A Message for Armchair Economists

[toomuchtime_]

I simply disagree. There is never a time that the government or any other institution could step in and make a better choice than the market itself.

To make this assumption, one must assume people are always rational. They are not.

I'm not sure I've ever understood this argument. It doesn't matter if people are rational. If businesses make the wrong decisions they go out of business, and there are consequences for individual people based on their wrong decisions.

People are not always rational in business or in government, but in markets ruled by price competition, bad decisions are quickly punished and good decisions are rewarded; in government bad decisions should be punished by voters and good decisions rewarded, but we all understand how this rarely happens in a precise and timely manner.

 

[PLYMCO_PILGRIM]

Not to mention it's unconstitutional.

It is not unconstitutional but it is too powerful.

Where does the Constitution allow for a central bank, and where does the Constitution say that Congress can abdicate its responsibilities to said central bank?

I dont think you will get an answer here as the constition does not allow for a central bank .

 

[Toro]

Where does the Constitution allow for a central bank, and where does the Constitution say that Congress can abdicate its responsibilities to said central bank?

Where does it say it is not allowed?

As for its powers, the courts can decide that if someone is so inclined.

 

[Kevin_Kennedy]

Where does the Constitution allow for a central bank, and where does the Constitution say that Congress can abdicate its responsibilities to said central bank?

Where does it say it is not allowed?

As for its powers, the courts can decide that if someone is so inclined.

That's not how the Constitution works. It listed that which the government could do, not what it couldn't do.

 

[Toro]

I simply disagree. There is never a time that the government or any other institution could step in and make a better choice than the market itself.

To make this assumption, one must assume people are always rational. They are not.

I'm not sure I've ever understood this argument. It doesn't matter if people are rational. If businesses make the wrong decisions they go out of business, and there are consequences for individual people based on their wrong decisions.

You said that the market always makes a better decision than the government. I suppose it depends by how you define "better" but it is not always the most efficient. For the market to attain the most efficient price for everything, all people must have all knowledge needed to make a rational choice and to never produce a less efficient decision. We know that individuals and crowds make irrational decisions that can have tremendous consequences that do not need to happen.

For example, the Great Depression became the Great Depression beginning in about 1930 when the first wave of bank failures hit. There were several more until 1933. There is empirical research concluding that banks that failed in the 1930s were generally as strong or stronger than banks that the did not fail. This is not rational. If people were always rational and all information was available, then people generally would know which banks were the strongest and put their money there instead of weaker banks. But this did not happen as people became fearful and panicky, and pulled their money out indiscriminately, which had enormously damaging consequences to the economy.

People have to always be rational all the time for markets to always work. Most people are rational most of the time, thus markets mostly work. But when people become fearful and panicky, or conversely, greedy and euphoric, the outcome of their decisions can be catastrophic to the economy in general.

 

[Toro]

That's not how the Constitution works. It listed that which the government could do, not what it couldn't do.

You could make that argument about almost every single government agency then.

Good luck arguing that in front of the Supreme Court.

 

[Kevin_Kennedy]

To make this assumption, one must assume people are always rational. They are not.

I'm not sure I've ever understood this argument. It doesn't matter if people are rational. If businesses make the wrong decisions they go out of business, and there are consequences for individual people based on their wrong decisions.

You said that the market always makes a better decision than the government. I suppose it depends by how you define "better" but it is not always the most efficient. For the market to attain the most efficient price for everything, all people must have all knowledge needed to make a rational choice and to never produce a less efficient decision. We know that individuals and crowds make irrational decisions that can have tremendous consequences that do not need to happen.

For example, the Great Depression became the Great Depression beginning in about 1930 when the first wave of bank failures hit. There were several more until 1933. There is empirical research concluding that banks that failed in the 1930s were generally as strong or stronger than banks that the did not fail. This is not rational. If people were always rational and all information was available, then people generally would know which banks were the strongest and put their money there instead of weaker banks. But this did not happen as people became fearful and panicky, and pulled their money out indiscriminately, which had enormously damaging consequences to the economy.

People have to always be rational all the time for markets to always work. Most people are rational most of the time, thus markets mostly work. But when people become fearful and panicky, or conversely, greedy and euphoric, the outcome of their decisions can be catastrophic to the economy in general.

Bank runs aren't a good example of the market failing. It is the government that allows the banks to practice fractional-reserve banking, which amounts to a ponzi scheme and fraud.

 

[Kevin_Kennedy]

That's not how the Constitution works. It listed that which the government could do, not what it couldn't do.

You could make that argument about almost every single government agency then.

Good luck arguing that in front of the Supreme Court.

I'm glad you see the scope of the problem.

 

[Toro]

Bank runs aren't a good example of the market failing. It is the government that allows the banks to practice fractional-reserve banking, which amounts to a ponzi scheme and fraud.

You would collapse the economy if you went to a banking system where every promissary note was backed by gold.

 

[Kevin_Kennedy]

Bank runs aren't a good example of the market failing. It is the government that allows the banks to practice fractional-reserve banking, which amounts to a ponzi scheme and fraud.

You would collapse the economy if you went to a banking system where every promissary note was backed by gold.

I disagree. You'd probably run into serious problems if you tried it overnight, of course. So I suppose there'd have to be some kind of transition period.

 

[PLYMCO_PILGRIM]

Section 8. The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

The constition gives the govt the right to coin money and to regulate the value of the coined money.

I could see how that could argued in favor of the fed being ok under the constition. I still dont like the fed, i think as soon as nixon took us off the gold standard the fed became way too powerful and too involved in the unchecked manipulation of the value of our dollars.

 

[Kevin_Kennedy]

Section 8. The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

The constition gives the govt the right to coin money and to regulate the value of the coined money.

I could see how that could argued in favor of the fed being ok under the constition. I still dont like the fed, i think as soon as nixon took us off the gold standard the fed became way too powerful and too involved in the unchecked manipulation of the value of our dollars.

No, the Constitution gave that power to the Congress. No where in the Constitution does it say that the branches of the government may transfer their power or responsibilities to other branches, central banks, or any other institution. Now I don't want the Congress to have the power either but that's certainly better than the Federal Reserve.