What should our economic priorities be?

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Doug's picture
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What should our economic priorities be?

Paul Nathan suggests that our first priority should be bringing gov't spending (i.e., debt) under control.



There is another theory of money that challenges the Monetarists theory of money that I believe makes a lot more sense -- one that explains why we are not experiencing a lot higher prices given the huge increase in the money supply.  It is the Subjective Theory of the value of money as formalized by Ludwig Von Misses and the Austrian School of Economics. This theory holds, in its simplest form, that money derives its value not from the quantity in circulation, but the value individuals place on money in exchange for other goods.

What always leads to price rises or price declines is the hoarding or dishoarding of money by the population at large. Increases in the money supply can influence the value people place on money but it is only one factor in calculating the future value of money. The Monetarist School sees an increase in money as a cause of higher prices, where the Austrian School does not. In the end it is the actions individuals take themselves based on their value of money that lead to higher prices, according to the Austrian School. 

If Ben Bernanke dropped dollars from helicopters tomorrow,  Friedman would say that inflation would result. Von Mises would say it would depend on what individuals did with the money and to what degree. If they put it under their mattress no inflation would occur.  If they spent it, Monetarists would compute the amount of the increase in new money and predict an inflation rate based on the percentage of increase in the quantity of money. Von Mises would  suggest that it is just as likely that all money previously created would loose value as individuals loose confidence in all paper claims that serve as a medium of exchange. He, I believe, would conclude that hyperinflation was more possible than progressive inflation; that a breakdown of the monetary system would be more likely than a discounting of the value of money leading to progressively higher prices. Zimbabwe is good example of that.


In the 70's the Federal Reserve printed vast amounts of money that went directly into consumption. Today the fed has printed vast amounts of money that has gone directly into savings by financial institutions. The fed dramatically increased the money supply beginning in September 2008. According to Friedman, prices should respond within 9 to 12 months. So we should have seen a marked increase in prices by the fourth quarter of 2009.  We did not. In January we saw a 2.6 year over year increase in the CPI and the core rate actually declined for the first time since the early eighties.


The Subjective Theory Of Value does not dispute the fact that if a government prints up progressively more and more money and throws it into circulation the monetary unit  will probably fall in value.  It usually does -- but not always. The cause and effect is not one of increased money equals increased prices. It is that a change in human action that values money less leads to increased prices.

The distinction is an important one. It goes to the heart of today's monetary argument. Is inflation based on the single act of increasing the money supply? Or is it based on how individuals perceive its increase and how they act on it? I come down on the side of Von Mises on the subject. If a majority of people today believed their money was going to depreciate by 50% next year in terms of goods, in my book, (or should I say Von Mises's book -- which happens to be called Human Action) they would begin discounting the monetary unit today. My conclusion is that they do not believe that. Prices have risen in the last year, but there is no panic out of currencies in relation to goods. And interest rates, the price of money, have remained stable rather than soaring to discount future depreciation.

Speaking of the gold standard:


You don't have a monetary system that lasts centuries because it is ineffective. True, we had a lot of economic normal ups and downs, but the worst of those downturns lasted only a short time, not a decade as did the Great Depression or the malaise of the 70's. More importantly, the value of money always stayed fairly constant during those years which is all that the gold standard guarantees.  It never guaranteed economic Utopia.  Under the fiat standard we have lost 98% of our money's value since the government replaced the gold standard with the Federal Reserve System and to this day we still have panics and severe recessions.


A medium of exchange must be a medium of trust to be a lasting medium. Money must be dependable. The artificial increase in the money supply by governments undercuts that trust. This is the case today. But it is not the fed that is the real threat, it is irresponsible politicians in general.

Inflation has been held in check by the knowledge that money can be pulled out of the system as fast as need be under a fiat standard. The real threat is the viability of the entire world fiat system. If trust is to be regained it needs to start with fiscal responsibility. Monetary policy is far "easier" to control by an independent authority than is government spending by a world of spendthrift politicians. The debt that has been created by most nations today is a far greater threat to the economy than the threat of inflation.  Monetary reform is required, I agree, but not today.  It is fiscal reform that is required.


It is important to keep an eye on inflation, and deflation, and the fed, and the dollar. But I suggest that we as a nation, indeed, we as a world, need to sharpen our focus and deal immediately with government spending, government debt, government entitlements, and tax policy. Long before any action need be taken on monetary reform to reign in inflation we need to address our fiscal problems. No monetary reform will be meaningful or lasting without fiscal sanity. I suggest we stop wagging our fingers at the Federal Reserve and redirect them toward those that want to spend more on government programs with no way of paying for them.

I have copied some of the high points of the article, but I suggest you read the entire article to follow his chain of logic.  If his thesis is correct, I don't have a lot of faith that our current crop of politicians (or economic officials) will rise to the challenge.


deggleton's picture
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Re: What should our economic priorities be?

Hewing to the subject question, rather than the PN material, I believe local economies should more and more lead in providing the fundamental needs of humans, leaving the optional and arbitrary stuff and services to what remains possible, post-peak you-name-it, in more extensive economies, if not the global one.  Efficiency can continue to matter in the extensive one(s), but locally mission accomplishment will be paramount.  I believe this departure and bifurcation are required for sustainable and resilient communities in which people take care of and celebrate with each other, as recognizable human beings.

In this, my principal inspiration and guide is this Confucian observation (of ecosystems, I sense):

There is a chief way for the production of wealth, namely, that the producers be many and that the mere consumers be few, that the artisan mass be energetic and the consumers temperate.

I suppose I should add that my sense of producer does not necessarily mean employed person.  The producers in ecosystems are the beings with chlorophyll, so take it from there.

Davos's picture
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Re: What should our economic priorities be?

IMO - Too late. We owe too much.

Devalue, re-denominate and move on. It WILL come to this, so just get it over with.

JAG's picture
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Re: What should our economic priorities be?

Excellent read Doug, thank you.

Our current economic priority seems to be the preservation and perpetuation of the dominant predator species: the wall street banker. 

Hey, but look on the bright side, this should all come to an end when there is no longer a food supply to support the predator population !Surprised

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Johnny Oxygen
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Re: What should our economic priorities be?
Davos wrote:

IMO - Too late. We owe too much.

Devalue, re-denominate and move on. It WILL come to this, so just get it over with.


The question is: what will come out of the ashes? A phoenix or just more ashes?

Davos's picture
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Re: What should our economic priorities be?
Johnny Oxygen wrote:
Davos wrote:

IMO - Too late. We owe too much.

Devalue, re-denominate and move on. It WILL come to this, so just get it over with.


The question is: what will come out of the ashes? A phoenix or just more ashes?

That is the question.

With all the countries that have gone through this it is easy to be optimistic.

But with all the shenanigans that has been going on, the fact that we have sunk to having become an empire and the fact that we have a moron who was a professor of economics and thinks he knows about what caused the depression but really doesn't and he is counterfeiting - well that is the question. 

DrKrbyLuv's picture
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Re: What should our economic priorities be?

I would first cut the military budget by 90%, then, I would elliminate a few useless agencies:

Personal Income Tax Division of the IRS
National Endowment for the Arts
National Wild Horse and Burro Program
Dept. of Education
Dept of Energy
FEMA (a corrupt organization if there ever was one--leave it to charities)
FDIC (a sham program with only a fraction of funds needed to save banks)
Freddy Mac & Fannie Mae (helped cause present economic conditions)
Administration on Aging (AoA)
Administration for Children and Families (ACF)
Administration on Developmental Disabilities (ADD)
Administration for Native Americans (ANA)
Children's Bureau (CB)
Family and Youth Services Bureau (FYSB)
Head Start Bureau (HSB)
Healthy Marriage Initiative (HMI)
Low Income Home Energy Assistance Program (LIHEAP)
Office of Child Support Enforcement (OCSE)
Office of Community Services Block Grant (OCS)
Office of Family Assistance (OFA) Temporary Assistance for Needy Families (TANF)
Office of Refugee Resettlement (ORR)
President's Committee for People with Intellectual Disabilities (PCPID)
Agency for Healthcare Research and Quality (AHRQ)
Agency for Toxic Substances and Disease Registry (ATSDR)
Centers for Medicare and Medicaid Services (CMS)
Health Resources and Services Administration (HRSA)
Indian Health Service (IHS)
National Institutes of Health (NIH)
Office for Civil Rights (OCR)
Office of Minority Health (OMH)
Program Support Center (PSC)
Substance Abuse and Mental Health Services Admin.(SAMHSA)
Office of the National Coordinator for Health Information Technology (ONCHIT)
Center for Faith-Based and Community Initiatives (CFBCI)
Employees' Compensation Appeals Board (ECAB)
Employment Standards Administration (ESA)
The Office of Labor-Management Standards (OLMS)
Office of Workers' Compensation Programs (OWCP)
Wage and Hour Division (WHD)
Employment and Training Administration (ETA)
Employee Benefits Security Administration (EBSA)
Women's Bureau (WB)
Job Corps
Bureau of East Asian and Pacific Affairs
Bureau of Economic and Business Affairs
Bureau of Educational and Cultural Affairs
Internet Access and Training Program
Bureau of European and Eurasian Affairs
Bureau of Human Resources
Bureau of Information Resource Management
Bureau of Intelligence and Research
Bureau for International Narcotics and Law Enforcement Affairs
Bureau of International Organization Affairs
Bureau of International Security and Nonproliferation
Bureau of Legislative Affairs
Bureau of Near Eastern Affairs
Bureau of Oceans and International Environmental and Scientific Affairs
Bureau of Overseas Buildings Operations
Bureau of Political-Military Affairs
Bureau of Population, Refugees, and Migration
Bureau of Public Affairs
Bureau of Resource Management
Bureau of South Asian Affairs
Bureau of Verification, Compliance, and Implementation
Bureau of Western Hemisphere Affairs
Counterterrorism Office (which produces the Patterns of Global Terrorism report)
National Foreign Affairs Training Center (former Foreign Service Institute)
Office of International Information Programs
Office of the Legal Adviser
Office of Management Policy
Office of Protocol
Office of the Science and Technology Adviser
Office to Monitor and Combat Trafficking in Persons
Office of War Crimes Issues (They blew the Bush war crimes)
Car Allowance Rebate System (Cash for Clunkers)
Cash for Appliances Program
Bureau of the Public Debt
Community Development Financial Institution Fund (CDFI)

National health and insurance system
African Development Foundation
Advisory Council on Historic Preservation (ACHP)
Agency for International Development (USAID)
American Battle Monuments Commission (ABMC)
Appalachian Regional Commission (ARC)
U.S. Arctic Research Commission (USARC)
Central Intelligence Agency (CIA) (EVIL WAR-MONGERS)
US Commission on Civil Rights (USCCR)
Commission on Security and Cooperation in Europe (CSCE)
Corporation for National and Community Service (CNCS)
Court Services and Offender Supervision Agency (CSOSA)
Delaware River Basin Commission (DRBC)
Equal Employment Opportunity Commission (EEOC)
Export-Import Bank of the United States (ExIm)
Farm Credit Administration (FCA)
Federal Communications Commission (FCC)
Federal Election Commission (FEC)
Federal Maritime Commission
Federal Mine Safety & Health Review Commission (FMSHRC)
Federal Reserve System (a pseudo government, semi-private organization)
Federal Retirement Thrift Investment Board
Federal Trade Commission (FTC)
Foreign Claims Settlement Commission of the United States (FCSC)
General Services Administration (GSA)
Institute of Museum and Library Services (IMLS)
Inter-American Foundation (IAF)
International Trade Commission (ITC)
Learn and Serve America (LSA)
National Capital Planning Commission (NCPC)
National Credit Union Administration (NCUA)
National Endowment for the Humanities (NEH)
National Ice Center (NIC)
National Labor Relations Board (NLRB)
National Railroad Passenger Corporation (Amtrak) (NRPC)
National Science Foundation (NSF)
National Transportation Research Center (NTRC)
Office of Government Ethics (OGE)(LOT OF GOOD THEY DO)
Office of Personnel Management (OPM)
Pension Benefit Guaranty Corporation (PBGC)
Selective Service System (SSS)
Senior Corps
Small Business Administration (SBA)
Susquehanna River Basin Commission (SRBC)
Tennessee Valley Authority (TVA)
United States Trade and Development Agency (TDA)

Financial crisis inquiry commission
Administrative Committee of the Federal Register
American Battle Monuments Commission
Appalachian Regional Commission
Architectural and Transportation Barriers Compliance Board (Access Board)
Arctic Research Commission
Arthritis and Musculoskeletal Interagency Coordinating Committee
Barry M. Goldwater Scholarship and Excellence in Education Foundation
Broadcasting Board of Governors
Chemical Safety and Hazard Investigation Board
Chief Acquisition Officers Council
Chief Financial Officers Council
Chief Human Capital Officers Council
Chief Information Officers Council
Citizens' Stamp Advisory Committee
Commission of Fine Arts
Commission on International Religious Freedom
Commission on Security and Cooperation in Europe (Helsinki Commission)
Commission on the Intelligence Capabilities of the United States
Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction
Committee for Purchase from People Who Are Blind or Severely Disabled
Committee for the Implementation of Textile Agreements
Committee on Foreign Investments in the United States
Coordinating Council on Juvenile Justice and Delinquency Prevention
Delaware River Basin Commission
Denali Commission
Endangered Species Committee
Federal Accounting Standards Advisory Board
Federal Advisory Committees
Federal Executive Boards
Federal Financial Institutions Examination Council
Federal Financing Bank
Federal Geographic Data Committee
Federal Interagency Committee for the Management of Noxious and Exotic Weeds (GOTTA LOVE THAT ONE!)
Federal Interagency Committee on Education
Federal Interagency Council on Statistical Policy
Federal Laboratory Consortium for Technology Transfer
Federal Library and Information Center Committee
Harry S. Truman Scholarship Foundation
Illinois and Michigan Canal National Heritage Corridor Commission
Indian Arts and Crafts Board
Interagency Alternative Dispute Resolution Working Group
Interagency Council on Homelessness
Interstate Commission on the Potomac River Basin
J. William Fulbright Foreign Scholarship Board
James Madison Memorial Fellowship Foundation
Japan-United States Friendship Commission
Joint Board for the Enrollment of Actuaries
Joint Fire Science Program
Marine Mammal Commission
Migratory Bird Conservation Commission
Millennium Challenge Corporation
Mississippi River Commission
Morris K. Udall Foundation: Scholarship and Excellence in National Environmental Policy
National Bipartisan Commission on the Future of Medicare
National Indian Gaming Commission
National Park Foundation
Northwest Power Planning Council
Nuclear Regulatory Commission
Nuclear Waste Technical Review Board
Presidio Trust
Regulatory Information Service Center
Social Security Advisory Board
Susquehanna River Basin Commission
Taxpayer Advocacy Panel
United States Holocaust Memorial Museum
Veterans Day National Committee
Vietnam Educational Foundation
White House Commission on Presidential Scholars – "Presidential Scholars Program"
White House Commission on the National Moment of Remembrance

Unfortunately this won't be enough, but it's a good start.


Johnny Oxygen's picture
Johnny Oxygen
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Re: What should our economic priorities be?

Holy Cats DrKrbyluv!

Not the National Wild Horse and Burro Program! I love that program. Smile

Davos's picture
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Re: What should our economic priorities be?

When you look at all those agencies you really get a sense of what a Monopoly Money game this really has become. Amazing waste.

DrKrbyLuv's picture
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Re: What should our economic priorities be?

No worries Johnny O, I made a note to keep the National Wild Horse Program but, the Burros will have to go as we will cut the budget by 50%.

This is the best we can do under the budget constraints.



Johnny Oxygen's picture
Johnny Oxygen
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Re: What should our economic priorities be?

Oh my god!!!


Thanks Larry


goes211's picture
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Re: What should our economic priorities be?


That reminds me of the old joke. 

Q: What do you call a thousand lawyers on the bottom of the ocean?  

A: A good start!

That list is a very good start!

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