Sounds reasonable. So as long as most consumer goods are made off shore we will be in trouble?

Usually economists say “goods and services.” Can service industries dominate the economic mix and still raise the net standard of living?

Say that every American decided that they needed their hair cut and nails done twice a week. This would be a service industry job explosion but would it actually increase the overall standard of living? I can’t think it through.

Banks don’t actually have to ‘fail’.

Ordered winding down of failing banks involves finding sound financial institutions (which there are plenty of) to take over the assets (loans) and deposits (liabilities) of the ‘failures’.

The idea is to allow the system to get rid of the managment groups that led the ‘failing’ banks to ‘failure’. Otherwise they can potentially not learn from their own mistakes and continue to harm society.

Runs on banks?

They would happen only if the depositors had some reason to think they would not be made whole.

So long as depositors were not made to suffer for the mistakes of the ‘bad’ bankers, this should not be an issue.

But here’s something that still bothers me: can anyone answer this question or direct me to a related article? If the financial institutions had been allowed to fail, wouldn’t there have been a run on banks a la the S & L crisis? And wouldn’t this have had its own repercussions?

Many thanks to anyone who would care to address this hypothetical.

One pertinent point is that this loss in purchasing power is actually far more than 95%. That is why the quote about productivity was included.

BTW, I apologize for the multiple postings.

Advances in most areas of human endeavor (even say making butter) — if allowed to be reflected in ‘money’ that reflects a more absolute value than our current ‘relatively-valued’ (and regularly FED-debased) paper money — would cause virtually ALL prices to drop similarly to the drop in the prices of computers.

There is nothing to fear from price deflation. It is a phony bogeyman. It is the “AGW” of economics.

And the point is not that someone would keep cash around for 90 or so years.

The point is that as paper money is slowly, methodically, and intentionally debased by central banks — and yes, I know the Keynesian-type arguments for “lubricating” the economy with slowly-depreciating money — it causes malinvestments and misallocation, not to speak of declining moral standards. Farfetched? Not really.

It generally causes bad decision-making.

It causes people to be fooled.

Think of how much ‘money’ your grandfather made each year. Then look at your income. You’re making ‘way more’ money — but are you? Not really. If you are married, then more than likely both of you have to work to survive. It did not have to be that way in “the old days”. You are running faster, but going backwards. This seems normal in a world of Globalization. You are being fooled. You think you are better off. But you are not. That is what you call “barely noticing the change” amounts to — you are falling apart but you think it is just because of the ‘modern’ treadmill you are on.

You are right — the loss in purchasing power may not be apparent. And you may not care.

But if productivity increases over that 95-year period of time had not occurred, I can guarantee that you would have noticed the loss in purchasing power of paper money.

In essence, my point is that slowly or not, it is not for others to reduce the purchasing power of money you have earned. And furthermore, as Austrians know, there is no compelling reason to debase money.

Beyond this, it allows a hidden agenda to be implemented. It allows for ‘aversion to money’ to be insidiously inserted as one of the prevailing mores of our Western society. It is a very erosive moral value.

This, again as Austrians know too well, is extremely damaging to all of us.

It makes for the personal inclination to move away from saving and money-holding, to over-consumption and purchasing of ‘assets’ simply to avoid the relative LOSS of purchasing power. Why would you buy a house with saved money? You wouldn’t because “you would never catch up” to the expected increases in house prices. Housing — never goes down in value, right?

This is what the Normalization of Slow Price Inflation has done to all of us.
We don’t think it is weird — we think it is “The Way Things Are”.
But this is just pernicious manipulation, pure and simple, of you, your money, and your thinking. (Even if this ‘manipulation’ is unintentional from the central bank point of view.)

We don’t have to go back to 1913 and the intervening period of time to conclude that this is a very unhealthy way to look at reality. And a very unhealthy paradigm within which to make financial and personal decisions.

All we have to do is to look at the last 10 years or perhaps back to 1987 when Alan Greenspan’s tenure at the Federal Reserve started.

Do you really think people would have bought financial and real ‘assets’ like CDO-s and houses in the quantities they did, if our society was not harmfully conditioned to think of “cash as trash”?

Don’t you think now, after the start of the Great Recession of 2008 to ?, that a little Saving might be a Good Thing? That such saving might make for a more stable and sustainable Economy? That it might make for fewer Booms and Resulting Busts?

Don’t you think that might be healthier for all of us?

Puhhh-leeeasse! I prefer deflation to refer to the withdrawal of money from the system or the quantity of money failing to keep up with goods&services in the economy. Besides the ‘bang of the buck’ performance of computers has slowed down around 2005. Some computer parts (e.g. hard drives, video cards) have slowly got a little better over the past few years whereas other parts (CPUs, RAMs) have barely budged.

“You slowly begin to realize How Much of The People’s Wealth has been Stolen by the FED (and other countries’ Central Banks) over that period of time.” – A Viirlaid.

For someone to have lost 95% of their wealth due to inflation could only amount to someone who was stockpiling cash for the 90 or so years. When people are constantly transacting and own assets that will go up with inflation they’ll barely notice the change in the purchasing power of a dollar because they’ll have more dollars to trade with.

The Great Depression/New Deal Then And Now Book Tour!

Great book review.

If anyone can evaluate the veracity of a book about the Great Depression and the New Deal it is Tom Woods!

I sure hope both Tom Woods and Bob Murphy can go on the road and canvass the United States over and over again to both promote their books and to educate the wakening, literate and discontent masses.

Tom,

Check out Benjamin Anderson’s Economics and the Public Welfare. It is one of the best books ever written on the period. You can find it at Mises.org for $20.

Yeah, good point.

When you also factor in that the FED has so greatly increased the Money Supply since its founding in 1913 that money has thereby been so debased that One Dollar today can only buy what about 5 cents could buy in 1913, then you have some idea of the Real Debasement that has gone on.

If you ask yourself why naturally Everything Has NOT gone down in price since 1913 due to technological advances and the efficiencies in the productivity of humans, machines, and energy, you come up with a real Conundrum.

And you would also be asking a very valid question.

You slowly begin to realize How Much of The People’s Wealth has been Stolen by the FED (and other countries’ Central Banks) over that period of time.

This is Indirect, Non-Voted-For, Created-By-Unelected-Bureaucrats, TAXATION of your Wealth!!!

Reality Bites!!!

Yeah, good point.

When you also factor in that the FED has so greatly increased the Money Supply since its founding in 1913 that money has thereby been so debased that One Dollar today can only buy what about 5 cents could buy in 1913, then you have some idea of the Real Debasement that has gone on.

If you ask yourself why naturally Everything Has NOT gone down in price since 1913 due to technological advances and the efficiencies in the productivity of humans, machines, and energy, you come up with a real Conundrum.

And you would also be asking a very valid question.

You slowly begin to realize How Much of The People’s Wealth has been Stolen by the FED (and other countries’ Central Banks) over that period of time.

This is Indirect, Non-Voted-For, Created-By-Unelected-Bureaucrats, TAXATION of your Wealth!!!

Reality Bites!!!

Yeah, good point.

When you also factor in that the FED has so greatly increased the Money Supply since its founding in 1913 that money has thereby been so debased that One Dollar today can only buy what about 5 cents could buy in 1913, then you have some idea of the Real Debasement that has gone on.

If you ask yourself why naturally Everything Has NOT gone down in price since 1913 due to technological advances and the efficiencies in the productivity of humans, machines, and energy, you come up with a real Conundrum.

And you would also be asking a very valid question.

You slowly begin to realize How Much of The People’s Wealth has been Stolen by the FED (and other countries’ Central Banks) over that period of time.

This is Indirect, Non-Voted-For, Created-By-Unelected-Bureaucrats, TAXATION of your Wealth!!!

Realit Bites!!!

Magnus,
Past articles on this site have shown money supply and government growth has not slowed since WW II.

My answer to my own question is technology and productivity advances. While the government has wasted money and resources, growth in productivity and technology has more than offset the government’s waste. You have to understand, productivity has increased over 1000 times since 1900 (History Channel Fact).

CJ,

I studied Mises’s work in the early 70′s, met and talked with Hayek at the University of Portland and continue to read all of their works today. The one thing you are missing is the study of economics is a study of “human action”. It is not strictly money supply and government spending. That is why you need to look to how humans act to these outside forces to understand why things happen and form predictions of how the economy may react. As for the future, you will never be sure of the direction, you can only provide the odds.

Thanks again,

If you look at computer prices from 1960 to 2009, you might think that this is an example of hyperdeflation.

Money buys more computing power over time.

Now, Microsoft is a big dilemma for me. It sells bullcrap software that keeps freezing and malfunctionning, is a big nuisance and riddled with annoyances and yet sells for a high price.

Microsoft is like a government yet is a private business. It forces itself on new PC’s that comes bundled with it. I’m scratching my head trying to understand this monstruous absurdity.

That’s an important question because mainstream economists tell everyone that unless the state bails out the economy with massive stimuli, the economy will spiral downward until unemployment reaches 100%. But if you look at history, that has never happened once even though we have endured hundreds of business cycles over several centuries without any stimuli from the state whatsover. In fact, the world never suffered a depression like the Great D until the state intervened and tried to rescue the economy.

The economy always recovers for many reasons, but chief among them is that most businesses don’t fail and most people don’t lose all of their savings. So resources exist to invest and get moving again. Deflation helps because it reduces costs for the majority of businesses that have some cash. Once deflation begins to slow, (and it always does. No country has ever experience hyperdeflation) then those with cash begin spending again taking advantage of the low prices. Deflation hurts companies that have too much debt, but most of those businesses fail early on in the depression. In fact, their failures are largely responsible for the start of the depression.

Another reason for the economy’s natural ability to revive on its own is that people start saving more in the depression and make more money available for businesses to borrow.

Finally, a more technical reason is the Ricardo Effect. Depressions still happen mostly in capital intensive industries, those that make consumer durables such as housing and autos and those that make labor-saving equipment. During the depression, businesses consume capital by not replacing equipment and often by not repairing it. Deflation lowers the profits of most firms and persuades businesses to invest more in labor-savings equipment, such as computers, or at least to replace existing equipment in order to boost profits. The increase in business for those equipment manufacturers causes them to hire more workers who spend more and the recovery begins to snowball.

Boeing is a good example. It makes very expensive airplanes, which most airlines quit buying a few years ago. With prices and interest rates low, several airlines have announced large orders for Boeing’s jets.

Well, let’s hope so anyway!

The observations of Thomas E. Woods, Jr. in his super-article are spot-on IMO.

There are even those ‘drones’ that today send warnings to the Catholic Church that the Church MUST resurrect Marx because the market and Capitalism have ‘failed’ so badly.

Please see http://chiesa.espresso.repubblica.it/articolo/1338746?eng=y

Greg, I humbly submit that the simple and honest answer to your question is:

“Please STOP doing the same things that got you into this mess in the first place!”

Because, believe me, they ain’t stoppin’.
They are making it worse.

That is the lesson of the 1930-s depression as compared to the short, sharp downturn of 1920-1921.

This answer to your question seems too simple. But it is nevertheless true. There is not much one has to do. JUST LEAVE THINGS ALONE. Don’t overburden entrepreneurship —— don’t dam up youthful initiative and great ideas.

Free markets arose first between individuals and small groups. Those markets almost always arise spontaneously everywhere and anywhere, in historical time, and geographical place. At least where humans are relatively free.

It is the (often parasitical) ‘governments’ that came later, seeing that there was a source of revenue upon which to exist —— because without the ‘market’ there can be no large ‘viable’ modern institutional government.

IMO the Catholic Church would be wrong to look elsewhere for a ‘Third Way’ (between Capitalism and Communism) because there is no better way. At least a way that is relatively unfettered.

It was just those federal institutions and their practices (the government’s deficit-spending, the FED’s artificially-maintained, below natural market level interest rates, Fannie and Freddie) that led to the current imbroglio —— and we are doing MORE of it to FIX the problem?

Please —— it beggars the imagination —— it starves the mind of oxygen!

Greg, you must understand in your heart that it is precisely the over-fettering of private initiative and enterprise that is killing us.

Please see http://blog.mises.org/archives/008812.asp

Please read THE ROAD TO SERFDOM by F. A. Hayek at http://mises.org/store/Road-to-Serfdom-The-P252.aspx

The leaders of the Catholic Church would also be well-advised to read this masterpiece before they issue any new Encyclical on Capitalism.

For without freedom of all kinds, there can be no freedom to practise religion or practise one’s ‘market’ creativity in the service of humankind.

or at least that’s how these guys use it.