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Source link: http://archive.mises.org/10321/new-poll-shows-reality-dawning/

New Poll Shows Reality Dawning

July 20, 2009 by

ABC news provides a helpful round up of the latest national poll on national politics, in PDF with plenty of detail, that shows a continued fall in approval ratings for the Obama administration, in nearly every area of domestic policy. These polls could make it more difficult for Obama and Congress to impose health-care socialism, so that’s something to celebrate; it is also striking that opposition to another stimulus package has grown to two thirds. After three failed stimulus attempts, could it be that people are figuring out the scam here?

The news “analysis” says it’s no big deal because Reagan’s polls fell for two years straight after being elected. But, look, there’s a difference. The Reagan administration wisely saw the need to tolerate recession, reign in money inflation, and cut taxes. The Obama administration is doing the opposite, waging war on recession through money inflation, vast spending, and regulation, setting up a likely scenario for a yet another crash and prolonged pain.

Democracy: the system in which people enjoy the freedom to tell pollsters that they are against idiotic policies after the policies are tried, and before they are tried again.


Dick Fox July 20, 2009 at 8:18 am

Jeffery Tucker wrote:

The Reagan administration wisely saw the need to tolerate recession, reign in money inflation, and cut taxes.

Of these three happenings at the beginning of the Reagan administration only the last one was wise.

There was absolutely no reason for a recession at the start of the Reagan administration. The recession was caused by Paul Volker when he decided to radically attack “inflation” by shrinking the money supply. Had Volker shown restraint the tax increases would have pulled inflation downward. Volker should have left the money supply alone neither increasing nor decreasing it.

What both Keynesians and monetarists (Volker) don’t understand is that changes in the money supply, whether an increase or a decrease, change the function of money as a medium of exchange. When you change the value of this unit it is just like changing the length of a foot or yard when building a house. It creates havoc.

A good reference point on this is how the economy reacted to the tax cuts passed by congress after World War II. The Keynesains warned of serious price push inflation and unemployment if government social spending was not immediately increased. While they were putting their social spending plans together the economy recovered, unemployment declined, and inflation fell. The Keynesians were embarrassed by the huge failure of their analysis.

The recession onf 1981-82 should have been an embarrassment to the monetarists. Not until Volker ended his contraction by bailing out Mexico did the economy turn. Volker’s deflationary monetary policy was strangling the tax led recovery.

This is just another example of Austrians buying into the monetarist money illusion.

Jeffrey Tucker July 20, 2009 at 8:32 am

Take a look at the data. http://research.stlouisfed.org/fred2/series/M1. There was a brief period in which money growth was flat, and only a few months of negligible falling, but over a two year period we saw only a slowing in the rate of increase. It is a stretch to call this deflation. Moreover, the idea that a recession could have been avoided after ending the late 1970s inflation is implausible.

Lysander72 July 20, 2009 at 8:37 am

“This is just another example of Austrians buying into the monetarist money illusion.” Does Mr. Fox understands the ABC theory? As far as a stable value to the dollar, this is impossible. Mr. Fox forgets that it is the supply of and the demand for money which determines its value. Both are constantly changing making a stable value impossible. I think I read a brief comment by Rothbard claiming Volcker’s reputation as a inflation fighter was overrated. Will have to look into that deeper some time.

fundamentalist July 20, 2009 at 9:25 am

It looks to me like Dick Fox is under the monetarist illusion, not Austrians.

I sort of feel sorry for the American people as they slowly realize that Barak Obama is just another human being.

Nick E July 20, 2009 at 9:28 am

“Where’s your Messiah now?”

(Sorry, couldn’t resist that Simpsons reference.)

Cliff K July 20, 2009 at 10:54 am

I have not spoken with anyone within my daily activities, including several who voted for Obama, that approves of his performance, the “stimulus”, or his all out assault on the middle-class.

Of course the bulk of my interpersonal activities take place at work, with working members of the middle-class. The notion of government run health care in particular scares the pants off everyone I have spoken to.

I believe one reason for the big rush in health care “reform” is so that the $350k “rich” tax surcharge breakpoint can be hardwired into the ObamaCare legislation. That way once hyperinflation kicks in it won’t be long before everyone, including day laborers, will be making $350k, and we’ll all get to pay extra…

Richie July 20, 2009 at 11:14 am

Well, the issue is settled. Money does not matter when forecasting price inflation. Thus, do not look at monetary aggregates. It is useless. Therefore, crank up the printing presses. Paper money is the economic savior. How do I know this? Because of this brilliant piece of work (the abstract):

“This paper provides the most fully comprehensive evidence to date on whether or not monetary aggregates are valuable for forecasting US inflation in the early to mid 2000s. We explore a wide range of different definitions of money, including different methods of aggregation and different collections of included monetary assets. In our forecasting experiment we use two non-linear techniques, namely, recurrent neural networks and kernel recursive least squares regression – techniques that are new to macroeconomics. Recurrent neural networks operate with potentially unbounded input memory, while the kernel regression technique is a finite memory predictor. The two methodologies compete to find the best fitting US inflation forecasting models and are then compared to forecasts from a naive random walk model. The best models were non-linear autoregressive models based on kernel methods. Our findings do not provide much support for the usefulness of monetary aggregates in forecasting inflation.”

The entire paper:


fundamentalist July 20, 2009 at 11:29 am

Richie, thanks for the link! Good point about the paper’s worthlessness. The fed paper does nothing but point out the uselessness of aggregates and the danger of letting children play with toys that can hurt them.

The Austrian monetary theory says that ALL OTHER THINGS HELD EQUAL an increase in the stock of money will raise prices. The fed paper writers assume that all those other things are held constant across their time series when in fact they are not. The other things include productivity, excess capacity from a depression, and the possibility of the money going into assets instead of consumer goods.

If productivity increases prices won’t rise as much. If there is a recession, then excess money will be chasing excess supplies so prices won’t increase. If the new money goes into assets, as it often has, then the cpi won’t increase. Had the modelers included all of these factors in the model, then the would have understood the Austrian theory of money.

roo July 20, 2009 at 11:39 am

I thought it was rather telling when many in congress seemed taken aback at the CBO report which concluded that forcing everyone to get health insurance would indeed NOT decrease the overall cost as they would like us to think they believed. I’d like to think this entire exercise has been pure demagoguery but there probably were a few who honestly thought that because Obama and co. said it, it was so.

Walt D. July 20, 2009 at 12:11 pm

Don’t start jumping up and down yet. Don’t forget that there was an unprecedented amount of public opposition to the first bailout. Letters/e-mails to each congressional member we running 95-99% against the bailout. They did it anyway.

corky July 20, 2009 at 12:38 pm

“They did it anyway.”

When the historians write the history of our time, that should be the title.

Curt Howland July 20, 2009 at 12:46 pm

“They did it anyway.”

All that, and they still get re-elected. Proof that the game is rigged.

Curious July 20, 2009 at 1:01 pm

“…could it be that people are figuring out the scam here?”

Not likely. People are too dumb/lazy to figure out anything.

As long as there is economic hardship, regardless of who’s the president or what he does, his numbers will drop. When the economy rebounds, his numbers will soar.

If the economy doesn’t rebound before the next election, this moron will be thrown out and a new one will be put in his place. And the cycle will repeat.

fundamentalist July 20, 2009 at 1:12 pm

Richie, here are some more thoughts on the feds’ paper on money and inflation:

I have mentioned before an analysis done in an econometrics text from the late 1980′s that showed a strong relationship between money (M1) and cpi. That analysis used much longer lags, up to 24 quarters and used quarterly data. I still prefer the older study to the feds’ for the following reasons.

The fed data was monthly, which is too volatile and random to predict well in my experience. The noise in monthly data can easily overwhelm the signal. At the quarterly level money predicts cpi much better.

The fed study finds the 24 month lag (8 quarters) to be the strongest out of 32 months (not quite 11 quarters). The econometric (distributed lag) analysis showed that the max effect kicked in at about 4.5 years, or 18 quarters or 54 months. Longer lags may have produced better results, but it’s doubtful because of the noise in the monthly data.

In the fed study, previous rates of inflation were the best predictors of future inflation, better than money. All that means is that previous price inflation has an effect on future inflation, which one would expect if people adjust their expectations. The distributed lag econometric model includes such expectations by keeping past levels of monetary expansion in the model. In other words, the input variables for the distributed lag model were the previous 25 years of changes in the money supply. On the other hand, the fed study picked just one lag, 24 months, and used only that variable as a predictor. Picking one variable as the predictor will not capture the cumulative effect that the distributed lag model does.

Austrian theory predicts such behavior because it doesn’t use the “helicopter” analogy of monetarism in which all of the money reaches everyone in the economy at the same time. The fed study appears to follow the “helicopter” model. However, Austrianism recognizes that money enters the economy at a particular place and takes years to work its way through the economy.

A better approach to determining the impact of money on prices would be to use a technique called partial least squares (PLS). In PLS several correlated variables can be consolidated into one. For example, you can include all of the measures of money as input variables and PLS will construct a single variable to represent them that works much like an index. Then for the dependent variables, you would use ppi (cpi prices are notoriously sticky) and several measures of asset price inflation, such as the Cas-Schiller home price index, the stock market, interest rates on several bonds, etc. PLS will consolidate those predictors into one or more non-correlated (orthogonal) measures of inflation.

Finally, you’ll need a measure of productivity and the stage of the business cycle, such as GDP change. I’m confident that you’ll find the proper link between money and price inflation in such a model.

Russ July 20, 2009 at 1:25 pm

Curt Howland wrote:

“”They did it anyway.”

All that, and they still get re-elected. Proof that the game is rigged.”

Not necessarily. It could be the case that the majority of voters have the attention spans of ADHD children, no long term memory, middling intelligence, and just plain aren’t paying attention. We’ll see in 2010.

Bruce Koerber July 20, 2009 at 1:28 pm

Undoing Socialism
Monday, July 20, 2009

This Is A Pivotal Time To ‘Change’ Away From Socialism.

This is a pivotal time since socialism is what the power elite want – with them as the controlling class – yet the irrationality of socialism and its arbitrariness, and its lack of an ethical foundation keeps becoming more and more evident.

The ego-driven interventionists are beginning to lose their grip! What we need are multiple examples of secession and a successful and unfolding practice of classical liberalism.

Dick Fox July 20, 2009 at 2:55 pm

Using M2 as an indicator of inflation is directly monetarist.

I have often encouraged Austrians especially those here on the Mises site to move away from Friedman and toward Mises. Here is another plea.

In the early 1980s you see that 1979-1980 was a period of huge inflation though M2 grew only modestly. Everyone knew intuitively that we were in big trouble no matter what M2 said and Volker’s solution was to do everything he could to pull in the money supply. But there was an indicator that was telling the story, gold.

From 1979 through 1980 gold rose through the roof. But if you look at the price of gold in 1981 you see it starting the years at around $650 and finishing the year below $400. This was a huge deflation.

What you have to understand is the lesson taught buy Roy Jastram in his The Golden Constant and especially the recently released update with additional information by Jill Leyland. Jastram found that when we were on the gold standard, prices of commodities would fluctuate at times by huge margins but they would always return to the price of gold. What Leyland found is that after we went to a floating dollar that the price of gold would follow the dollar’s value but once again the prices of commodities would always return to gold.

You cannot measure the quality of the currency by either the supply or money or an index like the CPI, but the price of gold will give you the quality of currency almost immediately.

In 1980-82 gold signaled deflation and the economy fell into recession. Jude Wanniski warned Volker at the time that his monetarist approach was driving the economy into recession. It is amusing that in 1983 Wanniski sent Volker a letter warning that he might push the economy into its 3rd recession in 4 years. http://www.polyconomics.com/fyi/fyi-830309.htm

John M July 20, 2009 at 3:54 pm

“They did it anyway.”

When the historians write the history of our time, that should be the title. -Corky
“They did it to save capitalism.”

When the historians write the history of our time, that WILL be the title.

mrbateman July 20, 2009 at 6:28 pm

I personally subscribe to the theory voiced by Rush Limbaugh: a lot of Obama supporters were opposing his policies but thinking of him as something other than he is. Some still oppose all his policies but support him. A lot of people thought he was a centrist, a lot of people with economic knowledge thought his economic policies will be smart.

Now, after Obama has done a lot, some people begin to understand, who he really is.

It is very interesting to guess if Obama will get re-elected. George W. Bush was one of the most hated presidents in history and he got re-elected. People re-elect disastrous presidents again and again, partly because they fear (and the fear is not unfounded) that every president can make you nastalgic at some point.

Russ July 20, 2009 at 7:18 pm

mrbateman wrote:

“George W. Bush was one of the most hated presidents in history and he got re-elected.”

We were in a war, and Americans tend to want to maintain continuity during times of war.

Besides, the alternative was John Kerry. In the immortal words of Stan Lee, “‘Nuff said!”

Walt D. July 20, 2009 at 7:32 pm

“George W. Bush was one of the most hated presidents in history and he got re-elected.”
Nixon was not well liked either, and he got elected twice. In fact he actually got chosen by the voters 3 times, and would have been President instead of JFK had it not been for voter fraud.

Eric Parks December 30, 2010 at 9:25 am

Can’t help but wonder the makeup of the congress next year had the democrats focused more on reducing the war and reinstating many of the liberties lost under the Bush regime. Instead, they became just like the republicans in many respects, showing a consistency in the two above-mentioned areas which, to me, points to some predetermined agenda that continues no matter what the voters say.

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