Wednesday, April 26, 2006


So cracked, some light shines through: Congressman Ron Paul

Ron Paul is one of the more decent Republicans. He doesn't vote in lockstep, he seems to care about the country rather than his own career, and he gets dissed by the leadership for being independent 10 percent of the time. Still, listening to him one realizes the depths of insanity we are dealing with. "Government run universities." "Fiat money." This is the way Ron Paul talks. These are cult phrases, not the words of someone talking sense. There is a "government run university." It's called the National Defense University. All money is "fiat money, whether it's cowry or metal. Here's why: the gold standard was abandoned because it declares that human wealth is determined by the mining of a metal. Good harvest or bad, it doesn't matter. Discover penicillin or bomb Dresden, it does't matter. All that matters to determine how rich we are is the amount of gold discovered. This makes even less sense than having the Federal Reserve (in tandem with banks and the US Treasury) decide. Classic anecdote: In the late 19th century, JP Morgan held the nation hostage by predicting when the US government would have a cash flow squeeze, parked a ship packed with gold just offshore, and waited for our elected representatives to come on their knees (see The House of Morgan) to agree to his terms for loaning them the gold. And JP, for all that he was a financial pirate, clearly cared about this country and didn't extort more than we could bear. Ken Lay was willing to let people die so he could extort the last dime from California. Here's a couple of simple thought experiments that Ron Paul needs to perform (but won't). Suppose that a huge meteorite, packed with gold, landed on Iran. Would Ron Paul be willing to let it become the world's pre-eminent power? Alternatively, suppose that interplanetery thieves headed by Zaphod Beeblebrox broke into Fort Knox (or wherever they keep the stuff) and stole America's gold. Would our nation be any less economically powerful? In real life, there are times when gold discoveries decline and times when they surge. That's exactly what happened in the late 19th century. Had the discovery of Alaskan gold not occurred when it did, William Jennings Bryan would have been president instead of McKinley, because the slow discovery of gold had put the US into a grinding recession, which Bryan compared to crucifixion. It was a completely unnecessary recession, brought on by the tyranny of a really stupid idea. But the worst and most obvious flaw in the gold standard is, "What do you do if you need to expand the money supply? Like, suppose there's a real war? In World War I, the government had to get permission from the financial houses. By World War II, fortunately, we had gotten over the fixation on gold. Literally the only attraction of the gold standard is predictability. The gold supply may remain constant or rise by a few percent. Short of meteorites or interplanetary bandits, it's more or less constant. But behind all the crackpot rhetoric Ron Paul uses, there are gleams of insight. Like, for example, we should keep the budget roughly in balance. But best of all is Paul's basic insight into Iran, one that I wish more congressmen had: "There is no evidence of a threat to us by Iran, and no reason to plan and initiate a confrontation with her. There are many reasons not to do so, however. Iran does not have a nuclear weapon and there’s no evidence that she is working on one--only conjecture. If Iran had a nuclear weapon, why would this be different from Pakistan, India, and North Korea having one? Why does Iran have less right to a defensive weapon than these other countries?" How can a man who speaks so plainly and so clearly about Iran be so blind about modern monetary policy? To avoid "printing money," all that we need is a Congress willing to spend responsibly and a president who won't lie about the budget. Contrary to public perception, for most of our history, we had this. Really only the Reagan and Bush II eras have been based on lies.
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