Lowering population growth good for economy

[Anders Hoveland]

Thiere was a study I found from Stanford is comparing how different regions attain economic growth. In the middle of the report, they mention that lowering population growth is a contributing factor to increasing standard of living. Even though this seems obvious to many people, there are still many who cling to the belief that more humans are necessary for a country's well being, while in fact the opposite is true.

 

Even though lightly populated areas do experience economic growth with population growth, eventually a large population becomes a burden that is too difficult to feed, house and employ,

and educate

as we are beginning to learn in this country. It's particularly notable that they mention education as a factor, since the line of thought coming out of academic institutions for the most part seems to praise population growth. Could there be a conflict of interest here? Obviously educational institutions benefit from more children since it justifies increased government funding.

 

There are two main reasons lower population is good for economic standard of living:

 

First, there is less labor competition so it puts an upward pressure on wages. Employers become obliged to improve working conditions to compete for scarce labor. Better working conditions decreases the unemployment rate. An individual has to be really lazy or seriously disabled to not be willing or able to work when different employers are begging for more workers and are willing to hire whomever they can get.

 

Second, too many people puts pressure on the supply of housing. As long as the population is not increasing, people can generally continue to use the same houses and buildings that already are in existence. When the population increases, new buildings have to be built. This is more expensive, and increases the cost of housing, even the price of the old buildings because there is a shortage of affordable housing available.

[iNow]

What happens when they control for China?

[swansont]

Thiere was a study I found from Stanford is comparing how different regions attain economic growth. In the middle of the report, they mention that lowering population growth is a contributing factor to increasing standard of living.

Link?

 

———

 

Lowering population and lowering population growth are two very different things.

 

———

 

 

Even though lightly populated areas do experience economic growth with population growth, eventually a large population becomes a burden that is too difficult to feed, house and employ, and educate as we are beginning to learn in this country. It's particularly notable that they mention education as a factor, since the line of thought coming out of academic institutions for the most part seems to praise population growth. Could there be a conflict of interest here? Obviously educational institutions benefit from more children since it justifies increased government funding.

More children may justify more spending, but doesn't automatically result in increased funding. So they may not, in fact, benefit at all, since they might have the same (or fewer) resources and more students.

[jeskill]

It's fascinating how many different ways you try to make the same argument, Mr. Hoveland. When one line of reasoning is shown to be inaccurate, you just change the argument ever so slightly and keep going.

[swansont]

There are two main reasons lower population is good for economic standard of living:

 

First, there is less labor competition so it puts an upward pressure on wages. Employers become obliged to improve working conditions to compete for scarce labor. Better working conditions decreases the unemployment rate. An individual has to be really lazy or seriously disabled to not be willing or able to work when different employers are begging for more workers and are willing to hire whomever they can get.

 

Second, too many people puts pressure on the supply of housing. As long as the population is not increasing, people can generally continue to use the same houses and buildings that already are in existence. When the population increases, new buildings have to be built. This is more expensive, and increases the cost of housing, even the price of the old buildings because there is a shortage of affordable housing available.

Wouldn't all the construction-related jobs you eliminate from the lack of any new housing cause lower wages from the unemployment?

[Arete]

since the line of thought coming out of academic institutions for the most part seems to praise population growth.

 

This contradicts every single interaction I've had on the topic with the physical science community in every discipline. Are you sure that you don't mean that the field of theoretical economics praises population growth?

[Anders Hoveland]

Wouldn't all the construction-related jobs you eliminate from the lack of any new housing cause lower wages from the unemployment?

This would be more than offset by a large labour supply desperate for employment, willing to work for low wages, which would undercut the wages of other construction workers. This is exactly what has happened in the southwestern United States.

 

Besides, even if immigration did temporarily increase construction wages, it would be a one-time fix. Not really a sustainable way to add to the economy. The immigrants might contribute cheap labor to the economy initially, but eventually they have children and someone has to pay the costs of educating them, medical treatment, and dealing with the increase in crime from juvenille gang-bangers.

Edited November 8, 2012 by Anders Hoveland

[iNow]

Not true. Those higher wages are not paid in a vacuum. That money gets spent and stimulates other parts of the economy and creates new types of jobs in higher frequencies. You're looking at this far too simplistically and hence your conclusions are simply inaccurate.

[Saryctos]

Thiere was a study I found from Stanford is comparing how different regions attain economic growth. In the middle of the report, they mention that lowering population growth is a contributing factor to increasing standard of living.

I'm surprised by this assertion, as in my own experience I have heard this causal relationship spoken of in the reverse. The link below is a good watch, that while not really digging into the details of why, visually shows how expected economic growth might impact the slowing of population growth.

 

 

Even though lightly populated areas do experience economic growth with population growth, eventually a large population becomes a burden that is too difficult to feed, house and employ, and educate as we are beginning to learn in this country.

Again I am a little weary of this, as I have seen trends pointing towards a movement in the population towards ever higher concentrations. The human population as a whole is concentrating into cities faster than it is populating the rural areas. Again, an interesting watch on the topic from TED:

 

Edited November 8, 2012 by Saryctos

[Anders Hoveland]

I have heard this causal relationship spoken of in the reverse.

You can "grow" the economy as much as you want, but the simple fact remains that if the population grows faster than the economy, living standards will decline.

[iNow]

Anders - Sorry, but you obviously have no freaking idea what you're talking about. Please, spend some time reading and educating yourself. Here are a few helpful and recent primers for you on the issue of immigration:

 

 

http://economix.blogs.nytimes.com/2012/10/19/immigration-and-american-jobs/

 

Of all the economic dynamics buffeting the American middle class, immigration might seem the easiest to explain: as millions of poor immigrants from Latin America poured illegally into the country seeking work, the conventional wisdom goes, they competed with more expensive American workers, displacing them from their jobs and undercutting their wages.

 

This understanding of immigration helped propel a vast increase in the Border Patrol’s budget over the last two decades to stop immigrants on their way in. It was the rationale for proposals to build a long, tall fence along the southern border. President Obama, who in 2008 said he would push for a law that would grant many of these immigrants legal access to jobs in the United States, instead deported a record number of immigrants working here illegally.

 

But this explanation of the impact of immigration is mostly wrong.

 

For years, economists have been poring through job market statistics looking for evidence that immigrants undercut less-educated Americans in the labor market. The most recent empirical studies conclude that the impact is slight: they confirm earlier findings that immigration on the whole has not led to fewer jobs for American workers. More significantly, they suggest that immigrants have had, at most, a small negative impact on the wages of Americans who compete with them most directly, those with a high school degree or less.

 

Meanwhile, the research has found that immigrants – including the poor, uneducated ones coming from south of the border — have a big positive impact on the economy over the long run, bolstering the profitability of American firms, reducing the prices of some products and services by providing employers with a new labor source and creating more opportunities for investment and jobs. Giovanni Peri, an economist at the University of California at Davis, estimated that the wave of immigrants that entered the United States from 1990 to 2007 increased national income per worker by about $5,400 a year on average, in 2007 dollars. He also concluded that the wave had a small positive impact on the average wage of American workers, by lifting the overall economy.

 

http://cep.lse.ac.uk/pubs/download/dp1147.pdf

 

As long as only natives are available, producers will only employ them. Once immigrant and offshore workers become employable, efficiency gains can be reaped by hiring them to perform tasks in which, due to their skills, they have a relative advantage, giving native workers the opportunity to specialize in the tasks in which they exhibit their own relative advantage. If strong enough, the productivity effect associated with this improved task assignment may offset the displacement effect of immigration and offshoring on native workers’ employment.

 

Despite the widely held belief that immigration and offshoring are reducing the job opportunities of U.S. natives, we have found instead that, during our period of observation, manufacturing industries with a larger increase in global exposure (through offshoring and immigration) fared better than those with lagging exposure in terms of native employment growth.

 

Additional views worth exploring here (again, only if you care to ensure you remain connected to reality... if facts don't matter to you, then by all means, keep doing what you're doing):

 

http://www.forbes.com/sites/modeledbehavior/2012/10/23/is-americas-cultural-variation-the-key-to-economic-success-in-the-long-run/

http://www.slate.com/blogs/moneybox/2012/10/04/immigration_in_the_2012_debates_the_missing_issue_.html

http://www.forbes.com/sites/modeledbehavior/2012/10/31/misunderstanding-the-benefits-of-high-skilled-immigrants/

http://www.forbes.com/sites/modeledbehavior/2012/08/20/larry-summers-is-wrong-about-unshrinkable-government/

http://www.newyorker.com/talk/financial/2012/08/27/120827ta_talk_surowiecki

 

 

 

And finally, something I feel is probably most on point given your approach to discussions here:

 

http://robertreich.org/post/34831152302?8ee57e60

 

Three decades ago, non-college white men were solidly Democratic. Many of them were unionized. They had jobs that delivered good middle-class incomes.

 

But over the last three decades they stopped believing the Democratic Party could deliver good jobs at decent wages.

 

Republicans have done no better for them on the wages — in fact many policies touted by the GOP, such as its attack on unions, have accelerated the downward wage trend.

 

But Republicans have offered white non-college males the scapegoats of racism and immigration — blaming, directly or indirectly, blacks and Latinos — and the solace of right-wing evangelical Christianity. Absent any bold leadership from Democrats, these have been enough.

Edited November 9, 2012 by iNow

[swansont]

This would be more than offset by a large labour supply desperate for employment, willing to work for low wages, which would undercut the wages of other construction workers. This is exactly what has happened in the southwestern United States.

I don't see how this "offsets" anything, since you appear to be agreeing with me. Higher unemployment undercuts wages. Which would happen of you stop new construction.

[CaptainPanic]

Thiere was a study I found from Stanford is comparing how different regions attain economic growth. In the middle of the report, they mention that lowering population growth is a contributing factor to increasing standard of living. Even though this seems obvious to many people, there are still many who cling to the belief that more humans are necessary for a country's well being, while in fact the opposite is true.

 

Even though lightly populated areas do experience economic growth with population growth, eventually a large population becomes a burden that is too difficult to feed, house and employ, and educate as we are beginning to learn in this country.

 

I think there exists some golden number. Too little growth, and you end up with too many old people a few decades later. This is happening in Europe now, where the baby-boomers who were born right after the WWII are now reaching their pensions. It is not often mentioned, but I think this is one of the main reasons that our markets haven't recovered yet. We'll have too few workers, and too many people to take care of in the coming decade.

 

On the other extreme (too much growth) leads to the problems you describe - which I agree with. This is potentially even worse.

 

It's particularly notable that they mention education as a factor, since the line of thought coming out of academic institutions for the most part seems to praise population growth. Could there be a conflict of interest here? Obviously educational institutions benefit from more children since it justifies increased government funding.

Could you cite a source for this?

 

I agree that most researchers, when talking about global problems, will avoid the population growth, because it is a sensitive topic. But I haven't seen many publications which advocate population growth as a means to achieve economic growth. But maybe I am just reading different articles.

 

There are two main reasons lower population is good for economic standard of living:

 

First, there is less labor competition so it puts an upward pressure on wages. Employers become obliged to improve working conditions to compete for scarce labor. Better working conditions decreases the unemployment rate. An individual has to be really lazy or seriously disabled to not be willing or able to work when different employers are begging for more workers and are willing to hire whomever they can get.

You describe a situation with increased incomes, and as a result also increased prices. This is called inflation, and not necessarily good.

 

Second, too many people puts pressure on the supply of housing. As long as the population is not increasing, people can generally continue to use the same houses and buildings that already are in existence. When the population increases, new buildings have to be built. This is more expensive, and increases the cost of housing, even the price of the old buildings because there is a shortage of affordable housing available.

 

Agreed. And the same goes for infrastructure. With a growing population, you need more roads, houses, schools, shops, industry. It is already a massive effort just to maintain a constant level of wealth per head of the population.

 

A bit off topic: Many European countries have an economic crisis which for a part is caused by way too much construction. But not due to population growth, but just because of an out-of-control construction sector, and an attitude that the sky is the limit. In many countries, the construction sector is suffering hard since the start of the crisis. This is because for years perfectly functional buildings were demolished and replaced by newer (more expensive) buildings. Obviously, this is a poor way to achieve economic growth, and a waste of expensive resources and people.

[ralfy]

Another point to consider is that a higher standard of living may lead to more resource consumption which offsets any savings due to lower birth rates.

 

For example, the U.S. has one of the most advanced economies in the world, but it achieved that at very high costs. It has less than 5 pct of the world's economy but has to consume almost a quarter of world oil production. It has over 250 million passenger vehicles, or almost one for every adult citizen.

 

In general, something like 12 pct of the world's population, likely part of a global middle class, are responsible for a significant portion of resource consumption.

[swansont]

Another point to consider is that a higher standard of living may lead to more resource consumption which offsets any savings due to lower birth rates.

 

For example, the U.S. has one of the most advanced economies in the world, but it achieved that at very high costs. It has less than 5 pct of the world's economy but has to consume almost a quarter of world oil production. It has over 250 million passenger vehicles, or almost one for every adult citizen.

 

In general, something like 12 pct of the world's population, likely part of a global middle class, are responsible for a significant portion of resource consumption.

5% of the economy? I think you meant to say 5% of the population. $15 trillion in GDP, while the worldwide GDP was $65 trillion last year, or 23%. The outsized US consumption is in line with its economy, as one might suspect.

[ParanoiA]

Thiere was a study I found from Stanford is comparing how different regions attain economic growth. In the middle of the report, they mention that lowering population growth is a contributing factor to increasing standard of living. Even though this seems obvious to many people, there are still many who cling to the belief that more humans are necessary for a country's well being, while in fact the opposite is true.

 

Even though lightly populated areas do experience economic growth with population growth, eventually a large population becomes a burden that is too difficult to feed, house and employ,

and educate

as we are beginning to learn in this country. It's particularly notable that they mention education as a factor, since the line of thought coming out of academic institutions for the most part seems to praise population growth. Could there be a conflict of interest here? Obviously educational institutions benefit from more children since it justifies increased government funding.

 

There are two main reasons lower population is good for economic standard of living:

 

First, there is less labor competition so it puts an upward pressure on wages. Employers become obliged to improve working conditions to compete for scarce labor. Better working conditions decreases the unemployment rate. An individual has to be really lazy or seriously disabled to not be willing or able to work when different employers are begging for more workers and are willing to hire whomever they can get.

 

Second, too many people puts pressure on the supply of housing. As long as the population is not increasing, people can generally continue to use the same houses and buildings that already are in existence. When the population increases, new buildings have to be built. This is more expensive, and increases the cost of housing, even the price of the old buildings because there is a shortage of affordable housing available.

 

You seem to be approaching population growth like a zero sum game, and completely assymetrical to the local resources and established trade of a given population.

 

By your logic, a country of one person - just me - should have a spectacular standard of living that cannot be beat by any cobble of humans. Of course, that's silly. I have no idea how to build a car, or an electric toothbrush. Let alone central heat and air...

 

You are also viewing people as liabilties. They are generally assets, my friend. When I add to my country of one, I get someone to help me with the electric toothbrush and the central AC. Yes, they consume food - and they grow food. They consume water - and they fetch water. They use steel - and they mine steel. More people to mine the resources of the earth and create wealth.

 

You need to distinguish between liabilities and assets. This is one of the reasons why libertarians and conservatives try to eliminate what we might describe as "entitlements". If we remove entitlements, it causes people to be more like assets. If we then loosen up our immigration laws to make it easier for folks to come here, we will receive assets.

 

And since many of us believe the producers are beginning to be outnumbered by the soakers, it would be a great time for a flood of assets - producers.

[swansont]

I think there exists some golden number. Too little growth, and you end up with too many old people a few decades later. This is happening in Europe now, where the baby-boomers who were born right after the WWII are now reaching their pensions. It is not often mentioned, but I think this is one of the main reasons that our markets haven't recovered yet. We'll have too few workers, and too many people to take care of in the coming decade.

But that's a somewhat different dynamic. If you had zero growth you'd nominally have a steady state population and a fixed ratio of ages. The baby boom created a variable ratio of young/old, in which a static system won't work. When the number of workers was high relative to retirees, the burden was relatively small, but when it levels out, you have a higher burden per worker. The increasing life span of retirees over time only makes this worse.

[ralfy]

5% of the economy? I think you meant to say 5% of the population. $15 trillion in GDP, while the worldwide GDP was $65 trillion last year, or 23%. The outsized US consumption is in line with its economy, as one might suspect.

 

Yes, I meant 5 pct of the world's population. And I would not bother looking at GDP given the use of money, which is essentially debt.

Edited November 14, 2012 by ralfy

[iNow]

I would not bother looking at GDP given the use of money, which is essentially debt.

What a meaningless deepity. This doesn't even make sense. Money is a unit of exchange. Apples or sexual favors could equally be used as units of exchange. Debt is the outcome of imbalanced exchanges between two actors. Debt is where one actor owes units of exchange to other actors... whether that unit be apples, sexual favors, or money. Money is not itself debt, no matter how profound you think it sounds to assert that it is. Suggesting otherwise displays only your ignorance on the topic.

Edited November 14, 2012 by iNow

[ecoli]

But that's a somewhat different dynamic. If you had zero growth you'd nominally have a steady state population and a fixed ratio of ages. The baby boom created a variable ratio of young/old, in which a static system won't work. When the number of workers was high relative to retirees, the burden was relatively small, but when it levels out, you have a higher burden per worker. The increasing life span of retirees over time only makes this worse.

 

 

Though you could theoretically have a negative growth rate offset by an opposite but equally large economic growth and still be able to support everyone with fewer youngsters. Though in practice, this hasn't happened yet and productivity gains aren't likely to be decoupled from population growth anytime soon.

[ralfy]

What a meaningless deepity. This doesn't even make sense. Money is a unit of exchange. Apples or sexual favors could equally be used as units of exchange. Debt is the outcome of imbalanced exchanges between two actors. Debt is where one actor owes units of exchange to other actors... whether that unit be apples, sexual favors, or money. Money is not itself debt, no matter how profound you think it sounds to assert that it is. Suggesting otherwise displays only your ignorance on the topic.

 

 

Apples or sexual favors may be seen as units of exchange or as a physical good (for the first) or a service (for the second). Money can only be seen as a unit of exchange, but that doesn't make it the same as apples or sexual favors.

 

Money is not debt as long as it is backed by something that is seen as valuable, such as gold. That was the case for the U.S. dollar until the gold standard was dropped. (Research on "Nixon Shock" for details.) Thus, money has been essentially a promissory note (hence, debt) for decades. It has no intrinsic value other than a guarantee by the government that it can be exchanged for goods and services.

 

That is why when governments fall apart....

[iNow]

Money is not debt as long as it is backed by something that is seen as valuable, such as gold.

You seem to have missed my larger point. The idea of value is a social one, and gold is no different than dollars in this regard. We as a social species have deemed that "thing" to have value, and it's arbitrary whether we assign social value to a brick of melted metal or to a piece of paper with symbols on it.

 

However, there are useful differences between a fixed currency like gold and a fiat currency like dollars or euros. The units of fiat money are not arbitrarily locked in like physical commodities and hence can adjust as times change. This allows it to be much more flexible and useful in achieving stability since they can be inflated and deflated to deal with temporary shocks to the economic system. It also allows us to avoid massive suffering and needless pain, but the moral argument here is peripheral. In addition to not making moral sense, a fixed currency doesn't make economic sense.

 

When using a fiat currency, steps can be taken to inflate and deflate relative to the currencies of other nations. This ability to quickly mitigate shocks is quite useful, helps avoid massive and needless suffering, and allows us as modern animals to maintain a very strong degree of stability in our lives, the lives of our families, and the lives of our neighbors. If you enjoy keeping your worldview rooted in reality, all you need to do to confirm the usefulness of fiat currency is look around the globe right now. Look now at how nations that can inflate and deflate the value of their currency are performing in this great recession relative to those that cannot (nations like Greece and Spain and Italy, for example).

 

Many folks just like you seem attracted to the gold standard because it seems to assure long-term price stability, and that's an understandable position to take. The real challenge, however, is that even a cursory glance at history and evidence shows that such stability under the gold standard really never existed.

 

The main driver of this is because pegging your currency to a fixed standard like gold causes a nation to become magnificently more vulnerable to monetary and fiscal shocks in the short-term. When we were on the gold standard, purchasing power was not actually stable at all. In crises like the one we just faced, gold would have resulted in massive deflation just like it did during the great depression, and that directly rebuts the arguments people make in favor of gold that it somehow ensures price stability. It really doesn't. You may as well be arguing that purple unicorns and leprechauns ensure price stability.

 

Another argument I often hear from those in favor of reimplementing a gold standard is that bubbles wouldn't happen on the gold standard, or at least not as often. Well, that's of course entirely true, except... well, you know... never mind. It's really not true at all. When we were on the gold standard we faced MAJOR financial panics and crises in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. So much for that whole "there are no bubbles on the gold standard" argument, eh? Unemployment was also much higher when we were on the gold standard, especially during those market shocks that the gold standard prevented us from adequately mitigating in a timely manner.

 

Not to put too fine a point on this, but the gold standard played a direct role in causing the Great Depression... a shock which was marked by extreme deflation and a gigantic unemployment rate of more than 25 percent. Gold did that, yet folks somehow still manage to argue that it's the safer option that doesn't suffer from the risks of price instability and bubbles. It's the height of ignorance and ideology trumping reality, really... and that doesn't even begin to address how a return to the gold standard in the modern age would erase the credibility of the US dollar and quite likely incite a trade war with other superpowers on whom we rely. It's not like we're living in a farm community anymore. We are a global economy moving at nanosecond pace, and a 17th century solution tied to shiny rocks really ain't gonna cut it for us.

 

Here's a piece from back in 1996 that summarizes it far better than I can: http://www.pkarchive.org/cranks/goldbug.html

 

And some more recent pieces here:

 

http://www.american.com/archive/2011/march/fools-gold/

http://www.bbc.co.uk/news/magazine-19422104

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/24/the-gop-has-picked-the-wrong-time-to-rediscover-gold/

 

 

There really are no good arguments in favor of a gold standard in this modern age. The only arguments people make crumble under basic scrutiny or suffer from extreme blindness to other factors.

 

 

Thus, money has been essentially a promissory note (hence, debt) for decades.

And any unit of exchange that humans agree to use in social settings... whether green slips of paper, electronic ones and zeros, bars of gold, women as wives, dried fish, or colorful beads and feathers... each are promissory notes no different than the money we use in this modern age. You seem to be making an argument with no purpose here... a distinction without difference. Modern money is no different than the items we bartered in ancient times, and this remains true even when discussing fancy shiny metals like gold that do for some reason seem to regularly fascinate and bewilder more simple minds. "oooh... look... sparkly!"

 

The point being that none of these things, not even gold, has any "intrinsic value" whatsoever. All value is contingent upon the norms of society itself, and the norms of society evolve and change with time. Gold is only stable so long as we collectively agree that it's stable... just like the dollar.

 

 

That is why when governments fall apart....

When governments fall apart, we don't trade in gold... we trade in food and shelter. This is much more parsimonious with my position on this issue than yours.

Edited November 15, 2012 by iNow

[ecoli]

Just so you know, iNow, a true gold-thumping Austrian would refute a lot of those points about gold being responsible for those bubbles. For example, the big national banks do, at least, coincide with the bubbles you refer to and its possible to inflate the money supply even when tied to a physical standard by fractional reserve backing. And indeed modern proposals for a gold standard don't look like the gold standards in the inter-war periods (which was high inflationary).

 

You might be interested in Rothbard's book on the subject (even just to read what the 'opposition' is reading). mises.org/books/historyofmoney.pdf

 

I'm divided about the issue myself.

[ralfy]

You seem to have missed my larger point. The idea of value is a social one, and gold is no different than dollars in this regard. We as a social species have deemed that "thing" to have value, and it's arbitrary whether we assign social value to a brick of melted metal or to a piece of paper with symbols on it.

 

This does not disprove my argument. Something can be deemed "to have value" even if it does not. Even though money can be perceived as valuable, it is still debt.

 

 

 

However, there are useful differences between a fixed currency like gold and a fiat currency like dollars or euros. The units of fiat money are not arbitrarily locked in like physical commodities and hence can adjust as times change. This allows it to be much more flexible and useful in achieving stability since they can be inflated and deflated to deal with temporary shocks to the economic system. It also allows us to avoid massive suffering and needless pain, but the moral argument here is peripheral. In addition to not making moral sense, a fixed currency doesn't make economic sense.

 

 

Unfortunately, that argument works both ways. As seen today, we have an unregulated global derivatives market with a notional value of $1.5 quadrillion. The 2008 crash "only" involved around $1 trillion in subprime lending, leading to over $30 trillion vaporized worldwide. Governments struggled to create even more debt to counter that threat, and it didn't even work as the global economy is still in crisis.

 

To recap, that crash involved only $1 trillion out of over $1.5 quadrillion (notional value) in unregulated derivatives.

 

So much for "flexibility."

 

 

When using a fiat currency, steps can be taken to inflate and deflate relative to the currencies of other nations. This ability to quickly mitigate shocks is quite useful, helps avoid massive and needless suffering, and allows us as modern animals to maintain a very strong degree of stability in our lives, the lives of our families, and the lives of our neighbors. If you enjoy keeping your worldview rooted in reality, all you need to do to confirm the usefulness of fiat currency is look around the globe right now. Look now at how nations that can inflate and deflate the value of their currency are performing in this great recession relative to those that cannot (nations like Greece and Spain and Italy, for example).

 

 

Especially when the same "shocks" involve the same fiat currency!

 

And the economies that are currently performing better "in this great recession" are not doing so because they can "inflate and deflate the value of their currency" but because large amounts of "hot money" are entering their system.

 

 

Many folks just like you seem attracted to the gold standard because it seems to assure long-term price stability, and that's an understandable position to take. The real challenge, however, is that even a cursory glance at history and evidence shows that such stability under the gold standard really never existed.

 

 

A gold standard will not solve our problems because a global capitalist economy requires ever-increasing capital, and on a scale that even a so-called money multiplier can achieve. That's why in 2007 US M2 reached not $400 billion given reserves of $40 billion but $7.25 trillion, many times greater than what fractional reserve banking allows.

 

There's your flexibility for you.

 

 

The main driver of this is because pegging your currency to a fixed standard like gold causes a nation to become magnificently more vulnerable to monetary and fiscal shocks in the short-term. When we were on the gold standard, purchasing power was not actually stable at all. In crises like the one we just faced, gold would have resulted in massive deflation just like it did during the great depression, and that directly rebuts the arguments people make in favor of gold that it somehow ensures price stability. It really doesn't. You may as well be arguing that purple unicorns and leprechauns ensure price stability.

 

 

Typical neo-liberal garbage, i.e., measuring economic growth through purchasing power. How to achieve that? Create more money, which is easy to do without a gold standard or banks following any reserve requirements.

 

 

Another argument I often hear from those in favor of reimplementing a gold standard is that bubbles wouldn't happen on the gold standard, or at least not as often. Well, that's of course entirely true, except... well, you know... never mind. It's really not true at all. When we were on the gold standard we faced MAJOR financial panics and crises in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. So much for that whole "there are no bubbles on the gold standard" argument, eh? Unemployment was also much higher when we were on the gold standard, especially during those market shocks that the gold standard prevented us from adequately mitigating in a timely manner.

 

 

I am not calling for a gold standard, but I very much question your incredibly naive view of the current situation which actually stems for the same "flexibility" you espouse!

 

 

Not to put too fine a point on this, but the gold standard played a direct role in causing the Great Depression... a shock which was marked by extreme deflation and a gigantic unemployment rate of more than 25 percent. Gold did that, yet folks somehow still manage to argue that it's the safer option that doesn't suffer from the risks of price instability and bubbles. It's the height of ignorance and ideology trumping reality, really... and that doesn't even begin to address how a return to the gold standard in the modern age would erase the credibility of the US dollar and quite likely incite a trade war with other superpowers on whom we rely. It's not like we're living in a farm community anymore. We are a global economy moving at nanosecond pace, and a 17th century solution tied to shiny rocks really ain't gonna cut it for us.

 

Here's a piece from back in 1996 that summarizes it far better than I can: http://www.pkarchive...ks/goldbug.html

 

And some more recent pieces here:

 

http://www.american....rch/fools-gold/

http://www.bbc.co.uk...gazine-19422104

http://www.washingto...ediscover-gold/

 

 

There really are no good arguments in favor of a gold standard in this modern age. The only arguments people make crumble under basic scrutiny or suffer from extreme blindness to other factors.

 

 

And the absence of a gold standard leads to success, with the current crisis some minor occurrence that we hope will go away as long as we create more credit?

 

A gold standard will never be sustainable in a global capitalist system that requires increasing levels of credit, and increasing levels of credit will not lead to some idealistic adjustment of credit but one crash after another.

 

 

And any unit of exchange that humans agree to use in social settings... whether green slips of paper, electronic ones and zeros, bars of gold, women as wives, dried fish, or colorful beads and feathers... each are promissory notes no different than the money we use in this modern age. You seem to be making an argument with no purpose here... a distinction without difference. Modern money is no different than the items we bartered in ancient times, and this remains true even when discussing fancy shiny metals like gold that do for some reason seem to regularly fascinate and bewilder more simple minds. "oooh... look... sparkly!"

 

 

Complete and utter nonsense, as if you can create more wives, dried fish, or colorful beads and feathers in the same way that money can be created today.

 

 

The point being that none of these things, not even gold, has any "intrinsic value" whatsoever. All value is contingent upon the norms of society itself, and the norms of society evolve and change with time. Gold is only stable so long as we collectively agree that it's stable... just like the dollar.

 

 

More nonsense. Let's see you argue that dried fish has no "intrinsic value" if that's the only thing you have to eat.

 

 

When governments fall apart, we don't trade in gold... we trade in food and shelter. This is much more parsimonious with my position on this issue than yours.

 

Your last paragraph contradicts your previous one!

 

Ultimately, your wavering stance on this issue (e.g., your first paragraph shows that we give value to what has no value, as pointed out in your second-to-the-last paragraph, but which we still see as valuable, as seen in your last paragraph, which really doesn't matter because we can easily "inflate" and "deflate" the level of credit--which isn't really true--but in case we don't, then we can go back to trading things which have no intrinsic value but which we think have intrinsic value) doesn't disprove my argument:

 

"I would not bother looking at GDP given the use of money, which is essentially debt."

What should we look at, then? Not a gold standard, but

"Another point to consider is that a higher standard of living may lead to more resource consumption which offsets any savings due to lower birth rates.<br style="font-size: 13px; line-height: 16px; background-color: rgb(243, 249, 246);"><br style="font-size: 13px; line-height: 16px; background-color: rgb(243, 249, 246);">"For example, the U.S. has one of the most advanced economies in the world, but it achieved that at very high costs. It has less than 5 pct of the world's economy but has to consume almost a quarter of world oil production. It has over 250 million passenger vehicles, or almost one for every adult citizen.<br style="font-size: 13px; line-height: 16px; background-color: rgb(243, 249, 246);"><br style="font-size: 13px; line-height: 16px; background-color: rgb(243, 249, 246);">"In general, something like 12 pct of the world's population, likely part of a global middle class, are responsible for a significant portion of resource consumption."

Thus, we should look at availability of resources in light of consumption. And we can't argue that over-consumption is normal simply because the economy of a country (and again, an economy driven by money which is essentially debt) is large.

Are you getting my point now? A country like the U.S. can consume resources at significant rates because its currency is used worldwide for trade. The level of credit has been increasing considerably the past three decades because of deregulation and financial speculation, not to mention consumer spending connected to resource consumption.

In such a case, a gold standard will never work because the U.S. needs lots of credit to consume more, and so does a growing global middle class. And your contradictory views of the matter (money has value and doesn't have value at the same time) does not in any way contradict what I said about money as debt and money being used for increased resource consumption.

Thus, the claim that resource consumption rates of a country should be "in line" with the size of its economy is complete garbage.

 

Just so you know, iNow, a true gold-thumping Austrian would refute a lot of those points about gold being responsible for those bubbles. For example, the big national banks do, at least, coincide with the bubbles you refer to and its possible to inflate the money supply even when tied to a physical standard by fractional reserve backing. And indeed modern proposals for a gold standard don't look like the gold standards in the inter-war periods (which was high inflationary).

 

You might be interested in Rothbard's book on the subject (even just to read what the 'opposition' is reading). mises.org/books/historyofmoney.pdf

 

I'm divided about the issue myself.

 

FWIW, I'd like to add that I don't support Austrian economics or Keynesian views (e.g., the hopelessly naive view that credit levels can be adjusted easily). The economy has to be studied in another way, i.e., not by seeing it in monetary terms but by looking at availability of resources, such as resource consumption per capita or ecological footprint vs. biocapacity.

 

That is why I find the argument that resource consumption levels should be justified by economic size as based on incredible levels of naivete, as if we can produce resources as easily as we produce credit.

 

What nonsense.

[iNow]

Your entire reply to my post can be summed up as, "Nuh uh. You're a neo-liberal poopy head."