A Question about Ron Paul's Economics

[TVMH]

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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.

[BCPVP]

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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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[RedBean]

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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?

[foal]

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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.

[DcifrThs]

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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:



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



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

[maxtower]

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.

[AlexM]

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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.

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I got that same message. How odd.

[TVMH]

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

[RedBean]

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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.

[volkin]

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.