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Ian's avatar

Great piece, glad to have you back. Wishing the best for you and your family.

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Joshua Erwin's avatar

Not to be a dick, but didn't you tell us last week we can't simulate the properties of

complex systems? Yet now you pimp v. Mises, whose whole thing is making claims *a priori* from his axioms? For all it's flaws, central banking is an empirical art, where intuitive hustlers (Greenspan, Powell) out perform theoreticians (Bernanke, Yellen).

MV=PT=Nominal GDP

When Nominal GDP drops below trend, in big, diversified economies, you get a recession.

When NGDP holds around a trend line, for decades, like in Australia, you get economic stability. This is empirically how things have worked for decades, in many countries. Greece and Italy, on the tight-money of the Deutsche Mark, I mean Euro, hadn't seen NGDP growth for a decade prior to the China Virus, and those economies still haven't recovered. Still waiting to clear all that "malinvestment".

Did you know that neither Poland, Israel, nor Australia had recessions in 2008-2009?

Isn't that remarkable? Have a look at their NGDP charts. They all have their own central banks.

Every country on earth uses a fiat currency managed either by a central bank, or pegged to another fiat currency. No one uses commodity money, or even a voluntarily frozen monetary base. You'd think Russia, Iran or some other more or less sovereign country would adopt a gold standard, and reap the theoretical benefits. None of them do, because they've learned the lesson of the 19th century. When you move from a Malthusian, farming economy, to an industrial and commercial economy, with financial markets, less and less barter, more and more posted prices, and more activity mediated through markets, price stickiness becomes 'a thing'. Rather than have all the prices in the economy chase the fluctuating value of commodity money, you have a flexible, fiat monetary system so that the value of money can be adjusted, in a manner expected to stabilize the economy. In a manner expected to produce stable NGDP growth.

Prior to ~1800, home production dominated. You could avoid the money economy for months, years even. After 1800, it becomes harder, and then impossible to avoid the money economy. We shouldn't be surprised that such a change necessitates a modification of the monetary system.

If you don't like 2.5% inflation, don't keep all your wealth in a demand account, and maybe campaign against the capital gains tax. If you want to improve the position of workers (increase the labor share of GDP), regulate immigration, and restore womenfolk to home production. If you don't want stocks going up so much in 2021, campaign for a lower trend rate of NGDP. Prior to the China Virus, we were on a 4% trend line, now, under China Joe Chernenko, we're on a 5% trend line. What's 1% of 20 trillion, compounding every year, indefinitely? It's got to be priced into the income streams of equities.

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