I have been reading Dr. Scott Sumner’s blog for a few years, and since I’m not an economist it took me a while to understand what he’s been saying about the cause of the severity of this recession we just can’t seem to shake. If you want to take a look there, you can find it at www.themoneyillusion.com .

As with all information I get, I can’t help but plug it into to what I know to be true about politics, public policy, etc… It’s how my thought process works. If I can imagine it making sense, then there might be something to it. That is part of the reason for my post about Austrian economics yesterday. Dr. Sumner isn’t an Austrian basher, but I have become one because I educated myself in economics with Milton Friedman and I see the differences in their world preference and the one that Friedman envisioned, and they are completely different.

Sure each view is possible to achieve; we can design our monetary system any way we want really. But each different way we design our system affects the way our world works in no small degree, and nothing can be truer than money makes the world go around. People in general have been educated to hate any and all inflation, and I don’t blame them. It’s kind of like getting bitten badly by a dog in childhood, we’re always very cautious of dogs in the future. The Austrians demagogue that fear and bend your perception of it into their twisted version of the truth with the fallacy of composition, telling you that easy money causes irrational behavior, rising food and gas prices, and just about anything else you buy while just ripping you off in the end.  If you read my post yesterday, you will see that there is plenty of reason to doubt what they tell you is true, because there is far more to the truth than they will admit, and I just hit the low hanging fruit of stuff that is easy to qualitatively to disprove. There is just no way of telling how many people have jobs today because of easy money a several years ago, or that the total sum of productive investments made with it aren’t the only reason we are barely surviving today.

But what is important that I think you should know, is that that there has been a seismic shift in rhetoric on the part of Republicans regarding economic matters, and if you are a Republican you should be concerned that they aren’t talking like Reaganites. No, they have adopted the rhetoric of the Austrians and have been using the same terms in congressional testimony. This is really big because the economic world Reagan helped build doesn’t function on the same principles as the Austrian world. And if you were thinking about sucking it up and voting for Romney just to get rid of Obama, which I have also been considering, assuming he will do for us what Reagan did, you are mistaken.  Milton Friedman, Ronald Reagan, and supply-side economics have all been thrown under the bus in favor of an economy with artificially capped income growth as a facilitator for capping government growth.

You see, the Austrian vision is a hard cap on everything to drive government interference in the economy to a minimum. In that world, every time government thinks about stepping over limits, it will be taken out on us because the concept of raising all boats by expanding the pie disappears completely, and the game will truly be zero-sum. Real wealth will be redistributed, not in diluted form that makes its way around the economy through very mild inflation, benefiting everyone and fostering a society of self-sufficiency as it builds and collects finally in government coffers in the form of tax revenue, as envisioned by Friedman, but it will be done the hard way. It will be extracted through direct taxation with nothing to blunt the blow. This is why government is currently such a problem, and will continue to be so, because this has already been partially implemented by the Federal Reserve.

Even worse than this, is that the way this was implemented wasn’t through what we view as normal political channels. It wasn’t something people we voted for decided to do, knowing what was going to happen so they could align public policy with it before it happened. This is something the Fed just did in 2008, and it’s like trying to fit a size 10 government into a size 2 economy. To make things even worse, the Democrats and the Obama Administration assumed the typical Fed compliance with government appetite, as has been true for decades and just started piling on the spending and increasing the size of government, so now we have a size 20 government shoved into a size 2 economy while the unemployment rate remains elevated and has only gone down because people have found other things to do, like going to school, to wait this out hoping to find something later. If the Federal Reserve isn’t dealt with by our political system in no uncertain terms, there will not be anything for these people when they are done with school. They will have gone into debt for nothing because our debt is too big, and the taxes will be too high, only partially cover the interest and promises of social programs that can never be fulfilled without totally killing what’s left of our economy and our personal standards of living because there will be no more expanding the pie to get more growth to make up for it.

That is the ledge we have been shoved out on by the Federal Reserve, and the rhetoric coming from Republicans is consistent with that behavior so I can only assume they agree with it. To me, it’s really bad because this central bank has been morphed into a quasi-fourth branch of government that congress cannot control (likely a constitutional no-no). It lacks accountability. No one elects the people running it; they are appointed for 14-year terms and are insulated from political pressure. It can and has done whatever it wants to us and to our political system and gets away with causing more damage to our economy and to our society than Osama Bin Laden could have ever dreamed of doing.  Just don’t buy into the rhetoric that the Fed is causing the gas/food price problem (it really isn’t) or you will be part of the problem rather than the cure. It might sound silly to you, even crazy, but you need to demand that the Fed boost nominal GDP growth year over year until the Taylor rule indicates interest rates can rise again. Trust me. This is the only way to get back to where we were before the crash. It won’t cause hyper inflation or the crash of the dollar. You don’t need to buy gold. No, you, me and everyone else will be far better off than we are today and our kids will thank us for it in the far distant future.

It really is too bad that Democrats fell on their swords doing unconstitutional things with healthcare nobody wants, and didn’t take the gamble on something far nobler like battling the Fed so we can get out of the mess and back to acquiescence to government doing what government does as long it doesn’t come knocking at our door and emptying our bank accounts over night. I know I was happier not having to care about it as long as it didn’t bother me or hinder my ability to be self-sufficient and have a decent life-style. This thing we have now is a real monster that really needs to be put back in its cage, and I just don’t see either party getting what’s really wrong, although Republican might actually be responsible for it, let alone being able to fix it.