Scott Sumner has a new post on Paul Krugman criticizing conservatives for being, in my words, stubbornly confused when it comes to macroeconomics and being presented with evidence that contradicts their world view. Taking it a little out of context, I would have to say that, in general, I agree with Krugman in his description, because almost nothing has impacted my point of view toward conservatism more than Market Monetarism coupled with the study of early to mid-19th century American politics.
During my journey of discovering how the world works by studying the past and forming chains of logic between the monetary history of the US and current monetary events, I have found that am not conservative, and likely never was, thus I do not necessarily qualify as having changed my mind. Krugman likely meant this as more a political dig, but I’ve noticed that one doesn’t have to be a Republican or “on the right” to be a conservative. Democrats like Tim Geithner and Larry Summers are among those ranks, and probably Obama; at least on monetary matters, they all agree – low inflation is the goal we should strive for, above all else, regardless of what kind of economic conditions bring it about. Certainly inflation wasn’t a problem in the Great Depression!!! They will have to excuse me for asking such a stupid question as how much such a policy will cost. Do they know?
One of my favorite history books is The Rise and Fall of the American Whig Party: Jacksonian Politics and the Onset of Civil War by Michael F. Holt. It describes the Whig Party as being nearly ¾ about economic development. The Whigs felt that the commodity money standard was too restrictive to allow for the kind of development and magnitude of leveraging human capital they wanted to accomplish and pioneered the development of the banking system at the state level after Jackson killed the Second Bank of the United States to achieve those goals. Contrary to what many conservatives now believe, commodity money did not economically develop the US – bank fiduciary notes and the fractional reserve system did. Oh yes, it was money created out of thin air despite conservative attempts to thwart bank notes landing into the hands of average people. The establishment of the Federal Reserve and the disappearance of bank notes was the final nail in the coffin of the system the Whigs pioneered, a system that took monetary conservatives about 80 years for to rip apart, piece by piece, and substitute with the early 20th century version of the gold standard which ended poorly 18 years later.
On an interesting note, and one reason I cannot seem to grasp why most libertarians I know are gold bugs, with me being very much an exception, the Whigs were the party of nullification and rejection of strong central governance while being staunch advocates for banking. Those two ideas were not mutually exclusive politically (and they need not be today from my point of view). I can certainly see why libertarians have a problem with the Federal Reserve itself, and I share some of that concern. But I have not been able to discern any logically coherent connection of principle to rejection of competitive notes issued by private banks. And in that sense, they too seem to be stubbornly confused, because freedom means more in an economic sense than near anarchy. It takes money to pursue happiness, implying some kind of order around the monetary system that doesn’t necessarily have to be maintained by government, unless one’s idea of happiness is working from sunup to sundown focused of self-sustenance, trying to scratch a living off rocks. The Whigs thought we could be much more economically than a nation of subsistence farmers – and they were right.
Once I understood the connection between bank notes and economic development, it wasn’t hard to apply that intuition to the inflation hysterics heard today and come to the conclusion that these people are completely wrong about what is at the center of nearly all economic development that has taken place since the 19th century and our present living standards. I hear their protests against “money out of thin air” as assailing economic civilization itself. Sure, we’ll just gather up all the Federal Reserve notes into a pile and set them ablaze. Then what, after we’ve burned all the money? How do they think life will be like afterward? I can say it certainly won’t be economic life as anyone alive now knows it, and it certainly wouldn’t be the end of nominal instability after the years of chaos such a plan would cause.
Or maybe we shouldn’t burn all of it – perhaps just half or a quarter of it. To be honest, I’ve never heard anyone spouting inflation hysteric nonsense follow through the reasoning that far. They have no idea what they are saying, what it means to themselves personally, or the opportunity cost that would be borne by society that is involved with not having “money out of thin air,” or at least more of it when it is necessary to maintain economic stability and economic wellbeing for most regardless of some reasonable upward pressure on the price level.
Wishing for the price level to be the same now as it was in the 1960s, or held static at the very least, and actually trying to get there is a painfully absurd idea that would benefit no one – because all prices eventually adjust including wages (except for the period they are sticky – which causes a bunch of unemployment – hence a very painfully absurd idea). And conservatives, being stubbornly confused, keep saying this is what they want because they do not understand the connection between their present standard of living and all the money created out of thin air; and it feels good to dream about the fallacious greenery on the other side of the fence. I like to dream about unicorns too… The money out of thin air does indeed serve a very profound purpose in our lives that isn’t completely understood until one tries to imagine what life would be like without it. From my point of view, moderate inflation is nothing compared to a lifetime sentence to subsistence farming, especially when I think about the time potential engineers, scientists and mathematicians would spend on survival instead of solving complex problems and making life better for everyone around them. And I am positive these conservatives don’t understand that most of them would end up the farmers. Certainly someone would have to do it, and I’d wager that if they followed the logic this far, they assume that by magic or some miracle, it would be someone else while they still get to borrow money for the things they want and be paid the same nominal amount as in the present, ignoring the financial plight and loss of freedom of their fellow countrymen.
They also don’t understand that inflation hysterics to the point of self-flagellation is incompatible with egalitarianism – and they have no right to complain about corporatism, because it will be the connected and moneyed who make the rules and get to decide who can have an idea in their ideal monetary world, much worse than it is now. The political problems arising from the tight money episode that caused and prolonged the Great Recession are just the tip of the iceberg. Tight money restricts access to capital – especially in an atmosphere of risk-aversion created by it. So some middle-class guy who has a great idea wants to start a business around that idea, but like many entrepreneurs, has had some failures along the way, thus not a spotless credit history. Will he or will he not get access to capital? And this is part of the cost of sticking our noses in the air in the assumption that he probably doesn’t deserve to access capital – after all we should only ever have one chance at life. How many good, life changing ideas are being wasted as we fret about inflation and bubbles and rail against the basic elements of risk involved in capitalism? Losing money on investments is part of capitalism, part of creative destruction and making life better in constant motion. And the stubbornly confused just don’t seem to understand their stance as anti-egalitarian or a form of anti capitalism. After all, they like having money and participating in capitalism themselves, they simply want to choose who else can participate while telling everyone else they have freedom to be like them (perfect) else subsist by pitchfork in the great American outback.
Really, I could go on for a lot longer about why I no longer self-identify as conservative and why I agree with Krugman on his criticism of the stubbornly confused. I find economic, nay, monetary liberalism quite, um, liberating and logically compatible with a preference for small government, copious competition, raising all boats by expanding the pie, and an inherent suspicion and mistrust of oligarchs. The impression I get from mainstream conservatism as presently constituted is that it is largely nonsensical on monetary issues, non-innocent nonsense that has inflicted incalculable economic damage and financial suffering on multitudes of innocent people, is enjoined by judgmental, rich morons who care nothing about others in times of crisis, even if out of ignorance. It is the largest intellectual, ideological and moral turn off ever in the history of man as far as I am concerned. I am not one of them, and I would be insulted to be lumped in with them.