A Question about Ron Paul\'s Economics
 

From Russell Roberts, economics professor at George Mason University, blogging on the NY Times website:

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Ron Paul thinks we’re in a recession at a time when unemployment is under 5 percent and blames it on monetary policy. This resonates with people who are scared and confused. I’m neither, so I’m not sure what he’s talking about.

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Someone help me on understanding the economics at work here. My first thought is that a recession with low unemployment is possible if the government has a large budget deficit. I have no clue if this is true or if it's currently the case.

Re: A Question about Ron Paul\'s Economics
 

If I'm not mistaken, RP is worried about inflation.

He says that we can't keep spending money that we don't have.

Re: A Question about Ron Paul\'s Economics
 

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recession - a period of general economic decline

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Basically, people in the middle class and below are making less money and their savings are being made less valuable. Since inflation is outstripping the economic growth, people are making less and less money.

Say between now and some arbitrary time period, the economy grows 5% and the middle class get a similar 5% increase in pay. But during this time, the government prints a bunch of money and fights a war and the currency is now worth 90% what it did before. The economy is growing, but the middle class are making less money and getting wiped out.

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

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http://bigpicture.typepad.com/commen...ax_graphic.jpg

So by the IRS's metrics from 2000-2005, real income didn't increase. But I think the IRS metric is faulty. Instead of calculating inflation by however they did, compare to the price of gold over that time period.

http://www.adesblog.com/images/gold_price.gif

Gold more than doubled in price during those 5 years, and at this point about 1.5 more years later, it is nearly triple the starting point. If people found out that their money was devalued by 50% over those 5 years or 66% over 6.5 years they would be horrified. Instead the IRS is somehow calculating inflation at some absurdly unrealistic low number.

Re: A Question about Ron Paul\'s Economics
 

Dr. Roberts is misrepresenting Dr. Paul's position. I'd say he misunderstands but George Mason's economics program is heavily influenced by the Austrian school so I'd be very surprised if he doesn't understand it. Dr. Paul thinks that the heavy credit expansion in the early part of this decade, coupled with the Government's expensive foreign policy will lead to either a recession or stagflation in the coming years. I haven't heard him say that we are in one currently. Unfortunately it is hard to make an argument about the economy in a 30 second sound bite so I'd be surprised if many people hadn't reached the same conclusion regarding Dr. Paul's views that Dr. Roberts is likely pretending to have reached.

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

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Don't forget that true inflation is not an increase in prices, rather, an increase in prices is the result of inflation.

Inflation is actually an increase in the money supply.

Re: A Question about Ron Paul\'s Economics
 

I think the problem is that people view changes in the price level as inflation rather than looking at it properly as a change in the money supply. Economic growth often times masks the real inflation level produced by the fed. Goods with a limited supply, such as gold, will much better reveal the feds meddling in the economy.

looks like tvmh beat me to it.

Re: A Question about Ron Paul\'s Economics
 

I've never heard Ron Paul claim we were in a recession.

Re: A Question about Ron Paul\'s Economics
 

I'm not a great economist, but it seems that Paul has the right idea. Watching the Republican debate tonight, he was the only one who really felt that the economy was a problem. Spend less, borrow less, take care of us first. It doesn't take a genius to figure out that we can't just keep borrowing money and borrowing money. The good thing is that the Right is so far into this hole, that the Democrats actually look like they will be (more) responsible with our money. CRAZY.

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

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http://bigpicture.typepad.com/commen...ax_graphic.jpg

So by the IRS's metrics from 2000-2005, real income didn't increase. But I think the IRS metric is faulty. Instead of calculating inflation by however they did, compare to the price of gold over that time period.

http://www.adesblog.com/images/gold_price.gif

Gold more than doubled in price during those 5 years, and at this point about 1.5 more years later, it is nearly triple the starting point. If people found out that their money was devalued by 50% over those 5 years or 66% over 6.5 years they would be horrified. Instead the IRS is somehow calculating inflation at some absurdly unrealistic low number.

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The IRS graph shows a recession in ~'01. It confirms that we are not currently in a recession, as avg. real income is increasing pretty sharply.

Computing inflation by gold price is just nonsense, so I'll leave that one alone.

Re: A Question about Ron Paul\'s Economics
 

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It doesn't take a genius to figure out that we can't just keep borrowing money and borrowing money.

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Have you seen how badly the average American is in debt?

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

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Don't forget that true inflation is not an increase in prices, rather, an increase in prices is the result of inflation.

Inflation is actually an increase in the money supply.

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OK, but money supply inflation would be an awful metric to use to compare real incomes at two different points in time.

Re: A Question about Ron Paul\'s Economics
 

In a world where the Fed devalues thier savings and bailouts for reckless borrowing and irresponsibility are common, can you blame people. People respond to incentives, adn government has created the wrong incentives.

Re: A Question about Ron Paul\'s Economics
 

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It doesn't take a genius to figure out that we can't just keep borrowing money and borrowing money.

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Have you seen how badly the average American is in debt?

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I know! It's horrendous. But sooner or later it's going to catch up with you. Just like it will catch up with us (as a country). Every time I worry about money, I realize that at least I'm far less in debt than almost anybody I know.

Re: A Question about Ron Paul\'s Economics
 

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It doesn't take a genius to figure out that we can't just keep borrowing money and borrowing money.

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Have you seen how badly the average American is in debt?

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I know! It's horrendous. But sooner or later it's going to catch up with you. Just like it will catch up with us (as a country). Every time I worry about money, I realize that at least I'm far less in debt than almost anybody I know.

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Of course it's going to catch up. I'm just saying maybe it does take someone with a pretty decent brain, if not a genius, to figure it out.

Re: A Question about Ron Paul\'s Economics
 

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From Russell Roberts, economics professor at George Mason University, blogging on the NY Times website:

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Ron Paul thinks we’re in a recession at a time when unemployment is under 5 percent and blames it on monetary policy. This resonates with people who are scared and confused. I’m neither, so I’m not sure what he’s talking about.

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Someone help me on understanding the economics at work here. My first thought is that a recession with low unemployment is possible if the government has a large budget deficit. I have no clue if this is true or if it's currently the case.

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Simple solution. Russell Roberts is an idiot. Ron Paul doesn't think we're in a recession right now, he thinks we are on the verge of one, which is correct.

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

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Don't forget that true inflation is not an increase in prices, rather, an increase in prices is the result of inflation.

Inflation is actually an increase in the money supply.

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OK, but money supply inflation would be an awful metric to use to compare real incomes at two different points in time.

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That may well be true.

Re: A Question about Ron Paul\'s Economics
 

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Russell Roberts is an idiot.

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Ron Paul is a racist.

Re: A Question about Ron Paul\'s Economics
 

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Russell Roberts is an idiot. Ron Paul doesn't think we're in a recession right now, he thinks we are on the verge of one, which is correct.


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Ron Paul is a racist.

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Brilliantly argued as always.

Re: A Question about Ron Paul\'s Economics
 

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Russell Roberts is an idiot.

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Ron Paul is a racist.

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Probably queer, too.

Re: A Question about Ron Paul\'s Economics
 

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Russell Roberts is an idiot.

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Ron Paul is a racist.

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The moderator has already been notified about this post.

Please use your back button to return to the previous page.

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Re: A Question about Ron Paul\'s Economics
 

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Ron Paul is a racist.

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Brilliantly argued as always.

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Would you like to discuss the facts?

Because I'm ready and willing if you feel up to it.

Or are you going to resort to dismissive ad hominems like you are in the other threads?

Re: A Question about Ron Paul\'s Economics
 

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Russell Roberts is an idiot.

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Ron Paul is a racist.

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You're not going to spam that in every thread are you? I disagree with the people calling you a troll in the other thread, but you're starting to prove their point now, since your claim has nothing to do with this thread.

Re: A Question about Ron Paul\'s Economics
 

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Since inflation is outstripping the economic growth, people are making less and less money.

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Except this isn't happening.

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Don't forget that true inflation is not an increase in prices, rather, an increase in prices is the result of inflation.

Inflation is actually an increase in the money supply.

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OK, but money supply inflation would be an awful metric to use to compare real incomes at two different points in time.

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That may well be true.

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i just pulled some data to test this.

you state: an increase in prices is the result of an increase in the money supply.

so you'd expect a fairly close connection between the measure of the price level and the money supply level AND a close connection between teh changes in the price level and changes in the money supply level.

i'd say the CPI is a fairly good price level and M1 and M2 are continually published so this is easily testable.

i charted the level, indexed to CPI's starting level of CPI vs. M1 vs. M2.

i also then charted the rolling annual monthly changes in these data.

what i found was that there is an apparantly close relationship between the level of CPI and M1 for a period of time (and not close at all between M2).

however, when you look at the rolling annual monthly changes, you see massive deviations that go against the above hypothesis.

for instance, from mid 1995-early 1998, M1 went through a period of large declines. this should indicate deflation (i.e. negative inflation) not just a relatively slower rate of inflation. i picked this period to talk about first because people generally claim that inflation far underestimates the real changes in prices. if this is the case, then you'd expect to see deflation here if anywhere.

similarly, there are many periods where for years there seems to be a negative correlation between changes in the price level and changes in the money supply (whatever measure you choose).

you can see here for yourself:

here is the level of CPI M1 and M2:

http://img.photobucket.com/albums/v7.../CPILevel2.jpg

and here are the rolling annual monthly changes of CPI M1 and M2:

http://img.photobucket.com/albums/v7...PIChanges2.jpg

so, as you can see, i think your claim above is false and have provided data to support my thought.

now, if you meant that inflation is useless and you should simply use money supply to measure inflation, then you might have a fairly good argument assuming the rest is correct. to use this new index instead of inflation is simple enough (despite my earlier post on the subject) since you can just index the new thing to wherever you want (i.e. CPI in 1913 or whatever) and voila, you have a new measure of inflation...M1 i think would be the candidate here.

but, of course, imo, that wouldn't mimic the experience of an individual in real time. i.e. looking at the level chart, we see that money supply increased far more than inflation (M1 vs. CPI) from 1980s- today. we'd expect actual prices paid to then be linked to that measure. but in reality, people are paying much much much closer to what inflation is tracking than what M1 is tracking.

so there are pros and cons to your claim/though/suggestion.

i've simply laid out the data and welcome all thoughts/criticism in addition to my own.

Barron

Re: A Question about Ron Paul\'s Economics
 

Ron Paul is worried that interest rates in the US are being kept artificially low to perpetuate a credit bubble.

For comparison, the European Central Bank also claims low single digit inflation (as does the US), but the dollar has lost 30% of its purchasing power when converted to Euros over the last few years. How is this possible? If both currencies have low inflation, you would think that they would remain convertible at a similar exchange rate.

Re: A Question about Ron Paul\'s Economics
 

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Russell Roberts is an idiot.

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Ron Paul is a racist.

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The moderator has already been notified about this post.

Please use your back button to return to the previous page.

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I got that same message. How odd.

Re: A Question about Ron Paul\'s Economics
 

I suppose I should be more specific.

Inflation, according the Austrian School of Economics (von Mises, Rothbard, et al), is defined as an increase in the supply of money.

http://en.wikipedia.org/wiki/Austria...l_of_economics

Re: A Question about Ron Paul\'s Economics
 

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You're not going to spam that in every thread are you?

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My apologies, I'm keeping it in the other thread.

Re: A Question about Ron Paul\'s Economics
 

To my knowledge the theory that changes in the money supply positively affect the price level is well accepted in economics. If you know of any papers showing differently I'd be interested to read them.

There are a number of other factors that influence the price level. For example, if an economy were to gain in productivity at a faster rate than the money supply increased than you would likely see a negative growth rate in prices assuming total demand is held constant.

Re: A Question about Ron Paul\'s Economics
 

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To my knowledge the theory that changes in the money supply positively affect the price level is well accepted in economics. If you know of any papers showing differently I'd be interested to read them.

There are a number of other factors that influence the price level. For example, if an economy were to gain in productivity at a faster rate than the money supply increased than you would likely see a negative growth rate in prices assuming total demand is held constant.

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i'm not arguing against a "positive effect".

i'm arguing against strict causation and a tight link.

there are a number of logical reasons how a change in the supplyof money would lead to a change in prices. but saying changes in prices (inflation) are a direct result (or should be measured by) changes in the supply of money seemed a bit off to me so i researched it since that data is publicly available.

TVMH then mentioned that he is talking about the austrian definition of inflation.

it is convenient that the austrian definition flows praxeologically and can't be tested. i guess this is really where my views differ most from austrian economics: human action may be far beyond the models of economists, but the results of human actions i think can lend themselves to statistical methodologies if you are willing to accept a less than perfect level of strict adherence to reality.

for discussions like this imo, the use of data makes the most sense since it is directly linking statements made.

human actions that caused the increase in demand beyond the available supply are certianly more complex than parsing and analyzing their results (i.e. changes in the level of prices)...especially as they relate to the other results of human action of bankers et.al.: the changes in money supply.

just some thoughts on the issue,
Barron

Re: A Question about Ron Paul\'s Economics
 

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human action may be far beyond the models of economists, but the results of human actions i think can lend themselves to statistical methodologies if you are willing to accept a less than perfect level of strict adherence to reality.

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this is true - Austrians dont support the use of all the proxies mainstream folk do. Statistics are not problematic with Austrian theory per se but they are only purposeful so far as they conform to our general basis of knowledge.

I think it was Borodog who said this but the saying goes: statistics is senseless without logic. the same isnt true the other way around.

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for discussions like this imo, the use of data makes the most sense since it is directly linking statements made.


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Do you generally decide AA is the best hand to play by looking at peoples hand history or from deducing the logical structure of the game?

Nothing wrong with employing data but you must understand its purpose.

In this case, you are generally right though. Inflation should not be measured by the quantity of money. This is not an Austrian theory. Prices of anything are determined by supply and demand. Money supply increases, assuming no increase in demand, will cause inflation.

This means we can know inflation occurs any time artificially low rates are maintained, reserves are injected from nothing, the marginal level of fractional reserves that expand credit and are governmentally regulated/maintained, securities are bought with nothing, etc.

The process of dissemination just reveals the symptoms of the inflationary disease.

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human actions that caused the increase in demand beyond the available supply are certainly more complex than parsing and analyzing their results (i.e. changes in the level of prices)...especially as they relate to the other results of human action of bankers et.al.: the changes in money supply.

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this is exactly how almost any Austrian thinks, fyi.

Re: A Question about Ron Paul\'s Economics
 

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From Russell Roberts, economics professor at George Mason University, blogging on the NY Times website:

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Ron Paul thinks we’re in a recession at a time when unemployment is under 5 percent and blames it on monetary policy. This resonates with people who are scared and confused. I’m neither, so I’m not sure what he’s talking about.

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Someone help me on understanding the economics at work here. My first thought is that a recession with low unemployment is possible if the government has a large budget deficit. I have no clue if this is true or if it's currently the case.

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Vent: First, most people don't have an economics education. It's not taught in high school (except wrongly in history class). And most intro college econ courses only explain rent control (micro econ) and inflation (macro econ) well. Many people view econ studies as a political indoctrination. The study of it is inherently a political. It is not a politcal science. Much like math can describe physics, econ can describe politics. (vent over)

We don't really know how RP defines 'recession' cause we haven't asked him.

To answer you, I'll define recession a negative REAL economic growth (where GDP growth is oupaced by consumption weighted inflation). Based on that definition, we are in a recession. Everyone on Wall St knows the CPI isn't the most robust measure of inflation but even it is exceeding nominial GDP growth.

For those unfamiliar GDP measures economic activity. Increased economic activity = higher standard of living = good times.

When the value of increased economic activity (GDP growth) is less than the change in cost of economic activity (inflation), the net effect is decreased economic activity (recession and a lower living standard). However, unemployment can remain low when Govt or Corporate debt is issued to offset the inflation impact on real growth.

Re: A Question about Ron Paul\'s Economics
 

I'd like to add to your vent. Not only do most people not have an economics education, they seem to think their ignorant opinions on the subject are every bit as valid as those of someone who has put in thousands of hours studying it.

Re: A Question about Ron Paul\'s Economics
 

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To answer you, I'll define recession a negative REAL economic growth (where GDP growth is oupaced by consumption weighted inflation). Based on that definition, we are in a recession. Everyone on Wall St knows the CPI isn't the most robust measure of inflation but even it is exceeding nominial GDP growth.

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Cite? The most recent stats I could find were for Q2, and reported a 3.8% annualized real gdp growth rate.

Re: A Question about Ron Paul\'s Economics
 

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To answer you, I'll define recession a negative REAL economic growth (where GDP growth is oupaced by consumption weighted inflation). Based on that definition, we are in a recession. Everyone on Wall St knows the CPI isn't the most robust measure of inflation but even it is exceeding nominial GDP growth.

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Cite? The most recent stats I could find were for Q2, and reported a 3.8% annualized real gdp growth rate.

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If you're gonna ask for a cite, give yours:
http://www.bea.gov/newsreleases/nati...ewsrelease.htm

I'll walk through it when I have the time. You ignored the trade deficit.

Re: A Question about Ron Paul\'s Economics
 

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To answer you, I'll define recession a negative REAL economic growth (where GDP growth is oupaced by consumption weighted inflation). Based on that definition, we are in a recession. Everyone on Wall St knows the CPI isn't the most robust measure of inflation but even it is exceeding nominial GDP growth.

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SALAZAAAAAAAAAAAAAAAAAAAAAAAAAAARRRRRRRR,

this is the single most idiot thing you've said.

real GDP growth= Nominal GDP growth - change in CPI

in the first quarter, this was something like .8%. in the 2nd quarter it was about 3.8%.

we are not in a recession by any measure you want that gives a realistic assessment of inflation.

now we MAY be in a recession in the short term for a number of reasons but we definitely aren't in one now.

Barron

Re: A Question about Ron Paul\'s Economics
 

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To answer you, I'll define recession a negative REAL economic growth (where GDP growth is oupaced by consumption weighted inflation). Based on that definition, we are in a recession. Everyone on Wall St knows the CPI isn't the most robust measure of inflation but even it is exceeding nominial GDP growth.

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SALAZAAAAAAAAAAAAAAAAAAAAAAAAAAARRRRRRRR,

this is the single most idiot thing you've said.

real GDP growth= Nominal GDP growth - change in CPI

in the first quarter, this was something like .8%. in the 2nd quarter it was about 3.8%.

we are not in a recession by any measure you want that gives a realistic assessment of inflation.

now we MAY be in a recession in the short term for a number of reasons but we definitely aren't in one now.

Barron

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If you take a loan to start a business and are paying 7% on the 100k you borrowed, you need to make more than 7%/year to be in the clear.

Yet you IGNORED THE TRADE deficit.

You're basically saying, hey this business is profitable they have cash on the balance sheet. If the cost of investment (inflation plus interest payments on debt) is less than the return on investment (GDP growth) then we are LOSING.

US Gov't is borrowing at 5% interest rate. US is growing at 4% ( if you accept the chain weighted real gdp # from 2000).
Our borrowing is funding growth.
But our financing is unprofitable because we lose 5%-4% = 1% a year in living standard.

Re: A Question about Ron Paul\'s Economics
 

[ QUOTE ]
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To answer you, I'll define recession a negative REAL economic growth (where GDP growth is oupaced by consumption weighted inflation). Based on that definition, we are in a recession. Everyone on Wall St knows the CPI isn't the most robust measure of inflation but even it is exceeding nominial GDP growth.

[/ QUOTE ]

SALAZAAAAAAAAAAAAAAAAAAAAAAAAAAARRRRRRRR,

this is the single most idiot thing you've said.

real GDP growth= Nominal GDP growth - change in CPI

in the first quarter, this was something like .8%. in the 2nd quarter it was about 3.8%.

we are not in a recession by any measure you want that gives a realistic assessment of inflation.

now we MAY be in a recession in the short term for a number of reasons but we definitely aren't in one now.

Barron

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If you take a loan to start a business and are paying 7% on the 100k you borrowed, you need to make more than 7%/year to be in the clear.

Yet you IGNORED THE TRADE deficit.

You're basically saying, hey this business is profitable they have cash on the balance sheet. If the cost of investment (inflation plus interest payments on debt) is less than the return on investment (GDP growth) then we are LOSING.

US Gov't is borrowing at 5% interest rate. US is growing at 4% ( if you accept the chain weighted real gdp # from 2000).
Our borrowing is funding growth.
But our financing is unprofitable because we lose 5%-4% = 1% a year in living standard.

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Your rant about how people don't understand economics is pretty funny in light of all this nonsense.

Re: A Question about Ron Paul\'s Economics
 

Please explain how earning a return lower than the borrowing rate makes makes our economy strong.