Thursday, May 31, 2012

Flounder logic. Out of the frying pan & back into the fire?


LFMI, the Luddite Fleeced Market Imps masquerading as the Lithuanian Free Market Institute, are back to flashing their school colors.  To attract sharks? "No remora could possibly have foreseen the scraps generated last time!!"

Over at Mosler Economics, readerAhoi says "Lithuanian Free Market Institute propose Euro-exit plan based on gold standard monies,"

Their proposal is based on a very abstract goal. They prefer "sound money" regardless of what it implies for a sound economy in a highly volatile world.

Let's back up and start with "sound logic" and see if we can sort out this mess, before shackling strategy & policy with fixed tactics?

As a start, have the Lithuanian luddites consult their national logic and mathematical societies, and review "completeness" theories before trying to project nonsensical ideology onto a world chaotic enough as it is.

Flashing so much nonsense that some sharks are confused, or hiding in the mud, are strategies for sardines & flounders.  Lithuania can do better than this.

24 comments:

Anonymous said...

I dunno. One could argue that a gold standard is actually more progressive than the current arrangement. Increased demand for commodity money during downturns means that money production becomes countercyclical. Anything countercyclical at this point would be helpful, since as far as I can tell, the Euro is primarily governed by the credit system, which runs the opposite way.

I've heard it said that designing a monetary system worse than a gold standard would take some serious effort. On those grounds, I think we can conclude that the efforts of the Eurozone's architects were downright Herculean.

money4nothingchicks4free said...

I would think the idea is not worth paying attention to. Good place to start would be to find out if "free market" has ever existed. To my knowledge It has not. This idea is against "free market". They want to use government institutions to force the acceptance of gold as money. These lunatics are free to use gold as money right now.

paul said...

"I've heard it said that designing a monetary system worse than a gold standard would take some serious effort. On those grounds, I think we can conclude that the efforts of the Eurozone's architects were downright Herculean."

The current Euro sytem "mimics" a gold standard. Looking at it as a black box the behaviors are similar.

Any man-made system is an attempt to "mimic" a real-world process.

A monetary system should be looked at as a "black box". The only thing we should be concerned about is what comes out of it, and if it performs the functiion required by the economy.

Do you care what topology exists within your audio amplifier?

All you care about is that it takes the signal from a source and drives your speakers. You judge it's performance by how well it does this wrt gain, distortion, etc.

There are an infinite number of topologies for audio amplifiers. They all perfrom the same basic function.

The same can be said for monetary systems.

MMT is concerned with function. In the real world.

Anonymous said...

Paul: I am not sure, are you disagreeing with me? Or seconding my notion?

The two are only functionally similar in that they both have an inherent tendency towards crisis. But then, that's capitalism in a nutshell. I'd maintain that the actual nitty-gritty of crisis resolution, however, looks better on the gold standard side than the Euro, since its money creation only appears to occur through the banking system.

Am I wrong? Everything I've read seems to indicate that the Euro system is basically like the U.S. system if we only had the Fed and no Treasury.

Going with the audio analogy, two different digital systems can both quantize an analog waveform, but this one with the gold connections has dither and the other one doesn't. So there's a tradeoff between noise and distortion. Neither is ideal, but generally, people are going to find the former more listenable. (This metaphor is tenuous as hell already.)

paul said...

@Anonymous

I'm in agreement.

My comment was just an attempt to frame the argument from a different perspective.

It is an approach I plan on using in the future as a way to try to get certain simple concepts across that many arguments that have been taking place lately seem to be missing.

I see most of this subject as a collection of simple concepts. A system built on simple concepts is still simple.

BTW, I look forward to push-back that any of my comments may generate (guess I'm needy).

Anonymous said...

(An other anon)

Tom can you chck spam box? seems blogger eat my long post.

Matt Franko said...

In the Eurozone, with those fixed %GDP deficit requirements, they are in effect trying to force the non-govt to accept a fixed amount of savings desires (dictatorial).

The non-govt may push back. The non-govt may have different savings desires that what the govt authorities deem appropriate...

Comes down to: Will the govt accommodate the non-govt savings desires or not?

So far looks like not.

To Paul's point looks like the same thing could result under a system that allowed gold convertibility.

Resp,

Matt Franko said...

for our European freinds here at MNE,
here is an example of the folks who want to return to the gold standard over here in the US:

http://www.youtube.com/watch?v=l2wE673ZKzU

Kinda funny....

Resp,

Vytautas Vakrina said...

Mario Draghi made impressive statements today

BBC: Eurozone set-up unsustainable, says Draghi

NYTimes: Central Banker Sees Structure of Euro Zone as ‘Unsustainable’

paul said...

@Mario

Welcome to 1995.

Regards,

The MMT community.

Roger Erickson said...

@MattFranko

> trying to force the non-govt to accept a fixed amount of savings desires

My analogy, trying to force Army Ants to behave like good Snails.

But what if the serfs evolve faster than the masters wish to see? Too bad for the whining Luddites!

"That's ok, we'll just sit here & let you innovators stand on top of our shoulders. Lord knows WE'RE not going anywhere!"

Whatever!

Tom Hickey said...

"I've heard it said that designing a monetary system worse than a gold standard would take some serious effort. On those grounds, I think we can conclude that the efforts of the Eurozone's architects were downright Herculean."

How did the gold standard work out in all the panics that occurred under it, and the Great Depression began under the gold standard. Those countries abandoning it earliest fared best.

Maybe you have other evidence?

Roger Erickson said...

@Vytautus

> [Draghi] said that the ECB could not "fill the vacuum" left
> by governments on creating growth or structural reforms.

Either he's missing a few screws, or hasn't noticed the gov's asking him to turn off the vacuum pump?
Hopefully, that's some weird way of saying the SGP has to go?

> EU economics commissioner Olli Rehn said more austerity was
> needed if the eurozone was to avoid disintegration.

Ok, this guy is certifiably insane. Sure, death is one way to avoid dissociation ... but what about sapovrores?

Tom Hickey said...

"if "free market" has ever existed."

"Free market" means no govt intrusion. So free market is an oxymoron. Govt always plays a prominent role in markets because markets depend in the rule of law and that brings in a host of govt institutional arrangements. Moreover, govt is a major player in economies and generally govts have the control over the creation of the unit of account in which liabilities to the govt are remitted.

What "free market" means is govt regulation that favors a particular class (propertied) and disadvantages other classes (non-propertied). It's an institutional arrangement that leads to capitalism as neo-feudalism in the sense of creating a privileged class.

Roger Erickson said...

Oops, meant saprovores
http://en.wikipedia.org/wiki/Saprovore

Saprovore - species which accelerate dissociation of decomposing critters (dead or still alive)

ECB = white-nose fungus to those batty europeans?

Tom Hickey said...

Anonymous: "Tom can you chck spam box? seems blogger eat my long post."

Done. Several posts liberated.

paul said...

@Anonymous

I missed this earlier…

"Going with the audio analogy, two different digital systems can both quantize an analog waveform, but this one with the gold connections has dither and the other one doesn't. So there's a tradeoff between noise and distortion. Neither is ideal, but generally, people are going to find the former more listenable. (This metaphor is tenuous as hell already.)"


Are you talking about my metaphor or yours?

Not to over-think the metaphor but I was referring to the basic function.

There is only one kind of dollar spewing out from our monetary system. Quality remains constant, only quantity is variable.

Too many - inflation?
Too few - deflation?
Right amount - perfection (and no involuntary unemployment).

Tom Hickey said...

Matt: "To Paul's point looks like the same thing could result under a system that allowed gold convertibility."

The euro masters are doing their best to mimic a convertible fixed rate system, which is deflationary and favors creditors.

Anonymous said...

Tom: How did the gold standard work out in all the panics that occurred under it, and the Great Depression began under the gold standard. Those countries abandoning it earliest fared best.

Maybe you have other evidence?


Other evidence of what? That the gold standard is better than the eurozone? I'm not sure what other cases have been analogous to the eurozone. I'm just thinking it through to its logical conclusions.

In case I am tripping any alarms, I am not here to debate the gold standard versus a sovereign fiat system. That's been done to death. Instead, I am trying to compare gold to non-sovereign fiat.

If stronger countercyclical responses mean shorter depressions, and gold has a stronger countercyclical response than a credit-governed, revenue-constrained fiat system (in other words, the equivalent of having all your debts denominated in foreign currency), then gold would have a shorter depression and would arguably be preferable.

Obviously, it's a counterfactual to say "I bet the Great Depression would have been way worse if instead of the gold standard it happened under the Maastricht Treaty." But I think on the above grounds it's not an unreasonable assumption.

Paul: There is only one kind of dollar spewing out from our monetary system. Quality remains constant, only quantity is variable.

Sure. Though your example is a bit too "cute"; it rings more of a monetarist's perspective than that of MMT. Full employment isn't hit by a top-down policy targeting money quantities; rather, you hire directly, bottom-up, and money created is the result. The top-level management then focuses on tax policy, to stabilize the price level.

Tom Hickey said...

Anonymous, it's not an issue of gold or not gold, or even of institutional arrangements which can easily be changed and are when it suits the ruling elite. Things are the way they are because the EZ was set in a haphazard manner to get the ball rolling toward political union when it was obvious that it would not fly with voters. So introducing a common currency was a first step, which was salable on the obvious benefits with costs undisclosed. When things went awry, instead of fixing things immediately, which would have meant the top sharing in the pain, the strategy shifted to disaster capitalism to discipline the periphery and drive down wages. When the situation seems to be getting too instable, then TPTB relax the reins just enough to get by. It's not like this is an original strategy. It is age-old.

Anonymous said...

...Yes, that's all fine, but it reads to me like a non sequitur. I mean, it is an issue of gold or not gold in the particular instance being considered both in the article linked in the post, and in my own subsequent remarks. Obviously, we can examine it on an expanded level, but that's true of everything, ever.

I was just pointing out that a non-sovereign fiat system such as the EZ combines the inability for a fiscal response that we see under a gold standard with the pro-cyclical tendencies of credit money. In other words, it's the worst of both worlds. This was only ever supposed to be a passing remark to point out just how utterly absurd the EZ is; it's so bad that a gold standard is an improvement. That's all.

But I mean, if you discuss political implications and class struggle and such, that's fine, too. It's just outside the scope of what I was saying.

Tom Hickey said...

Going to a gold standard would not only be moving backward historically, but also it would be abdicating responsibility for looking for an external solution instead of meetin the problem on its own level. It would just involve another set of problems to deal with,

paul said...

@Anonymous

"Sure. Though your example is a bit too "cute"; it rings more of a monetarist's perspective than that of MMT"

It wasn't meant that way. (shudders.)

The analogy was meant to illustrate that we only care about the output, not the inner workings. The consumer (or user), that is. The designer/engineer (technocrat) has an interest in the topology.

My assumtion is the economy won't run without a spend/tax cycle to redistribute wealth (down).

The economy CAN'T grow without deficit spending, which again should be targeted at the poor and working class.

We DO care about the inner workings of the economy, just not the monetary system, or the external sector if the system is defined that way.

Roger Erickson said...

The analogy to audio transmission implies operation in a defined audio system.

That's not really analogous to the situation forcing transition from a gold to fiat std - which occurs because precise because of continuously SCALING systems.

More appropriate analogy is switching to AC from DC power transmission. One scaled, the other simply couldn't.