Posts Tagged ‘Abolish The Federal Reserve’

Food Shortage Or Money Glut?

Thursday, May 8th, 2008

Why are food prices rising?

I watched Becky Quick on CNBC give Senator Bob Casey a superb opportunity for a mea culpa (ethanol subsidies), but for some reason he didn’t grab it with any real enthusiasm.

There are multiple causes and plenty of blame to go around, explained Senator Casey, very carefully never mentioning ethanol subsidies again (he’s on the Senate Agriculture Committee). The Senator enumerated a few other causes, somehow failing to notice that Congress is pretty much to blame for these as well:

  • Weak dollar (due to the Federal Reserve that Congress created, and Congress’s absurd, insatiable profligacy.)
  • Higher energy prices (due to the weak dollar as above, plus Congress’s generalized short-sighted, pandering interference and nimbyness.)
  • Increased demand in India and China (O.K., so maybe Congress is only three for four (including ethanol subsidies), though couldn’t it have occurred to Senator Casey before now that other people besides Americans might want to live comfortable lives and eat food?)

There’s another likely (and likely primary) culprit that Senator Casey didn’t mention directly: Inflation.

Economist Milton Friedman said that, “inflation is always and everywhere a monetary phenomenon”, which could be roughly translated as “the government did it.” Other factors can show up later, but monetary inflation is the necessary condition and first cause of any significant inflation of any kind.

Once government gets the ball rolling with monetary expansion, then the expectations and mood changes of the populace can have an impact. Whereupon, in a disgusting display of scapegoating by the powerful and pulpitorially well-endowed of the helpless and voiceless, they (yes Senator Casey, you’ve been there little more than a year, but you’re a quick study– you’ve slipped in smoothly as a part of they), they point to the people whose lives they’re destroying and say the boiled down equivalent of: “Those benighted peasants– they’re panicking; they’re hoarding; they’re speculating. They have nothing to fear but fear itself, and now damn them, they’re fearing it, which is destabilizing the economy that we worked so hard to stabilize with uncontrolled masses of debt and by changing policies every twenty minutes.” This too is an unfortunate always and everywhere phenomenon.

Even worse (though not quite more revolting) than this blame the victim phase is the type of solutions it can lead to– inevitably insane, since the “solvers” can never correctly diagnose themselves as the problem.

Fear, speculation and “hoarding” (which when government does it with taxpayer money is called a strategic reserve) are necessary market functions– part of the pricing mechanisms of the economy which help it move resources where they need to go. To try to stop them or blame them makes no more sense than it would for an individual to stop eating because digestion, when broken into parts, seems such an unpleasant process. If somehow it had been possible to do the impossible and completely suppress all of these economic mechanisms out of existence, then even now (for example) there’d be no green energy movement (here referring to the more rational ethanol subsidy free side of green). Instead, we’d simply and happily use our last drop of oil someday and say, “Darn– I hope we don’t run out of beer too.”

This can’t happen because of the fear, speculation and hoarding as well as myriad other economic interactions that can be subverted, but never entirely suppressed. These are also– at least as a general class– rational responses to mismanagement by authority, as well as a (rational) demonstration of mistrust that of course government is reluctant to see for what it is. Put another way, it would be hard to imagine anything more irrational than not fearing a government that has absolute power to screw up, and for some genuinely irrational reason, no real fear of using this power to screw up over and over again.

For myself, as I feel ever more fearful and speculative (and continue to hoard mostly candy and grievances at about the same pace as usual), my dreams at this point are modest: that every CNBC anchor– all of whom are no doubt familiar with Friedman’s always and everywhere quote– keeps a copy of Friedman’s words taped and bolded on their computer monitors, bringing it up every single time a Fed official or Congressional guest opens their mouth about food shortages or any other subject, to and beyond the point that the guests pretend that it’s rude and storm off set.

By Les Lafave

Abolish The Federal Reserve –

The Fed And The Robot Brownie Experiment

Tuesday, March 11th, 2008

There’s been a lot of commentary that Fed Chairman Ben Bernanke was “too slow”.

Bernanke has been “too slow” sort of the same way as if a bunch of us sit around a big puddle of gasoline, passing around lit matches until we catch fire, then shout as we roll out the flames, ‘Man, that one person sure was stupid– he got “too close”.’

Federal Reserve operations have failure built in.  Chairman Bernanke is just the lucky one left holding the hand grenade. Now we’re starting to hear the first murmurs that the Fed Chairman is being too accommodative.  Soon he’ll have experts shouting “too slow”, “too fast”, “too loose” and “too tight”, in exact cacophonous balance.

A poignant irony for Wrong Way Ben, but most of us are going to be too pre-occupied with our own private (crashing) economies to spare him much sympathy.

Let me demonstrate what I mean about the Federal Reserve as built to fail– never really in control of monetary policy– with another lame allegory.  Because the key elements are robots and brownies, I call it The Robot Brownie Experiment:

Monetary Policy Lab 1 (The Robot Brownie Experiment)

Equipment: -Robot with a finely adjustable cattle prod.

-Large supply of brownies.Subjects: -50 University Students (Preferably economics majors).

The Experiment: A small brownie is placed before the student subject.  When subject reaches for the brownie, the robot with a cattle prod gives the subject a mild shock.  On further iterations of the experiment, the subject is tempted with ever-larger brownies, but deterred with increasingly severe electric shocks. 

Hypothesis: Although most of the subjects will initially take and enjoy the brownie, at some point this behavior will cease.   Secondly, if the brownie size and cattle prod voltage is increased at the threshold of student perception, the point at which he or she will cease attempting to get the brownie can’t be predicted.  Third and last, if the robot was produced under a government contracting process, it will go berserk and chase me out of the lab and down the street, until I escape by throwing the brownies I’d pinched at the feet of a mother and child while shouting, “There they are, get ‘em!”

While the ethics of the experiment may be questioned, I believe that the theory and principles (including a lack of ethics) can be overlaid directly onto modern day central banking.

Like myself as the robot brownie experimenter, our Fed tempts economic actors and then shocks them, trying to drive them toward the economic course deemed to be in the economy’s interest.  And similarly, there is no way to predict how or when the behavior of people independently looking to determine their interests might change, or exactly how punchy and out of touch they may get from easy credit, or how scared, angry and tentative when a shock feels unexpected.

Government economists and TV commentators discuss supply and demand as if supervising someone making soup. It’s just a matter of a few key ingredients and temperature adjustments.  What’s so obvious that of course it has to get lost– people are behind what happens in the economy– people supply the supply and demand the demand.

People aren’t numbers– they aren’t even lab rats or university student archetypes.  The idea that the Fed can manipulate money and stay one step ahead of our responses as we try to adjust to such a key factor in our lives and ambitions is silly. Conventional economics doesn’t have much to say here– if you start with a silly premise, then PhD’s, brilliant formulas and complex measurements may be able to make the silly premise appear serious, but they can’t make it actually work.

The Fed can’t control money demand, since it can’t control us.  We may ignore stimulus, then adjust to it, and then ignore it again.  We’re alternately (in no particular order, which is kind of the point)– too emotional, too calculating, too smart, too stupid, too cocky and too afraid– all in varied, fractally periods and sizes simultaneously too small for Fed tweezers and too big for their cranes.

Then again, once in a while we may abandon all of the above ‘cause we’re just plain tired of getting zapped.

By Les Lafave

Abolish The Federal Reserve –