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Real_Trouble -> RE: "Why the US is collapsing" (3/25/2008 4:01:21 PM)
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This article is long enough that I'm not going to be able to comment on all of the factual and logical inconsistencies without having to write a treatise that would span many ePages, so I'll make a few key points:
- Leaving the gold standard was necessary; Bernanke's writings on the Great Depression make a pretty strong case that lacking a truly flexible monetary supply which is not arbitrarily pegged to a specific commodity will lead to serious economic pain. Had the US not been on a gold standard and had not restricted the money supply, it is quite possible the Great Depression might have been more like the severe but not crippling recession. There's no good reason for a gold standard - pulling commodities out of a market to just let them sit doing nothing makes little sense in the long run. It's a totally arbitrary device that leads to trouble. This is not to say printing unlimited money is good (it's not), but that constraining it with such a device has major unintended consequences...
- I agree that the current US trade deficit is unsustainable, but if that unwinds suddenly, it is going to tank most other countries! A trade deficit means we are buying quite a bit of their stuff; we will stop. This means that their economies have less of a market to sell to, as the demand drops, which tanks prices and hurts wages. The US deficit is subsidizing much of the rest of the world, not the other way around. What the author fails to understand is that a large US economic crisis will lead to a much larger and more painful world economic crisis.
- His commentary on trade negotiations is completely insane; essentially, he seems to be arguing that intellectual property laws are a terrible thing that was forced down the throat of the rest of the world! While I agree they have some negatives to them, taking even a very basic look at research spending and development efforts by companies prior to intellectual property protection and post intellectual property protection paints a pretty clear picture; if your work is not protected, you aren't very inclined to do it, or at least, spend much on it. This makes perfect sense, as it's a classic case of incentives. Why would I spend $5 billion dollars trying to develop a cure for cancer if I get paid nothing for doing so, from a corporate standpoint? While we bitch about drug prices and software costs, without IP laws, we probably wouldn't complain about them at all... because we wouldn't have them. A basic look at research spending and the speed of progress makes that rather clear.
- The commentary on the money supply being tied directly to household borrowing is also patently moronic - parts of it are, but that's like saying my car is wholly composed of its engine. This is simply false; the fact that the author is ignorant of other lending markets doesn't mean they don't exist, nor does it mean that we can just borrow ad naseum and expand the monetary supply ad naseum. It just means he is ignorant. Fractional reserve banking is not a great evil - people try to game any economic system, and what really matters is degree of incentives to do so versus penalties for not doing so.
This whole article, to someone with a serious finance and mathematics background, is seriously structurally unsound. If what he's arguing is true, the current EU system should have tanked completely by now, the Scandinavians and Japanese would not have had the huge banking crises that they did in the past few decades because he's lauding their flaws as strengths, the Asian system would have been fine in the late 1990s, and the Russians never would have defaulted on their debt. More so, he doesn't discuss the systemic instability a run on any major currency would create (as he says, Russia is tiny compared to the US in terms of economy in the 90s, yet the Russian default caused major issues alone for everyone), nor does he bother to back up his completely asinine claims about the US somehow exploding and fracturing like Russia (yes, because just like the Russians, we are clearly a confederation of differing ethnic groups with differing pasts that was awkwardly welded together as one nation). There's just so much here that is flat out wrong I don't even know where to start to formally refute it.
Insane.
Now, if you want to argue against major deficit spending, please do! I argue against that myself. But please, argue against it with a logically sound and sane argument! This article is like decrying murder because it leads to global warming or something equally bizarre. However, the US is not about to collapse (or, if we do, everyone else is coming with us - see the commentary on the trade deficit), though we may bleed for a bit as a result of our largesse.
A little pain can instill some discipline, though.
I won't step into the capitalism debate other than to echo Winston Churchill and say that capitalism is the worst system there is, other than all the others.
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