Debating with economics professors/majors about The Federal Reserve in real life.

Economics Economics Questions
1

This is a very challenging task. I’ll refer to a conversation with my friend, I don’t see how he is wrong either sadly :confused: as much as I would love to see Austrian Economics go into action.

Him:

“Clearly your ignorant so let me explain how inflation works since instead of educating yourself you’re just making a fool of yourself. Inflation isn’t simply caused by printing more money & commodity money A money unit whose value is backed by the value of another physical good such as gold or silver would cause our country to revert to the times of colonialism in order to constantly expand our economy we would need to constantly acquire more worth (Gold Silver etc), this time was known as Merchantalism and was generally bad. However Adam Smith & every economist since him has argued the wealth of a nation comes from it’s output & therefore a Fiat money system would be more effective because a country could focus are more important things than continually searching for more gold/silver/etc. The most simple way to define inflation is more money pursuing the same amount of goods. If a jeweler sells his jewelery for $100 a piece & the government starts printing more money the jewelery will find there’s more people willing to buy his jewelery but he hasn’t (& in often cases) cannot increase his output. So he simply raises his prices so that now his jewelery is $125. That’s how inflation works when you increase the money supply if pushes the prices up. If we went back to a commodity standard we would still have inflation because the majority of our money is digital. Every time some bank issues a credit card, (or any other type of loan in which they’re not directly handing dollars to the borrower) the bank IS CREATING MONEY. If BofA issues 10,000 new credit cards with a credit limit of $1,000 each. Then BofA essentially just created $10,000,000 more USA $ which will lead to raises of prices of the items the customers buy & if they buy the items measured by economists to determine inflation than INFLATION WILL INCREASE WITHOUT THE FED HAVING DONE ANYTHING. Lastly I don’t care how many people oppose the fed my point is you didn’t give a damn until Ron Paul did.”

Him:

First off you didn’t even read my explanation of inflation or you would have saw that we will have inflation even without the fed or a fiat system. Having the fiat system simply allows it to be more manageable compared to like Zulu that suffers from 1000%price increases from inflation. Also inflation to some extend is necessary, think of the chaos if candy bars still cost $0.05 like they used to. Lastly you had to refute because you’re wrong & you can’t back your bullshit up anymore. Why don’t you look at the inflation rate of other countries around the world (communist not included since they exercise price controls) & you’ll see we’re not so bad off & there’s a lot worse problems like the fact that medicare/medicaid will be bankrupt by 2020 & S.S. will be bankrupt 10-15years after that. Or the fact that Iran is intend on building nuclear missiles & will eventually cause WWIII.

Me:

'm interested to know what “other issues” are important the acquiring gold/silver? I honestly don’t care bout Ron Paul’s stance on it, but it sure as hell did draw me in. I picked up his book “End The Fed” but haven’t had time to look into it. I don’t really care what a professor says about it just because he has a Ph.D in one kind of study of Econnomics. This document proves my point on that.

http://jim.com/econ/contents.html .

I’ve watched documentaries by Aaron Russo who have made points against The Federal Reserve. I don’t know much about Economics yet, but I can sense that The Fed is pretty damn rotten, and when Andrew Jackson sought to have it abolished it was for VERY similar reasons to what we can see happening now.

I’d like to know if your professor has heard of ‘Gresham’s Law’ or will say what is causing our future towards massive debt and hyperinflation.

Him:

yeah i’ve heard of Gresham’s Law & no it’s not relevant it has very little application except in certain markets like “used cars” or “computers”. Secondly there is a hell of a lot wrong with the FED. I’d don’t recall ever saying there wasn’t. There’s also a hell of a lot wrong with our national defnse & the way it’s budgeted & functions but I don’t want to privatize the army/navy/airforce/marines etc. The FED is doing a poor job but I assure you getting rid of it will make things worse not better.

Him:

Since you even admitted you’re ignorant of economics, take a couple macro-economic based classed (central banking is a macro not a micro concept) & then get back to me on how well getting rid of the FED will help our economy. And the previous central bank was doing a horrible job so I’m with you on the president getting rid of it. But Our current one is fairly well divided up & does a better job than previous ones.

Him:

Just wanted to add that capitalism is flawed because it causes instability in prices & in employment. The government is needed to regulate these & essentially smooth out the ups & downs.

Me:

Kristof’ Cox October 22 at 1:15am
Thats a helluva statement to refute. The free market creates a productive role for anyone, and encourages people to work better in the service of others. Additionally, there’s always something for someone to have since people are rewarded for hte more production they make.

Also the most free market capitalist countries have the lowest employment rates. More like regulations cause instability in employment and prices through price controls and minimum wage laws.

Him:

actually you’re wrong, in a perfectly competitive market(also known as ideal capitalism) there’s no initiative to pay wages to unskilled workers because you can find more workers & paying less means more profits. Minimum wage is one of several ways the government helps to redistribute income because the greater the disparity between those who make the most & those who make the least, the worse resources are allocated which means waste. In a market economy demand (being willing & able to buy) is what determines supply, if too much money(i.e. market voting power) is in the hands of too few people than they influence what the markets produce. This is a major problem because the majority of the population will have to pay higher price or in some cases not even be able to buy the things they want or Need. This is way we have minimum wage, and income tax and should have an inheritance tax as well as other measures. Like i said before actually take an economics class before you try to argue with me & economics is a social science like psychology & sociology & not a hard since like chemistry or geology. Also the free market doesn’t create anything without the government there to clearly define and enforce property rights but you wouldn’t know that since you won’t take an economics class & probably don’t even go to the classes you do attend.

2

Between me and an Economics professor at my school.

Me: So you read Ron Paul’s ‘End The Fed’?

Him: I did, I agree with him that we need a better currency, but that will never happen unfortunetly.

Me: What about abolishing The Federal Reserve?

Him: Well, the thing is, we need The Federal Reserve. Let me put it this way, if you are a Businessman you actually want your interest rates to go up, because this lets you sell your products for more and you get more profit.

Me: Isn’t that inflation? That sounds like it just makes the rich richer, and the poor poorer.

Him: Thats what Capitalism is! The rich get richer, and the poor get poorer

Me: No, that is Corporatism. Without The Federal Reserve, The Free Market would balance this out. Why do you think we are in the recession we are in now?

Him: Haha, well before we HAD The Federal Reserve we had a recession every three years! Now its a lot less thanks to a stable money supply and the ability to supervise the market when necessary.

Me: Eh

3

As far as credit creation goes here is my understanding. When Bank of America issues a credit card they have money to back it up. If they didn’t how could they transfer money into the accounts of the merchants when you use it? They get the money from depositors and also the FED (when they decide to print it). This is one mechanism that the FED uses to control interest rates. Based on how much the FED charges banks to “borrow” their money is how much the bank in turn charges you.

4

Interesting, I didnt know that during the 19th century, the USA faced about 33 recessions.

5

This is not necessarily Austrian economics versus mainstream economics; your friend just not have a very good grasp on economics, in general. Many of the fallacies he presents were corrected by classical economists.

I’m not sure where he is coming from. He seems to understand that wealth comes through production, but then inexplicably links production with greater amount of money. It is clear that money is not wealth, and so expansion of the money supply does not create wealth. What creates wealth is the production of capital-goods. So, if a baker goes from producing two loafs of bread to four, he is wealthier. I’m not sure how he is linking the gold standard to colonialism, either. The British understood that wealth came through physical production; only the Spaniards focused on mining gold and silver in their colonies.

He is right, in this case. But, I’m not sure how he has linked this with his other erroneous opinions.

Why?

So, what’s his point?

Does he mean Zimbabwe, which had a fiat currency? I think you need to make a better case as for why inflation would probably not take place over the long-run in an economy with free banking, and no government monopoly on money. I have End the Fed, but only read the first chapter unfortunately, so I’m not sure how well Ron Paul explained it. He obviously does not have a good grasp on the mechanisms behind credit expansion, fractional-reserve banking and what allow these to take place over the long-run.

What? This doesn’t even make sense.

What does one have to do with the other? Why can’t you solve these problems simultaneously? (And well, the Central Bank has always been invariably linked with a country’s ability to wage war.)

Gresham’s Law is about money. What is he trying to say?

Why and how?

A macroeconomics class will only explain how the Federal Reserve System works. It won’t go into anything specific. You should tell him to read a few books on the subject.

These are assertions which are consistently made, but never explained. It’s not just him. Stiglitz makes these claims in his books, but never explains why these claims are true.

There are two principal ways that wages rise in a free market:

  1. Increased productivity, usually as a result of capital accumulation (a reason why most Keynesians are incorrect in asserting that in a global marketplace the global wages for specific jobs would be between what they pay in the United States and what they pay in the Third World; workers in the Third World have not had as much invested into them, and therefore produce less and make less).
  2. Competition between laborers.
    Wages in China doubled up until the burst of the bubble. That is a country without minimum wage.

The only redistribution that is made is the wage of one worker added to the wage of another, and the first worker becomes unemployed.

Minimum wage is a very large farce. Today’s minimum wage worker actually makes less than what he would have made at minimum wage in 1970 ( http://www.economicthought.net/2009/10/minimum-wage-welfare/ ).

As an econ major, I’m not sure what macroeconomics classes he has taken that even talk about property rights. I wish they offered them to me.

6

“in order to constantly expand our economy we would need to constantly acquire more worth”

Your friend is very smart to think that money growth outstripping wealth growth can create inflation, but that the exact reverse isn’t true. Maybe he believes in some kind of economic law of entropy. You might ask him why he thinks there is an absolute value standard and why gold carries it.

I won’t be rude to you like your “friend”, because you were humble enough to admit you didn’t understand these things. But your friend is a pompous ass par excellence, as evidenced by several time-worn absurdities in his arrogant diatribes to you. But this one is a whopper. Even his undoubtedly left-leaning Keynesiac macro professor wouldn’t let him pass on that one.

Economic efficiencies create wealth irrespective of money. If I figure out a technique to manufacture widgets using half the man-hours, money has nothing to do with it. If you have a fixed quantity of money, and wealth is growing as a result of such new efficiencies, each unit of money will increase in value–or deflate. One man who previously made 1000 widgets in a day for $100, can now make 2000 widgets, for $100. Widgets become less expensive. Now when he goes out and buys the usual widget-dependent items, he will have more money left over to buy more stuff. Money supply fixed. Wage fixed. Purchasing power increased.

There are physical problems that can happen with deflation over time, like the small change problem, or exchanging money for its base commodity, but in a digital economy based upon something readily divisible like gold, that is of little import.

I’ll let others tear apart some of his other hackneyed nonsense.

7

I don’t know why he thinks I don’t go to the classes I attend, and such. I never missed a class, I’ve even gone when I felt really sick, then left if I didn’t feel well. I’ve even thought about dropping out of College, but not for the reasons he would assume. He is an adult at the age of 27+, so I don’t know what would make someone at that age want to talk down to me, or even have as little patience as he does.

8

A good read of rothbards short easy classic, what has gov done to our dough, will give the answers to most of the issues your idiot prof raised. of course he himself is parroting what his idot prof told him and so on ad infinitum

9

He has no idea what mercantilism is. Tell him that he needs to actually know what a word means before he uses it. Mercantilism is essentially protectionism for domestic producers (high tariffs, subsidies, etc).

Further, if he doesn’t grasp the necessary relationship between the amount of money in circulation and the value of it vis-a-vis diminishing marginal utility, he has no business teaching econ. None at all.

Nor does property rights require a government, and if he thinks it does then it’s up to him to demonstrate it. Should he brush you off, tell him that you thank him for his concession and that you are unwilling to continue your discussion with someone so clearly terrified of actually having to back his claims.

10

Did you see my other topic where I had a conversation with him? He tells me that I am indocterinated for being a Ron Paul fan, and that Ron Paul doesn’t know what hes talking about in ‘End The Fed’ because he doesn’t have a Ph.D like this Econ professor does.

11

well maybe the econ professor will read from the sources that Ron P. cites from Ph. D.ites in “End the Fed”…

12

“An unregulated market itself creates distortions considering all the actors are not playing by the same rules or have access to the same information. Investors can’t be as easily bamboozled and lied to with an unregulated market by smooth talkers, which in turn improves investor confidence. A well regulated market place helps to even the playing field.”

13

He criticizes me for being unintelligent because I failed Math class at a Community College, and thinks I decided to attend Art School because it involves “easy classes”. When I showed him a painting I had digitalized(in the end result, using photoshop) a few years back, he denied that it was me who had done it. He was like “Yeah, too bad you didn’t paint it” “Because your a dumbass, I’ve known you for years.” Me: “Then where else would it have come from?” Him: “You stole it from someone else, it isn’t yours”.

I don’t think he feels bad about it at all, if he was correct about it then he would have accepted the possibility of Positivism. Which he doesn’t, so he’s just flat-out making statements.

14

I take it his definition of ‘equality’ means equal results, which is something we don’t want. We want the market to eliminate the poor producers and replace them with better producers. Their failure will send out vital information signals to other market actors who act on that information. This is the virtue of the price mechanism and the profit/loss system, namely that scarce resources are directed to the most capable producers, assuring efficiency.

My teachers are statists, but they usually have more sophisticated arguments.

15

He doesn’t seem like a very true friend. [:(]

16

That was another person on a different forum, not my friend btw.

17

I still think that you should reconsider your friendship. I’m not sure how he treats you outside of the intellectual realm, but it’s probably not a friendship worth keeping if he treats you like that in general. It does not seem as if he has a lot of respect for you. I argue with my friends all the time, and I rarely agree with them. But, I don’t insult their intelligence.

18

Well I deleted him/blocked him/removed him a few days ago.

Its just he says he only treats me like this, he told me “There’s a lot of people who I have disagreements with, but I get along with them just fine”.

Maybe it has to do with the fact that I am Pisces and hes Sagittarius. The two don’t mix well.

Also in a just society with non-aggression what do you do with people who just like to mentally overpower, and devalue you? People who ruin your life, not through aggressive-physical means, but through screwing with you. Lots of people are assholes, and I know I will get flamed for this, and bad, REAL BAD. The only way to get rid of assholes like this in society, is under a Fascist society and dictatorship. Where society acts collectively instead of individuals against each other, are motivated by glory, nationalism, and power. Of course though, this doesn’t work.

19

I used to think this all the time.

But then I realized: the assholes won’t be in jail - they’ll the running the jails, the police, the government and everything else!

It’ll be those of us who love and defend freedom that will be first against the wall.

20

How is this guy you’re friend? You make him out to be a total d-bag.