This excerpt from a column on April 18 by Greg Mankiw (“It May be Time for the Fed to Go Negative,” New York Times) has been raising howls in the blogosphere:
“At one of my recent Harvard seminars, a graduate student proposed a clever scheme to [make holding money less attractive].
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.
Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit….”
My Comment
I didn’t see this until today because I haven’t followed the economics blogosphere very closely recently. Post-TARP, it’s been awash with all sorts of schemes and proposals built on very flimsy foundations.
The numero uno objection to all of them is the notion that the economy is something that can be manipulated like a board game. It’s not.
Objection two is also obvious and also foundational. Any grand scheme based on taking illegally from someone what they’ve earned honestly (and I think it’s safe to say at least a few people here and there have earned their livings honestly) is morally wrong. What’s morally wrong on an individual level cannot be morally right on a grand scale, even if we allow for all sorts of prudential calculations, reservations about “the public good” and so on.
Objection three is that a crisis caused by excessive borrowing and spending is not plausibly solved by more spending and borrowing.
Objection four is that degrees in economics do not give you an understanding of how proposals might actually work in the real world. That takes common sense and some experience of how human beings actually function and build businesses.
Objection five is that theories are only very nebulous and hazy road maps with no correspondence to the actual terrain underneath. A theory which has never been tried before, let alone produced the results touted, is a very flimsy guide to follow.
Mish Shedlock takes on Mankiw here in more detail but quite unnecessarily, since the proposal is on its face absurd and impracticable.
You can see, however, that on this, the New York Times (ostensibly more left-ish) and the Washington Post (ostensibly more centrist) are both singing from the same page.
In my previous blog post, “Bernays and Citizen Parrot” I cited a Wash Po article, “When You’re Flush But Acting Flat Broke,” by Michael Rosenwald (April 16) that referenced the work of Robert Cialdini, a scholar of marketing. The Post piece was slanted to getting the consumer to go out and spend.
So, keep that in your mind. The two things the establishment wants right now are:
(1) Increased consumer spending
(2) Nationalization of banks
More spending means what? Putting your money (one of the few forms of control you exert over your circumstances) into someone else’s pocket. (I’m not opposed to this if you’ve got plenty saved, are getting a good deal and need what it is you’re buying, but that’s not the kind of savvy spending the powers that be are looking for).
Nationalization means what? Allowing the government to control the people in charge of lending you money…who are also the people holding your savings….who are also the people mainly responsible for getting us into this mess.
Forget all the deep explanations, economics theories, and punditry.
Just focus on those two things. Do they make sense to you right now, right here?
No? I thought not…..
If someone wanted to drive people to using gold as money, Mankiw’s plan would probably do it. All prices and wages would immediately jump 10%, but so what? It would be like doing a 9 for 10 split on a stock: the stock is 10% higher, but the total value hasn’t changed a dime. No ones “balance sheet” would be improved a lick, and therein lies the real problem: the balance sheets of the people to whom the banks to lend (in order to get things going again) are continuing to deteriorate with no end in sight (that is, until a plan similar to mine – see NOTE below – is implemented).
Actually what we need to do is to find a way for people to survive PERMANENT massive job losses, (both domestic and worldwide) and be able to save money (and improve their balance sheets) while they are doing it. I think you have failed to give any good argument that the plan I have outlined in more detail elsewhere on your site – see NOTE below – won’t do exactly that.
Regarding your objections to Mankiw’s “plan”:
1. Of course the economy can and has been manipulated “like a board game”, that’s how we wound up with a central bank and the business cycle and every depression including this one. Banks are speculative ventures, and since speculators make their biggest profits from volatility and war, so should we find it shocking that our economic system (designed by the bankers who controlled the 1787 Constitutional Convention) continually produces: VOLATILITY AND WAR?
2. Regarding “honestly earned money”, pirated loot can NEVER be honest, and since all wealth derives from land which has been previously “filched”, there ain’t no such thing as “honestly earned money”. No matter how honest the descendants of the original pirates, they will always be trading around someone else’s wealth, the money will NEVER be “honestly” theirs. The best that can be done is to create a system that spreads around the stolen loot equitably enough to avoid compounding the crime.
3. The crisis was NOT caused by “excessive borrowing and spending”, it was caused by extorting cheap labor by denying everyone free access to land and failing to pay adequate compensation for that denial. That, and the volatility engendered by the leverage resulting from creating money solely via the creation of debt.
4. Anyone who didn’t issue a timely “here comes the crash, go to cash” call
(as did I via an email sent out on June 3rd, 2008; documentation gladly available),
should have the decency to retire from making public pronouncements in general, and, specifically, to keep their mouths shut concerning both the causes and the possible cures of a crash that ANY IDIOT should have seen coming a mile away.
5. If your body is dying of cancer (a condition wherein a relatively small number of cells hog too large a share of the body’s resources) are you going to wait until the “theory of curing cancer” is proven, or are you going to try something that sounds like it will work?
NOTE: The plan involves replacing Fed dollars with debt-free money and using the new money to compensate everyone $1000 per month for “loss of free access to land” (or whatever excuse will fly), meanwhile replacing ALL federal income-based taxation with a half-percent “economic infrastructure maintenance fee” on EVERY electronic fund transfer (or whatever small percent is required to maintain price stability, which could very well be less than that; look at “Tobin tax” on wikipedia for a description of a somewhat similar idea), a fee which will also act as a brake on short-term speculation and lead to better long-term decision-making and create real economic stability.
PS. WHEN PUSH COMES TO SHOVE, IF YOU CAN’T DEFEND IT, THEN YOU DON’T REALLY OWN IT. AND IF YOU HAVE TO RELY ON A GOVERNMENT’S HELP IN ORDER TO DEFEND IT, THEN THE REAL OWNER IS THAT GOVERNMENT (BOTH OF IT, AND OF YOU).
Alan, you have proposed this plan numerous times. Let me attempt a small rebuttal.
Prior to the revolution, all lands in the colonies belonged to the King. At the Treaty of Paris, these were declared not the property of the states, or the United States, but to the people. Some received allodial title, others lesser forms of ownership. While Allodium isn’t specifically mentioned (although it is in some state constitutions, a look at other documents of the era reveals their intentions. For example in the Northwest Ordinance of 1787, Article 4 states (paraphrased from memory) that “there shall be no taxes on property.” This statement pretty much states openly that future settlers would receive allodial title.
More generally, all rights derive from property. We are soverign over our own lives because the only higher authority is our creator. If you pay tax on something, or receive a permit, license or certificate, you are not the owner but rather a renter. You have no rights but rather privileges.
I believe you are a beliver in liberty, but what you are proposing is a return to a feudal society in which the individual is merely a serf or vassal and all authority rests with the king.
“Allodial” is a very nice word that just means that some government is granting someone a title to land which it previously stole from someone else and is promising that it will not interfere with the pretence that the land belongs to whomever the government has designated the “owner” of that property. Such a promise is only as good as the government is able to defend ITS property (which obviously must include the land covered by the granted title or good luck keeping THAT land; alloidal-schmoidal: f the property didn’t actually belong to the government, why would the government bother to expend resources defending it?), and only so long as the government doesn’t change its mind or the law which granted the title, but, even more basically, where does ANY government get the right to grant a title to stolen property? And if it stole it from someone else, what is to stop it from stealing it back from whoever it grants the title? Oh, right: “honor among thieves”; I forgot.
If you don’t realize that all authority always has and still rests with “the King” (even if that “King” is chosen from a small list of appropriate candidates allowed by the actual Kings: the people who own the central banks), then you haven’t been paying very close attention.
The actual Kings will let peasants write their little constitutions and grant their little property titles and play at governing themselves, etc., solely in order to keep them docile and self-deluded, so that they will be willing to (more or less voluntarily) “fight for their country” or take part in whatever other sheep-shearing or cow-milking needs to be done this season so as to maximize the herd’s return on their owner’s investment.
I’m not proposing a return or change to or from anything. I’m explaining how it really is and how it always has been. We are kept as wage slaves in order to maximize our owners’ profits. What I am proposing is that we start sharing those extra profits (evenly) amongst ourselves rather than continuing to turn them over to the central banks for no good reason except that we are profoundly stupid, dumb animals.
I’m not proposing that governments SHOULD own all the land, I’m merely pointing out that they ALREADY DO own all the land and they always have and they always will and the illusion of any other state of affairs is just a convenience to keep the administrators of the government from getting their heads cut off when times get tough. You’ve been brainwashed, you’ve been brainwashed, You’ve been brainwashed. That’s as clear as I can make it. If you can’t come to grips with that now, perhaps in time you will see it. When that time comes, look me up.
In Rothbard’s “Ethics of Liberty” he has Friday show up and get some free land and go to trading with Crusoe and Rothbard clearly intends that to be an analogy of “how things should be”. Well, fine, except that “how things ARE” is that all land is already owned, and Crusoe gets to have Friday’s labor for pennies but he is good enough to occasionally loan Friday enough money to make ends meet but consequently Friday will be in debt to Crusoe his whole life, and thereafter very likely also Friday’s children, and so on.
Here’s something you might find pertinent from a Geo-libertarian” informational website:
“We Geolibertarians distinguish ourselves from right-wing, “royal” libertarians by our profound respect for the principle that one has private property in the fruits of one’s labor. This includes the fruits of mental labor and the results of reinvestment of legitimate private property (capital) in future production. We remain consistent in that respect by recognizing, as did the classic liberals, that land and raw natural resources are not the fruits of labor, but a common heritage to be accessed on terms that are equal under the law for everyone. The statist system of land tenure empowers non-producing landlords to extract the fruits of tenants’ labor.”
My personal view is that “one has property rights in everything one has actually created without using something one was given for free”. But since one creates neither their own body nor its labor, neither their own mind nor any of the faculties with which they were born, and certainly not any of their own physical and personality attributes (including intelligence and what is called “will”), all these things having been received freely-given and unearned, it doesn’t seem like that leaves very much that one can create on ones own without immense and unearned help. In other words, everything created by the creator ever and only belongs to the creator.
Alan, you can manipulate (or mutilate) the subject forever but it doesn’t change the fundamental law of the universe
ALL RIGHTS DERIVE FROM PROPERTY
Period. End of story. Okay the king stole the land from people who stole the land from other people who stole the land from various critters. Maybe we should be taxed to give reparations to dinosaurs via birds.
It is a FACT that creating allodial title for citizens, even the poorest, by the infant US government is a FIRST in history, and as for your argument that it is actually a lie because it depends on “government” to defend it, let me remind you of the proper pecking order, as it was then.
Highest Authority – The Creator
Then comes – The Sovereign citizen, i.e. “We The People”
Then comes – The State
Then comes – The US Government.
So in fact it is We the People, acting through our creation, the Government, which defends the land without which the Soverign Citizen cannot exist.