Insert ideas into head; observe at safe distance.

Diminishing returns to government

Fri, 18 May 2012 23:22:43 -0700

The more government does, the fewer things it does well. Certainly the more it does, the less oversight and control politicians (and through them, the people) can exert.
Today, a majority of citizens think the government should do less, but with a caveat: Government should still continue (must support) their pet project. The trouble is, if you cannot rationally limit government to a core set of tasks, then everything is permitted (and indeed effectively encouraged) so long as a shifting plurality of folks believe as you do, demanding government to fund and even run their pet projects.
Government, in such a political environment, thus can only grow in scope and decline in efficacy.
The temptation, on the individual level, is is to promote a lopsidedly constrained scope for government: Limit the political realm to its core set of tasks, yes, but add to that set your pet project, as well. Were this accomplished, your project might still be run efficiently enough. The managerial burden would not be too great.
But that is utopian. It’s not a live option. You are not the only demander of special treatment.
Add to this the sportsmanship element: We are taught, in a democracy, to live with "losing," so to speak . . . accepting negative results of an election and its outcomes assuaged by the hope of winning at the next round. Or the next after. In the context of government growth, this sportsmanship translates to objecting (in a peaceful, airy way) to losing our special project, but not objecting, so much, to someone else getting their special project, even if by getting theirs the marginal efficiency of government in general goes down, and the advantage to you goes down some tiny increment as well.
And this happens serially to every special interest . . . though most of this is hidden by our inattention. (We pay attention only to issue where we have most to gain and most, on the margin, to lose. But we lose most by the vast accumulation of small marginal losses outside our purview.) So, as if pulled and comforted by an invisible hand, people demand not only their favored status, but a general glut of favors, thereby demanding results they do not want.
That is today's dystopia.
And it is very much a dystopia, in no small part because a government that does everything cannot do everything well. Indeed, a government that does “everything” will likely do nothing well, including functions nearly everybody considers core.
Surely the best way to make the State lose its alleged core competencies is to expand its attempt at competence beyond a limited set of core duties.
 * * * 
A few days ago I made a similar point about regulation. Expanding the scope of the micromanaging variety of regulation spreads regulators too thin. For every increase in regulation, one would expect an increase in regulators. And there’s reason to expect the rate of expansion to expand far beyond a simple one-to-one ratio.
One of my reasons for skepticism about the modern way of regulation is simply the difficulty in organization, especially in keeping information and institutional wisdom “together” as the scope and extent and size of the regulatory bodies expand.
Such issues of structure, size, and function were part and parcel of Herbert Spencer’s sociology — and, in some work by later sociologists and economists, too — but such concerns find no echo in popular political advocacy. People who reflexively demand “more government” surely do not stress these issues. For it is here that we meet the devilish details.
People try to avoid the devil in their own policies, largely through suppression of attention — studied inattention — not by actively designing systems that aim to reduce the devilish aspects.
 * * * 
Diminishing returns to increased workload is something everyone has encountered. The form that I’m interested, here, is the management problem, often a time management problem. You can only think about, and organize, a finite set of complicated projects. Add another, and all may suffer, or at least some will.
I experienced this at the little magazine I worked at, years ago. The publisher kept on adding projects, but the increased time I spent working, including managing other workers’ time, tended to place me in a precarious pattern of increasing inefficiency.
The problem shows up in every enterprise. Businessmen are more than merely aware of it — much of their attention is spent on refining innovations to this managerial problem.
But, for reasons of rational ignorance and external costs, citizens and politicians routinely ignore it.
That doesn’t mean, however, that the evidence of the problem does not remain right in front of them.
Writing over a century ago, J.H. Levy, in The Outcome of Individualism, wrote of the situation in England:
See how far we have gone already in State parentage. Look at the growing demand, not that children should be fed — that is perfectly right — but that they should be fed at the expense of those who did not incur the responsibility of bringing them into existence. Take note of the growth of police power and trial by officials, the decay of trial by jury, the shoals of statues interfering with personal freedom turned out every session by Parliament. Then see the impossibility of the public obtaining any practical insight into the provisions of these measures, and the fact that even Members of Parliament find the burthen of reading through the multitudinous and mazy provisions of the bills issued day by day, during the Session of Parliament, by the Queen’s printers — without mentioning the libraries of evidence in Blue Books on which these measures, or some of them, are supposed to be based — too heavy to be borne by mortal man. Open your eyes to these things, and you will see how impossible is democracy save when the sphere of government is very limited. Cowper’s Mahometans ate up the hog while denouncing it as an unclean thing, by judging each piece — as the phrase of the empirical Socialist goes — “on its merits.” So you are being made to swallow Socialism bit by bit.
Today, in America, we have a nearly unlimited government biting far more than it can chew — and that’s the good news. The necessarily piecemeal enforcement of its increasingly idiotic laws and regulations presents us with the yawning holes in enforcement . . . which provide us the chief form of our freedom.
It’s no way to run a republic, but it is the way our imperial republic is indeed run.
And our Congress passes laws it does not read, just as was the case in the 1890s, when economist Levy wrote the words above. And many of our laws are in effect written not by Congress (as is required by the Constitution) but by bureaucrats in the Executive Branch. Often with only pro forma oversight.
So the over-reach is obvious. The demands of the increased size and scope of government upon politicians and bureaus are too great to be fulfilled by responsible public servants. So they do the only thing they can do: They behave irresponsibly.
And we get more government doing less good.

Scaling Regulation

Sat, 12 May 2012 12:56:34 -0700

One of the stranger aspects of contemporary policy debate is the constant demand for more regulation. The proponents of increased regulation argue as if the previous regulations failed by being too limited in scope, but they give scant evidence for this. Indeed, they pretend that the the rhetoric of some Republicans to decrease regulations had been wholly effective, and that we have been living through a horrible period of unregulated laissez faire.
The truth could hardly be further from this supposition. We have been living through a horrible period of dirigisme. The financial debacle of the dot-com bubble happened under the watch of regulators. Enron’s fraudulent accounting practices were endorsed by regulators, and it was the company’s inherent frauds that unraveled at the bursting of the dot-com bubble. The SEC repeatedly looked over Bernie Madoff’s cooked books, but the Ponzi artist got away with it until the scheme hit its natural limit. All through the Bush administration, Congress piled up regulations, as did Executive Branch bureaucracies — and still there was a major financial bust.
But what about the repeal of Glass-Steagall?
Well, what about it? The old Glass-Steagall Act was mostly a dead letter by the time it was officially mothballed, and because of factors that included a lot of government action.
It might be time to reconsider the basic presumption that, any time a new debacle happens, what’s needed is a new set of laws. Indeed, the newest set is a cursed mess, as Tom Easton makes clear in a recent interview with Reason TV. And he nicely clarifies Glass-Steagall.
What’s needed, now, is repeal of Dodd-Frank.
Indeed, I think it’s telling that those who are most exercised by the need for “more regulation” almost never talk about making existing regulation effective. They don’t call for the firing of bad regulators, the hiring of good ones, or the development of standards upon which one might be able to judge a good regulator from a bad one.
One problem with regulation is that micromanaging regulations don’t scale well. The more government regulates, the vastly larger hordes of personnel it needs to carry out the tasks. The problems of scaling regulation rarely gets much play, however.
The traditional work-around to this problem is to shift the burden onto business — for paperwork compliance — and what we wind up with is an expense that protects existing major enterprise from competition of would-be upstarts. The paperwork is mostly make-work, and rarely receives adequate review. But not filling it out becomes a major offense, and the bureaucracies do what bureaucracies do best: present themselves to the citizenry as oppressive dead weight.
But we are not without hope. As I wrote not too long ago, “Rule-of-law oversight of business . . . is far more scalable than the micromanaging regulation that dirigisme requires. The fact that too much of government-business relations have been usurped, in modern times, by dirigistic requirements, rather than rule-of-law requirements, perhaps prevents [modal advocates of “more regulation”] from seeing the obvious truth that it is regulation, as understood nowadays (as micromanagement by government) that doesn’t scale.” And it is a simple rule of law, with backwards-looking (crime-centered) justice as standard, that can handle expansion of business.
If this seems too loose, and to allow too many problems, it is worth remembering that market institutions have developed in the past, and would, barring government usurpation of their roles (and outright prohibitions), expand to meet the need for “watchdogs.”
Still, in investing, some sense is required. If an investment seems too good to be true (as in Madoff’s case) it probably is.
Indeed, Social Security seems too good to be true. And it, too, is a fraudulent program, dependent on periodic reformations to prevent the dread day of its own self-destruction.
There is something to be said for “caveat emptor.”
The plight of the “normal guy,” the everyday saver in a world of complicated financial instruments and dubious (and risky) investment managers, is worth thinking about, however, beyond a counsel of “buyer beware.” It’s my opinion that most people shouldn’t engage in risky investing, and that everyone with savings should diversify. But beyond that, we have to remember that there are no guarantees in investing, and that all such speculation involves risk. And uncertainty. The modern-day project of making “risk-free investments” a viable strategy have failed whether they’ve come from government or private enterprise.
The consolation is that if dirigisme were given up in favor of laissez faire, inflationism would have to be abandoned along with the whole Progressive Era/New Deal social engineering agenda. And that would mean an end to the one thing that stands in the way of the small investor and everyday saver, above all else: inflation. It’s inflation that cajoles people into investments they otherwise would avoid, simply to attempt to avoid the inevitable loss of their holdings’ value. In a regime of secular deflation, small investors and everyday savers could hold a huge hunk of their saved wealth simply as “cash,” and that cash (probably a metal) would almost certainly increase in value without investment in business enterprise.
Keynes feared this, of course, but then, Keynes was trying to find a way out of a government-caused mess in the first place: a depression made by monetary policy, collapsed trade due to a protectionist “arms race,” and sticky wages made stickier by union bullying and politicians who dared not displease union “pigs.” (See W.H. Hutt’s great Sidney Webb story for that reference, in The Keynesian Episode.) Keynes worried over capitalism in its early stages of official dirigisme.
And that’s the thing we have to abandon.
Alas, we won’t get there until something is done about the base prejudice that elicits calls for more government at each crisis. The problem today is what it was 140 years ago, at the time of Herbert Spencer’s The Study of Sociology:
Conceiving the State-agency as though it were something more than a cluster of men (a few clever, many ordinary, and some decidedly stupid), we ascribe to it marvellous powers of doing multitudinous things which men otherwise clustered are unable to do. We petition it to procure for us in some way which we do not doubt it can find, benefits of all orders; and pray it with unfaltering faith to secure us from every fresh evil. Time after time our hopes are balked. The good is not obtained, or something bad comes along with it; the evil is not cured, or some other evil as great or greater is produced. Our journals, daily and weekly, general and local, perpetually find failures to dilate upon: now blaming, and now ridiculing, first this department and then that. And yet, though the rectification of blunders, administrative and legislative, is a main part of public business—though the time of the Legislature is chiefly occupied in amending and again amending, until, after the many mischiefs implied by these needs for amendments, there often comes at last repeal; yet from day to day increasing numbers of wishes are expressed for legal repressions and State-management. This emotion which is excited by the forms of governmental power, and makes governmental power possible, is the root of a faith that springs up afresh however often cut down.
“Regulation” is not a “marvellous power.” It is a crude device too often constructed with forbidding complexity. Modern business and market activity thrive (to the extent they do thrive) in spite of it rather than because of it. Presuming the contrary is to presume a belief in something very much like magic. It is almost certainly the product of hope born of fear, rage, and resentment. It is not humanity at its finest.
It is human, though, all-too-human.

Willy-Nilly

Mon, 7 May 2012 18:47:13 -0700

Apparently, "willy-nilly" now means "helter skelter." I don't think I've heard the term used in its primary sense for several years now. "Willy-nilly" derives from "will he, nill he," meaning "whether one chooses or not." But that's not how people use it today.

Not long ago I heard someone say "going off all willy-nilly"; today I just noticed my former colleague, the great libertarian chronicler Brian Doherty, use the term to mean not even helter skelter, but, apparently, “ex nihilo.”

The degradation into the secondary meaning of "helter skelter" is not exactly a new phenomenon. The dictionaries I consulted all gave as a second meaning "spontaneous or haphazard," which is close to "helter skelter."

I shouldn't be bothered by this. But I am.

Years ago, as a mnemonic, I wrote a near-nonsense poem to mark the original meaning of "willy-nilly." Here it is (from memory):

Wee Willy Nilly was a dilly of a dunce,
He never made his mind up, not even once.
But that didn't matter, for what could he do?
Will he, nill he, a puddle-muddle grew!

The last line also incorporates the idea of disorder as well as the original meaning, so it pretty much says all that needs be said about either meaning of the term.

I'm just saddened that no one uses the primary meaning, any more. Perhaps lexical drift is deterministic, and they can't help themselves. Willy-nilly they go all “willy-nilly” to misuse "willy-nilly."

Trickle-down vs. Siphon Economies

Sun, 18 Dec 2011 20:01:53 -0800

“Trickle-down economics” serves as a fine example of rhetorical invective, but like most such efforts, it distorts the positions it allegedly designates.
I recently regaled a neighbor with my take on the current economic situation, only to have the phrase thrown back at me . . . despite, on that occasion, making no sure policy prescriptions. The mere manner in which I characterized markets and government involvement as a taxing power was enough to dredge up the old epithet.
It was not the first time I had heard it, of course. My father used to repeat the phrase, and he deliberately implied a sort of pantleg-urine reference point to the construction. He also mixed the metaphor, usually, with “dog-eat-dog capitalism,” another negative characterization of market processes.
Neither in my neighbor’s case nor in my father’s did the value-laden term impress me much. In my youth, I only suspected something was wrong with the characterization; now, years later, I can define the exact nature of its deceptiveness.
Water-based metaphors are common in economics. Irving Fisher explained economic equilibrium in terms of liquid hydraulics, and even devised a physical model of “the economy” using a sort of deranged water clock. But whatever value such analogies may have, at their very best, the “trickle-down” image obscures the nature of the exchanges that are the most common feature of the market order . . . the give-and-take of it all, the precise nature of most transactions upon which our very conception of markets rest.
The rich offer something (“water”?) to others, and those others offer something (uh, more “water”?) and each successful trade has both sides gaining. The wealth doesn’t “trickle down” from the rich to all others, it increases in the “reservoirs” of both the rich and those who trade with the rich. The rich appear to gain more because they offer their wares to a greater number of others (usually), thus a lot of beneficiaries with small gains contribute to the large, accumulated gains of the rich. Say I’m a poor sod. (Just for instance.) I make one trade with a billionaire, of a specific type. That billionaire will have traded the same sort of item with thousands, perhaps millions of others. I have gained through the trade (after all, otherwise I wouldn’t have attempted it). The billionaire, too, has gained from the trade. But because he has gained in each of those thousands or millions of transactions, his gross returns are greater from that sort of trade. I only made the one trade. He made more. And thus “made more.”
It's a a cumulation game.
“Trickle-down” doesn’t capture this at all. Instead, it sets up a perspective that suggests an alternative: “siphon economics.”
In “siphon economics” a government policy is established whereby the poor are thought to gain a leg up on the rich dudes. How? By siphoning off more of the wealth of the rich, in greater revenue streams. The siphoning is expropriation, pure and simple. The wealth or income of the rich gets taken away at some rate, and then is distributed — at some rate, after a cut for the bureaucratic and political middlemen who negotiate the transactions — to the less well off., “the poor.”
That’s the basic idea. It is widely thought to be more “humane” and “just” than the market transactions that allow the rich to accrue so much more wealth than others do.
And it is because of this policy of wealth siphoning that government earns a reputation as benefactor, as the agent providing greater returns to the poor than they could otherwise get.
However, since it's a negative sum transaction in the basic paradigm-case scenario — one party losing to another’s gains — the viability of the program may not be long-term, at least if the rates of extraction progressively mount. Unsurprisingly to the jaded observer of human foibles, such policy tends to devolve to “beggar-thy-neighbor” strategies, in the end reducing general wealth and welfare. It also diverts the energies of the less well off to unproductive life strategies, discouraging the acquisition of skills and habits that serve others by means of mutually advantageous trading relationships.
Beyond this, though, lies the worst problem of the siphon strategy, the possibility of deluge. The extraction method, at some point, ceases to regulate itself. The amount extracted becomes so the opposite of “trickle” that the reservoir risks depletion.
The crafty advocate of siphoning policy would understand that “trickle-down” unfairly characterizes normal market activity and social order, that siphoning, like other parasitic practices, can easily go too far, and that the very set of activities and institutions maligned in the phrase “trickle-down” is the more basic, and must be seen as such.
But, because most proponents of siphoning policy tend to demonstrate a deep aversion to the activities and institutions that do generally promote mutual gains, they lose sight of the dangers of their preferred social arrangements (parasitism), presenting themselves before the world as threats to progress and civilization.
That such folk — socialist and dirigists of all parties — use nasty and deceptive rhetoric against both markets and the rule of law that undergirds the market order, is of a piece with their philosophy, which is filled with hate . . . or, at the very least, a positive dislike of mutually advantageous action.

Too Clever by [insert fraction here]

Sun, 13 Nov 2011 12:45:38 -0800

Brad DeLong is a major economist with a major problem: He cannot bother to try to understand points of view which do not bolster up his position as court wizard in the managerial class of the modern technocratic polity. So when he attacks those who oppose the court wizard system of economic advisors (and their adjuncts and rotating members in the university system), he imputes to them positions they do not hold. He accuses them of them of some sort of Yokel Theory, a Dumbass Economics.
That’s my interpretation, anyway. (Some animosity can be detected here. I’m not trying to hide it.)
Here’s the most recent example, his “Another Note on Von Mises’s (and Ron Paul’s) Monetary Mental Disorder,” all of which is worth reading, but the last half of which is especially bizarre:
The point of view underlying von Mises’s—and von Hayek, and Marx, and Ron Paul—complaint against fiat money in general and monetary management of the business cycle in particular is this: that value comes from human sweat and toil, not from being clever. Thus it is fine for money to have value if it is 100% backed by gold dug from the earth by sweat and machines and muscles (even if there is no state of the possible future world in which people actually want to exchange their pieces of paper for the gold that supposedly backs it). But it is not fine for money to have value simply because it is useful for buying things. There is, von Mises—and Marx, and von Hayek, and Ron Paul—think, something profoundly wrong on an economic and on a moral level with procedures that create value that is not backed by, in Marx’s case, human labor, and in von Mises’s and von Hayek’s case human entrepreneurial ingenuity. And in its scarier moments this train of thought slides over to: “good German engineers (and workers); bad Jewish financiers”.
Note that this does not just apply to fiat money produced by a government.
This applies to all financial market asset valuations in excess of capital cost of production (or perhaps the value of the inventions of the gigantic Krell-like brain of John Galt). They are, to von Mises, all cheats. Thus Von Mises loathes fractional reserve bankers and IPO-mongers as much as he loathes modern central bank chairs.
The “value equals cost of production constant returns to scale” viewpoint is an astonishingly powerful set of blinders to wear.
Before we begin to take this apart (and I’m not going to be complete), look at it, first, as an artifact of rhetoric and manners.
DeLong constantly refers to Mises and Hayek as “von Mises” and “von Hayek.” During his lifetime, Hayek repudiated the use of the “von” in his name. He just didn’t use it, didn’t think it was appropriate in the present age. Thought it an atavism. Mises, on the other hand, kept it, but almost none of his students and colleagues referred to him as “von Mises.” They just used the single word, “Mises,” when citing him.
So ask yourself: Why does DeLong persist on using those “vons”?
This is not a hard question to answer. He’s trying to load the rhetorical weight against his targets in his readers’ minds while seeming to be formal and respectful. Because he’s actually showing great and obvious disrespect to Hayek — by not using the name Hayek preferred, backhandedly imputing an old sense of aristocracy that Hayek had no truck with — and insinuating that Mises was somehow wrong to be so old-fashioned as to continue to use it as his formal title. DeLong occasionally even capitalizes the “V” in “von,” which is just wrong, it wasn’t done. It’s a country-bumpkin sort of error.
All the better to rub his readers’ noses in Austro-Hungarian aristocratic custom, hoping they come away sneezing. It’s a rhetorical ploy. It’s more subtle than calling DeLong, say, “Asshole DeLong.” But it’s not greatly different.
How’s that, exactly? Since DeLong argues that Hayek and Mises (as well as Ron Paul) fall prey to an old-fashioned fallacy, tarring them with an old-fashioned nomenclature helps reinforce his thesis.
I’d say “nice try,” but it isn’t nice. It’s just the opposite.
The substantive points DeLong makes are even more bizarre. He says that Mises and Hayek and Ron Paul share with Karl Marx (he brings this hoary figure up not only because he knows that his three main targets loathe Marx’s politics, but also — unmentioned by DeLong — one of Mises’ main claims to fame is demolishing the very idea of Marxian socialism as a workable economic policy) a view of the value of money that’s just so stupid and old-fashioned that we can just characterize it and laugh them off. Their view of “value,” says DeLong, is that it “comes from human sweat and toil, not from being clever.”
Pretty dumbass, huh?
Unfortunately, it has nothing to do with Austrian economics, and certainly not the Hayekian and Misesian views of money.
Indeed, value comes from utility as bounded by scarcity. It’s inherently subjective — that is, relational — for the Austrians starting with Menger. Mises explains his view of the value of money in The Theory of Money and Credit, and I don’t believe DeLong will be able to mine that book for any evidence to back up his claim that Mises regarded value as coming from “sweat and toil.”
Indeed, things gain value as they are useful, and it doesn’t matter, on that level, if they’ve been elaborately produced or just found lying on the beach.
A gold nugget one pulls out of the sand is just as valuable as a gold nugget mined on the Moon. The cost in terms of labor means nothing. The costs only influence how much effort people will put into engaging in this production plan or that to extract the valuable thing, or use of the thing or service.
This is basic Austrian economics. You can learn this by reading Menger, Böhm-Bawerk, Wieser, Mises, Hayek, Kirzner, Rothbard, or whoever. (See Jonathan M.F. Catalán’s note on the Mises Economics Blog for more on this.) It’s a major theme.
It’s entirely the opposite of what DeLong is saying.
So why does DeLong say it?
Perhaps because he sees members of his class, the college-trained mathematical economists, as the world’s oh-so-clever saviors, the court wizards to the late democratic-republican maximum interventionist state. (What De Jasay calls “the churning state.”) And he thinks his class can manage the money supply and its credit functions to leverage “the law of large numbers” over time (“duration transformations”) like a finely tuned watch. The problem, as he sees it, are political obstacles to their power and control. People like Ron Paul push back, and stir up the populace against them.
Of course, Ron Paul has pretty much played John the Baptist until recently. He was a voice crying in the wilderness, and he had little effective check on the insiders’ power. Blaming him for past mistakes like the 2008 housing and mortgage after-market bubble is like blaming Pharaoh Akhnaten for the Pope’s theology. It’s irrelevant.
DeLong should be interested in Austrian analysis of credit over time — “duration transformation” is what it is all about. And Austrians have interesting facts as well as fascinating theory to show why DeLong’s reliance upon “clever” policy is really just trickery.
It should be remembered that fraudsters are clever. Simple savers and investors are rarely as clever as a Madoff or Ponzi. (Obviously, I believe DeLong’s cleverness and the uses he puts to it are in the Madoff mode, not the Steve Jobs mode.)
There is, von Mises—and Marx, and von Hayek, and Ron Paul—think, something profoundly wrong on an economic and on a moral level with procedures that create value that is not backed by, in Marx's case, human labor, and in von Mises’s and von Hayek’s case human entrepreneurial ingenuity.
This admits that Mises and Hayek do admire intelligence and knowledge. But it misses the point about their understanding of the nature of cleverness in fraud. Adding the dimension of time complicates simple analysis, and Austrians have, since Menger, been very conscious and curious about how time affects the analysis of value. And co-ordination. They’ve been aware how real-world activity takes place in time. And how something successful at time T1, T2... doesn’t necessarily remain successful at Tn. Especially when money supplies change. People can be tricked (or fool themselves) into mistaking monetary effects for real effects, and base their decisions on that error.
DeLong, a trickster at heart — oh, how he loves appearing clever! — balks at those who explore such problems. Because his method is to engage in sleight-of-hand at this very level.
Still, we have to cut him a little slack. Hayek and Mises were giants. But Ron Paul is not. He’s a politician. He’s playing to the crowds. Has to. And as such, he sometimes does step into the dog doo of Dumbass Econ. That is, Ron Paul occasionally sounds like he’s promoting a witless skepticism about money, not a sophisticated Mengerian/Misesian view. Ron Paul has indeed said things like “paper money isn’t real money, it has no real value,” and that gives anyone with a sophisticated sense of what money is (which is: what money does) a strong aversion. It understandably raises hackles.
It’s certainly raised mine.
And Ron Paul isn’t the worst offender. Not by a longshot.
How many times have you heard a libertarian hold up a dollar bill and say “this isn’t worth anything”?
Somebody once said that in front of one of my smarter libertarian friends, and my friend had the proper response: “Then give it to me.”
You see, the issue is rarely “is this real money” or “is this fake money” or is this “not money.” The essential issue is: How stable in value is this money over time? Can we base reasonable, real-world plans upon its enduring value. Or must we switch to some other medium of exchange? Which form of money works better? Which unit will hold its value?
These are marginal issues, in which one compares one discrete thing to another. They are not matters settled by a binary All-YES / All-NO answer. The kind that politicians like to play up. The kind that popular rhetoric almost always assumes.
The common, rube-libertarian/vulgar libertarian “paper money has no value” kind of talk implies that one believes in intrinsic value, not subjective value, and it throws marginally sophisticated thinkers (sophisticates) like De Long way off.
Of course, in his better moments Ron Paul doesn’t say stupid things like that. He says that, without a backing by gold (he usually elides the necessary qualifier “or other hard assets”) paper money’s value will degrade over time. And Ron Paul’s recent statement that he bought gold in 1971, and that he’s now being proven right by the European and American financial collapses, ongoing, is quite on point. It does not rely upon Dumbass Econ. It relies upon an understanding of the supply of and demand for money. (It should be noted that this post, by Gregory White, has a title that implies a Dumbass Economics point of view, without quoting Ron Paul as actually saying anything dumbass.)
But every time a libertarian or hard-money advocate oversimplifies, he gives aid and comfort to the Trickster Class, to which Brad DeLong is a member in good standing.