[jmherbener]

Here is a Fed paper explaining QE. The authors note that the purchases of Treasuries were conducted by the FRDB of New York in the same manner as it conducts regular Open Market Operations (pp. 9-10). The New York Fed bank holds auctions for primary dealers, who sell the Treasuries to the Fed.

http://www.ny.frb.org/research/staff_reports/sr441.pdf

The article notes that the New York Fed Bank posted a summary of its QE purchases on its website as the program went along (p. 10, note 17).

http://www.newyorkfed.org/markets/pomo/operations/search.html#

To determine whether or not the Fed was shrinking the time between the sale of the Treasuries by the Treasury and the purchase of the Treasuries by the Fed, one would have to compare the normal OMO purchases before 2008 with the QE purchases. Given the Fed article’s description of the program, there doesn’t seem to be any evidence that the time lag shrank or, at least, that the Fed purchases were immediately after the Treasury sales as your friend claims. (One could go through each purchase on the website to see if the Fed made any immediate purchases.) In any case, your friend is correct that the Fed purchases of Treasuries, whatever the lag happens to be, provide lower-interest-rate-than-otherwise funding for the Treasury, which spends the funds on general programs of the Federal government. But the Fed indirectly funding the Treasury expenditures in this way is always the case for all Fed purchases of Treasuries and not a special consequence of the QEs.

[jmherbener]

The asymmetry of the boom compared to the bust has little to do with the difference in upward and downward flexibility of prices. The boom begins with monetary inflation and credit expansion which generates capital funding to be invested. The additional money can be allocated into any production process in the economy since money is completely liquid. The capital funding, then, gets converted into capital goods which results in the building up and lengthening out of the capital structure. The bust begins with the malinvested capital structure. Since capital goods are somewhat specific, they cannot as easily as money be shifted into other production processes with their full monetary value intact. As long as the government does not interfere with the liquidation and reallocation process, however, it can proceed apace (even in the face of the necessity to convert the uses of specific capital goods) as it did in the downturn of 1920-1921.

[jmherbener]

Not too long ago, Paul Craig Roberts stirred up a controversy concerning the mobility of capital, comparative advantage, and free trade.

http://www.nytimes.com/2004/01/06/opinion/second-thoughts-on-free-trade.html

http://mises.org/library/free-trade-and-factor-mobility

http://mises.org/library/who-benefits-free-trade-and-how

http://mises.org/library/can-trade-bring-poverty

https://mises.org/library/reply-schumer-and-roberts

[jmherbener]

I recommend you take Austrian Economics Step by Step first and then What’s Wrong With Textbook Economics. The first course will give you the background to understand the second course.

[jmherbener]

If people hold onto money, then they are not spending it on consumer goods or saving it in which case the money gets spent on producer goods. The reduced demand for goods lowers their prices. Lower prices for goods means a larger purchasing power of money. The larger purchasing power of money (i.e., the higher price of money) is what satisfies people’s desire to hold more purchasing power in the form of money even though the stock of money has not changed.

If we were to diagram the analysis, the increase demand for money shifts the demand for money curve upward to the right, which results in a higher price for money (in the link below ignore the Keynesian assumption that the price of money is the interest rate). The higher price for money eliminates the excess stock of money which the increase demand for money (the difference between a and b) would bring about in the absence of a higher price for money.

https://fixingtheeconomists.files.wordpress.com/2013/09/money-supply-demand-curve.jpg?w=500

On average people are worse off over the cycle because there are fewer goods produced in the economy than if there had been no cycle. Of course, some workers might be better off and others worse off depending on the relative movement of demand for their labor and some entrepreneurs may be better off and others worse off depending on the relative movement of demand for their goods. But overall, society is worse off.

As you say, people are not worse off or better off because prices and wages both have fallen.

[jmherbener]

In analyzing any situation of profit and loss in production, one must look at all costs of production and not just wages. If output prices are falling, then costs of production overall must fall close to proportionately to the fall in output prices to maintain profitability. Costs fall close to proportionately and not exactly proportionately because the interest rate, which is the rate of return or price spread between output prices and input prices, changes over the phases of the cycle. But setting that issue aside, falling output prices will affect the movement of prices of inputs according to the specificity of the inputs. Since labor is generally less specific than capital goods, wages will fall less relative to the fall in output prices and prices of capital goods will fall more relative to the fall in output prices. The symmetric movement occurs during the boom. Prices of capital goods rise relative to wages as prices of output are pushed up by monetary inflation and credit expansion.

Real wages fall over the cycle because capital goods have been malinvested and labor misallocated. Production is less efficient than it would have been had capital and labor not been squandered. Even if nominal wages rise relative to output prices, real wages will be lower because fewer goods have been produced than would have been without the malinvested capital.

It would be very unusual for money to have the same purchasing power at the end of a cycle as it had at the beginning. During the boom there is inflation of the money stock and typically, but not necessarily, a reduction in the demand to hold money and during the bust there can be either deflation or inflation of the money stock and typically, but not necessarily, an increase in the demand to hold money. It’s rare for these various forces to render the same purchasing power of money over time.

[jmherbener]

Kantians make two distinctions concerning propositions. They are either analytic or synthetic and they are either apriori or aposteriori. The truth of analytic propositions can be established by formal logic alone. Establishing the truth of synthetic propositions requires more than formal logic alone. Observations are necessary to establish the truth of aposteriori propositions and they are not necessary to establish the truth of apriori propositions.

Synthetic apriori propositions, then, refer to propositions whose truth can be established but formal logic is insufficient to do so and observations are unnecessary. What must be added to formal logic is knowledge gained, not by observation, but by reflection.

Take a look at the piece by Hans Hoppe:

https://mises.org/sites/default/files/Economic%20Science%20and%20the%20Austrian%20Method_3.pdf

[jmherbener]

The top 5 percent of Americans earned 22.1 percent of total income in 2013 according to the census bureau:

http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-249.pdf

The federal government taxes were $2.8 trillion and income taxes $1.6 trillion.

http://www.usgovernmentrevenue.com/fed_revenue_2013USrn

Personal income of Americans in 2013 was around $14 trillion.

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=58

So, in 2013 Federal taxes as a percent of personal income was around 20 percent and federal income taxes as a percent of personal income was around 11.4 percent. If the federal government confiscated all of the income of the top five percent, it would just more than cover its entire tax revenue. Of course, it could only do this once.

Here are federal taxes paid by each income quintile:

https://www.cbo.gov/publication/44604

We have a large debt because federal spending in out of control. The top five percent do not earn enough income to make a dent in paying off the debt as long as federal government expenditures are not reduced.

[jmherbener]

The regression theorem is a necessary but not sufficient condition for something to become money. It rules out any item that has not been traded on the market and therefore, lacks exchange value against other goods (i.e., there are no prices of other goods in terms of the item). In particular, no government can merely declare a non-traded item as money and have people accept it as money. If Obama criminalized the use of the dollar and declared that a new currency, say the Obama, is now money in the USA, it would not be used by people as money. Instead, people would trade their goods and services for something that has known exchange value. So, any good that is traded in the market passes the regression theorem test and is a viable candidate to become money. But of all the traded goods, some are superior as a medium of exchange to others. Those that are already widely traded are superior to those that trade more narrowly. Durable goods are superior to perishable goods. Divisible goods are superior to indivisible goods. Portable goods are superior to stationary goods, and so on. Of all the traded goods, the most suitable good to be a medium of exchange is widely-traded, durable, divisible, portable, and so on. That is the good people choose as money.

[jmherbener]

When the Zimbabwe dollar collapsed in hyperinflation, Zimbabweans starting using foreign currencies. If the U.S. dollar were to collapse, Americans too would choose widely-traded items to use as money. Bitcoins have exchange value in the market, so they pass the regression theorem test. What they lack to be money is general saleability.

[jmherbener]

Here is the schedule for income tax brackets:

http://www.tax-brackets.org/federaltaxtable

Here is the schedule comparing income tax brackets to capital gains tax brackets:

http://kirklindstrom.com/Articles/2015/0213_US_Federal_Capital_Gains_Tax_Rates_For_2015.html

[jmherbener]

It’s well known by economists that it was a deficiency of investment and not consumption that held back production during the Great Depression. Even Keynes knew this and hence, his claim that the animal spirits (over-optimism and over-pessimism) of investors (not consumers) was the root cause of the Great Depression. Moreover, the rich have higher saving rates than the middle-class and poor. Thus, if the downturn made income and more equally distributed, then consumption would be relatively larger. Finally, the bulk of income in a market economy is in the hands of the middle-class. Therefore, aggregate consumption and investment don’t change much when the rich pull back.

Take a look at Bob Murphy’s book, A Politically Incorrect Guide to the Great Depression.

[jmherbener]

Take a look at the multi-volume work on the history of the Federal Reserve by Allan Meltzer, Here is a review of Vol. 2:

http://www.federalreserve.gov/pubs/feds/2011/201159/201159pap.pdf

On colonial tax policy, take a look at Murray Rothbard’s Conceived in Liberty:

http://library.mises.org/sites/default/files/Conceived%20in%20Liberty_Vol_2_2.pdf

Also, look careful at Rothbard’s footnotes and bibliography in Conceived in Liberty and A History of Money and Banking in the U.S. for more sources.

[jmherbener]

At this point, I think Bitcoin is, at most, a localized medium of exchange among a small number of persons. Another small group invests in Bitcoin as an asset. They are anticipating a capital gain from holding Bitcoin, like investors in real estate. To be money, an item must be accepted as a medium of exchange by most people. It is, by definition, the most widely traded item in the market. For this reason, people conduct economic calculation in money.

[jmherbener]

I have not read Clark’s book, so I’m afraid I can’t comment on his views.

[Author]

Posts