysangle:

          I would hope that it goes the way you outline, and that your explanation convinces those who might actively resist an evolution of that nature.
          The polarization is more due to the forced establishment of a currency system and the resulting dependencies, which are not market based and are certainly temperamental.

          Pay unto Caesar what is Caesar’s.

          Currently Caeser has claim on just about everything, including and especially, tomorrows activity.

    • VB:

      Bullshit. “Undervalued” and “overvalued” assume that “value” is present. Government-mandated currency has no value. The only “value” is the artificially created utility of being the only thing allowed to use when paying debt and taxes. Repeal the legal tender laws and this “value” will disappear.

      People will wish to hoard bullion because it keeps value better than anything else – i.e., it is most suitable for hoarding. They will spend it only if they have no other alternative. If they do (i.e., fiat currency), they will spend that and will keep the bullion. So, bad money (fiat) will drive good money (bullion) out of circulation.

      That is, provided that governments allow bullion-based currencies to circulate at all – which, of course, they won’t. Heck, they are trying to remove even physical paper money!

      Market based capitalism is neither flawed nor incomplete. It is simply not allowed to exist. And those that who have snuffed it out of existence are precisely the morons who claim that it is “flawed” or “incomplete”.

      “Liquidity” is never the problem. The central banks can flood (and have flooded) the market with liquidity. The problem is SOLVENCY. The society is indebted to a level that can never be repaid – it will have to be defaulted on, one way or another. Since fiat money is based on debt, adding liquidity does not solve the problem of insolvency; the society becomes even more indebted.

      God, you are so ignorant. Your cult-like fixation on that scam outfit of yours has completely wrapped your thinking. You seem utterly incapable of a thought that does not involve shilling for it in one way or another.

  • therooster:

    Bullion is rather close to a breaking point in the consciousness of people, such that it really doesn’t need more help by anyone in the political class. Keep it in the grass. I think Rand may be aware of this. Bullion monetization (a process) does not need his support.

    We are all playing roles in the development of a healthy yin-yang, where each side is paramount in the success.
    The emerging hybrid will thrive on its symbiosis.

  • VB:

    Pater, I disagree that government script can co-exist naturally with sound money. By Gresham’s law, good money drives money out of circulation. If you have both, say, gold and paper dollars everybody will use paper dollars for payment and will hoard the gold. That is, if there is any valid reason to accept paper dollars at all (e.g., for paying taxes). If there isn’t (i.e., if you repeal the legal tender laws), then NOBODY will accept the bad money as payment and you still won’t have the two co-existing forms of currency.

    What we need is allowing currency competition AND repealing the legal tender laws. Then the circulating currency will be the one (maybe a few but most probably just one) selected by the free market.

    Of course, this is never going to happen voluntarily. We need a catastrophe destroying the current system first.

  • therooster:

    Solon …. Taxation is hugely predicated on debt and debt creation. Debt is a very causal issue of concern and the ability to purge debt allows the ability of allowing market laws to reverse their current distortions.

    If you look carefully, you will notice a pattern with politicians and bureaucrats and the like. This includes members of the MSM too. They will usually take the idea of an economic problem and make the appearance of a solution nothing more than some exercise in fiscal policy. Fiscal policy is more about currency and debt distribution than anything else. They tend to shy away from matter of monetary policy and lead the public in that same direction.

    Monetary policy is about the creation of liquidity. Fiscal policy is about its distribution. Strike the root.

  • Solon:

    Is it just me or does Rand seem more statist than his father?

    And seeing every candidate up there essentially endorse Federal Reserve Notes with the $10 bill question made me want to vomit. Maybe its political suicide if he says something about gold, but it will only get worse if people don’t take a stand for honest money.

  • therooster:

    Has RP ever recommended for the American people to make an offer to buy the FED ?

    If not, why not ? What did they do with the last offer ……… ?

  • Tibor Machan:

    You are radical about the Federal Reserve — it out to be abolished — but not about taxation — which should also be abolished, like slavery was. See http://rebirthofreason.com/Articles/Machan/Taxation_With_No_Possible_Representation.shtml

    • Solon:

      I don’t want to speak for Pater–I would never do as well–but I’m pretty sure he would be for the abolition of taxation, he’s merely focusing on one aspect of the Statist problem here. The Fed was the question asked of Paul, not taxation. Pater has spoken out against taxation many times.

      • Crysangle:

        Have you noticed ? They never say ‘please’ .

        It is everyone’s moral duty to not turn beggars into thieves.

        So when trying to teach some manners to centrally planned spanners

        Who stick in others work so as to give them beserk stammers

        Remind yourself you pay their fare , you feed and dress them too

        And that as recompense they tell you what to do .

        There are many ways to let them know that they are eating from your trough

        But the simplest way is to ask them to please avoid suggestive discussion in public … ha ha .

    • VB:

      Tibor, the government cannot exist without taxation (or equivalents like borrowing and inflation) because it has no other source of income. It is not a productive entity and it cannot sell goods on the free market. If you eliminate taxation, government will disappear and you will end up with anarchy. Which, if one is a libertarian and not an anarchist, isn’t a good thing.

      Even if you do what Martin Armstrong suggests – eliminate taxes and replace them with money printing to a fixed percentage of the GDP – you’ll just get taxation under another name (inflation).

      However, I do like the idea of simplifying taxes (e.g., only a sales tax, so that everybody is taxed equally and proportionally to their consumption) and linking them to the GDP while forbidding the government from borrowing.

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