Tuesday, January 4, 2011

Explaining Economists

A week or so after the Federal Reserve announced Quantitative Easing, their last scheme to give money to their favorite big banks I came across a cartoon Video titled "Quantitative Easing Explained".  I'm no economist, but I'm lucky enough to have Lewis as a Grumpy Contributor.  Lewis has spent the last twenty years studying Economics...  For several months he'd been spoon feeding me the basics... when I saw the video, everything fit.  I posted it here on Grumpy.  Today, almost two months later I noticed that  Forbes the self described Home for the Worlds Business Leaders seems to have come to the same conclusion 

Here's a quote from Amity Shlaes' article Economics By Cartoon, The best commentary on Fed policy currently out there is a do-it-yourself animated short called Quantitative Easing Explained.

The best commentary on Fed policy currently out there is a do-it-yourself animated short called Quantitative Easing Explained. The 6-minute, 48-second cartoon features two stuffed animals, drawn in Pokémon style, talking about monetary policy. Specifically, the bears--or are they dogs?--point out the illogic in the official Federal Reserve position that today the danger of deflation is greater than that of inflation. The animals also criticize the Fed officials' recent pursuit of QE2, the acronym for its decision to inject $600 billion into the economy. More than 3.5 million people have watched the video, and it was posted on YouTube in November

I enjoyed the article for several reasons.. First, it was nice to find out Forbes had come to the same conclusions I had.  One of those conclusions was that economists don't want the average person to know what they're saying.  As Will Rogers once observed, "Sometimes even the economists are right"

A second similar concusion;  Most of us want to know at least the basics about out economy, but economists would rather have us keep believing we're not smart enough to understand.  And a third, most people in the media, don't know much more about economics than we do...  You can read the rest of Amity Shlae's editorial by clicking Right Here. 

Amity Shlaes also mentioned a rap video Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem that explains the differences in viewpoints between the two dead economists that seem to have some much effect on America's economy  today..  Almost everyone has some ideas what John Keynes so called Keynesian ideas where..  That's the philosophy our Government has been following for a long time... easy credit (especially for the Government) and massive spending will get you out of anything.  Fredrich Hayek on the other hand, believed that a free market approach, allowing businesses to grow or fail without any government intervention would lead to long term prosperity.....  Take a couple minutes and enjoy a more modern explanation of the difference between the two men.

I'm sure some of the people who read his have done their share promoting The Keyensian Spending Theory, most realized it's only fun until the bills come due.. Sure, Government has more ways to shuffle numbers and deeper pockets than we do, but if it doesn't work for us, how long can it work for Government.


  1. Hayek also continued the scientific analysis on why socialism cannot work, first put forth by Ludwig von Mises. And it's not just because "you run out of other people's money" (parasites eventually outnumber the producers). Socialism cannot work even before you run out of the money, because of the problem of economic calculation involved in central planning.

    Central planning cannot work because there is no economic feedback mechanism, as there is in the free market. The "planners" can never know what to produce, and in what quantity, where or how to distribute it, and at what prices...regardless of their supposed "brilliance". Never mind that the entire concept is immoral and subject to corruption from the start.

    The market mechanism works through private property ownership, voluntary contracts, profit and loss, and mostly, the pricing system. All of these are economic signals to the entrepreneur that they are either doing the right thing or the wrong thing, as far as consumers and investors are concerned.

    That is why central planning of monetary policy through central banks (which every developed nation has) causes so much damage. The price of money (the most important aspect in an economy), which are interest rates, are distorted. Malinvestments occur because of this, which results in false booms and inevitable busts. Even a little bit of socialism is a disaster.

    These aren't intuitive concepts, however. The basics of economics, most can grasp easily - resources are scarce, human wants are infinite, therefore there are opportunity costs; the basics of supply and demand, etc.

    Central planners, of course, love Keynes. That's because he called for government control, and that's what controllers do - they control. Most "economists" are just appologists and mouthpieces for central planners. You will rarely see free market economists held up in the media. Even one of their so-called, free market favorites (Milton Friedman) was in favor of a central bank, which is pure socialism in terms of money.

  2. So, what do you do if you already have a central bank.. one that's been in the business of devaluing our money for a century... because inflation helps us.

  3. Grumpy, Ron Paul has the best ideas about this (at least of those in government...in fact , he has the ONLY good ideas in government about monetary policy), his idea is to have competing currencies, and let the market decide which is best. End the legal tender monopoly. His book End the Fed is recommended. Do you think it will ever happen? Hell no. Bankers control the world economy, period. They write the laws. The term "Government Sachs" comes to mind.

    However, the system is going to collapse world-wide whether the bankers want it to or not. What arises in the aftermath is another matter.

    Here's a really good one I read today about QE1, QE2, etc.


    That's the only way to get a grasp on this stuff - read, read, read. The elite fears ideas more than anything else.

  4. On paper the Fed is suppossed to, prtect the Country's Financal System, Keep Unemployment at an "acceptable level" and control inflation..

    Somehow most of the big banks come out on top everytime there is a bust.. so they do alright there.

    Employment never does well in a bust.. and real income always lags behind inflation, bust or no bust... they don't do well there.

    The Candy Bar I bought for a nickel as a kid, costs a buck now. The pack of cigarettes that I could buy out of a machine for a quarter now costs over five bucks accross the counter at the cheapest store I can find... What does that do to a persons savings, over a life time?

  5. Eventually the fact that there is no "free lunch" catches up to the bankers, as well. That's why folks like Soros are calling for the "orderly decline" of the dollar, so the bankers world-wide can get out of the dollar and still save their own ass. They just hop from one empire to the next, and have been throughout history.

    I'm sure they had high hopes for the EU, but that doesn't look too good at the moment either. Of course, if they get their one-world currency, they're home free (at least they think so).

    Bankers like inflation because it is fraction-reserve banking which causes inflation, that allows them to create money from nothing and charge interest on it. Bankers, government, and those that do business with government always get the new money first, and are least harmed by inflation. Who inflation hurts the most are savers, and folks on fixed incomes. Eventually the cost of living goes up and the currency depreciates.

    However, a catastrophe like hyperinflation, takes everyone out who is holding that currency. The FED took a big gamble with QE1 (or maybe they know something we don't...??), because banks decided to shore up their balance sheets instead of easing credit. If that money had worked its way through the system with fractional reserve lending, our currency would have probably been destroyed already.

  6. Lewis, when the Fed hands out money, it's in big chucks.. enough to affect a commodity market or give a stock market a push.

    Why settle for loaning money out for long periods of time at a realitively low return when you can bump a commodity, lumber, oil, corn or whatever, and pull out a 4-5% profit in a matter of weeks? You can turn he same investment dollars 8-10 12 times in the course of a year,

  7. And don't forget short selling as well. Isn't there some sort of backlash going on about JP Morgan's manipulation of the silver market?

  8. I hadn't heard about that, wouldn't surprise me, the Chinese are telling people saving money in Silver is the best hedge agaist inflation.. Might not earn you any money, but it protects what you have.


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