Ron Paul Blames the Fed

Ron Paul laid out his critique of the Fed today in the Wall Street Journal. He's absolutely right on some points:

The debt is now so large that if the central bank begins to move away from its zero interest-rate policy, the rise in interest rates will result in the U.S. government having to pay hundreds of billions of dollars in additional interest on the national debt each year. Thus there is significant political pressure being placed on the Fed to keep interest rates low. The Fed has painted itself so far into a corner now that even if it wanted to raise interest rates, as a practical matter it might not be able to do so. But it will do something, we know, because the pressure to "just do something" often outweighs all other considerations.

However, his argument rest on an odd premise:

The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank's creation in 1913.

But what about every single boom and bust before 1913? The U.S. tried various monetary arrangements, including decentralized money (state-issued), silver-backed currency, gold-backed currency, having a National Bank, not having a National Bank... and they all gave more or less the same result. It's true that the Fed hasn't fixed all our problems, as Christina Romer showed. But when Paul advocates returning to the Gold Standard, he seems to claim that the Golden Age will have no recessions and no booms. That's absurd.

It's surprising to economists that the Fed is capable of controlling market interest rates with a tiny lever; but it does so. That tells us that the fundamentals underlying interest rate determination in a free market are weak. If free-market interest rates were solid, steady, and grounded, then a little overnight lending rate would barely be able to budge them. Thus, I look at financial markets and conclude that interest rates would in all likelihood be volatile and unpredictable in a free market, leading to malinvestment, booms, and busts in much the way that Paul describes.

Gold is not the answer.

Don't Text While Driving (now with data)

How can we measure the impact of texting while driving on safety? Turn off the texting service! Blackberry's 3-day disruption this week wreaked havoc on the incomes of ambulance-chasers and auto-body shops in the United Arab Emirates. Reports the National:

A dramatic fall in traffic accidents this week has been directly linked to the three-day disruption in BlackBerry services.

In Dubai, traffic accidents fell 20 per cent from average rates on the days BlackBerry users were unable to use its messaging service. In Abu Dhabi, the number of accidents this week fell 40 per cent and there were no fatal accidents.

Gen Tamim said police found "a significant drop in accidents by young drivers and men on those three days". He said young people were the largest user group of the Messenger service.

Any Emirati readers know how large a market share Blackberry has? If this was the gain from a single service going down, it's not hard to imagine that phone calls and texts of all varieties account for half of the accidents in a hyper-connected place like the Emirates.

Hat tips to Andrew Davis & Tyler Cowen.

Occupy Boston

On my way home from exploiting the workers of the world (I bought cheap produce at Haymarket), I ran into the Occupy Boston parade. It was led by a pickup truck with a sound system, which must have been paid for by a labor union because the man with the microphone made "UNION.. UNION" one of his staple chants, even though the crowd behind him showed very little interest in that particular interest group. They were, evidently, not only the 99%, but also part of the 87.6%.

Most of the protesters seemed reasonable: they chanted things like "this is what democracy looks like!", which would be more audacious if the police were oppressing them instead of stopping traffic and closing off public streets for them. A large plurality wanted to end the war, but their signs were subdued. We've come a long way from angry demands for peace or "NO BLOOD FOR OIL" signs dripping with red ink. The tone of the anti-war signs today was "It's about time we brought the troops home".

The Federal Reserve system took some flak from the parade, who were salivating as they turned off Washington and down Summer toward the craven Reserve Bankers in their Dewey Sq. tower. Well, if it were a weekday, that's where they'd be.

The Ron Paul people were right behind the Lyndon LaRouche people. Behind them was a man carrying a sign that said "I AM A MAN". Was he being ironic, or has irony died? I couldn't tell. Another guy's sign bemoaned the fact that he couldn't purchase a senator. A dissatisfied group of older citizens evidently had purchased a senator, but got a lemon: their banner was an open letter to Senator John Kerry, with a laundry list of policy items they wanted him to pursue. I didn't see the Senator there, so hopefully they sent him a copy in the mail.

As the parade trailed by the chants blurred together - they were weak chants, really, lost in the commercial bustle of a city built for the 99% who buy into the capitalist system.

Some of the signs I saw were sensible - "END THE WAR" and "MILTON FOR PEACE". Others were mean-spirited, like the chant "STOMP THE RICH!". A few were wishful thinking, like "WE DON'T NEED YOUR JOBS, YOU NEED OUR LABOR". Unconvincing. And a few were downright idiotic - "END THE WAGE SYSTEM!" Didn't we fight a Civil War to guarantee every American the right to participate in the wage system? Do you really want to go back to the other way?

The parade tailed off. There was a woman wearing a wig with an unopened can of cat food balanced (or glued?) right on top of her head. She certainly seemed happy with the way America is right now. So did the guy riding a tricycle with one pooch sitting behind him on the trike and another pooch riding on a little wagon he was pulling. He had a large American flag and the dogs had red-white-and-blue bandannas. The last man in the parade was a jester with three different woodwinds in his belt riding a unicycle.

The kids are alright.

Rubio on Bahrain

How come guys like this don't run for president?

Jennifer Rubin of WaPo notes that Senator Marco Rubio (R-FL) took a stand against indiscriminately selling weapons to autocratic allies. He wrote to Secretary Clinton,

I appreciate Bahrain’s concern about Iranian ambitions in the region and the potential threat to the country’s stability, but I believe the government’s response to the disturbances actually threatens the country’s long-term stability, jeopardizes United States' standing in Bahrain and the Middle East, and plays into the hands of Iran. . . . It is in that context that I urge the administration to review the propose arms sale to Bahrain and to delay any item that package that could be used to disrupt, monitor or otherwise restrict the Bahraini people’s right to peacefully assemble and petition their government.

As Rubin comments, "the ability to apply American values in specific contexts and to see, in essence, all the pieces on the chessboard is not a skill everyone has." Her hope is to see Rubio elected Vice President. If he's as cogent on other issues as he is on how American should deal with autocratic allies, he'd be an improvement over the last few nationally-elected politicians.

Rick Santorum is an Idiot

Rick Santorum was senator of a state that has lost a lot of old-line heavy manufacturing jobs as America's comparative advantage has shifted away from those 19th century leaders. It's tough on a lot of Pennsylvania towns, so Santorum knows a lot about this.

And he has a plan.

Hopefully, nobody heard it. But if I understand it correctly, from tonight's debate, he wants to put zero taxes on manufacturing and zero taxes on overseas profits. So we're going to give you a huge incentive to bring jobs back to the U.S.... and a huge incentive to keep them overseas. And it's going to be paid for by all the businesses that are actually doing well despite the economy, the high corporate taxes, global competition, etc.

This is like something from Atlas Shrugged: let's tax the successful so that the unsuccessful can continue in their dysfunction.

No hard feelings to Pennsylvania, steel workers, or anybody, but: those jobs aren't coming back. You can't distort your way out of the 21st century, and a stable American economy will be built on people doing things better than anyone else in the world - and exporting it - rather than by people doing what they did best 50 and 150 years ago and complaining that the world has passed them.

The former senator continues to combine all of the worst aspects of Republicanism into a complete package of shrill, nativist, pro-war, anti-business, anti-gay, anti-technology poopstorm of incontinence incompetence.

Primary Election Debates: New Format Needed?

What's the opposite of looking forward to something?

I'm looking... backward? ... to tonight's Republican debate in New Hampshire. Is it the 4th? The 9th? I don't know. Will I watch it? Heck no. I can read about the gaffes and the gotchas tomorrow morning.

But here's what I would watch. A kitchen-table debate, featuring two, three, or four of the candidates, and a few well-known personalities from the host state, with maybe a random outside voice thrown in. So South Carolina could host a televised forum with candidates Romney, Bachmann, and Cain, plus local GOP leaders Gov. Nikki Haley (a conservative), Sen Lindsey Graham (a moderate), and somebody more local - a state rep or a mayor - plus an outsider like Gov. Mitch Daniels (Indiana). In a separate forum, maybe a week later, other candidates - Perry, Paul, and Santorum, say - could sit down with Rep. Tim Scott (tea party), Sen. Jim DeMint (conservative), a moderate local, and Sen. Marco Rubio of Florida.

A forum like that would put intelligent questions into the discussion, with real critiques. The local GOP leaders, especially if they haven't endorsed anyone, would want to bring out quality. They'd want to probe enough to see if the candidates have depth, but not play "gotcha" games or ask softball questions, as media moderators are wont to do.

The smaller setting would allow us to get to know the featured candidates in a setting which is a little more realistic. Rick Perry looked awful at dealing with the stand-up debate banter. But how does he do talking about substantive issues with genuinely inquisitive fellow partisans? I want a candidate who can create consensus in his own party, not one who's an expert marksman in debates. The issues discussed would tend to the local, and would force candidates to show some specialized knowledge and state-specific preparation. At the same time, televisation would mean that candidates couldn't pander shamelessly, as they probably do in informal settings with state figures.

The primaries are important because they determine the quadrennial standard-bearer of a party. However, none of those running for president is ultimately as central to being Republican today as some of the leaders who chose not to run - men like Paul Ryan and Mitch Daniels. Let's give a voice in the nominating process to those who know how to govern, how to legislate, and how Washington works. In return, they would benefit us by bringing real substance out of the candidates.

In a year without a Democratic incumbent, this would work just as well on the left side of politics. The Obama-Clinton nomination was decided almost entirely on style; voters would have been served by a real investigation of the candidates' substantive differences.

End the War!

For all the protesters who don't know what to protest, I have a suggestion: the War in Afghanistan. It's gone on 10 years, thousands have died, and we haven't achieved any goals besides ousting the Taliban (took 9 months) and killing Bin Laden (took 9 years). It's time to declare victory and leave! Why isn't there a robust protest movement castigating the president and the complicit Republicans for not drawing this pointless bloodshed to a close?