My wife was just watching a television show which depicted an Oregon man who was dying of cancer. He asked his physician for a treatment of chemotherapy, but the physician demurred. The hospital sent the man a letter to the effect that although he could not be given chemotherapy because his condition was too advanced, he could take advantage of Oregon's "Death with Dignity" law and commit assisted suicide. Besides the moral issues involved in suggesting to a patient that he commit suicide, the Oregon law has serious implications for future decades.
The Baby Boom generation failed to see any progress in its economic welfare because the Federal Reserve Bank debased the dollar and transferred much of the nation's wealth to financial interests. The result is that there has been inflation, and the real hourly wage has not increased since 1970. In the days of laissez faire capitalism, when there was no income tax, the average American's real hourly wage increased two percent per year. This continued through the 1960s, when government spending was less as a portion of GDP than it is now taking into account all three levels of government. After 1970, when restraint on the Federal Reserve Bank was eliminated because Richard M. Nixon abolished the gold standard, facilitating rapid government expansion, income inequality has expanded and the real hourly wage has been stagnant for the first 40-year period in American history. America is no longer the land of opportunity because of the Federal Reserve Bank, high income taxes and big government, a system that has facilitated wealth transfer by staunching small scale capital development and transferring wealth from wage earners to property owners.
One effect of the Fed-generated wage stagnation is that Americans no longer have the wealth necessary to provide themselves with health care. Until 2009 the system had permitted the average American to retain the illusion that he would be able to afford health care. The two Obama health care laws expanded access to health insurance by cutting Medicaid and establishing mechanisms that will increasingly reduce care. The average American will no longer be able to afford care at the level that his or her parents had it. Although more Americans will be able to gain low-cost treatments of the kind that Michael Moore celebrated in his movie Sicko, when he extolled the Cuban medical system, fewer Americans will have access to the kind of care that Moore ridiculed: the sewing on of fingers that had been cut off in an accident. Replacement of fingers is likely not available in Cuba and likely not available in countries with public health care systems. Such systems ration care using bureaucratically designed rules. They save money by reducing care of the type that Moore complained was absent in the American system. In fact, the pattern is the reverse. Elaborate treatments are less likely to be available in a socialized health care system.
By expanding care and taking steps toward socialization of medicine, the Democrats have insured that Americans will receive reduced care. As well, we can expect a second pattern. The institution of murder in place of treatment, as we see with the Oregon law. The Democrats, in the name of providing universal care, are going to substitute murder for care, with Progressive Republicans marching in synch. This is necessitated by the big government policies that have led to declining real hourly wages, the socialization of medicine, and the failure of Progressivism.
Subscribe to:
Post Comments (Atom)
36 comments:
You are so incredibly perceptive Dr. Langbert. You are one of the few who correctly point out that the Federal Reserve is at the root of all the problems. Dr Langbert we should go back to the gold standard and the barter system. For example, doctors will barter their services for sheep and goat; but I wonder what professors will barter their services for?
Perhaps a good exchange would be students who learn a little bit. You're confusing money and paper money. A gold or silver standard has nothing at all to do with barter. Perhaps you should read Aristotle's Politics, where he observed the difference between money and barter 2,500 years ago. And, since you've obviously not read anything on the subject of the gold standard, why not read Murray N. Rothbard's "What Has Government Done to Our Money?"
You seem to labor under the misconception that a monetary system where the Federal Reserve Bank routinely transfers wealth to banks and hedge funds is the only system possible. Your misconception is much of the reason why income inequality has increased.
Perhaps we would not have this backward Federal Reserve/paper money system, which just transferred a large share of the nation's wealth to the banking system over the past few years, if people like you were willing to read and think instead of parrot Wall Street's apologists in universities and in the Wall Street owned media.
I bow to your knowledge and being a learned man. I am not worthy, you have read so much, have a PhD, and have obtained tenure at such a prestigious college, like Brooklyn College. We are lucky that the Federal Reserve did not transfer the tremendous intellectual capital that you have generated to Wall Street.
Good day everybody. I am completely new here .I looks forward to participating in the chats.
Let's think about this for a few more minutes.
1. When most Americans did not even finish high school, the average real wage was increasing by 2% per year.
2. As education spread further and increasing numbers did finish high school, the average real wage continued to increase, although there were serious dislocations in the economy, notably the Fed-caused post World War I inflation, the subsequent depression of 1920, the "roaring 20s" and the Great Depression of the 1930s. These were all government-induced. By the way, how did college grads do in the 1930s?
3. In the post-World War II period, thanks to the GI bill and big government, demand for college education dramatically expanded. This also had to do with Progressivism, which besides advocating copying Germany's big government system, advocated copying German universities.
4. During the 1950s and 1960s, the real hourly wage continued to increase, at the same pace as in the 19th century when hardly 5% of the public went to college. More and more money was being spent on government programs.
5. In the 1960s the US government and the states dramatically expanded the number of college campuses. SUNY, for example, was built in the 1960s and early 1970s.
6. Following the dramatic increase in college campuses in the 1960s and early 1970s, the real hourly wage stopped increasing around 1970.
7. College students earn much more than non-college. But the explosion in the number of college grads coincided with the end of the increasing real hourly wage that had previously characterized the US economy.
8. The increase in the number of college grads coincided with declining innovation in the auto industry and other industries, such as electronics. True, the auto industry's innovation had probably started its decline right after the war, about 30 years after the establishment of the Fed.
9. College grads today have seen smaller gains in their wages than would have been seen for non-college grads under no government. On the other hand, non-college grads have seen declines in their wages. This was not so when there was no government. Workers did much better than asset holders during deflation.
10. Since the 1932 abolition of the gold standard, the stock market has increased in value tremendously, as has real estate. This did not occur before the Federal Reserve Bank was established.
11. Are you sure that you're better off under the current, Fed-based system than you would have been under laissez-faire? You certainly are if you're a stock holder, as I am.
It seems most are blind to whom Obama exempted from UHC provisions--mostly his friends.
A long time ago I learned the definition of a Democrat--one who robs from those who work to support those who vote for them.
Of course, Bush^2 didn't cover himself with glory over the immigration issue.
8. The increase in the number of college grads coincided with declining innovation in the auto industry and other industries, such as electronics.
Are you serious?
Yeah. The auto industry began its decline in fact in the 1940s. It became evident a little after the expansion of the number of college students in the 1960s. If you were alive then you know that people were talking about planned obsolescence and Ralph Nader wrote "Unsafe at Any Speed" in the mid 1960s, around the same time that the number of college grads increased rapidly.
What you don't get is why they would occur together. The answer is misallocation of credit. The US government borrowed to build colleges and the auto industry borrowed to build low quality cars. Competition was excluded from the auto industry because the Federal Reserve credit system enabled large frms to monopolize credit, freezing out smaller competitors. The monetary expansion caused misallocation. Oher examples were overinvestment in real estate, the destruction of the inner cities and creation of all-white suburbs, excessive road building. The biggest case has been Wall Street, which has sucked up Fed-created credit like a massive vacuum cleaner, creating little in return. The bloated higher education system is a piker compared to the massive waste that has resulted from the Fed's subsidization of Wall Street.
Competition was excluded from the auto industry because the Federal Reserve credit system enabled large frms to monopolize credit, freezing out smaller competitors.
This is an anti trust issue.
Not really an anti-trust issue because the problem is caused by government policy. Anti-trust would address a situation where one firm charges selectively lower prices to bankrupt smaller competitors or when a number of firms make an arrangement to collude to keep prices high. It can also concern monopolies like AT&T, IBM, A&P (yes, it was considered a monopoly in the 1930s), American Tobacco, and Standard Oil.
The auto industry was careful to avoid monopoly by not allowing Chrysler to go under (Studebaker did in 1960 or so). The auto firms did not directly collude. They did engage in what was called "price leadership."
Now, why could not a new auto firm compete? The American cars by 1960 had not kept up in terms of quality. It is true that economies of scale protected them. But in the 19th century entrepreneurs were able to independently assemble capital to start new competitors, as John D. Rockefeller did with Standard Oil. Over many decades, the possibility of this happening would seem to be good.
But with an income tax individuals cannot save much. Therefore, assembling an independent competitor would be difficult. John Delorean almost did it in the 1970s, but he failed for personal reasons.
Ultimately, foreign competitors stepped in because the American system precluded competition. Not because the existing auto companies stopped new ones, but because the credit, taxation and money system inhibits entrepreneurship. That is not an anti-trust issue. It is a fundamental policy of Democrats and Republicans: incomes taxes + Federal Reserve credit creation and allocation to large firms.
Competition was excluded from the auto industry because the Federal Reserve credit system enabled large frms to monopolize credit, freezing out smaller competitors.
This is what you said originally. You changed the issue to --
The auto industry was careful to avoid monopoly by not allowing Chrysler to go under (Studebaker did in 1960 or so). The auto firms did not directly collude. They did engage in what was called "price leadership."
What is your exact point?
The You changed the issue to the auto industry.
My main point concerns the Fed. The rest of the narrative is peripheral.
I bet that the Fed is responsible for the tornados. Because the Fed transferred a lot of money to the Insurance Companies, they did not provide wether insurance. So the tornados came in to cause maximum damage.
The question is whether the aggregate of decisions the banking system makes are better or worse than the free market system was. The real hourly wage growth has been zero. Under the free market system the real hourly wage growth was 2% per year. Under the Fed, there have been successive financial and real estate bubbles followed by mass unemployment. Business cycles were much more modest and stability was greater prior to the Fed.
Under the Fed there has been exponential growth in income inequality. Under free market credit (the gold and silver standard) real wages consistently grew, as did standards of living for all classes.
If you don't follow why, as I mentioned earlier, read a few books about how the Fed works and why the bad economic outcomes have been caused by the Democrats, Republicans and The New York Times.
The books include Ron Paul's "End the Fed," Murray N. Rothbard's "Mystery of Banking" and "What Has Government Done to Your Money?"
By gold standard do you mean gold coins, or the dollar backed by gold?
Hayek's idea of competitive money supplies would seem best to me. That would take us back to pre-Civil War days. I would also like to see a US dollar backed by silver. The gold backed dollar of the post 1873 days was deflationary. In fact, the 1873-1900 deflation had many good attributes because it stimulated a huge amount of innovation. But it created instability because the wealthy, Wall Street, real estate investors and farmers objected to deflation. It was great for wage earners. Guess who opposes deflation today? Wall Street, The New York Times, Warren Buffett, David Rockefeller, George Soros and Paul Krugman. The Whigs.
The US dollar was originally defined as a weight of gold. It could be so defined again. Or silver. The Continental, the first pure paper fiat money in America, failed because of hyper-inflation. Then, there was a gold and silver standard. Wars tend to require paper money. Between 1836 and 1865 there was a gold and silver standard. Then, Lincoln and Congress issued paper money, the greenbacks. These caused inflation in the post war period. That was also when big business started. If you read EL Godkin's letters you will see that he believed that the greenbacks had led to Jay Gould, speculation and corruption. This was the same thought that led Jackson to abolish the Second Bank in 1836. That was also why Jefferson opposed a central bank in the 1790s.
Guess what's happening now? We're back to fiat money and plenty of corruption and income inequality, just like Godkin observed, and just like the Democrats of Jackson's day observed. But the New York Times Democrats and the Rockefeller Republicans are two Whig Parties, both of which favor the Bank as did the Federalists and the Whigs, the parties of the rich. In the case of the Times it's under the laughable argument that inflation is good for the poor. The needs of Soros and the Ochs Sulzbergers have nothing to do with it according to them.
So how would you fund the wars?
Monetary expansion is not free. When the government prints money, it takes value away from the existing money stock. So who funds wars now? The taxpayers. But it's done through stealth rather than honestly. This enables the government to engage in more warfare than the public would otherwise be willing to sacrifice for. More killing. More financial cost.
You would fund wars through taxation, exactly as is done now. The difference is that taxpayers would know when they are paying for the wars.
What advocates of fiat money want is to trick the public into supporting wars without understanding the costs. There can be more wars that way. In fact, that's how the paper money came into existence in England.
When there is war, the country needs to import raw materials. This results in a depletion of silver. If this happens, no silver will be left in our country. What will happen then?
The same thing would happen if the US needed raw materials now. The dollar would go down in value as demand for foreign products increases. The solution that the US applies now, printing more money, is exactly what was done under gold or silver standard regimes in war time. This tends to debase the gold standard, eliminating its effectiveness. But without the gold standard the money is debased all the time. Its like saying, "why go on a diet; you will be tempted when you pass an ice cream truck. You might as well eat fried chicken and candy as well."
Also, there is reason to force government to a budget with respect to war, as we witnessed with Bush and are now witnessing with Obama. If the public has to be taxed to cover borrowing it will be more circumspect about unnecessary military expenditures. People might start to question why the United States needs military bases in Germany.
You say:
The US dollar was originally defined as a weight of gold. It could be so defined again. Or silver.
and then say
The same thing would happen if the US needed raw materials now. The dollar would go down in value as demand for foreign products increases. The solution that the US applies now, printing more money, is exactly what was done under gold or silver standard regimes in war time.
We are talking about a silver standard here; that is each dollar is backed by physical silver. So hypothetically how can the government print more money?
When you say:
The solution that the US applies now, printing more money, is exactly what was done under gold or silver standard regimes in war time. This tends to debase the gold standard, eliminating its effectiveness. But without the gold standard the money is debased all the time.
What you are saying is that even with a gold standard there will be a transfer of wealth from the FED to Wall Street.
During the Revolutionary War the US government printed paper money called Continentals. They became valueless. I believe that was the first hyper-inflation in modern history. The First Bank ended right before the War of 1812. My understanding is that the government had trouble raising money and so instituted a second bank in 1816. The Second Bank led to corruption. Jackson abolished it in 1836. The Civil War created the need for paper money. The Congress issued the greenbacks. The greenbacks were fiat money. The "legal tender law" still in effect declared that all Americans must accept the fiat dollar. It says that on the dollar to this day. The government withdrew the greenbacks in 1873, instituting a pure gold standard. This led to deflation, depression, rising real wages and heightened innovation. Wall Street did not like that. It liked the greenbacks. The Fed was established in 1913, just a few years before WW I. There was still a gold standard, but as was the case under the Second Bank, the national bank (central bank) could issue more money than was backed.
That is called the required reserve ratio. Banks always play games with it. If they have $1 of gold on deposit, they can lend up to $10. That was the origin of banking.
All gold standards that have a national currency and a central bank have a fiduciary element. The fiduciary element gives "elasticity" to the currency. But it is much more limited than under a pure fiat currency as we have.
Yes, Wall Street can benefit under a gold standard. But were they satisfied? No. They wanted to abolish the gold standard so that there would be no required reserve ratio.
Under a gold standard combined with a fiduciary component (so that the central bank can increase the amount of money) the amount of money might increase five fold tops. Since 1932 the money supply has increase 30 fold or more at this point. It was something like 16 fold as of '08, but it's more than doubled since then, maybe quadrupled, which would make it 64 fold.
Clearly there is much greater flexibility to cater to special interests: commercial banks and their chief borrowers: big corporations, Wall Street, government and real estate.
There could be a gold or silver standard with no fiduciary element. That is what Murray Rothbard advocates in "The Mystery of Banking." He advocates the illegalization of all fractional reserve banking and the abolition of the Fed. That would mean that banks could only lend the gold that they have on hand and the loaned dollars could not be used to back additional loans by other banks. That would end booms and busts and also end banking instability. The economy would move more slowly, be more stable. Firms would have more trouble borrowing. Real wages would rise. There might be higher unemployment. Government would be much smaller. People would feel the pinch of government spending and would be more reluctant to support it. The true costs of all expenditures would be felt. Technological progress would be much faster because the only way to make large amounts of money would be by cutting production costs. The stock market would go up and down but there would not be a long term upward trend as there has been since 1932. America in the 1800s saw a few inventions: railroads, automobiles, telephones, photography, movies, A/C electricity, remote control, radio (1897). Imagine if that pace of invention continued. Where would we be now? But George Soros and Warren Buffett would be much poorer.
you still do not answer the basic question == under a gold or silver stadard as you envisage it how do you finance wars?
you still do not answer the basic question == under a gold or silver stadard as you envisage it how do you finance wars?
You finance wars the way that most people think wars are financed: (1) taxation and (2) borrowing money. Most people don't realize that the government takes money from them by counterfeiting it, paying for wars by making wage earners and people holding bank accounts poorer but benefiting stock and real estate holders. When the economic benefits to the wealthy are eliminated, might there be less interest in war?
I am confused Dr. Langbert. First you say that even with a gold/silver standard there will be a transfer of wealth to Wall Street and now you say
Most people don't realize that the government takes money from them by counterfeiting it, paying for wars by making wage earners and people holding bank accounts poorer but benefiting stock and real estate holders.
What is the logic here. I know you are very smart but can you please explain it to dumb people like me.
If you can get the late Howard S. Katz's "Paper Aristocracy" which is out of print he explains it fairly well.
When interest rates go down, bond prices go up. When bond prices go up, stock and real estate prices go up. Rising stock prices is what Wall Street wants because it stimulates investor interest. Also, Wall Street firms trade stocks. Hedge funds borrow and then see their assets rise. Mutual funds see their membership grow. Wall Street totally depends on rising stock prices.
Real estate also does well. Reducing interest rates means it is easier to borrow for mortgages, stimulating demand. Inflation means that property is worth more, but the debt that the property owner incurred is not more costly. So the profit from real estate is enhanced through inflation.
Stock market = Wall Street = real estate market = bond market. The interests of all these coincide.
What causes interest rates to fall (or rise)? The Fed.
So what's the problem with rising stock prices? The value of the stock comes from the reduced interest rate. But the interest rate was reduced by expanding the amount of money. Ordinary people holding money or expecting fixed wages and pension become poorer. Property owners become richer.
That is the chief effect of the New Deal and the Democrats. They take part of the profit to property owners through taxes, and give a small amount to the poor. Then they say that they are friends to the poor. But the Fed has caused the poor to become very poor, the rich to become very rich and the Middle Class to become worse off. The reason is that the wage growth that had previously characterized the American economy has stopped. It used to be 2% per year. It has been zero for forty years. That means that your wages would be have been more than double what they are now without the inflation system.
Real estate also does well. Reducing interest rates means it is easier to borrow for mortgages, stimulating demand. Inflation means that property is worth more, but the debt that the property owner incurred is not more costly. So the profit from real estate is enhanced through inflation.
I still don't follow. Interest rates are down, at historic lows. Then why is the real estate market tanking?
Great question. In 1974 I worked as a doorman in Manhattan on East 54th Street. At that time a two bedroom sold for $55,000 and a doorman made about $11,000. Today, doormen probably make about $35,000 or $40,0000 and apartments in that building sell for over $1 million. In other words, apartments went up 20-fold in Manhattan while doormen's wages went up 3-fold.
It's true that prices are falling in much of the country. But they have fallen to 2002 levels on average (Wall Street Journal headlined this the other day).
Between 1932 and 2002 real estate prices went up many times faster than wages. So even though there has been a market crash, the crash hasn't begun to put prices into synch with wages.
Market psychology often drives markets in stocks as well as real estate. There is no reason why real estate should go up much faster than wages other than the Fed and market psychology. As market psychology adjusts to the limits on the Fed's ability to print money, stock and real estate prices will fall, just as happened in the 1970s. But they will not fall to anything close to their market levels.
Howard Katz used to point out that in 1932 stock prices were more or less the same as in 1880. That was after the big crash of the late 1920s and early '30s. So why shouldn't stock prices now be the same as they were in 1932?
The Fed has boosted and boosted the money supply, most recently to potentially hyper-inflationary proportions. The mistaken investments in $1 million apartments in places like Long Island (I know first hand) in a free market would revalue to a much lower level, say $250,000. With the Fed pumping money into the economy they have only fallen to say $850,000.
There are two alternatives. (1) The Fed keeps pumping money, enough to either prop up stock and real estate prices or push them higher or (2) it does not and there are major crashes in the stock and real estate markets, ending the subsidies to the wealthy (stock and real estate holders).
If you believe (1) will happen, then you stay in the markets (which is what I have been doing). If you believe (2) will happen, go asset light, sell your stocks and keep cash.
In either case gold is probably a good bet.
Market psychology often drives markets in stocks as well as real estate.
I thought that you said that interest rates drives these prices. Now you are saying market psychology drives prices. Which is it?Howard Katz used to point out that in 1932 stock prices were more or less the same as in 1880. That was after the big crash of the late 1920s and early '30s. So why shouldn't stock prices now be the same as they were in 1932?
HUH?? Do not follow the logic. You mean to say that we have made no technological advancement for the markets to revalue?
The money supply is the chief long term determinant of stock prices. There are many other influences, including market psychology, political instability and regulation. There are numerous causes of stock prices, of course. For instance, if a plane crashes into the world trade center markets assess profits will fall and so the stock market falls. Increasing the money supply causes interest rates to fall and stock prices to rise. It is the one factor that government can use to raise prices.
There is no reason to think that new technology causes stock prices to rise. Warren Buffett has pointed out that the airplane industry, in its entire history, has made zero profit.
The reason is competition. In competitive markets if stock prices rise new firms will enter the market. The new firms push down stock price. In a competitive capitalist economy there will be considerable innovation and competition, and stock prices will rise to compensate investors for the cost of money (interest rate on treasury bonds) plus risk minus dividends.
The presence of competition ought to limit increases in stock prices. If stock prices go up and up beyond the three components: cost of money (interest on treasury bonds) + risk (say an additional 3 - 5%) - dividends paid, there needs to be an explanation.
There is no reason for new technology to cause a secular increase in stock prices. When technology advanced the fastest, from 1865-1913 there was much less appreciation in stocks than now. Stocks don't go up because of economic growth. They go up because of declining interest rates, more money and profit.
Bankers, stock holders and real estate owners did not like the rapid technological advance under laissez faire capitalism. Stock and real estate prices did not go up much and may have fallen during deflation. But technology advanced most rapidly: invention of the telelphone, AC electricty, automobile, etc. But stocks weren't going up much. The reason was competition.
http://data.princeton.edu/stata/graphics.html
To see an example of what I'm talking about look at the above graph of fertility rate versus "setting" but replace "fertility rate" with "stock market value" and "setting with money supply.
The points trend up but do not fit exactly on the trend line. There is variability around the trend line. Little in biology or social science is a perfect fit. In physics you do have perfect or near perfect fit, but little in biology and virtually none in social science.
The trend line is the money supply versus stock prices. The variation around the trend line is due to market psychology and current events.
That is, the money supply causes a higher stock price, but the stock market also rises and falls with market psychology and current events.
There is rarely one cause in social science. But the dominant cause is the money supply.
You are comparing fertility rates with stock market values? Huh?
Basically what you are saying that the economy can never ever grow because the stock market can never ever increase in value.
I am so totally confused.
I think my efforts at explaining the idea of the Federal Reserve Bank in this forum aren't working. I suggest a few things.
1. Read Ron Paul's "End the Fed." I just finished it. See my review in this blog.
2. At the end of the book Paul gives a reading list. Read a few of the introductory books he recommends.
3 If you want to contact me by e-mail perhaps we can meet in person and discuss this important issue so I can explain it better. Perhaps I will give a seminar locally later in the year.
3.
Post a Comment