Tuesday, September 13, 2011

The GOP candidates, Part 2: Ron Paul

In last night's CNN/Tea Party Republican debate, there was a moment which was a perfect microcosm of the Ron Paul experience. The moderator, Wolf Blitzer, asked 7 of the 8 candidates about their thoughts on the Federal Reserve. The one candidate they didn't ask was Ron Paul, which is very peculiar when you consider that Paul wrote a book about the Fed. While I disagree with just about everything Ron Paul supports, his ideas are different from his competitors, and by marginalizing his candidacy, the media are depriving Americans of an opportunity to think and learn about economics and the role of government.

It is utterly indefensible of Blitzer to not include Paul in the Fed discussion. Mitt Romney had even set up Paul's response by saying "We need to have a Fed... because if we don't have a Fed, who's gonna run the currency? Congress?! I'm not in favor of that." Had Blitzer then gone to Paul, I'm sure that he would have quoted Article 1, Section 8 of the Constitution, which says that Congress has the power "To coin Money, [and] regulate the Value thereof".

This is just one more example of the media's anti-Paul bias, which I think is due to his being the most anti-corporate candidate in the race. Despite having solid backing among Republican primary voters and his close second-place finish at the Iowa straw poll, he is marginalized as a non-contender. Doing so elevates the ideas and policies of dunces like Rick Perry and Michele Bachmann to the center of these debates, instead of the more interesting (but ultimately wrong) ideas of Paul.

He favors a gold standard, which would fix the value of the dollar to the value of gold. The US was on the gold standard until 1971, when it was ended by Richard Nixon. Returning to the gold standard today, as well as going to a full-reserve banking system that Paul and other Austrians support, would cause massive deflation. By limiting the supply of dollars and requiring banks to hold more of them in reserve, the value of the dollar will increase significantly. For people (like me) with student loans, or a 30 year mortgage, or any other debt, which becomes harder to pay back when each dollar is more valuable, a Ron Paul presidency would be a disaster.

It wouldn't only be a disaster for debtors. As discussed in a previous post, much of the reason for the current poor state of the economy is due to less consumer spending, as people are saving more to make up for the lost value of their homes. Deflation, by making people's mortgages and other debts larger in real terms, would have a similar effect, further driving down consumer spending and worsening the economy.

I've previously discussed the refusal of some to accept that there are some spheres, such as limiting health care costs, where government programs might be better than the private market. Paul has never met a government program he wouldn't cut/eliminate. He has such a limited view of federal power that he opposes mandates in the Civil Rights Act of 1964 that desegregated restaurants/hotels/etc.

While Ron Paul's ideas are frequently wrong and/or harmful, he has enough support that his ideas deserve more attention than they're getting. Hopefully in future debates and media coverage, he'll have more of a chance to share his ideas, rather than the media deciding which ideas merit consideration.

1 comment:

NWest said...

Paul's economic policies warrant serious thought.

We're already in deflation as it is - credit is drying up and the Fed can't print fast enough to match the amounts being destroyed through bad debts. If credit was marked-to-market, most of the major banks would be insolvent as it is.

We keep pretending that the money out there really exists to pay back the inflated asset prices. Europe is about 15 years ahead of us on this - Greece, Spain, Italy, etc *will* default. The same is true of much of the consumer debt in the USA.

A full-reserve banking system obviously can't be implemented overnight - the so-called multiplier is embedded in our system, and people are too used to seeing banks as a place that should be *privileged* to hold their money, instead of a place that provides services for a fee. Look at what's happened to free checking accounts since the new rules went into effect.

For an good review and explanation as to why Fractional Reserve lending leads directly to asset bubbles, take a look here.

The possible deflationary effects of moving away from a credit-driven system may be able mitigated through a long adjustment process to a full-reserve system over the course of many years. A true gold standard would be impossible to return back to, but by abolishing legal tender laws, we can allow a monetary standard based on anything we would like to choose - and money would no longer be *debt*, but instead hold actual value.