Teddoman wrote:Haven't read much econ history, so I don't really have an opinion on the very theoretical question of doing without a central bank.
But I have been following Krugman's blog about the current balance sheet recession/depression in Europe and how austerity is basically sending Europe into a vicious cycle.
What is the alternative? A return to the gold standard, with no flexibility to expand or contract the money supply other than the natural growth of the gold supply through mining? Wouldn't that just exacerbate our economic cycle, with no one ever speeding up or putting the brakes on the economy?
I hear you, but all the historical evidence suggests that economic growth under a gold standard was steadier than it was prior to the creation of the Fed. Again, not only economic growth, but politically, the world was more stable. This notion that the money supply has to be constantly ballooned and then crushed and that there is someone who knows how and when to do this is groundless.
Who are these people that supposedly know when to hit the gas and when to hit the brakes? Where did they learn this art? Have they ever successfully done such a thing, except in small, anomalous economies? There is no evidence that they have. All the evidence suggests that they have created massive social and economic dislocation. I think one could argue that exceptional growth is as socially corrosive as exceptional depression, as well.
Remember, the money supply used to expand and contract before central banks existed. That is the nature of credit, but central banking has only exacerbated the expansions and contractions. Gold did not create the Great Depression. The Fed blowing a bubble in consumer credit in the 1920s did.
The economy is like an ecological system. Tampering with something as fundamental as money is inherently dangerous. Economic growth has been going on for millenia without the need for artificial money. And, the point is not so much that gold must be money. It is that the government should not be determining what money is. Gold was the latest stage in monetary evolution, so it seems the most likely candidate, especially since it has continued to behave like a shadow currency ever since the Nixon Shock.
Does Greece need to go on the gold standard tomorrow? Surely not. But not even Ron Paul says that. He said in the video above that any return to a gold standard would have to be gradual and careful. But, ultimately, his point is that the government should be out of the business of regulating money.
There is just no evidence for Krugman's positions. Krugman constantly makes unfalsifiable claims. If only we had done what he said in situation X, everything would turn out fine. You can be sure that if he were finally given the power he apparently thinks he deserves, he would have just as money excuses as every other Fed chairman.
Compare Bernanke, especially from 1:00 http://www.youtube.com/watch?v=INmqvibv4UU
to Ron Paul especially from 2:15 http://www.youtube.com/watch?v=tFg1_sJDQIY&feature=fvst
Bernanke didn't 'buy the premise' that the national housing market could collapse, and was in denial until the bitter end. Paul predicted most of it years in advance and on the record.
With fairness to Krugman, he was not asleep at the wheel with respect to the housing bubble. http://www.youtube.com/watch?v=qo4ExWEAl_k
He was extremely clear-eyed. (And far less smirky and irksome).
Anyway, Bernanke and Krugman are now attacking each other, which I think further demonstrates that economics is not science. It is guess work and unfounded speculation.