Wednesday, December 10, 2008

It's Going to be a Bumpy Night.

Here are some comments from Byron Schlomach, an economist at the Goldwater Institute which relate to some points I made a few days ago -- points which upset at least one blogger at the Village Voice who attacked me for being some Right-wing nut (apparently ignoring my views on marriage equality, ending corporate welfare, opposition to the Religious Right, opposition to censorship, desire to end the war on drugs, my anti-war position, my support for immigrants and numerous other views). In my article I warned that Obama's illusionary jobs program is going to cost billions, on top of the billions that Bush, clearly the worst president in my lifetime, has pushed through.

Those billions will be provided either through taxes or cranking up the money supply. If through taxes they will destroy jobs. If through money supply expansion it will create inflation. Mr. Schlomach looks at the dishonest and deceptive way that the Bush administration has paid for their hand-outs to billionaires "hurting" from the government-created housing bubble. Bush used the most dishonest means of paying for corporate welfare -- inflating the money supply. Mr Schlomach provides the following chart showing what has happened with the money supply in the last days of the Bush debacle.
Apparently George Bush and his clownish cabinet learned monetary policy from the likes of Robert Mugabe. Mugabe also revved up the printing presses in Zimbabwe to buy himself out of politically-created problems. The only restraint Mugabe had in printing new money was that his government couldn't afford the paper and ink -- literally. Here is a video from Al Jazeera on how well that has worked out.

This video illustrates precisely what happens when the money supply is increased. Schlomach says:
Most of this cash went straight into bank vaults as part of the effort to shore up the nation's financial sector. It takes awhile for banks to turn the cash around and loan it, but when they do, watch out. Just like everything else, when the supply of money increases, it becomes less valuable, meaning it takes more money to buy things. That's inflation. Remember the 1970s when inflation was at double-digit rates? Well, that will pale compared to what we could experience over the next few years.
The public erroneously confuses the results of inflation, higher prices, with inflation itself. What is being inflated is the money supply. As the supply of money increases the value of each new bill is less than the previously printed bill. As the value of the money declines it takes more money to purchase the same amount. Thus prices increase. But those increased prices are the result of inflation not the cause of inflation. A persistent, general increase in prices, is not possible without a preceding persistent, general increase in the supply of money.

This accurate definition of inflation is not popular with politicians. The reason is that it clearly places the blame where it belongs -- on those who have the ability to increase money supply -- which is the government. To blame inflation on its results, higher prices, allows them to pretend that the cause of the crisis is the private sector. Mugabe has been doing this for years now.

With each passing day we are witnessing a repeat of the Great Depression. First, you have a big government advocate like Hoover trying New Dealish type policies to get out of the Depression. Contrary to the myth, Hoover did not practice laissez faire at all. He was a staunch advocate of aggressive government intervention in the markets in practice. That didn't work and the downturn lingered on and on. Roosevelt came into office and it lingered for years longer due to his policies. Obama is clearly planning on playing Roosevelt to Bush's Hoover. The difference is that both Hoover and Roosevelt were restrained in comparison to these two.

The Village Voice author attacked this site indicating that I have to be nuts about the results of Rooseveltian policies because, if I were right, Roosevelt wouldn't have been re-elected. I guess he would then argue that Mr. Bush was a great president with all the right policies because he got re-elected as well. Based on the twin disasters of Bush and Obama I can only quote the character of Margo Channing (Bette Davis) in All About Eve: "Fasten you seatbelts, it's going to be a bumpy night."

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