Wednesday, January 9, 2013

Krugthulu On the Trillion Dollar Coin, and the Irrational Right

For many people on the right, value is something handed down from on high It should be measured in terms of eternal standards, mainly gold; I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn't kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume.

And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn't tied to gold is a kind of theft, not to mention blasphemy.

For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes. It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments — and they are always up for reconsideration when circumstances change.

Now, the money morality types try to have it both ways; they want us to believe that monetary blasphemy will produce disastrous results in practical terms too. But events have proved them wrong.

And I do find myself thinking a lot about Keynes's description of the gold standard as a "barbarous relic"; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy — and why not? After all, they hate the Enlightenment on all fronts.

The bottom line is that we aren't really having a rational argument here. Nor can we: rationality has a well-known liberal bias.

Remember the rules:
1.  Paul Krugman is always right.
2.  If you find yourself in disagreement with something Krugman has written, refer to #1.
Mint the coin.

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