Very interesting thread and sub forum this is the first time I seen it.


Here are a few comments I have from what I've read.

1. The gold standard may not keep the banks from issuing securities and what not in excess of reserves, but it does make it so the population as a whole is not FORCED into the banking system. We see our modern banking system as being so necessary, but it only is because we have accepted a monetary unit that is impossible to be saved. You can't possibly "save" federal reserve notes because they constantly depreciate and thus you need to risk them by investing them back into the economy often times just through using a banks "savings" account. So at the very very least a gold standard would make banks work in very fundamentally different way because they would not be nearly as necessary.


2. Gold is market money. Paper is political money. The government has to force us to accept federal reserve notes but if the worlds governments all disappeared tomorrow gold would still be accepted as money throughout the world. If gold is so unimportant to the wealth and monetary stability of a nation why is it that so many countries hoard it? Why did we have to nationalize the gold supply in 1933 if this was all just irrelevant?


Here is an Alan Greenspan article he wrote before his days as head cronie in charge of the Fed. I think he states the argument a bit better than I could.

http://www.constitution.org/mon/greenspan_gold.htm

The problem I have with the word: "print" is that it evokes an image of thin air creation - banks do not do that. CBs may issue very cheap money by accepting very poor securities (toxic assets) which migh be close to what some call "printing" it but this is still a big exception.

Since I am not a native english speaker I cannot tell you what word or term is really fitting here, "lending out money" seems fine to me

Gold has value mainly because you are told it has value.

Not at all. The $100 bill in your pocket has value because you are told it does. Gold has value because free people have decided it does. There is a massive difference between the two.

Yeah I see it now. One is a piece of paper and one is a rock.

One has value without government existence or force the other does not, except as maybe a souvenir. One can be easily manipulated to reward special interest at the expense of everyone else, the other can not. Those are big differences in the way the currencies operate not just the material at which they are derived from.

One may have value without government existence. The other doesn't. You're assuming (incorrectly) that there will always be a buyer or someone willing to take what you want to sell/trade.

For the most part, gold and dollars are both just pretty things to look at. If you're in a place or time when things are going to hell in a handbasket, I'll prefer the food/water/shelter to pieces of paper or pretty baubles.

Sure, there are uses for gold, electronics and the like, but the main use is to make other pretty things to look at or show off how much of it you have. Neither is going to be that useful when the AEmageddon comes.

Basically.

Right. And you have one group saying "I have the power to commandeer the market better than the market itself can", while the other group is saying "No, you don't have superpowers, shut up and go home."

It's funny how the first group often makes fun of the second for being the one making bold claims.

I'm not sure exactly what words you're trying to put in people's mouths--looking at m-w online, the first definition of commandeer relates to the military, so I don't think you're talking about that. The second definition talks about taking arbitrary or forcible control of something. Since the market itself can't do anything like that (it's an inanimate object), of course I (or anyone else) can do better at commandeering the market than the market can, by definition.

So, what exactly is it you're trying to say? I'd like to reply, but I don't want to interpret your words one way to have you say that you actually meant something else.

BTW, at least I don't make fun of the second for making bold claims. Incorrect, misleading, flat out wrong or unsubstantiated claims, yes. Bold, no.

What I mean is that the bernanks say they can guide the market towards a more efficient allocation of resources than the market would assign without them interfering.

Ok, that's sort of what I figured. What's wrong with that statement? Do you believe that the market is always the most efficient? Or is there another basis for you saying that markets can't be guided to a more efficient outcome?

BTW, I don't mean to say that every government intervention is good--but I can think of many cases where intervention can be good, and one can actually make the claim you're disparaging.

What's wrong is that it implies they have superpowers.

No, the market is not always the most efficient it can possibly be, but no single person or outside entity can guide the whole market towards more efficiency, all they can do is get in the way.

Much easier than doing that would be using their superior forecasting abilities to make tons of money by actually participating in the market.

But of course, if they don't have any superpowers, they can still make tons of money by pretending that they do. They just screw up the market in the process.

No, no superpowers are necessary, required or implied.

OK...

This is incorrect; I'll give examples later (I've got a few things I need to get done by Monday morning, so I don't want to get into them *yet*)

In the examples of which I'm thinking, that really isn't a possibility. It's not really a forecasting problem (or lack thereof)--it could easily be something of which everyone is aware.

Again, no superpowers necessary or implied. Second, you're lumping a lot of interventions into the same bin. You're overgeneralizing.

Eagerly awaiting for those examples.

Taxing or subsidizing externalities would be one example.

That's the direction I was going to go, but the delay was in how I wanted to approach it--there's a good example with just three people, but it's more a 'command-and-control' approach rather than tax approach to make the markets more efficient.

I'll find the example (or recreate it) this afternoon. But I am reminded of something I've seen come up in a few blogs recently. And that is the fact that Austrian Economists seem to get incredibly hung up on Pareto Optimality (or Efficiency or Improvements) to the exclusion of everything else. And in the forthcoming example it's a case where the ideas of PO won't get us to the better solution because each transaction is individually rational. However, each person would be better off if all the transactions weren't allowed (or taxed so they wouldn't be allowed).

Ah, heck, I'll give the simple example in the next post--I'll work on it now.

lol @ calling the intervention we have now with massive government and currency manipulation merely "guiding the market to a more efficient outcome". Or I suppose you may be claiming some theoretical, hypothetical example in which it could be possible, despite always failing throughout history. The evidence and information available clearly argues in favor of the market vs central planning. Hate to say it but the econ forum has really degenerated to a low point when posts like this aren't ran off with responses by Borodog, J.R, tolbiny, zygote, etc. I don't have time to read/post here either nowadays but doesn't look like I'm missing much.

Soon2bepro correctly points out that no entity/agency/person can centrally plan an economy using the publics resources so that it is more efficient on balance than private individuals in the market themselves with private money and decision making. Essentially saying that socialism/fascism fails compared with capitalism for the creation of wealth and prosperity. And now we're about to get a barrage of anecdotal evidence, revisionist history, misleading statistics, left-wing spin, and "broken window fallacy" type arguments. Yawn. And since nobody will actually feel like sifting through the nonsense to rehash old arguments it'll just sit there for newcomers to read and be confused into thinking it makes sense.

So, a simple example:

Person A has a lawnmower in his garage that he doesn't use much and values at $50. Person B wants the lawnmower and would benefit in the amount of $100 if he were to own the lawnmower (net of any damage he does to himself.) However, if B buys and uses the lawnmower, he does damage in the amount of $30 to Person A and (the soon to be mentioned) Person C.

Person B has a hedge trimmer in his garage that he doesn't use much and values at $50. Person C wants the trimmer and would benefit in the amount of $100 if he were to buy the trimmer (he's willing to pay up to $100). If he buys the trimmer and uses it, he does damage in the amount of $30 to Persons A and B.

Person C has a weed whacker that A wants (and you can see the pattern...)

So what happens in the absence of any control? Person A sells the lawnmower to B for something in the range of $80-100 (the lower limit of 80 accounts for the damage that A knows he will incur). So let's say $90. Similarly the hedge trimmer and weed whacker sell for $90. By the way, the analysis doesn't depend on the exact price...

From the transactions each person is involved in, they benefit in the amount of $40 for selling the object and $10 from buying. But they are impacted by the other two people using their new equipment, incurring additional costs that total $60 (say from noise and air pollution).

This means the net benefit from this set of transactions is -$10 for each person. They'd be better off collectively and individually if *all* transactions were disallowed, through fiat or by placing a tax in the amount of damage to others, but each trade is individually rational so they wouldn't choose to forgo the two trades in which they are involved.

Now, yes, in this case you could appeal to the Coase theorem. But making that argument misses the point--if we duplicate the people by 100 million and substitute "gasoline" for "yard equipment" then the rationality arguments continue to hold but one can no longer appeal to the Coase theorem (or any other sort of private solutions because of the sheer number of people involved)

lol @ thinking that's what I was doing.

lol @ that characterization as well.

Nobody is talking about "central planning". At least with the connotations that are associated with "central planning". Please note that s2bp's posts used words like 'guiding' and 'interfering' instead of 'planning' (at least after I asked for clarifications--he did say "commandeering" in the original post that started this discussion, which one could possibly construe as somewhat akin to "central planning")

Wow, just wow. You want one of the most knowledgeable people run off? You want an echo chamber? You don't want the flaws in your thinking challenged? Especially when you completely mischaracterize the other sides arguments.

Of course, the post you've quoted as something that supposedly should be run off is simply asking someone else for their positions. I'm just trying to figure out exactly what the argument/difference is. Unlike some people

That's an assertion, and minimally up for debate. (I would say it's wrong, but I will try to keep from making the blanket assertions like the above--and I also have argued my point so it really isn't 'just an assertion' in any case).

See, there's the mischaracterization again--or at least a false dichotomy. It's not either "completely free market with no intervention" or "socialism/fascism". To think that shows a lack of understanding of what's being said.

No anecdotal evidence, history or statistics have been given ITT. Left-wing spin is laughable, and WTF at "broken window fallacy"??? Seriously???

I hate to say it, but posts like yours ought to be the ones run off.

And I know the above post of mine was after the one you quoted, but when I wrote the above post I was actually thinking specifically about the "intervention we have now". Hence what I was talking about and thinking is exactly the opposite of what you're thinking I'm claiming/saying/thinking when you write:

Which illustrates why I wrote the post you think ought to be run off which was merely asking s2bp questions so I could fully understand his position.

So let me get this straight, some guy is doing noisy work that bothers me, so they have to pay the State for the right to pollute the air on my property with sound waves?

The air and the sound waves are on MY property. I want them to pay ME, not the State. That way, me and they can come to agreements on what is acceptable (i.e., they pollute my air with sound waves X amount, I pollute theirs with carbon monoxide Y amount; OR: they have to pay me Z for every N amount of pollution damage they cause me, and so do I have to pay them, etc).

My apartment building has codes on what is acceptable and what isn't in terms of noise. In order to live here I have to sign an agreement that I will abide by those terms. If I don't, I can be kicked out. This is a market solution to the problem you propose. The State has no place getting in the way and taxing speakers or whatever.

The State has no idea how many people will be affected by each form of pollution or how much. They have no way to personally make them whole for the damage they've incurred. They have no way to tell what the ideal amount of each type of pollution is on each particular location. They will always tend to overshoot one way or the other, as compared to the market, even without considering bribes. (which are a hell of a lot easier to get away with through the State than through the market)

That's the setup, yes (at least the tax 'solution', which is the main thrust)

That is the optimal solution. But I'm saying this...

...might not be possible. If there are a limited number of people involved, you could. Sound, for instance, is only audible for a certain distance, which is why...

...works. It's easy to identify the person causing the damage and that damage is limited to a small number of people. But there's an important part of that you've assumed. You assume you're renting and can be kicked out. What if you own your own place, and you have neighbors who own their houses? The being kicked out of your apartment by the LL mechanism isn't in play anymore. Can you still say ...

is true? Well, with noise it's potentially true. You might be able to find who is playing loud music (or whatever the noise is) and sue them. You're still dealing with small numbers of people potentially involved. But note, you've lost one of your main tools (and yeah, I've lived in apartments, and I KNOW there are noise clauses, but that's probably more for the landlord--and his/her ability to keep tenants in. It has the added benefit to the tenant of keeping the noise level of neighbors down)

There's two things you're doing there--first, you seem to be requiring the government intervention to be *perfect*. The second is that you assume markets are perfect (since you're saying that the intervention will cause an over- or under-shoot compared to the market). If the market were perfect, then any movement away from the market would cause a decrease in efficiency, so yes, in that case you'd need the intervention to be perfect. Sometimes the market can be perfect. No externalities or other such market failures, or a small number of people so the Coase theorem can apply (an important part of the Coase theorem is that the costs are small--of bargaining, monitoring and any other such costs) a private (or market) solution exists that maximizes efficiency. That might work for noise, but for the market for gasoline, where each person in the world damages everyone else, the Coase theorem cannot apply.

It's true that measuring the exact impact of an externality is a big problem, but surely you can think of examples where they can at least estimate the impact to a degree such that taxing or subsidizing will move the market in the direction of a more efficient outcome. That much is achievable even if the true cost of the externality isn't precisely measureable. Clearly, taxing cigarettes and using the money to treat lung cancer is more efficient than taking money from other sources for treatment. A free market will overshoot much further from the efficient outcome than an economy that accounts for externalities by recognizing them and planning ahead, even if the exact cost of the externality is unknown.