Economics Inflation Quotes

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.

I was reading in the paper today that Congress wants to replace the dollar bill with a coin. They’ve already done it. It’s called a nickel.

The theory of economic shock therapy relies in part on the roleof expectations on feeding an inflationary process. Reining in inflation requires not only changing monetary policy but also changing the behavior of consumers, employers and workers. The role of a sudden, jarring policy shift is that it quickly alters expectations, signaling to the public that the rules of the game have changed dramatically - prices will not keep rising, nor will wages.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Mere inflation-that is, the mere issuance of more money, with the consequence of higher wages and prices-may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.

Inflation is the one form of taxation that can be imposed without legislation.’ —MILTON FRIEDMAN

In the same way that central banking nearly wrecked the world and created one calamity after another, bitcoin can save the world one transaction at a time. It is time for a new beginning.

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.

Here we shall have to say simply that all government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation.

To try to cure unemployment by inflation rather than by adjustment of specific wage-rates is like trying to adjust the piano to the stool rather than the stool to the piano.

For the same reason a disease cannot be cured by more of the germ that caused it, the inflation and debt accumulation of the Obama years will not inflate our way out of it.

The demoralization that the debase­ment of the currency left in its wake played a major role in bring­ing Adolf Hitler into power in 1933.

Inflation made it possible to divert the fury of the people to 'speculators' and 'profiteers'. Thus it proved itself an excellent psychological resource of the destructive and annihilist war policy.

But do you know what happened during this period? Where do we begin ... 1.3 million Americans died while fighting nine major wars. Roughly 99.9% of all companies that were created went out of business. Four U.S. presidents were assassinated. 675,000 Americans died in a single year from a flu pandemic. 30 separate natural disasters killed at least 400 Americans each. 33 recessions lasted a cumulative 48 years. The number of forecasters who predicted any of those recessions rounds to zero. The stock market fell more than 10% from a recent high at least 102 times. Stocks lost a third of their value at least 12 times. Annual inflation exceeded 7% in 20 separate years. The words “economic pessimism” appeared in newspapers at least 29,000 times, according to Google.

The law of supply and demand affects money just as it affects pencils and everything else. If there is very little money the money is very valuable and it will buy a great deal. But if there is a lot of money it is not so valuable and it will buy very little .

According to Cantillon, the beneficiaries from the expansion of the money supply are the first recipients of the new money, who are able to spend it before it has caused prices to rise. Whoever receives it from them is then able to spend it facing a small increase in the price level. As the money is spent more, the price level rises, until the later recipients suffer a reduction in their real purchasing power. This is the best explanation for why inflation hurts the poorest and helps the richest in the modern economy.

One of the worst results of the retention of the Keynesian myths is that it not only promotes greater and greater inflation, but that it systematically diverts attention from the real causes of our unemployment, such as excessive union wage-rates, minimum wage laws, excessive and prolonged unemployment insurance, and overgenerous relief payments.

Almost every Fed chairman in the past 60 years has manipulated interest rates to brighten the economic outlook for incumbent presidents or newly elected presidents who won by large margins. The purchasing power of the U.S. dollar has fallen 94 percent in the past 100 years. The only way you can create inflation is by creating more money that is backed by the same reserve assets; the Fed is the only entity that can create more money. Ben Bernanke’s quantitative easing (QE) programs have pumped billions of unfunded dollars into the economy, thereby setting us up for massive inflation in the very near future. If this isn’t a form of financial terrorism, it is incompetence of the highest order.

What inflation really does is to change the relationships of prices and costs.

Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay.

Inflation itself is a form of taxation.

A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e. of anti-democratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism.

The motivation for taking on debt is to buy assets or claims rising in price. Over the past half-century the aim of financial investment has been less to earn profits on tangible capital investment than to generate “capital” gains (most of which take the form of debt-leveraged land prices, not industrial capital). Annual price gains for property, stocks and bonds far outstrip the reported real estate rents, corporate profits and disposable personal income after paying for essential non-discretionary spending, headed by FIRE [Finance, Insurance, Real Estate]-sector charges.

Inflation via loose monetary policy is in effect a tax, but one that does not have to be legislated and that tends to hurt ordinary people more than elites with real rather than monetary assets.

It is not the poverty of individuals and the community, not indebtedness to foreign nations, not the unfavourableness of the conditions of production, that force up the rate of exchange, but inflation.

Even a relatively mild inflation distorts the structure of production. It leads to the overexpansion of some industries at the expense of others. This involves a misapplication and waste of capital. When the inflation collapses, or is brought to a halt, the misdirected capital investment—whether in the form of machines, factories or office buildings—cannot yield an adequate return and loses the greater part of its value.

In fact, they are not taught in any university departments: the dynamics of debt, and how the pattern of bank lending inflates land prices, or national income accounting and the rising share absorbed by rent extraction in the Finance, Insurance and Real Estate (FIRE) sector. There was only one way to learn how to analyze these topics: to work for banks. Back in the 1960s there was barely a hint that these trends would become a great financial bubble.

When governments, including our own, carry great debt loads, it behooves thoughtful citizens to recall occasionally the disastrous inflations of the past, the illusions of bootstrap economics—which always are accompanied by crowd hysteria.11

The problem with government-provided money is that its hardness depends entirely on the ability of those in charge to not inflate its supply. Only political constraints provide hardness, and there are no physical, economic, or natural constraints

people are becoming aware that government has nothing to give them without first taking it away from somebody else—or from themselves. Increased handouts to selected groups mean merely increased taxes, or increased deficits and increased inflation.

in wartime, economic activity decreases, inflation increases, and real wages and purchasing power begin to fall. Wages at the bottom of the wage scale generally rise, however, and are somewhat more generously protected from inflation than those at the top.

The individualist insists that drastic depressions are the result of credit inflation; (not excessive savings, as the Keynesians would have it) which at all times in history has been caused by direct government action or by government influence. As for aggravated unemployment, the individualist insists that it is exclusively the result of government intervention through inflation, wage rigidities, burdensome taxes, and restrictions on trade and production such as price controls and tariffs. The inflation that comes inevitably with government pump-priming soon catches up with the laborer, wipes away any real increase in his wages, discourages private investment, and sets off a new deflationary spiral which can in turn only be counteracted by more coercive and paternalistic government policies. And so it is that the "long run" is very soon a-coming, and the harmful effects of government intervention are far more durable than those that are sustained by encouraging the unhampered free market to work out its own destiny.

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Democracy thus becomes a mass delusion of people attempting to override the rules of economics by voting themselves a free lunch and being manipulated into violent tantrums against scapegoats whenever the bill for the free lunch arrives via inflation and economic recessions.

The best protection against inflation, according to Buffett, is your own earning power. If you constantly increase your earning power, you’ll be sure to get your share of the economic pie. The next best thing is to own wonderful businesses, especially those that have low capital requirements.

French economist Jacques Reuff coined the phrase “deficit without tears” to describe the new economic reality that the United States inhabited, where it could purchase whatever it wanted from the world and finance it through debt monetized by inflating the currency that the entire world used.

If, redesigning our education system from scratch, it was suggested that we should attempt to teach Swahili to children but carry out those lessons in another foreign tongue, such as Swedish, this would rightly be derided as lunacy. Yet this is not so very far from what we are attempting to do. Take Coyne, for example. He is 14 now. His grasp of English is, at best, tenuous. Despite this, we are trying to teach him to speak French. Equally, his mathematical ability is next to nil; we are trying, in economics lessons, to explain concepts like inflation and money supply to a boy who can’t add..

The history of black workers in the United States illustrates the point. As already noted, from the late nineteenth-century on through the middle of the twentieth century, the labor force participation rate of American blacks was slightly higher than that of American whites. In other words, blacks were just as employable at the wages they received as whites were at their very different wages. The minimum wage law changed that. Before federal minimum wage laws were instituted in the 1930s, the black unemployment rate was slightly lower than the white unemployment rate in 1930. But then followed the Davis-Bacon Act of 1931, the National Industrial Recovery Act of 1933 and the Fair Labor Standards Act of 1938—all of which imposed government-mandated minimum wages, either on a particular sector or more broadly. The National Labor Relations Act of 1935, which promoted unionization, also tended to price black workers out of jobs, in addition to union rules that kept blacks from jobs by barring them from union membership. The National Industrial Recovery Act raised wage rates in the Southern textile industry by 70 percent in just five months and its impact nationwide was estimated to have cost blacks half a million jobs. While this Act was later declared unconstitutional by the Supreme Court, the Fair Labor Standards Act of 1938 was upheld by the High Court and became the major force establishing a national minimum wage. As already noted, the inflation of the 1940s largely nullified the effect of the Fair Labor Standards Act, until it was amended in 1950 to raise minimum wages to a level that would have some actual effect on current wages. By 1954, black unemployment rates were double those of whites and have continued to be at that level or higher. Those particularly hard hit by the resulting unemployment have been black teenage males. Even though 1949—the year before a series of minimum wage escalations began—was a recession year, black teenage male unemployment that year was lower than it was to be at any time during the later boom years of the 1960s. The wide gap between the unemployment rates of black and white teenagers dates from the escalation of the minimum wage and the spread of its coverage in the 1950s. The usual explanations of high unemployment among black teenagers—inexperience, less education, lack of skills, racism—cannot explain their rising unemployment, since all these things were worse during the earlier period when black teenage unemployment was much lower. Taking the more normal year of 1948 as a basis for comparison, black male teenage unemployment then was less than half of what it would be at any time during the decade of the 1960s and less than one-third of what it would be in the 1970s. Unemployment among 16 and 17-year-old black males was no higher than among white males of the same age in 1948. It was only after a series of minimum wage escalations began that black male teenage unemployment not only skyrocketed but became more than double the unemployment rates among white male teenagers. In the early twenty-first century, the unemployment rate for black teenagers exceeded 30 percent. After the American economy turned down in the wake of the housing and financial crises, unemployment among black teenagers reached 40 percent.

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists. Ernest Hemingway War, Political, Both Never think that war, no matter how necessary, nor how justified, is not a crime. Ernest Hemingway War, Justified, Matter Once we have a war there is only one thing to do. It must be won. For defeat brings worse things than any that can ever happen in war. Ernest Hemingway War, Once, Happen The world is a fine place and worth the fighting for and I hate very much to leave it. Ernest Hemingway Hate, Leave, Worth Personal columnists are jackals and no jackal has been known to live on grass once he had learned about meat - no matter who killed the meat for him. Ernest Hemingway Once, Matter, Learned The only thing that could spoil a day was people. People were always the limiters of happiness except for the very few that were as good as spring itself. Ernest Hemingway Happiness, Good, Few But man is not made for defeat. A man can be destroyed but not defeated. Ernest Hemingway Defeat, Defeated, Destroyed You're beautiful, like a May fly. Ernest Hemingway Beauty, Beautiful, Fly His talent was as natural as the pattern that was made by the dust on a butterfly's wings. At one time he understood it no more than the butterfly did and he did not know when it was brushed or marred. Ernest Hemingway Time, Natural, Talent The good parts of a book may be only something a writer is lucky enough to overhear or it may be the wreck of his whole damn life and one is as good as the other.

Where the currency depreciation is a result of government inflation carried out by the issue of notes, it is possible to avert its disastrous effect on economic calculation by conducting all bookkeeping in a stable money instead. But so far as the depreciation is a depreciation of gold, the world money, there is no such easy way out.

the arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leave her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn't seem to notice that 5 percent inflation is the economic equivalent.

From a policy perspective, the Democratic Party faced a dilemma that it could not solve: finding ways to maintain support within the white blue-collar base that came of age during the New Deal and World War II era, while at the same time servicing the pressing demands for racial and gender equity arising from the sixties. Both had to be achieved in the midst of two massive oil shocks, record inflation and unemployment, and a business community retooling to assert greater control over the political process. Placing affirmative action onto a world of declining occupational opportunity risked a zero-sum game: a post-scarcity politics without post-scarcity conditions. Despite the many forms of solidarity evident in the discontent in the factories, mines, and mills, without a shared economic vision to hold things together, issues like busing forced black and white residents to square off in what columnist Jimmy Breslin called “a Battle Royal” between “two groups of people who are poor and doomed and who have been thrown in the ring with each other.”10

The collapse of an inflation policy carried to its extreme -- as in the United States in 1781 and in France in 1796 -- does not destroy the monetary system, but only the credit money or fiat money of the State that has overestimated the effectiveness of its own policy. The collapse emancipates commerce from etatism and establishes metallic money again.

Instead of wasting his time in Frankfurt and Tokyo, the finance minster should focus on Indian housewives and help them balance their budgets by reducing inflation and the fiscal deficit. Unfortunately, our housewives do not have access to the Nashik note printing press like our FM. The solution to India’s problems lie inside, not in wooing FII and FDI inflows.

Our long-postponed day of financial reckoning appears finally to be at hand, and it may well turn out to be something we should not wish away. When ordinary people are brought to understand that the state is unable to ensure their material well-being, children will again be perceived as long term assets: necessary replacements for the Social Security swindle and state-seized or inflation eroded private pension funds rather than obstacles to greater consumption. Amid the collapse of political finance, we may be able to regain a sense of the timeless purpose of labor and wealth. Our children may learn to find the satisfaction in the simple daily fact of family survival that we were unable to find in all our economic overreaching.

Other inflationists realize very well that an increase in the quantity of money reduces the purchasing power of the monetary unit. But they endeavour to secure inflation none-the-less, because of its effect on the value of money; they want depreciation, because they want to favour debtors at the expense of creditors and because they want to encourage exportation and make importation difficult.

Perhaps the creeping effort to restrict civil liberties wouldn’t have brought people into the streets, at least not immediately. But Allende’s economic programs hit them directly. His announced policy of “first consumption, then accumulation” was an economic disaster waiting to happen. In 1971, the inflation rate was 20 percent, kept somewhat in check by the expenditure of the government’s foreign reserves, but in 1972, with the government spending lavishly to support its social and economic policies, it jumped to 78 percent, and in 1973 to an unprecedented 353 percent. No country in the world had a higher rate. Then the attempt to rein in prices through government controls led to shortages of basic consumer goods and the rise of black markets. People were waiting in line to buy toothpaste.

Brown believed that technological superiority was imperative to military dominance, and he also believed that advancing science was the key to economic prosperity. “Harold Brown turned technology leadership into a national strategy,” remarks DARPA historian Richard Van Atta. Despite rising inflation and unemployment, DARPA’s budget was doubled. Microprocessing technologies were making stunning advances. High-speed communication networks and Global Positioning System technologies were accelerating at whirlwind speeds. DARPA’s highly classified, high-risk, high-payoff programs, including stealth, advanced sensors, laser-guided munitions, and drones, were being pursued, in the black. Soon, Assault Breaker technology would be battle ready. From all of this work, entire new industries were forming.

With the growth of market individualism comes a corollary desire to look for collective, democratic responses when major dislocations of financial collapse, unemployment, heightened inequality, runaway inflation, and the like occur. The more such dislocations occur, the more powerful and internalized, Hayek insists, neoliberal ideology must become; it must become embedded in the media, in economic talking heads, in law and the jurisprudence of the courts, in government policy, and in the souls of participants. Neoliberal ideology must become a machine or engine that infuses economic life as well as a camera that provides a snapshot of it. That means, in turn, that the impersonal processes of regulation work best if courts, churches, schools, the media, music, localities, electoral politics, legislatures, monetary authorities, and corporate organizations internalize and publicize these norms.

A third group of inflationists do not deny that inflation involves serious disadvantages. Nevertheless, they think that there are higher and more important aims of economic policy than a sound monetary system. They hold that although inflation may be a great evil, yet it is not the greatest evil, and that the State might under certain circumstances find itself in a position where it would do well to oppose greater evils with the lesser evil of inflation.

the most important instances of “injustice in exchange”—unemployment and inflation/deflation—result from party factions violating the basic principles of economic policy I show that from the Great Depression of 1929-33 to the Great Recession of 2007-9, all major U.S. financial crises can be traced to the dollar's role as chief official reserve currency—suggesting that to avoid similar future misfortunes, it's urgently necessary to end the dollar's “reserve currency curse.

The government monopoly of money leads not just to the suppression of innovation and experiment, not just to inflation and debasement, not just to financial crises, but to inequality too. As Dominic Frisby points out in his book Life After the State, opportunities in finance ripple outwards from the Treasury. The state spends money before it even exists; the privileged banks then get first access to newly minted money and can invest it before assets have increased in cost. By the time it reaches ordinary people, the money is worth less. This outward percolation is known as the Cantillon Effect – after Richard Cantillon, who noticed that the creation of paper money in the South Sea Bubble benefited those closest to the source first. Frisby argues that the process of money creation by an expansionary government effectively redistributes money from the poor to the rich. ‘This is not the free market at work, but a gross, unintended economic distortion caused by the colossal government intervention.’ The

This was the argument put forward during the War when the expenditure on the army and navy had to be met; and this was the argument put forward in Germany and Austria after the War when a part of the population had to be provided with cheap food, the losses on the operation of the railways and other public undertakings met, and reparations payments made. The assistance of inflation is invoked whenever a government is unwilling to increase taxation or unable to raise a loan; that is the truth of the matter.

1 and 2. The United States represents less than 5 percent of the world’s population; it consumes more than 25 percent of the world’s resources. This is accomplished to a large degree through the exploitation of other countries, primarily in the developing world. Point 3. The United States maintains the largest and most sophisticated military in the world. Although this empire has been built primarily through economics—by EHMs—world leaders understand that whenever other measures fail, the military will step in, as it did in Iraq. Point 4. The English language and American culture dominate the world. Points 5 and 6. Although the United States does not tax countries directly, and the dollar has not replaced other currencies in local markets, the corporatocracy does impose a subtle global tax and the dollar is in fact the standard currency for world commerce. This process began at the end of World War II when the gold standard was modified; dollars could no longer be converted by individuals, only by governments. During the 1950s and 1960s, credit purchases were made abroad to finance America’s growing consumerism, the Korean and Vietnam Wars, and Lyndon B. Johnson’s Great Society. When foreign businessmen tried to buy goods and ser vices back from the United States, they found that inflation had reduced the value of their dollars—in effect, they paid an indirect tax. Their governments demanded debt settlements in gold. On August 15, 1971, the Nixon administration refused and dropped the gold standard altogether.   Washington

There also were the widespread failures of prediction that accompanied the recent global financial crisis. Our naïve trust in models, and our failure to realize how fragile they were to our choice of assumptions, yielded disastrous results. On a more routine basis, meanwhile, I discovered that we are unable to predict recessions more than a few months in advance, and not for lack of trying. While there has been considerable progress made in controlling inflation, our economic policy makers are otherwise flying blind.

Lenin is said to have declared that the bestway to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscatearbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.

It should be immediately clear that this could be brought about more directly and honestly by a reduction in unworkable wage rates. But the more sophisticated proponents of inflation believe that this is now politically impossible. Sometimes they go further, and charge that all proposals under any circumstances to reduce particular wage rates directly in order to reduce unemployment are “antilabor.” But what they are themselves proposing, stated in bald terms, is to deceive labor by reducing real wage rates (that is, wage rates in terms of purchasing power) through an increase in prices.

I thought about the core tools we EHMs used in my day: false economics that included distorted financial analyses, inflated projections, and rigged accounting books; secrecy, deception, threats, bribes, and extortion; false promises that we never intended to honor; and enslavement through debt and fear. These same tools are used today. Now, as then, many elements are present in each “hit,” although that likely is evident only to someone willing to delve deeply into the story behind the story. Now, as then, the glue that holds all of this together is the belief that any means are justified to achieve the desired ends. A

... The Banks, as we now all too well know, must be rescued no matter what. 'The value of commodities is thus sacrificed in order to ensure the fantastic and autonomous existence of this value in money. In any event, a money value is only guaranteed as long as money itself is guaranteed.' Inflation, as we also know, must be kept under control at all costs. 'This is why many millions' worth of commodities have to be sacrificed for a few millions in money. This is unavoidable in capitalist production and forms one of its particular charms.' Use values are sacrificed and destroyed no matter what is the social need. How insane is that?

THE BRANCH OF ECONOMICS concerned with issues like inflation, recessions, and financial shocks is known as macroeconomics. When the economy is going well, macroeconomists are lauded as heroes; when it turns sour, as it did recently, they catch a lot of the blame. In either case, the headlines go to the macroeconomists. We hope that after reading this book, you’ll realize there is a whole different breed of economist out there—microeconomists—lurking in the shadows. They seek to understand the choices that individuals make, not just in terms of what they buy but also how often they wash their hands and whether they become terrorists.

He saw that inflation had originated with wartime shortages, which had led, in turn, to the waning value of money. Over time, the inflation had acquired a self-reinforcing momentum. Economic fundamentals alone could not account for this inflation, Hamilton noted, detecting a critical psychological factor at work. People were “governed more by passion and prejudice than by an enlightened sense of their interests,” he wrote. “The quantity of money in circulation is certainly a chief cause of its decline. But we find it is depreciated more than five times as much as it ought to be…. The excess is derived from opinion, a want of confidence.

When the value of money is increased, then those are enriched who at the time possess credit money or claims to credit money. Their enrichment must be paid for by debtors, among them the State (i.e., the tax-payers). Yet those who are enriched by the increase in the value of money are not the same as those who were injured by the depreciation of money in the course of the inflation; and those who must bear the cost of the policy of raising the value of money are not the same as those who benefited by its depreciation. To carry out a deflationary policy is not to do away with the consequences of inflation. You cannot make good an old breach of the law by committing a new one.

In Economics as almost everywhere else, with all our cleverness, we have become decidedly less wise, while knowing more and more about less and less. We have lost the sense of proportion--so indispensable for every economist--while analysing the curiosities of hypothetical economic situations and forgetting what has a bearing on real economic life. In spinning out the fine threads of the New Economics, we forget the most elementary principles of economics, and while stressing what might at best in highly exceptional circumstances we overlook what are almost perennial truths. While proudly parading our elaborate equations we unlearnt that simple common sense which consists in reckoning with human reactions and institutions as they really are.

Hitler remains undeniably the creation of his time, a creature of German imagination rather than, strictly speaking, of social and economic forces. He was never regarded in the first instance as the prospective agent of social and economic recovery—that was a post facto interpretation—but rather as a symbol of revolt and counteraffirmation by the dispossessed, the frustrated, the humiliated, the unemployed, the resentful, the angry. Hitler stood for protest. He was a mental construct in the midst of defeat and failure, of inflation and depression, of domestic political chaos and international humiliation. ... The ultimate kitsch artist, he filled the abyss with symbols of beauty. The victim he turned into the hero, hell into heaven, death into transfiguration.

Michael Ward knows. Ward loves railroads. His loves his own railroad company, CSX, which traces its origins to 1827 when the Baltimore & Ohio Railroad was formed as the nation’s first common carrier. He traces his own origins at CSX back thirty-seven years, when he took an analyst job as a newly minted Harvard Business School M.B.A., rising to become chairman, president, and CEO in 2003. And he loves the whole American freight rail industry. “Railroaders are like farmers,” Ward declares. “You heard about the farmer that won the lottery? They said to him, ‘Oh my gosh, you won the lottery; what are you going to do with all that money?’ He said, ‘I’m a farmer and I love farming, and I’m going to farm until every penny of it is gone.’ And I say railroaders are like that. When we make more money, we’re going to invest more back into the infrastructure, so we can strengthen the railroad and grow the business.” Ward may sound like a press release, but that’s exactly how he talks, and why he’s a major industry spokesman. He lavishes praise on industry performance: “While we’ve improved the profitability of the industry, we’ve also cut rates in half of what they were in 1980 for our customers, on an inflation-adjusted basis. We’re providing a more economical product to them, and it’s safer and more reliable. Over the years, as an industry, our train accident rate is down 80 percent; our personal injury rate is down 85 percent; and we’re doing this with about one-third of the workforce we had in 1980.” He calls the industry “the envy of the world.

But Mills also pointed to the common phenomenon known as the “winner’s curse,” in which two companies bid competitively to acquire a third, until the price climbs so high that it becomes less an economic activity than a war of egos. The winning bidders will be damned if they’ll let their opponents get the prize, so they buy the target company at an inflated price. “It tends to be the assertive people who carry the day in these kinds of things,” says Mills. “You see this all the time. People ask, ‘How did this happen, how did we pay so much?’ Usually it’s said that they were carried away by the situation, but that’s not right. Usually they’re carried away by people who are assertive and domineering. The risk with our students is that they’re very good at getting their way. But that doesn’t mean they’re going the right way.

But it must be observed that as the depreciation of money proceeds, the demand for money (i.e. for the kind of money in question) gradually begins to fall. When loss of wealth is suffered in proportion to the length of time money is kept on hand, endeavours are made to reduce cash holdings as much as possible. N ow if every individual, even if his circumstances are otherwise unchanged, no longer wishes to maintain his cash holding at the same level as before the beginning of the inflation, the demand for money in the whole community, which can only be the sum of the individuals' demands, decreases too. There is also the additional fact that as commerce gradually-begins to use foreign money and actual gold in place of notes, individuals begin to hold part of their reserves in foreign money and in gold and no longer in notes.

It is not easy to see relationships always in terms of real goods and real welfare. Who among us does not feel richer and prouder when he is told that our national income has doubled (in terms of dollars, of course) compared with some preinflationary period? Even the clerk who used to get $75 a week and now gets $120 thinks that he must be in some way better off, though it costs him twice as much to live as it did when he was getting $75. He is of course not blind to the rise in the cost of living. But neither is he as fully aware of his real position as he would have been if his cost of living had not changed and if his money salary had been reduced to give him the same reduced purchasing power that he now has, in spite of his salary increase, because of higher prices. Inflation is the autosuggestion, the hypnotism, the anesthetic, that has dulled the pain of the operation for him. Inflation is the opium of the people.

The point is that price stability is only one of the indicators of economic stability. In fact, for most people, it is not even the most important indicator. The most destabilizing events in most people’s lives are things like losing a job (or having it radically redefined) or having their houses repossessed in a financial crisis, and not rising prices, unless they are of a hyperinflationary magnitude (hand on heart, can you really tell the difference between a 4 per cent inflation and a 2 per cent one?). This is why taming inflation has not quite brought to most people the sense of stability that the anti-inflationary warriors had said it would. Now, the coexistence of price stability (that is, low inflation) and the increase in non-price forms of economic instability, such as more frequent banking crises and greater job insecurity, is not a coincidence. All of them are the results of the same free-market policy package.

It has often been claimed that there has been very little change in the average real income of American households over a period of decades. It is an undisputed fact that the average real income—that is, money income adjusted for inflation—of American households rose by only 6 percent over the entire period from 1969 to 1996. That might well be considered to qualify as stagnation. But it is an equally undisputed fact that the average real income per person in the United States rose by 51 percent over that very same period.3 How can both these statistics be true? Because the average number of individuals per household has been declining over the years. Half the households in the United States contained six or more people in 1900, as did 21 percent in 1950. But, by 1998, only ten percent of American households had that many people.4 The average number of persons per household not only varies over time, it also varies from one racial or ethnic group to another at a given time, and varies from one income bracket to another. As of 2007, for example, black household income was lower than Hispanic household income, even though black per capita income was higher than Hispanic per capita income, because black households average fewer people than Hispanic households. Similarly, Asian American household income was higher than white household income, even though white per capita income was higher than Asian American per capita income, because Asian American households average more people.5 Income comparisons using household statistics are far less reliable indicators of standards of living than are individual income data because households vary in size while an individual always means one person. Studies of what people actually consume—that is, their standard of living—show substantial increases over the years, even among the poor,6 which is more in keeping with a 51 percent increase in real per capita income than with a 6 percent increase in real household income. But household income statistics present golden opportunities for fallacies to flourish, and those opportunities have been seized by many in the media, in politics, and in academia.

Consider, in this connection, the case of the ardent socialist. He finds that there is very much wrong with our world, and we all probably agree with him. His enthusiastic conclusion will be that "Capitalism" must be replaced by "Socialism." But it is safe to say that, in most cases, the socialist will find it very hard to define the one as well as the other. The idea uppermost in his mind will be that now there is "anarchy" and "jungle" and that afterwards there will be order, justice, and planning. His opponent, defending not "Capitalism" but the market economy, will explain that both theory and ample experience prove that socialism is most likely to be a bitter disappointment. All the time it is quite probable that they will talk at cross purposes because the socialist has in mind quite different problems to be solved whereas his opponent never meant the market economy to be the answer to all these problems but only to one of them, i.e., our special problem of economic order. He will say with Shaw that "no sane person refuses to wear spectacles because they do not cure a tooth-ache.

But there are nevertheless three conclusions that seem to follow from our critical examination of the possibilities of inflationary policy. In the first place, all the aims of inflationism can be secured by other sorts of intervention in economic affairs, and secured better, and without undesirable incidental effects. If it is desired to relieve debtors, moratoria may be declared or the obligation to repay loans may be removed altogether; if it is desired to encourage exportation, export premiums may be granted; if it is desired to render importation more difficult, simple prohibition may be resorted to, or import duties levied. All these measures permit discrimination between classes of people, branches of production, and districts, and this is impossible for an inflationary policy. Inflation benefits all debtors, including the rich, and injures all creditors, including the poor; adjustment of the burden of debts by special legislation allows of differentiation. Inflation encourages the exportation of all commodities and hinders all importation; premiums, duties, and prohibitions can be employed discriminatorily.

Consistently and uninterruptedly continued inflation must eventually lead to collapse. The purchasing power of money will fall lower and lower, until it eventually disappears altogether. It is true that an endless process of depredation can be imagined. We can imagine the purchasing power of money getting continually lower without ever disappearing altogether, and prices getting continually higher without it ever becoming impossible to obtain commodities in exchange for notes. Eventually this would lead to a situation in which even retail transactions were in terms of millions and billions and even higher figures; bu t the monetary system itself would remain. But such an imaginary state of affairs is hardly within the bounds of possibility. In the long run, a money which continually fell in value would have no commercial utility. It could not be used as a standard of deferred payments. For all transactions in which commodities or services were not exchanged for cash, another medium would have to be sought. In fact, a money that is continually depreciating becomes useless even for cash transactions. Everybody attempts to minimize his cash reserves, which are a source of continual loss.

Piketty and some colleagues would later publish a paper containing a startling fact about 2014, the year of Cohen’s graduation and debut as a self-supporting earner. The study showed that a college graduate like Cohen, on the safe assumption that she ended up in the top 10 percent of earners, would be making more than twice as much before taxes as a similarly situated person in 1980. If Cohen entered the top 1 percent of earners, her income would be more than triple what a 1 percenter earned in her parents’ day—an average of $1.3 million a year for that elite group versus $428,000 in 1980, adjusted for inflation. On the narrow chance that she entered the top 0.001 percent, her income would be more than seven times higher than in 1980, with a cohort average of $122 million. The study included the striking fact that the bottom half of Americans had over this same span seen their average pretax income rise from $16,000 to $16,200. One hundred seventeen million people had, in other words, been “completely shut off from economic growth since the 1970s,” Piketty, Emmanuel Saez, and Gabriel Zucman wrote. A generation’s worth of mind-bending innovation had delivered scant progress for half of Americans.

Jacques Ellul has a word for this instrumentalizing attitude: technique. His analysis helps us to appreciate just how deep and wide the n-shaped dynamic runs in our society. He defines technique as “the totality of methods rationally arrived at and having absolute efficiency in every field of human activity.”14 It is “never anything but a collection of means and the search for the most efficient means” in any given situation,15 with its origin in Cain’s city-building and Lamech’s polygamy.16 Up until the eighteenth century, Ellul argues, technique was largely absent from all areas of society apart from the mechanical, but in the industrial revolution, technical progress suddenly exploded and began to reconfigure every area of life, from industrial production through politics to the family. The result is that today technique is not a thing out there in the world; it is how we do everything we do in the world: “The Third World, Europe, militarization, etc., are all political matters. Inflation, exchange rates, standards of living, and growth are all economic matters. Yet technique has a part in all of them. It is like a key, like a substance underlying all problems and situations. It is ultimately the decisive factor.

A few years ago my friend Jon Brooks supplied this great illustration of skewed interpretation at work. Here’s how investors react to events when they’re feeling good about life (which usually means the market has been rising): Strong data: economy strengthening—stocks rally Weak data: Fed likely to ease—stocks rally Data as expected: low volatility—stocks rally Banks make $4 billion: business conditions favorable—stocks rally Banks lose $4 billion: bad news out of the way—stocks rally Oil spikes: growing global economy contributing to demand—stocks rally Oil drops: more purchasing power for the consumer—stocks rally Dollar plunges: great for exporters—stocks rally Dollar strengthens: great for companies that buy from abroad—stocks rally Inflation spikes: will cause assets to appreciate—stocks rally Inflation drops: improves quality of earnings—stocks rally Of course, the same behavior also applies in the opposite direction. When psychology is negative and markets have been falling for a while, everything is capable of being interpreted negatively. Strong economic data is seen as likely to make the Fed withdraw stimulus by raising interest rates, and weak data is taken to mean companies will have trouble meeting earnings forecasts. In other words, it’s not the data or events; it’s the interpretation. And that fluctuates with swings in psychology.

In the field of education, it seems ‘normal’ to run stories about class sizes, teachers’ pay, the country’s performance in international league tables and the right balance between the roles of the private and state sectors. But we would risk seeming distinctly odd, even demented, if we asked whether the curriculum actually made sense; whether it really equipped students with the emotional and psychological resources that are central to the pursuit of good lives. When it comes to housing, the news urges us to worry about how to get construction companies working, how to make purchasing a home easier for first-time buyers and how to balance the claims of nature against those of jobs and businesses. But it doesn’t tend to find time to ask primordial, eccentric-sounding questions like: ‘Why are our cities so ugly?’ In discussions of economics, our energy is channelled towards pondering what the right level of taxation should be and how best to combat inflation. But we are discouraged by mainstream news from posing the more peculiar, outlying questions about the ends of labour, the nature of justice and the proper role of markets. News stories tend to frame issues in such a way as to reduce our will or even capacity to imagine them in profoundly other ways. Through its intimidating power, news numbs. Without anyone particularly rooting for this outcome, more tentative but potentially important private thoughts get crushed.

Points 1 and 2. The United States represents less than 5 percent of the world’s population; it consumes more than 25 percent of the world’s resources. This is accomplished to a large degree through the exploitation of other countries, primarily in the developing world. Point 3. The United States maintains the largest and most sophisticated military in the world. Although this empire has been built primarily through economics—by EHMs—world leaders understand that whenever other measures fail, the military will step in, as it did in Iraq. Point 4. The English language and American culture dominate the world. Points 5 and 6. Although the United States does not tax countries directly, and the dollar has not replaced other currencies in local markets, the corporatocracy does impose a subtle global tax and the dollar is in fact the standard currency for world commerce. This process began at the end of World War II when the gold standard was modified; dollars could no longer be converted by individuals, only by governments. During the 1950s and 1960s, credit purchases were made abroad to finance America’s growing consumerism, the Korean and Vietnam Wars, and Lyndon B. Johnson’s Great Society. When foreign businessmen tried to buy goods and ser vices back from the United States, they found that inflation had reduced the value of their dollars—in effect, they paid an indirect tax. Their governments demanded debt settlements in gold.

There is an excellent short book (126 pages) by Faustino Ballvè, Essentials of Economics (Irvington-on-Hudson, N.Y.: Foundation for Economic Education), which briefly summarizes principles and policies. A book that does that at somewhat greater length (327 pages) is Understanding the Dollar Crisis by Percy L. Greaves (Belmont, Mass.: Western Islands, 1973). Bettina Bien Greaves has assembled two volumes of readings on Free Market Economics (Foundation for Economic Education). The reader who aims at a thorough understanding, and feels prepared for it, should next read Human Action by Ludwig von Mises (Chicago: Contemporary Books, 1949, 1966, 907 pages). This book extended the logical unity and precision of economics beyond that of any previous work. A two-volume work written thirteen years after Human Action by a student of Mises is Murray N. Rothbard’s Man, Economy, and State (Mission, Kan.: Sheed, Andrews and McMeel, 1962, 987 pages). This contains much original and penetrating material; its exposition is admirably lucid; and its arrangement makes it in some respects more suitable for textbook use than Mises’ great work. Short books that discuss special economic subjects in a simple way are Planning for Freedom by Ludwig von Mises (South Holland, 111.: Libertarian Press, 1952), and Capitalism and Freedom by Milton Friedman (Chicago: University of Chicago Press, 1962). There is an excellent pamphlet by Murray N. Rothbard, What Has Government Done to Our Money? (Santa Ana, Calif.: Rampart College, 1964, 1974, 62 pages). On the urgent subject of inflation, a book by the present author has recently been published, The Inflation Crisis, and How to Resolve It (New Rochelle, N.Y.: Arlington House, 1978). Among recent works which discuss current ideologies and developments from a point of view similar to that of this volume are the present author’s The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies (Arlington House, 1959); F. A. Hayek, The Road to Serfdom (1945) and the same author’s monumental Constitution of Liberty (Chicago: University of Chicago Press, 1960). Ludwig von Mises’ Socialism: An Economic and Sociological Analysis (London: Jonathan Cape, 1936, 1969) is the most thorough and devastating critique of collectivistic doctrines ever written. The reader should not overlook, of course, Frederic Bastiat’s Economic Sophisms (ca. 1844), and particularly his essay on “What Is Seen and What Is Not Seen.” Those who are interested in working through the economic classics might find it most profitable to do this in the reverse of their historical order. Presented in this order, the chief works to be consulted, with the dates of their first editions, are: Philip Wicksteed, The Common Sense of Political Economy, 1911; John Bates Clark, The Distribution of Wealth, 1899; Eugen von Böhm-Bawerk, The Positive Theory of Capital, 1888; Karl Menger, Principles of Economics, 1871; W. Stanley Jevons, The Theory of Political Economy, 1871; John Stuart Mill, Principles of Political Economy, 1848; David Ricardo, Principles of Political Economy and Taxation, 1817; and Adam Smith, The Wealth of Nations, 1776.

A confidential report delivered in June 1965 by Abel Aganbegyan, director of the Novobirsk Institute of Economics, highlighted the difficulties. Aganbegyan noted that the growth rate of the Soviet economy was beginning to decline, just as the rival US economy seemed particularly buoyant; at the same time, some sectors of the Soviet economy - housing, agriculture, services, retail trade - remained very backward, and were failing to develop at an adequate rate. The root causes of this poor performance he saw in the enormous commitment of resources to defense (in human terms, 30-40 million people out of a working population of 100 million, he reckoned), and the 'extreme centralism and lack of democracy in economic matters' which had survived from the past. In a complex modern society, he argued, not everything could be planned, since it was impossible to foresee all possible contingencies and their potential effects. So the plan amounted to central command, and even that could not be properly implemented for lack of information and of modern data-processing equipment. 'The Central Statistical Administration ... does not have a single computer, and is not planning to acquire any,' he commented acidly. Economic administration was also impeded by excessive secrecy: 'We obtain many figures... from American journals sooner than they are released by the Central Statistical Administration.' Hence the economy suffered from inbuilt distortions: the hoarding of goods and labour to provide for unforeseen contingencies, the production of shoddy goods to fulfill planning targets expressed in crude quantitative terms, the accumulation of unused money by a public reluctant to buy substandard products, with resultant inflation and a flourishing black market.

Economics today creates appetites instead of solutions. The western world swells with obesity while others starve. The rich wander about like gods in their own nightmares. Or go skiing in the desert. You don’t even have to be particularly rich to do that. Those who once were starving now have access to chips, Coca-Cola, trans fats and refined sugars, but they are still disenfranchized. It is said that when Mahatma Gandhi was asked what he thought about western civilization, he answered that yes, it would be a good idea. The bank man’s bonuses and the oligarch’s billions are natural phenomena. Someone has to pull away from the masses – or else we’ll all become poorer. After the crash Icelandic banks lost 100 billion dollars. The country’s GDP had only ever amounted to thirteen billion dollars in total. An island with chronic inflation, a small currency and no natural resources to speak of: fish and warm water. Its economy was a third of Luxembourg’s. Well, they should be grateful they were allowed to take part in the financial party. Just like ugly girls should be grateful. Enjoy, swallow and don’t complain when it’s over. Economists can pull the same explanations from their hats every time. Dream worlds of total social exclusion and endless consumerism grow where they can be left in peace, at a safe distance from the poverty and environmental destruction they spread around themselves. Alternative universes for privileged human life forms. The stock market rises and the stock market falls. Countries devalue and currencies ripple. The market’s movements are monitored minute by minute. Some people always walk in threadbare shoes. And you arrange your preferences to avoid meeting them. It’s no longer possible to see further into the future than one desire at a time. History has ended and individual freedom has taken over. There is no alternative.

KEYNESIAN ECONOMICS AND STIMULUS Keynesian economics is based on the notion that unemployment arises when total or aggregate demand in an economy falls short of the economy’s ability to supply goods and services. When products go unsold, jobs are lost. Aggregate demand, in turn, comes from two sources: the private sector (which is the majority) and the government. At times, aggregate demand is too buoyant—goods fly off the shelves and labor is in great demand—and we get rising inflation. At other times, aggregate demand is inadequate—goods are hard to sell and jobs are hard to find. In those cases, Keynes argued in the 1930s, governments can boost employment by cutting interest rates (what we now call looser monetary policy), raising their own spending, or cutting people’s taxes (what we now call looser fiscal policy). By the same logic, when there is too much demand, governments can fight actual or incipient inflation by raising interest rates (tightening monetary policy), increasing taxes, or reducing its own spending (thus tightening fiscal policy). That’s part of standard Keynesian economics, too, although Keynes, writing during the Great Depression, did not emphasize it. Setting aside the underlying theory, the central Keynesian policy idea is that the government can—and, Keynes argued, should—act as a kind of balance wheel, stimulating aggregate demand when it’s too weak and restraining aggregate demand when it’s too strong. For decades, American economists took for granted that most of that job should and would be done by monetary policy. Fiscal policy, they thought, was too slow, too cumbersome, and too political. And in the months after the Lehman Brothers failure, the Federal Reserve did, indeed, pull out all the stops—while fiscal policy did nothing. But what happens when, as was more or less the case by December 2008, the central bank has done almost everything it can, and yet the economy is still sinking? That’s why eyes started turning toward Congress and the president—that is, toward fiscal stimulus—after the 2008 election.

Inflation is not caused by increasing the fiduciary circulation. It begins on the day when the purchaser is obliged to pay, for the same goods, a higher sum than that asked the day before. At that point, one must intervene. Even to Schacht, I had to begin by explaining this elementary truth: that the essential cause of the stability of our currency was to be sought for in our concentration camps. The currency remains stable when the speculators are put under lock and key. I also had to make Schacht understand that excess profits must be removed from economic circulation. I do not entertain the illusion that I can pay for everything out of my available funds. Simply, I've read a lot, and I've known how to profit by the experience of events in the past. Frederick the Great, already, had gradually withdrawn his devaluated thalers from circulation, and had thus re established the value of his currency. All these things are simple and natural. The only thing is, one mustn't let the Jew stick his nose in. The basis of Jewish commercial policy is to make matters incomprehensible for a normal brain. People go into ecstasies of confidence before the science of the great economists. Anyone who doesn't understand is taxed with ignorance! At bottom, the only object of all these notions is to throw everything into confusion. The very simple ideas that happen to be mine have nowadays penetrated into the flesh and blood of millions. Only the professors don't understand that the value of money depends on the goods behind that money. One day I received some workers in the great hall at Obersalzberg, to give them an informal lecture on money. The good chaps understood me very well, and rewarded me with a storm of applause. To give people money is solely a problem of making paper. The whole question is to know whether the workers are producing goods to match the paper that's made. If work does not increase, so that production remains at the same level, the extra money they get won't enable them to buy more things than they bought before with less money. Obviously, that theory couldn't have provided the material for a learned dissertation. For a distinguished economist, the thing is, no matter what you're talking about, to pour out ideas in complicated meanderings and to use terms of Sibylline incomprehensibility.

...the centrality of competitiveness as the key to growth is a recurrent EU motif. Two decades of EC directives on increasing competition in every area, from telecommunications to power generation to collateralizing wholesale funding markets for banks, all bear the same ordoliberal imprint. Similarly, the consistent focus on the periphery states’ loss of competitiveness and the need for deep wage and cost reductions therein, while the role of surplus countries in generating the crisis is utterly ignored, speaks to a deeply ordoliberal understanding of economic management. Savers, after all, cannot be sinners. Similarly, the most recent German innovation of a constitutional debt brake (Schuldenbremse) for all EU countries regardless of their business cycles or structural positions, coupled with a new rules-based fiscal treaty as the solution to the crisis, is simply an ever-tighter ordo by another name. If states have broken the rules, the only possible policy is a diet of strict austerity to bring them back into conformity with the rules, plus automatic sanctions for those who cannot stay within the rules. There are no fallacies of composition, only good and bad policies. And since states, from an ordoliberal viewpoint, cannot be relied upon to provide the necessary austerity because they are prone to capture, we must have rules and an independent monetary authority to ensure that states conform to the ordo imperative; hence, the ECB. Then, and only then, will growth return. In the case of Greece and Italy in 2011, if that meant deposing a few democratically elected governments, then so be it. The most remarkable thing about this ordoliberalization of Europe is how it replicates the same error often attributed to the Anglo-American economies: the insistence that all developing states follow their liberal instruction sheets to get rich, the so-called Washington Consensus approach to development that we shall discuss shortly. The basic objection made by late-developing states, such as the countries of East Asia, to the Washington Consensus/Anglo-American idea “liberalize and then growth follows” was twofold. First, this understanding mistakes the outcomes of growth, stable public finances, low inflation, cost competitiveness, and so on, for the causes of growth. Second, the liberal path to growth only makes sense if you are an early developer, since you have no competitors—pace the United Kingdom in the eighteenth century and the United States in the nineteenth century. Yet in the contemporary world, development is almost always state led.

Many models are constructed to account for regularly observed phenomena. By design, their direct implications are consistent with reality. But others are built up from first principles, using the profession’s preferred building blocks. They may be mathematically elegant and match up well with the prevailing modeling conventions of the day. However, this does not make them necessarily more useful, especially when their conclusions have a tenuous relationship with reality. Macroeconomists have been particularly prone to this problem. In recent decades they have put considerable effort into developing macro models that require sophisticated mathematical tools, populated by fully rational, infinitely lived individuals solving complicated dynamic optimization problems under uncertainty. These are models that are “microfounded,” in the profession’s parlance: The macro-level implications are derived from the behavior of individuals, rather than simply postulated. This is a good thing, in principle. For example, aggregate saving behavior derives from the optimization problem in which a representative consumer maximizes his consumption while adhering to a lifetime (intertemporal) budget constraint.† Keynesian models, by contrast, take a shortcut, assuming a fixed relationship between saving and national income. However, these models shed limited light on the classical questions of macroeconomics: Why are there economic booms and recessions? What generates unemployment? What roles can fiscal and monetary policy play in stabilizing the economy? In trying to render their models tractable, economists neglected many important aspects of the real world. In particular, they assumed away imperfections and frictions in markets for labor, capital, and goods. The ups and downs of the economy were ascribed to exogenous and vague “shocks” to technology and consumer preferences. The unemployed weren’t looking for jobs they couldn’t find; they represented a worker’s optimal trade-off between leisure and labor. Perhaps unsurprisingly, these models were poor forecasters of major macroeconomic variables such as inflation and growth.8 As long as the economy hummed along at a steady clip and unemployment was low, these shortcomings were not particularly evident. But their failures become more apparent and costly in the aftermath of the financial crisis of 2008–9. These newfangled models simply could not explain the magnitude and duration of the recession that followed. They needed, at the very least, to incorporate more realism about financial-market imperfections. Traditional Keynesian models, despite their lack of microfoundations, could explain how economies can get stuck with high unemployment and seemed more relevant than ever. Yet the advocates of the new models were reluctant to give up on them—not because these models did a better job of tracking reality, but because they were what models were supposed to look like. Their modeling strategy trumped the realism of conclusions. Economists’ attachment to particular modeling conventions—rational, forward-looking individuals, well-functioning markets, and so on—often leads them to overlook obvious conflicts with the world around them.

In January 1971 he startled the newsman Howard K. Smith by telling him, "I am now a Keynesian in economics," and in August he jolted the nation by announcing a New Economic Policy. This entailed fighting inflation by imposing a ninety-day freeze on wages and prices. Nixon also sought to lower the cost of American exports by ending the convertibility of dollars into gold, thereby allowing the dollar to float in world markets. This action transformed with dramatic suddenness an international monetary system of fixed exchange rates that had been established, with the dollar as the reserve currency, in 1946.

the Department of Energy was created, oil cost $14.40 a barrel. It now regularly exceeds $100 a barrel. Even adjusted for inflation, oil is more than twice as expensive today as it was before we had a U.S. Department of Energy. While basic economics may suggest that the rise in the price of oil is

Labor is sacrificed on the inflation rates altar of oblation.

At the G-20 meeting in Paris in 2011, finance ministers expressed fears that U.S.-driven global inflation was threatening global stability. George Melloan was among those who made the connection between this unrest and QE. He acknowledged in the Wall Street Journal: “Probably few of the protesters in the streets connect their economic travail to Washington. But central bankers do.” To appreciate the depth of political upheaval created by the 2008 financial crisis, just tally the power shifts that occurred in its wake. In addition to the turmoil in the Middle East, 13 out of 17 European governments changed over as a result of the initial financial crisis. In the United States, the stock market panic in September 2008 reversed the slight lead of John McCain and helped sweep the far-left Barack Obama into office.

Although there are many differences between America and post–World War I Germany, history has some economic lessons to teach us. Remember that after World War I, Germany was saddled with huge debts the nation chose to pay through the printing of money, and more money. Not everyone was hurt as a result of this strategy; businesses with huge debts paid them off with essentially worthless pieces of paper. The result, of course, was rapid inflation until the mark became worthless, and many people’s savings were wiped out. The resulting economic collapse paved the way for a strong leader who promised to end the madness, and thus Hitler rose to power.

The Fed is still on the same track.” Whatever you call it, the benign economic environment has supported a bull market since 2009, and though there were a few rocky days last week, the main market ingredients seemed to remain in place. For example, on Wednesday a government report on gross domestic product in the second quarter showed that the economy was growing smartly, even rapidly, at a 4 percent annualized rate; yet the Federal Reserve declared that inflation was low enough to allow the slowly moderating pace of its expansive monetary policy to remain on track. In a statement on Wednesday, the Federal Open Market Committee said the central bank would continue to ratchet down its bond purchases as planned, yet it also said its policies would “maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.” The Fed already holds more than $4 trillion in bonds, up from less than $1 billion when the financial crisis started, and it’s still buying more.

is an important aspect of your financial health. If you are financially healthy, it would imply that you are capable of spending a good amount of money in spite of economic recession, inflation, redundancy, and other challenges that affect you financially. Financial health covers income, expenditures, savings, and debts. These four, especially debts,

Things change, not only in one’s life but also in the economy and on the political scene, and it pays to be aware. Is the foundation of your financial house secure, with an income that is guaranteed? Have you built solid walls, investing appropriately, and keeping inflation at bay? Are you living under a reliable roof, with assets positioned to grow? Is your house insulated and sturdy, safe from any economic storm?

In such processes the economic system's reactions to a movement of the economy amplify the movement--inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises

Ray then revealed the most simple and important distinction of all. There are only four things that move the price of assets: 1. inflation, 2. deflation, 3. rising economic growth, and 4. declining economic growth.

But the coercive power of competition forces capitalists, as individual economic agents, to abuse that system and so undermine the social power of money itself: the currency may be debased, chronic inflation occurs, monetary crises are created, etc. It turns out that their use of money as a medium of circulation through the agency of the credit system undermines the utility of money as a measure and store of value.

the economic pain gripping the United States will not actually be the fault of immigrants — or China, Muslims, environmentalists, or even terrorists. Nor is the essential problem Big Government: As we have seen, the desperate effort to inflate government spending and power is more of an effect than a cause of the nation’s predicament.

Among ideas, legitimacy, and all of the other dimensions of development Ideas concerning legitimacy develop according to their own logic, but they are also shaped by economic, political, and social development. The history of the twentieth century would have looked quite different without the writings of an obscure scribbler in the British Library, Karl Marx, who systematized a critique of early capitalism. Similarly, communism collapsed in 1989 largely because few people any longer believed in the foundational ideas of Marxism-Leninism. Conversely, developments in economics and politics affect the kinds of ideas that people regard as legitimate. The Rights of Man seemed more plausible to French people because of the changes that had taken place in France’s class structure and the rising expectations of the new middle classes in the later eighteenth century. The spectacular financial crises and economic setbacks of 1929–1931 undermined the legitimacy of certain capitalist institutions and led the way to the legitimization of greater state control over the economy. The subsequent growth of large welfare states, and the economic stagnation and inflation that they appeared to encourage, laid the groundwork for the conservative Reagan-Thatcher revolutions of the 1980s. Similarly, the failure of socialism to deliver on its promises of modernization and equality led to its being discredited in the minds of many who lived under communism. Economic growth can also create legitimacy for the governments that succeed in fostering it. Many fast-developing countries in East Asia, such as Singapore and Malaysia, have maintained popular support despite their lack of liberal democracy for this reason. Conversely, the reversal of economic growth through economic crisis or mismanagement can be destabilizing, as it was for the dictatorship in Indonesia after the financial crisis of 1997–1998.33 Legitimacy also rests on the distribution of the benefits of growth. Growth that goes to a small oligarchy at the top of the society without being broadly shared often mobilizes social groups against the political system. This is what happened in Mexico under the dictatorship of Porfirio Díaz, who ruled the country from 1876 to 1880 and again from 1884 to 1911. National income grew rapidly in this period, but property rights existed only for a wealthy elite, which set the stage for the Mexican Revolution of 1911 and a long period of civil war and instability as underprivileged groups fought for their share of national income. In more recent times, the legitimacy of democratic systems in Venezuela and Bolivia has been challenged by populist leaders whose political base is poor and otherwise marginalized groups.34

as inflation has fallen, so bonds have rallied in what has been one of the great bond bull markets of modern history. Even more remarkably, despite the spectacular Argentine default - not to mention Russia’s in 1998 - the spreads on emerging market bonds have trended steadily downwards, reaching lows in early 2007 that had not been seen since before the First World War, implying an almost unshakeable confidence in the economic future.