A Question about Ron Paul's Economics

[DcifrThs]

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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

[Zygote]

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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.

[Orlando Salazar]

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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.

[volkin]

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.

[bobman0330]

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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.

[Orlando Salazar]

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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.

[DcifrThs]

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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

[Orlando Salazar]

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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.

[bobman0330]

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[ QUOTE ]
[ QUOTE ]
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

[/ QUOTE ]

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.

[Orlando Salazar]

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