Discover more from David Friedman’s Substack
He is the most entertaining of the presidential candidates and I agree with several of his positions, but his defenses of some of them strike me as largely bogus. Having proposed that the Fed should maintain stable prices via a commodity bundle, a reasonable if politically novel idea, he defends the proposal by claiming that current Fed stabilization policy is somehow the reason real incomes have not risen, goes on to claim that if only the Fed were not messing things up we would have enough more economic growth to let us eliminate the deficit without cutting spending, thus saving him from having to specify specific cuts — any of which can be expected to offend some interest group whose support he wants.
I am reminded of Mencken’s description of politicians:
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They will promise every man, woman and child in the country whatever he, she or it wants. They’ll all be roving the land looking for chances to make the rich poor, to remedy the irremediable, to succor the unsuccorable, to unscramble the unscrambleable, to dephlogisticate the undephlogisticable. They will all be curing warts by saying words over them, and paying off the national debt with money that no one will have to earn. When one of them demonstrates that twice two is five, another will prove that it is six, six and a half, ten, twenty. (H.L. Mencken, The Politician)
One of the proposals I agree with is that the Federal Reserve should focus on maintaining stable prices, that being something it is actually capable of doing, and abandon the attempt to fine tune the economy in order to produce full employment. Another is the idea of a commodity bundle standard, an improved version of the historical gold or silver standard, as a mechanism to produce stable prices.
The idea will be novel to most people, including, I expect, most of my readers, so worth explaining.
A Commodity Bundle Standard
A country on the gold standard agrees to exchange its currency for gold, in either direction, at a fixed rate, thirty-five dollars an ounce in the case of the U.S. gold standard of the early twentieth century. If the price of gold goes above that people bring in dollars to exchange for gold, the number of dollars in circulation goes down, the value of the dollar goes up, and the process continues until the price of gold is down to thirty-five dollars an ounce. If the price of gold is below its standard, the same process works in reverse. It is a simple mechanism and historically common, although governments have sometimes tried to cheat on it in one way or another. The same mechanism works to maintain the value of money from private issuers, such as the Scottish banks of the 18th century.
A gold standard keeps the value of the money constant relative to gold but what people want is to keep it constant relative to the value of the things they spend it on.If the value of gold goes up unexpectedly, carrying the value of the money up with it, borrowers find that they are paying their debts with money worth more than the money lent to them, paying a higher real interest rate than they agreed to, and similarly, mutatis mutandis, if the value of gold goes down. Random variation in the purchasing power of money makes it harder for the individual to use past prices and wages as evidence in deciding whether to purchase a good or accept a job offer.
A commodity bundle standard solves that problem. Define the value of the currency in terms of a collection of commodities whose value corresponds at least roughly to the value of what individual consumers buy. The bundle is more complicated than an ounce of gold so you do your redemption in larger quantities; anyone who brings in a million dollars gets two ounces of gold plus 80 bushels of grade A wheat plus a ton of grade B iron plus specified quantities of the other commodities in the bundle. Anyone who brings in the bundle — in a modern society, in the form of claims on the commodities — gets a million dollars. The result is to keep the price of the bundle at a million dollars, hence the purchasing power of the dollar, assuming the bundle was selected well, constant. It is an old idea — I discussed it in an essay published more than forty years in the context of a system of competing private issuers — but not one I expected to see coming up in a presidential campaign.
I may be one of the few people who regards Ramaswamy’s position on climate change as a reasonable one. He agrees that the globe is warming and that the cause is probably at least in part human action, rejects the idea that the change can be expected to have catastrophic effect, as do I.His comment that
“The reality is more people are dying of bad climate change policies than they are of actual climate change."”
has been much criticized but may well be true.
I do not know how you would put actual numbers on either deaths due to climate changeor deaths due to bad climate change policies, but the U.S. biofuels policy is a pretty clear example of a bad climate change policy, since at this point it has been conceded by environmentalists, including Al Gore, that it does not reduce CO2, that as much is produced in the process of growing maize and converting it to alcohol as would be produced by the gasoline the alcohol replaces.
It is also probably the best candidate for a climate change policy that kills people. Maize is a dietary staple for about two hundred million people, mostly in poor countries. The U.S. biofuels program converts 40% of its crop, about 13% of world output, to alcohol, pushing up its price. I do not know by how much mortality is increased as a result, but making poor people poorer has consequences. Other candidates would be policies, such as the German Energiewende, that have pushed up the price of energy in developed countries, making their populations poorer as well.
Ramaswamy has summed up his position as ten purported truths. I disagree with the first, “God is real,” but am inclined to agree with the Pascal quote that accompanies it:
If you have a hole the size of God in your heart and God doesn’t fill it, something else will.
Of the other nine I agree, or at least am sympathetic with, seven, although some are rhetorical exaggeration.
Ramaswamy’s objective at present seems to be to be to end up as VP on a Trump ticket. If Trump is for some reason unable to run, if he has a heart attack or the Democrats come up with a reason why his legal troubles make him ineligible or the primaries, implausibly, go against him, Ramaswamy might be the one candidate who could get the support of Trump’s base, hence the one Republican candidate with a decent chance of winning the election. That would at least be better than Trump winning, since while Ramaswamy may be a Trump supporter and a con man he does not appear to be a loose cannon.
But that depends on unlikely events. It is more likely that we will, again, be faced with a choice between a candidate who will certainly do bad things and one who might do very bad things.
My mother was born in what now is Ukraine and Ukraine, like a number of other countries, gives citizenship by descent. Perhaps if the war is over by the election …
I am ignoring the interesting theoretical argument for a money that produces gradually declining prices.
I have explained my reasons in multiple posts here, starting with the first. Later relevant posts are:
Even if climate change makes some adverse climate events, such as heat waves, more likely, any particular heat wave might have happened without climate change. Further, some effects, most obviously a reduction in the severity of cold waves, save lives. Putting numbers on both positive and negative effects is high speculative.
P.S. Someone in the comments asked if it was possible to grow out of the national debt. I think my answer is sufficiently relevant to my view of Ramaswamy to be worth adding to the post:
It could happen in two ways.
I: The economy grows, tax receipts increase. If expenditures don't increase, or increase less, the deficit goes down. If the deficit goes negative, becomes a surplus, the national debt decreases.
There are two reasons why expenditures might not increase as fast as receipts. One is that some expenditures don't depend on the size of the economy, the obvious example being interest on the debt, another arguable one being the cost of maintaining an adequate military. The other is that some expenditures, such as food stamps, depend on people being poor, and if the economy is growing faster than the population the number of poor is probably going down.
I don't know what Reason said, but one problem with Ramaswamy's position is that, as of 2022, federal expenditures were about 128% of revenue, so to get the deficit to zero through economic growth you would have to increase revenue by 28% — more if expenditure increases some as well. Ramaswamy is talking about raising the growth rate to 4%. That isn't going to do it in the four years of his term, even if he could actually increase economic growth that much. So the claim that by increasing growth he can eliminate the deficit without cutting expenditure or raising taxes is false. He might be able to reduce the deficit, but the debt would still be going up.
II. One could, by increasing GNP, grow out of the national debt in the sense of making it a smaller fraction of GNP, but again the numbers don't work. The current deficit is about 6% of GNP so if it continues at that level, even with 4 % growth the debt is increasing, not decreasing, relative to GNP.
As I tried to imply in my post, this is Ramaswamy claiming that two plus two equals at least five, maybe ten, in order to claim that if he were president nothing bad would happen, taxes wouldn't go up, spending wouldn't be cut, the deficit would vanish hence the debt would stop increasing.
I like some of Ramaswamy's policies and I think he would be a better president than Trump, probably than Biden, but he is not an honest man. But then, I don't expect high level politicians to be honest, save possibly in the proverbial sense of an honest politician, one who stays bought.
Question: Do people like my adding to posts things from the comments that I think interesting?
P.P.S. A friend on Facebook expressed surprise that I would consider moving to Ukraine. As I thought would be obvious, that was a joke. If I ever wanted to leave the US or get a second passport, there are better options.
For one thing, while the places my grandparents came from are now in Ukraine, I believe the town my mother came from (Staryi Chortoryisk) was in Poland, or possibly Russia, when she was born, and the town my paternal grandparents came from (Beregszász in Carpathian Ruthenia) was in the Austro-Hungarian empire at the time, giving me a claim on Austrian or Hungarian citizenship.