Friday, February 10, 2012

Ron Paul's economics

Ron Paul is a big fan of the gold standard. The problem with the gold standard, which caused every nation to have to abandon it during the Great Depression (no nation began to recover economically until after they dumped the gold standard), is that it is fundamentally deflationary. Productivity rises over time -- we learn new ways to increase the amount of goods and services that each person in the workforce can produce. Population also rises over time -- people have kids, immigrants enter the country, and so forth. The end result is that the amount of goods and services in the economy grows over time -- but gold doesn't. The amount of gold is pretty much fixed, and grows only slowly, as new sources of gold are discovered then exhausted.

So why is deflation so bad? First, let's look at price deflation. Price deflation is so bad because it makes businesses unprofitable. They can no longer sell their goods for more than the price they paid for their goods because price deflation has reduced prices in the meantime. The goal is to buy low, sell high. If you're instead buying high, selling low, you're a former business.

Which is why there's price stickiness during monetary deflation (a reduction of the money supply) -- but that means businesses have to lay off people because their goods are now more expensive relative to the now-scarcer dollars, and thus they sell fewer goods. So basically the gold standard artificially reduces economic activity to match the amount of gold in the economy. Which is a great thing if you're wanting to reduce people's standard of living and create lots of unemployment, but *not* a great thing if you want jobs for people.

So anyhow, Paul Krugman, Brad DeLong, and even our very own Jazzbumpa have all produced graphs showing that the #1 indicator of economic recovery during the Great Depression was abandonment of the gold standard. When the gold standard was abandoned and the printing presses fired up to produce enough currency so that prices were rising again rather than falling, businesses could make a profit since they were no longer buying high and selling low -- and profitable businesses can hire people, and hired people can buy more, which in turn causes *more* economical activity, a virtuous circle that keeps going upwards until you have near-full employment again, at which point you have to stop printing so much money otherwise you start going Weimar.

So anyhow, to summarize the effects of Ron Paul's economic policies if adopted: If Ron Paul got his way, it would be legal to buy weed -- but you wouldn't be able to afford it. Which means the Ron Paul Youth who support Ron 'cause, like, they wanna be able to buy weed without The Man arresting them, are sorta barking up the wrong tree. What good is it to have weed be legal, if you can't afford it (and can't afford food, for that matter)?

-- Badtux the Economics Penguin


  1. Technically, Ron Paul doesn't necessarily want Weed to be legal, he'd be fine allowing States the option of legalizing or criminalizing it.

    And as to the Gold Standard Ron Paul's economics would utterly collapse upon the discovery of new gold, very similarly to the way the Spanish Empire collapsed after the discovery of the Cerro Rico near Potosi.

    Also Paul would be just fine with the millions dying working the mines.

    But, really Ron Paul is just part of the Unholy Trinity, The Father (Ron), The Son (Rand) and the Unholy Ghost (Ayn Rand) and his whole campaign is just set up to prop the Son up for future Presidential Runs...

  2. Tux, I own gold and even I agree with you about the economics of the situation. It's a stupid thing to have, basically mattress money. Adds nothing to the wider economy. The only reason I have it is because it can't be vaporized like the "segregated accounts" at MF Global were. There will be more affairs like that in the future. If you can't drop it on your foot, the bastards can steal it from you.

    When honesty returns to The System, I will return to "investing" my money in it. So I expect to die with my gold.* And I'm not much older than you.

    *(I'll will it to my daughter, of course, assuming she's able to find it and reach whatever country it might be in at the time.)


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