James Leroy Wilson's blog

Wednesday, March 15, 2006

All Too Believable

From the Capitol Spectator's interview with Congressman Ron Paul, M.D.:
[T]here's very little interest in monetary policy. I couldn't get anyone to pay much attention to it. In fact, there are a lot of misconceptions. For example, one day I was talking to Greenspan, and one of the members in Congress came up and asked, "Isn't the dollar backed by gold?" This was a member of Congress! That's when I realized we have a lot of work to do. I argue that Congress, either deliberately or inadvertently, doesn’t think about [monetary policy] because the Fed irons out some of our problems when it comes to deficit spending.[Emphasis added.]

It should be amazing that an member of Congress is that uninformed, but such ignorance is probably widespread.

Another interesting passage from the interview is when Dr. Paul talks about inflation:
But isn't the stated rate of inflation quite low?
That's deceptive. The rate of inflation is actually horrendous, especially for low-to-middle-income people, who spend their money on food and fuel, and clothing and medical care. Even if inflation was as low as stated, it's the same type of deception that occurred in the 1920s. They kept saying there's no inflation. Inflation is measured by the increase in the money and credit. The distortions sometimes lead to higher prices, but many times you can't predict where those higher prices will emerge. Sometimes it's in a stock market bubble, sometimes it's in commodities, sometimes it goes into the consumer price index. So inflation emerges in different ways. Meanwhile, the biggest problem is the deception that interest rates are low, which causes people who save, people who invest, people who spend to do things they otherwise wouldn't do. For example, if interest rates are 2%, you're more likely to overbuild houses than you would if the market rate was 4% or 5%.

To me, it's a moral issue to. What if you're old-fashioned and frugal and you've saved your money, and you don't like stocks, because you know about stock market crashes? And so you put your money in CDs, and they get 2% instead of 5%. The market might have given them 5%. And it just makes it harder for them to live. I brought that up once to Greenspan, and he said, Well, sometimes you just can't take care of everybody at one time. He said, some people do suffer from it; he didn't deny it.

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