A Question about Ron Paul's Economics

JayTee · #1 10-09-2007, 07:46 PM

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.

relativity_x · #2 10-09-2007, 08:00 PM

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

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

Scary_Tiger · #3 10-09-2007, 08:04 PM

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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.

bobman0330 · #4 10-09-2007, 08:19 PM

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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.

Scary_Tiger · #5 10-09-2007, 08:45 PM

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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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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.

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.

volkin · #6 10-09-2007, 08:47 PM

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.

TVMH · #7 10-09-2007, 08:48 PM

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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.

volkin · #8 10-09-2007, 09:00 PM

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.

Misfire · #9 10-09-2007, 09:37 PM

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

TomVeil · #10 10-09-2007, 10:05 PM

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.