The Case Against the Fed

What Hacker News says

1. AstrohackerAug 2011
   I'm not a troll. Read my blog, my past posts here, posts on reddit, posts on the Bitcoin Forum, and my Tweets. I mean what I say.

   > Are you a techie? Do you understand the web? Who would you want writing legislation to govern the web? Lawyers who are clueless about the web and think that the internet is a series of tubes, or people that are VERY web savvy - like Tim Berners-Lee, et. al? The same thing applies to finance, banking and everything else. Makes no sense to have people writing legislation or creating systems that don't understand what they are doing.

   The tech equivalent of the Fed would be if the techies designed an internet where 1) all information goes through some central servers that they control, 2) they sell that information and profit, 3) everyone is legally required to use their internet and not a competing internet for sending information over long distances. This would be a corrupt, Fed-like version of the internet where some particular group of people have all the power and use it for their own benefit. This analogy isn't perfect, but it captures the basic point, that the Fed was designed in a corrupt way. It doesn't matter that the corrupt people were experts or not. If anything, being experts and using expert-jargon just allowed them to mislead everyone about the true purpose of their design - socialism for the rich.

   For more of this type of information on the Fed, read "End the Fed" by Ron Paul and "The Case Against the Fed" by Murray Rothbard.

   > If that's the case, why has inflation been so low in the US in the last two years, when the Fed undertook the largest expansion of it's balance sheet in modern history? i.e. it has printed more money recently, than at any other time in it's mandate - but inflation AND inflation expectations are still low.

   The Fed publishes misleading inflation numbers. Anyone who spends a lot of their income on things like food and energy recognizes that prices are rising pretty quickly. For me one price that stands out is that a cup of coffee used to cost less than $2 a few years ago, but now costs something like $2.30. It stands out because paying $2 and receiving a nickle as change is a lot more convenient than paying $3 and receiving $0.70 as change.

   However, I agree that inflation is not as high as I would expect given just how much money the Fed has printed. I'm not exactly sure where the new money has gone, but it is probably just sitting around in some bank accounts somewhere, not circulating in the economy, and that's why we haven't felt it more than we have. I suppose it is probably being used by banks to patch up their balance sheets after the crisis and that's why it is just sitting there. My bet would be that in the coming years, that money will get used, and that's when we will really start to feel the inflation. When coffee reaches $5 per cup, we will know QE1 and QE2, etc., have trickled down.

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2. polymathemagicsJun 2022
   Not really, no. You're both correct that I offer no substantive arguments against austrian economics, ABC theory, or their critique of central banks.

   I'm not a professional economist. I honestly know very little about the subject (apart from taking intermediate micro / macro and having had an interest in the subject since childhood). I don't think I could argue against the view that "climate change is a hoax" either, because I don't really understand the science. There are many things in my life that I believe despite not being a PhD in the field - and yes, a lot of it relies on appeals to authority and my impression of the world, which we could disagree on. I'm just advocating that we all share a bit of humility when it comes to highly technical topics, and in doing so we should probably defer more to academic consensus. Otherwise, it's essentially like debating religions - fun perhaps, but no one really knows what they're talking about.

   I think we can both agree with the statement that academic economists by and large dismiss Austrian economics. If not, let me know, and I'd be happy to debate that point. Of course, "Austrian" economists have made many meaningful contributions to the field, e.g. Menger's marginal revolution, Bohm-Bawerk's work, Schumpeter's creative destruction, etc. Hayek was a well regarded political and economic thinker.

   However, modern day austrian economics is essentially a think tank that espouses a very hardcore version of libertarianism - claiming that modern economics is a farce, empirical methods are useless, and that inflation is the devil and we need to return to the gold standard. I remember reading Rothbard's The Case Against the Fed and parroting many of the points, having been impassioned by Ron Paul's 2008 presidential campaign. I remember railing against the Fed and its loose monetary policy, absolutely sure that inflation was coming post 2008 (it did not).

   I can't really provide a detailed takedown of Austrian economics, again, because I'm not an economist. All I have is my life experiences of having believed in it ardently, and then not, and then asking myself why I was ever convinced in the first place. Bryan Kaplan, another extremely libertarian / ancap economist, has a critique here that some might find influential: https://econfaculty.gmu.edu/bcaplan/whyaust.htm. But most serious economists don't even address it, presumably because it's not a part of academic discourse at all. More pop economists from across the spectrum, like Krugman and Friedman, both disparaged it of course.

   The thing to be wary about is that Austrian economics is essentially ignored by mainstream economists, but Austrian believers are extremely passionate and have built up a huge online presence - led by a handful of non-economist political bloggers. So if you google austrian economics, you'll find pages and pages of Mises Institute, Lew Rockwell, etc. It's very easy to fall down the rabbit hole. Meanwhile, academic economists are doing research, not creating pages and pages of "austrian economics is pseudoscience" articles. Listen, if you want to be a libertarian, that's fine by me - but upholding austrian economics to help justify your political beliefs seems a bit unnecessary to me.

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