Fed policy and asset inflation

In these recent weeks of market turmoil, I have been affirmed in my respect for Ron Paul's economy policies. One view I have not bought completely into, though, is that the Fed should be completely dismantled; that its very existence creates the kind of problems we are experiencing now.

I came across an article today that blamed the housing bubble and stock market nosedive on the Fed - but not on the existence of the Fed. Instead, the author blames the 1995 decision of Alan Greenspan to jettison the policy of monetarism, which required limiting new money supplies to the rate of GDP growth.

Dow’s 40% Nosedive May Actually Turn Into a Safe Landing. Interesting reading.

Failure to engage

The political news recently has been hot with Obama's statements about single-issue voters. He said these people vote just based on one issue (gun rights, for example) instead of looking at bigger-picture items like economic policy because they don't trust politicians to follow through with economic promises.

I think he has a good point. But I don't think that's the only or even main reason so many people are single-issue voters. A bigger reason, in my opinion, is that economics, foreign relations, and other "bigger-picture" policies are very complicated.

If you own a gun, or have one in mind, and the government proposes to make that gun illegal, it's a simple decision to oppose it. Move on to which policies will best maintain U.S. influence in the world, however: people who spend their whole lives studying these issues have widely diverging viewpoints. So how is your average voter - who has to work, maintain a household, often be a caretaken for children or disabled relatives, have some sort of social and/or religious life, and, oh yeah, sleep - supposed to come to an informed decision on these issues?

Our politicians and news media try to reduce everything to soundbytes. Maybe single-issue voters realize soundbytes are not a basis for an informed decision, and so only vote on issues where they understand the impact of their vote. Our society has failed to engage these voters.

Hyperinflation

NPR recently ran a story on the hyperinflation in Zimbabwe. The economist being interviewed compared the situation in Zimbabwe today with Germany in the post-WWI period. The inflation rates being talked about here mean prices of all goods double about every two days. Wait a week to spend your paycheck, and you might as well use it for wallpaper.

Why would people continue using money that lost half its value every two days? Why not start bartering or using some other form of money? Apparently, the government enforces a law requiring all wages to be paid in the government-approved currency. And so it can continue printing money out of thin air to pay its own bills, and force its citizens to suffer the consequences in the disruption of the economy.

Allowing only one government-approved currency in a country has only this type of abuse in mind. Allowing competing currencies would force government economic policy to focus on keeping the dollar the best choice, rather than forcing citizens to simply accept the inflation that results from excess printing of money.

Hyperinflation is not an immediate threat to the United States, but the results of today's economic policies may not be seen for decades. I would feel much more comfortable with our long-term economic outlook if alternative currencies were allowed to compete with the dollar. I'm glad there is at least one Congressman working to make this happen.

He made me rethink my political views

I have long supported the government doing good works for its citizens. I do not want to be a member of a society that lets some of its people starve, or that denies education to some of its children. Sure, some programs I disagreed with, but I believed the correct course of action was to oppose the "bad" programs and support the "good" ones. Paul was the first person I came across who brought together the stories across the spectrum of government programs and explained how government interventions always, on balance, have negative effects. His supporters in forums I read pulled together wide-ranging examples of how private organizations had solved difficult problems in society - it can be done.

Health care is a big issue in this election. Our government has set up a system where it pays for some health care, and has led many people to believe it should pay for health care. With the result that neither the government nor any private organization helps the millions of Americans who need health care but cannot afford it. This is absolutely unacceptable in a nation as wealthy as ours, and I oppose the other Republican candidates who essentially want to maintain this status quo. I think the government ensuring access to medical care for everyone would be good. I now believe, thanks to Paul's writings and speeches, that the government completely getting out of the health care business would be even better. (Paul envisions a transition period of several decades would be necessary.) Somewhat ironically, Bill Clinton's promotion of his book Giving helped solidify my view on this. Clinton described how exciting it was to help an NGO that helped as many people as specific government programs, gave them a higher level of help, and at one-third the cost.

The extent to which the federal government has damaged the powers of the States had not been clear to me before. The federal government is less accountable to its electorate, has more entrenched programs resistant to improvement, has more wasteful bureaucracy, prevents comparisons of competing programs (as is possible when States try alternative ideas), and in general has a lot of negatives that go with, and in most cases outweigh, the positives of uniform program rules and wealth distribution across the nation.

I have a strong personal aversion to being in debt (I even own my house free and clear) and have long had a "feeling" that the national debt was a bad thing. Paul's explanation of how the national debt is driving inflation up and the value of the dollar down finally helped me understand in concrete terms the very real and very serious consequences of spending money on popular programs and opposing unpopular tax increases: what every politician does to get elected and re-elected. Except, apparently, for Paul, who has been elected ten times on a platform of opposing spending, and has never voted for an unbalanced budget. I have seen some news reports of others running as "Ron Paul Republicans" and I hope I will be able to offer my votes to this wing of politics for many election cycles to come.