When the government has established a particular money system and maintains a monopoly over that system in order to achieve certain economic goals and that system breaks down, for whatever reason, it is the responsibility of government to ensure that it does not result in a humanitarian disaster. In other words, if we’re going to have a fiat money system and agree on certain principles of management of that system, and it changes the lives of the people in society to where money is an essential part of life, when that system breaks down because of shoddy management, and there is an immense and immediate need for relief, it is the responsibility of government to ensure people do not starve to death at the very least.
We don’t get to have the cake and eat it too and there appears to be a lack of understanding of what our economic lives would be like without the kind of money system we have and we sometimes let the inflation Chicken Little propaganda get the better of us. If you want to have the kind of life we had from 1983-2006, if you liked it, you do not want hard money, sound money or tight money. You want a little bit of inflation. If you want hard money, you want to go live the life of self sustenance farming because there will not be enough investment in things to create enough jobs for everyone and our way of life will change dramatically. Putting a cap on money puts a cap on everything, not just government.
The problems we have today are because the management of the fiat money system broke down. We had been living with mild inflation and benefiting from it, and that changed when the mindset at the Fed changed. The housing crisis did not have to happen. The financial crisis did not have to happen. They happened only because the Fed diverged from two decades of stable management of money and soaked up massive amounts of liquidity from our markets – for no real reason at all. And that causes unemployment on a mass scale. Bouts of deflation change our way of life in dramatic ways, and this is exactly how it starts. Because the Fed intended to do this, it has not done enough to fix the problem, and does not care that it stripped millions of the ability to be self sufficient.
The Fed does not care about that, but conservatives should because it destroys our entire ideology of small government, markets are king, and business and investment is the best way to provide for people who are willing to help themselves and strive to succeed. Just look around at the big government we got because of it, the skyrocketing amounts of people needing relief and the political instability all around us, and try to say it isn’t so. If anyone needs to be denigrated, it is Ben Bernanke for doing all of this for reasons he has yet to explain. His regime of established hard targets for inflation, which really are nothing but a ceiling and no floor so we get to keep having recurring bouts of deflation, were supposed to prevent markets from collapsing and give everyone more certainty. It has done everything but those things and the people affected by it truly are victims.
We should ask ourselves if government is going to make an establishment like the Federal Reserve and leave it do as it pleases, allow it to stand back as our markets and economy is destroyed, don’t we bear some of the responsibility for it? We do, indeed. And maybe what we need to do instead of getting upset about programs that keep people from starving to death, and keep families together, we should be upset about the real problem and ensure that the Fed can never do this kind of thing to people ever again.
We need to change the Federal Reserve Act to impose NGDP level targeting on the Fed and remove all other kinds of discretion. Scott Sumner has done most of the intellectual work for this plan that is based on the work of Milton Friedman. You can find the link to his blog, The Money Illusion, in my blog roll to the left.