tag:blogger.com,1999:blog-2555123713188257297.post3926931111575878495..comments2023-12-14T21:55:11.213-05:00Comments on Mitchell Langbert's Blog: Inflation as Loss FunctionMitchell Langberthttp://www.blogger.com/profile/00722335216553899790noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2555123713188257297.post-89134325735211933342010-02-02T12:04:16.958-05:002010-02-02T12:04:16.958-05:00Hey GmT. I'm assuming inflation. My idea is th...Hey GmT. I'm assuming inflation. My idea is that the Fed creates money, deposits with banks who then lend. The mercantilist theory is that the new projects the loans fund will produce more value for the economy than the new money will depreciate the currency. The result will be reduced prices, deflation. Inflation occurs only if this idea fails, i.e., there are quality losses due to bad loans. No economist can identify which loans are good, and there is absolutely nothing in economics to suggest how lenders can identify productive loans. True, they can identify borrowers who are good credit risks and more likely to repay, but that's beside the point.<br /><br />Say the Fed inflates by 1% and the banks expand the money supply by 3%. Then the new projects that are funded by the 3% must increase overall national productivity by 3% to be non-inflationary. If they expand national productivity by less than 3%, then they are inflationary. <br /><br />Economists assume on faith that bankers are able to sort through the potential borrowers to find the best risks. That's why they created the recent banking meltdown. American banks are to banking quality as American auto companies are to automobile quality.Mitchell Langberthttps://www.blogger.com/profile/00722335216553899790noreply@blogger.comtag:blogger.com,1999:blog-2555123713188257297.post-56229727604107926362010-02-02T02:45:42.941-05:002010-02-02T02:45:42.941-05:00An interesting theory but does it not assume that ...An interesting theory but does it not assume that money supply remains constant? Surely, inflation is more to do with bad money which the Fed is able to inflate of which low interst rates are a consequence. It is these low interest rates that cause malinvestment.GmThttps://www.blogger.com/profile/09186884923626069462noreply@blogger.comtag:blogger.com,1999:blog-2555123713188257297.post-27621976978917697722009-03-16T21:43:00.000-04:002009-03-16T21:43:00.000-04:00I don't think so. It will only make matters worse ...I don't think so. It will only make matters worse because the state will have every incentive to monetize its debt. This was done in the US under the first and second banks of the United States, which were partially (20%) owned by the US government. The result was the same kind of corruption and speculation as exists under the Fed. Nationalizing an inherently corrupt institution will not change its essential corruption. The nation did best from 1836 to 1913, when there was no central bank. Millions of immigrants flocked here and real wages rose consistently. There was more innovation than during any other period in US history. <BR/><BR/>Sweden is fine if your idea of a dynamic economy is a smorgasbord and a SAAB story.<BR/><BR/>The problem with nationalization is that it leads to suppression of freedom. The reason is that as public sector control extends to greater areas of the economy, critics of the state find it ever more difficult to gain employment because of "political correctness". In a country like Sweden there is relatively little diversity. It is not particularly innovative or creative. It is not a leader. Moreover, it is very small, smaller than a single US state, its population is 9 or 10 million. <BR/><BR/>Despite extensive welfare services, its tax rate is hardly higher than in the US. The tax rate is above 50%, but the US approximates this. The payroll tax in the US is lower than in Sweden, but real estate, sales and state taxes push the US tax rate fairly close to Sweden's. Nevertheless, US taxpayers receive scant services in contrast to major welfare and health services provided in Sweden.<BR/><BR/>Now, let's extend the US government's power so that taxes exceed those of Sweden (which would happen in part due to inflation). I wonder how much better off Americans would be? I wonder whether the extra resources diverted into government coffers would go into the pockets of Pickpocket Barack's cabinet of crooks (his treasury secretary is actually a tax cheat! The chutzpah and stupidity!) and how much would subsidize the average American?<BR/><BR/>Hey Ho. Hey Ho. American Socialism's gotta go.Mitchell Langberthttps://www.blogger.com/profile/00722335216553899790noreply@blogger.comtag:blogger.com,1999:blog-2555123713188257297.post-50330937642070344812009-03-15T15:49:00.000-04:002009-03-15T15:49:00.000-04:00Nationalize the banks. The Swedish model of bank ...Nationalize the banks. The Swedish model of bank nationalization is the only solution.Anonymousnoreply@blogger.com