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> The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism. Free markets fuel capitalism. The

> The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism. Free markets fuel capitalism. The Fed's market manipulation is abhorrent to pure capitalism; it throws the elegant system of free competition and trade horrifically out of balance.

virmundi 14y ago
I'm not entirely sure why you're being voted down. I would like to see more detail from you, but I get the feeling that a Reddit mentality of "I don't like this, down boat for you" is at play.
- rayiner 14y ago
  He's being voted down because he deserves it. His comment is based 100% on ideological handwaving. It's really no different than saying that something is "blasphemy" except he's espousing a different religion.
- jwallaceparker 14y ago
  Thanks. :) A sound, stable currency is an essential component to a free market. When a currency is manipulated it can drastically upset the natural balance within a marketplace. When money is cheap (i.e. artificially low interest rates combined with Fed pumping new money into system) it leads to malinvestment. Consumers buy things they wouldn't normally buy. Companies invest in projects they normally wouldn't invest in. There is an initial "boom" (i.e. asset prices rise) that comes from people spending the easy money. But it can't last because the spending didn't come from savings or underlying productivity increases. It came from artificial stimulus. I'm glossing over a lot of points here, but it's called "business cycle theory" if you care to investigate.
  - mbetter 14y ago
    > When money is cheap (i.e. artificially low interest rates combined with Fed pumping new money into system) it leads to malinvestment. This assertion is observably false in the current economy.
- shardling 14y ago
  It's because it's a glib fucking comment.
pfraze 14y ago
> The Fed's market manipulation is abhorrent to pure capitalism Perhaps, but systems should use managerial feedback systems to dampen large deviations. The incompleteness or the ineffectiveness of money-supply controls does not lead us to conclude that no managerial feedback should occur at all. EDIT: expanding on that, I'd say we often go 'round with that binary question, when we rarely ever ask, "what would be a more effective way to handle disruptions to the economy?" in which case we'd begin to examine the available and potential metrics, the tools of affecting behavior, and whether those tools can be used without violating autonomy. If we have successfully optimized for efficiency and available capital, as the article suggests, then how could we next optimize for risk, experimentation, and innovation?
deleted 14y ago
[deleted]
guylhem 14y ago
I'm a libertarian and I love the free market and pure capitalism. OTOH, the great depression made a strong case for an intervention by governments at the macroeconomic scale - if only to smooth out bumps that could certainly sort themselves out in the long run, but which could still be uselessly painful for tens of years. Fiscal policy is IMHO wrong, but monetary policy is not that damaging, especially since it doesn't do much damage to real assets (like say gold)
- bswap0 14y ago
  I agree wholeheartedly. Strong monetary policy is essential to maintaining a strong economy. In the case of deflation, the Federal Reserve expands the money supply to counteract disincentive to invest. Unfortunately, the Fed often overshoots and ends up causing inflation instead since it's very hard to predict exactly how much is necessary. The Fed's job is not to pick winners and losers; it's just to keep the monetary base stable so that individuals can make investments without having to anticipate changes in the value of the currency.
- arthurrr 14y ago
  Often, people will defer to an "expert", who they assume knows more about a subject than they do. However, in many cases, and especially in economics, the expert thinks he knows something to be true, but it turns out that what he knows completely wrong, but he has invested his entire life building knowledge on top of bad knowledge, so he is not willing change his mind. A person who knows something that is wrong is much more dangerous than a person who knows nothing. Then what happens is that the expert will say something, and people will accept it as truth, because after all, he is an expert. And then it goes viral. All of a sudden, everything thinks something is true, even though it is completely false. Then entire books are written. An entire field called economics is created. Universities teach economics using these books that are based on incorrect assumptions. An entire generation of people build their knowledge on top of these false assumptions. And the cycle repeats, perpetually. I'm convinced that the entire foundation of economic thought is wrong, and that the entire field of economics contributes negatively towards humanity. Regarding the great depression, you can make the argument that government intervention in fact created and prolonged the great depression. You'll never really know, because you can't go back in time and run the experiment again. If you don't understand how something works, it's probably best to leave it alone, rather than try to fix it.
po 14y ago
Why do you assume 'pure' capitalism the ideal we want to achieve? To me that's like saying we need to stop playing football with all of it's unnecessary rules and regulations and get to the purest form of sport: kill the man with the ball. All sports put arbitrary restrictions into the game. You can't touch the ball with your hands. You have to dribble while running. You can't pass to a teammate when he's too far down-field. All of these are to make the sport better for the players as well as the spectators. The players often complain about the rules, try to get around them and/or fight with the refs, but the appropriate response is generally to call them big whiny babies. That's not to say the refs should be corrupt and influencing the game too much; that needs to be called out when it happens. The way I see it, the game spun out of control (mostly because the rules were changed to favor risk-taking) and now the Fed is trying to reset it to a point where we can all start playing again. Can we at least agree that a game with the rules removed is not always better?
- ahallock 14y ago
  This analogy doesn't hold true in reality. Pure capitalism doesn't mean no rules, just no rulers. Look at Github, for example. Spontaneous standards, conventions, communities, etiquette, etc. happen all the time. Now, I know the Fed is private, but is still hugely influenced and tied to the US Gov. Why can't we have competing currencies in the market? And then we can see what kind systems & rules evolve and come into being. Fiat currency is like a single point of failure.
  - deleted 14y ago
    [deleted]
  - po 14y ago
    Pure capitalism doesn't mean no rules, just no rulers. Who enforces the rules when someone breaks them? The community? Sounds great! Do all of the people have to vote on every infraction every time? …or are we going to designate some people who understand the rules and regulations deeply (let's call them referees and/or regulators) and put them in charge of making decisions on our behalf. That sounds like a great optimization to me! We just need to make them answerable to the people and not the players. You know, the players would love to have these guys on their side. They will probably even try to corrupt the refs by paying them off. Why can't we have competing currencies in the market? And then we can see what kind systems & rules evolve and come into being. Fiat currency is like a single point of failure. Firstly, we do have multiple currencies. Each nation has one and there's nothing from stopping you and all of your friends from doing business in a different one. Yes, you still have to pay your taxes in the one the US gov accepts. Secondly, why is innovation in currencies important? I'd rather have companies building new types of ship rather than trying to reinvent water. I think something like bitcoin or a gold-backed dollar is interesting to think about, but I haven't seen anything compelling to say it's worth the switch. Maybe some smaller nation/economy somewhere should try it out. I think they will find that it's not all roses as they think it is. In europe they said: cell phone infrastructure is extremely expensive to build so let's pick one standard, and force all companies to compete and build it out on the same standard. Kind of like how the US originally approached the incompatible railway gauge problem. With cell phones, the US didn't do that so now we have multiple incompatible standards that all have kind of half-assed coverage. More competition and innovation! Except it's worse for the consumer. If you want to buy a cell phone, it might only work at your home but not well at your office. It might have to have 2 different kinds of radios. I wish the US had picked a different set of priorities to compete around.
rayiner 14y ago
It's not like there is a spectrum of capitalism with a federal-reserve type system at one end. You need to throw currency into the economy some how. The argument is about how. Doing it at the rate you can mine gold isn't really any more sensible than doing it at the rate the Fed decides to.
- ahallock 14y ago
  Doesn't have to be gold. We could have many competing currencies. Some stable, some more speculative. Use your imagination.
  - rayiner 14y ago
    I'm not saying there aren't alternative structures. I'm saying there is no one correct structure you can label "pure capitalism." The monetary system is an engineering problem. The goal is to keep enough new money flowing into the system, but not too much, and make it robust in terms of political pressures, etc. Unfortunately, the debate over the issue is always reduced to ideological handwaving. That's not how engineering problems are solved.
    - ahallock 14y ago
      I disagree that it's an engineering problem. How are you going to model the supply & demand, the wants and desires, and complex transactions occurring among hundreds of millions of people? It just seems like hubris to me, but I'm open to the possibilities.
      - po 14y ago
        The same way we predict how the trillions of trillions of air molecules behave when we predict the weather: we build models of aggregate behavior, try to understand relationships, run simulations and test our predictions. We're not 100% right all of the time, but we now have the ability to prepare for disasters days in advance and re-route airplanes around storms before they hit. Weather prediction and the activity around it was once an intractable problem but now is a huge, huge benefit to society. The things you bring up are not even the hard part… The difficulty is that the system is dominated by feedback loops. I still think it's within the realm of 'engineering can improve this'.
cynicalkane 14y ago
So you talk about elegance. Okay, let's talk about that. Maybe this will be more helpful than the usual mud-slinging that comes with these sorts of discussions. People tend to denominate their contracts in the base currency. In the old system before the Fed, the value of this currency in the US would fluctuate as much as 50% in one year. It is hard to imagine with what bizarro world economic actors is this an elegant and sound basis on which to conduct trade, that a bank could find that all of its customers suddenly find it 50% harder to pay off their loans, or conversely, that its capital stock is worth 67% (1/150%) of what it was before. Now imagine how that feels for the customers, or shareholders. Imagine a society when the money can come or go in floods and what this means for every contract, every wage, every price. Why would you want this? So you can satisfy some Rothbardian itch about an "elegance" constraint that means very little in practice? The Fed tends to target price levels. In addition to being a very elegant basis with which to conduct trade and form contracts (as Milton Friedman pointed out), stable price level targeting has the advantage of actually working out pretty well, unlike 'free market' currencies or fixed standards. NGDP targeting is probably better but that's outside the scope of this discussion...
- stretchwithme 14y ago
  By what measure did the value of the currency fluctuate 50%? Could you buy 50% more cats with it? What year were you thinking of?
  - chubbard 14y ago
    Prior to the introduction of the Federal reserve system which would be 1913. And prior to 1913 boom-bust cycles were more common and quite harsh. I think that's what he's referring to. As to 50% fluctuations I can't say if that's true or not, but I know busts happened much more frequently and took much longer to work through.

virmundi 14y ago

I'm not entirely sure why you're being voted down. I would like to see more detail from you, but I get the feeling that a Reddit mentality of "I don't like this, down boat for you" is at play.

rayiner 14y ago
He's being voted down because he deserves it. His comment is based 100% on ideological handwaving. It's really no different than saying that something is "blasphemy" except he's espousing a different religion.
jwallaceparker 14y ago
Thanks. :) A sound, stable currency is an essential component to a free market. When a currency is manipulated it can drastically upset the natural balance within a marketplace. When money is cheap (i.e. artificially low interest rates combined with Fed pumping new money into system) it leads to malinvestment. Consumers buy things they wouldn't normally buy. Companies invest in projects they normally wouldn't invest in. There is an initial "boom" (i.e. asset prices rise) that comes from people spending the easy money. But it can't last because the spending didn't come from savings or underlying productivity increases. It came from artificial stimulus. I'm glossing over a lot of points here, but it's called "business cycle theory" if you care to investigate.
- mbetter 14y ago
  > When money is cheap (i.e. artificially low interest rates combined with Fed pumping new money into system) it leads to malinvestment. This assertion is observably false in the current economy.
shardling 14y ago
It's because it's a glib fucking comment.

pfraze 14y ago

> The Fed's market manipulation is abhorrent to pure capitalism Perhaps, but systems should use managerial feedback systems to dampen large deviations. The incompleteness or the ineffectiveness of money-supply controls does not lead us to conclude that no managerial feedback should occur at all. EDIT: expanding on that, I'd say we often go 'round with that binary question, when we rarely ever ask, "what would be a more effective way to handle disruptions to the economy?" in which case we'd begin to examine the available and potential metrics, the tools of affecting behavior, and whether those tools can be used without violating autonomy. If we have successfully optimized for efficiency and available capital, as the article suggests, then how could we next optimize for risk, experimentation, and innovation?

deleted 14y ago

[deleted]

guylhem 14y ago

I'm a libertarian and I love the free market and pure capitalism. OTOH, the great depression made a strong case for an intervention by governments at the macroeconomic scale - if only to smooth out bumps that could certainly sort themselves out in the long run, but which could still be uselessly painful for tens of years. Fiscal policy is IMHO wrong, but monetary policy is not that damaging, especially since it doesn't do much damage to real assets (like say gold)

bswap0 14y ago
I agree wholeheartedly. Strong monetary policy is essential to maintaining a strong economy. In the case of deflation, the Federal Reserve expands the money supply to counteract disincentive to invest. Unfortunately, the Fed often overshoots and ends up causing inflation instead since it's very hard to predict exactly how much is necessary. The Fed's job is not to pick winners and losers; it's just to keep the monetary base stable so that individuals can make investments without having to anticipate changes in the value of the currency.
arthurrr 14y ago
Often, people will defer to an "expert", who they assume knows more about a subject than they do. However, in many cases, and especially in economics, the expert thinks he knows something to be true, but it turns out that what he knows completely wrong, but he has invested his entire life building knowledge on top of bad knowledge, so he is not willing change his mind. A person who knows something that is wrong is much more dangerous than a person who knows nothing. Then what happens is that the expert will say something, and people will accept it as truth, because after all, he is an expert. And then it goes viral. All of a sudden, everything thinks something is true, even though it is completely false. Then entire books are written. An entire field called economics is created. Universities teach economics using these books that are based on incorrect assumptions. An entire generation of people build their knowledge on top of these false assumptions. And the cycle repeats, perpetually. I'm convinced that the entire foundation of economic thought is wrong, and that the entire field of economics contributes negatively towards humanity. Regarding the great depression, you can make the argument that government intervention in fact created and prolonged the great depression. You'll never really know, because you can't go back in time and run the experiment again. If you don't understand how something works, it's probably best to leave it alone, rather than try to fix it.

po 14y ago

Why do you assume 'pure' capitalism the ideal we want to achieve? To me that's like saying we need to stop playing football with all of it's unnecessary rules and regulations and get to the purest form of sport: kill the man with the ball. All sports put arbitrary restrictions into the game. You can't touch the ball with your hands. You have to dribble while running. You can't pass to a teammate when he's too far down-field. All of these are to make the sport better for the players as well as the spectators. The players often complain about the rules, try to get around them and/or fight with the refs, but the appropriate response is generally to call them big whiny babies. That's not to say the refs should be corrupt and influencing the game too much; that needs to be called out when it happens. The way I see it, the game spun out of control (mostly because the rules were changed to favor risk-taking) and now the Fed is trying to reset it to a point where we can all start playing again. Can we at least agree that a game with the rules removed is not always better?

ahallock 14y ago
This analogy doesn't hold true in reality. Pure capitalism doesn't mean no rules, just no rulers. Look at Github, for example. Spontaneous standards, conventions, communities, etiquette, etc. happen all the time. Now, I know the Fed is private, but is still hugely influenced and tied to the US Gov. Why can't we have competing currencies in the market? And then we can see what kind systems & rules evolve and come into being. Fiat currency is like a single point of failure.
- deleted 14y ago
  [deleted]
- po 14y ago
  Pure capitalism doesn't mean no rules, just no rulers. Who enforces the rules when someone breaks them? The community? Sounds great! Do all of the people have to vote on every infraction every time? …or are we going to designate some people who understand the rules and regulations deeply (let's call them referees and/or regulators) and put them in charge of making decisions on our behalf. That sounds like a great optimization to me! We just need to make them answerable to the people and not the players. You know, the players would love to have these guys on their side. They will probably even try to corrupt the refs by paying them off. Why can't we have competing currencies in the market? And then we can see what kind systems & rules evolve and come into being. Fiat currency is like a single point of failure. Firstly, we do have multiple currencies. Each nation has one and there's nothing from stopping you and all of your friends from doing business in a different one. Yes, you still have to pay your taxes in the one the US gov accepts. Secondly, why is innovation in currencies important? I'd rather have companies building new types of ship rather than trying to reinvent water. I think something like bitcoin or a gold-backed dollar is interesting to think about, but I haven't seen anything compelling to say it's worth the switch. Maybe some smaller nation/economy somewhere should try it out. I think they will find that it's not all roses as they think it is. In europe they said: cell phone infrastructure is extremely expensive to build so let's pick one standard, and force all companies to compete and build it out on the same standard. Kind of like how the US originally approached the incompatible railway gauge problem. With cell phones, the US didn't do that so now we have multiple incompatible standards that all have kind of half-assed coverage. More competition and innovation! Except it's worse for the consumer. If you want to buy a cell phone, it might only work at your home but not well at your office. It might have to have 2 different kinds of radios. I wish the US had picked a different set of priorities to compete around.

rayiner 14y ago

It's not like there is a spectrum of capitalism with a federal-reserve type system at one end. You need to throw currency into the economy some how. The argument is about how. Doing it at the rate you can mine gold isn't really any more sensible than doing it at the rate the Fed decides to.

ahallock 14y ago
Doesn't have to be gold. We could have many competing currencies. Some stable, some more speculative. Use your imagination.
- rayiner 14y ago
  I'm not saying there aren't alternative structures. I'm saying there is no one correct structure you can label "pure capitalism." The monetary system is an engineering problem. The goal is to keep enough new money flowing into the system, but not too much, and make it robust in terms of political pressures, etc. Unfortunately, the debate over the issue is always reduced to ideological handwaving. That's not how engineering problems are solved.
  - ahallock 14y ago
    I disagree that it's an engineering problem. How are you going to model the supply & demand, the wants and desires, and complex transactions occurring among hundreds of millions of people? It just seems like hubris to me, but I'm open to the possibilities.
    - po 14y ago
      The same way we predict how the trillions of trillions of air molecules behave when we predict the weather: we build models of aggregate behavior, try to understand relationships, run simulations and test our predictions. We're not 100% right all of the time, but we now have the ability to prepare for disasters days in advance and re-route airplanes around storms before they hit. Weather prediction and the activity around it was once an intractable problem but now is a huge, huge benefit to society. The things you bring up are not even the hard part… The difficulty is that the system is dominated by feedback loops. I still think it's within the realm of 'engineering can improve this'.

cynicalkane 14y ago

So you talk about elegance. Okay, let's talk about that. Maybe this will be more helpful than the usual mud-slinging that comes with these sorts of discussions. People tend to denominate their contracts in the base currency. In the old system before the Fed, the value of this currency in the US would fluctuate as much as 50% in one year. It is hard to imagine with what bizarro world economic actors is this an elegant and sound basis on which to conduct trade, that a bank could find that all of its customers suddenly find it 50% harder to pay off their loans, or conversely, that its capital stock is worth 67% (1/150%) of what it was before. Now imagine how that feels for the customers, or shareholders. Imagine a society when the money can come or go in floods and what this means for every contract, every wage, every price. Why would you want this? So you can satisfy some Rothbardian itch about an "elegance" constraint that means very little in practice? The Fed tends to target price levels. In addition to being a very elegant basis with which to conduct trade and form contracts (as Milton Friedman pointed out), stable price level targeting has the advantage of actually working out pretty well, unlike 'free market' currencies or fixed standards. NGDP targeting is probably better but that's outside the scope of this discussion...

stretchwithme 14y ago
By what measure did the value of the currency fluctuate 50%? Could you buy 50% more cats with it? What year were you thinking of?
- chubbard 14y ago
  Prior to the introduction of the Federal reserve system which would be 1913. And prior to 1913 boom-bust cycles were more common and quite harsh. I think that's what he's referring to. As to 50% fluctuations I can't say if that's true or not, but I know busts happened much more frequently and took much longer to work through.