Saturday, May 24, 2008

Ron Paul: The Last of the True Political Economists?

I like Ron Paul. It's a personal thing.

I think I can say this openly and without fear of being closed down by the Election Police, now that he has no chance of winning the election.

[Thanks to the great illustrator David Dees, at and for this image. I am now one of Dees's best fans. Take a look at some of his great political satire at this website.]

Given Paul's meek chances of success in his presidential bid, this could in no way be construed as a political endorsement; but just to avoid any appearance of political bias, I will do my best to find qualities in the other candidates--Hillary-Babe, Obama-Rama, and Johnny Mc-See--just to balance out this blog. (If and when I get around to it.)

But Paul just seems to me like my kind'a guy. He speaks from the hip, he doesn't mince his words, and he knows what he's talking about, in most instances. And he reminds me of my father, economist Edward C. Harwood (see Page 7 in the pdf version, that is to say Page 3 in the print version), in that he comes across, and probably is, a man of great integrity.

He also referred to my Dad's American Institute for Economic Research several times over the years in his Congressional speeches. What's not to like, right?

Well, actually, I can find fault with him, for example: Just the fact that he's not electable for the presidency, probably due to what may be misleading signs of physical age and frailty. Don't kid yourself, the man's going to be a centenarian. He's as tough as an old grape vine--has to be, to withstand the stresses of campaigning and holding government office--and will probably be just as ornary and hard to unseat right up until the day he croaks.

Or perhaps his lack of presidential electability is due to the above-said integrity, i.e. he won't conform to the political establishment's demands, which conformation is a prerequisite for their support. More power to him, at least as a human being if not as our president. At least he'll die with his nose clean.

And just to clear up the record, he is not a believer in the 9/11 conspiracy theory, as confirmed in this interview with Glenn Beck; so we can stop wondering if there's a glitch in the man's thinking somewhere.

His principal appeals are that (1) his economic thinking is right on, unlike any other presidential candidate I can think of; and (2) he has a marvelous way of expressing himself that makes even as boring a subject as economics relevant to all of us. In this, he also resembles my economist Dad. [See above link.]

Here are some excerpts from his recent book, Pillars of Prosperity, reprinted at the website.

On the recession:

"When the recession hits full force [because he believes it going to hit us sooner or later], even the extraordinary power and influence of Alan Greenspan and the Federal Reserve, along with all the other central banks of the world, won't be able to stop the powerful natural economic forces that demand equilibrium. Liquidation of unreasonable debt and the elimination of the over-capacity built into the system and a return to trustworthy money and trustworthy government will be necessary."

On Federal Reserve monetary policy:

"Deliberately lowering interest rates isn't even necessary for the dollar to drop, since our policy [of over-creation of currency through credit] has led to a current-account deficit of a magnitude that demands the dollar eventually readjust and weaken."

"A slumping stock market will also cause the dollar to decline and interest rates to rise. Federal Reserve Board central planning through interest-rate control is not a panacea. It is instead the culprit that produces the business cycle. Government and Fed officials have been reassuring the public that no structural problem exists, citing no inflation and a gold price that reassures the world that the dollar is indeed still king.

"The Fed can create excess credit, but it can't control where it goes as it circulates throughout the economy; nor can it dictate value either. Claiming that a subdued government-rigged CPI and PPI proves that no inflation exists is pure nonsense. It is well established that, under certain circumstances, new credit inflation can find its way into the stock or real estate market, as it did in the 1920s, while consumer prices remain relatively stable. This does not negate the distortion inherent in a system charged with artificially low interest rates. Instead it allows the distortion to last longer and become more serious, leading to a bigger correction."

On gold:

"If gold prices reflected the true extent of the inflated dollar, confidence in the dollar specifically and in paper more generally would be undermined. It is a high priority of the Fed and all central banks of the world for this not to happen. Revealing to the public the fraud associated with all paper money would cause loss of credibility of all central banks. This knowledge would jeopardize the central banks' ability to perform the role of lender of last resort and to finance/monetize government debt. It is for this reason that the price of gold in their eyes must be held in check.

"From 1945 to 1971, the United States literally dumped nearly 500 million ounces of gold at $35 an ounce in an effort to do the same thing by continuing the policy of printing money at will, with the hopes that there would be no consequences to the value of the dollar. That all ended in 1971 when the markets overwhelmed the world central banks.

"A similar effort continues today, with central banks selling and loaning gold to keep the price in check. It's working and does convey false confidence, but it can't last. Most Americans are wise to the government's statistics regarding prices and the "no-inflation" rhetoric. Everyone is aware that the prices of oil, gasoline, natural gas, medical care, repairs, houses, and entertainment have all been rapidly rising. The artificially low gold price has aided the government's charade, but it has also allowed a bigger bubble to develop. This policy cannot continue. Economic law dictates a correction that most Americans will find distasteful and painful. Duration and severity of the liquidation phase of the business cycle can be limited by proper responses, but it cannot be avoided and could be made worse if the wrong course is chosen."

On the Fed's effectiveness:

"Micromanaging an economy effectively for a long period of time, even with the power a central bank wields, is an impossible task."

"... the Federal Reserve now buys and holds GSE securities as collateral in their monetary operations. These securities are then literally used as collateral for printing Federal Reserve notes; this is a dangerous precedent."

"But the day will come when we will have no choice but to question the current system. Yes, the Fed does help to finance the welfare state. Yes, the Fed does come to the rescue when funds are needed to fight wars and for us to pay the cost of maintaining our empire. Yes, the Fed is able to stimulate the economy and help create what appear to be good times. But it's all built on an illusion. Wealth cannot come from a printing press. Empires crumble and a price is eventually paid for arrogance toward others. And booms inevitably turn into busts."

"Talk of a new era the past five years has had many, including Greenspan, believing that this time it really would be different. And it may indeed be different this time. The correction could be an especially big one, since the Fed-driven distortion of the past 10 years, plus the lingering distortions of previous decades have been massive. The correction could be big enough to challenge all our institutions, the entire welfare state, Social Security, foreign intervention, and our national defense. This will only happen if the dollar is knocked off its pedestal. No one knows if that is going to happen sooner or later. But when it does, our constitutional system of government will be challenged to the core."

On generational forgetfulness:

"Thomas Jefferson was worried that future generations might squander the liberties the American Revolution secured. Writing about future generations, Jefferson wondered if 'in the enjoyment of plenty, they would lose the memory of freedom.' He believed, 'Material abundance without character is the path to destruction.'"

On Big Government:

"For far too long, we have accepted the idea that government can and should take care of us. But that is not what a free society is all about. When government gives us something, it does two bad things. First it takes it from someone else; second, it causes dependency on government. A wealthy country can do this for long periods of time, but eventually the process collapses. Freedom is always sacrificed and eventually the victims rebel. As needs grow, the producers are unable or unwilling to provide the goods the government demands. Wealth then hides or escapes, going underground or overseas, prompting even more government intrusion to stop the exodus from the system. This only compounds the problem.

"Endless demands and economic corrections that come with the territory will always produce deficits. An accommodating central bank then is forced to steal wealth through the inflation tax by merely printing money and creating credit out of thin air. Even though these policies may work for a while, eventually they will fail. As wealth is diminished, recovery becomes more difficult in an economy operating with a fluctuating fiat currency and a marketplace overly burdened with regulation, taxes, and inflation."

"Our economic, military, and political power, second to none, has perpetuated a system of government no longer dependent on the principles that brought our Republic to greatness. Private-property rights, sound money, and self-reliance have been eroded, and they have been replaced with welfarism, paper money, and collective management of property. The new system condones special-interest cronyism and rejects individualism, profits, and voluntary contracts."

'Nuff said.

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Blogger Dave Kunkel said...

The encouraging thing about Ron Paul is the way his message resonates with young people. His ideas and principles are taking root.

7:59 AM  

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