In the past you’ve said my view of the world is over-simplified because I blame many/most of the social and economic and financial sector problems I see as being related to “easy money.” You admit easy money might be part of the problem but you’ve argued in the past it can’t possibly be the whole problem.
Consider this chart I've copied below from clusterstock Chart of the day (at bottom of this post)
The declining share of silver in Roman coins illustrates the fact that governments have been debasing official money to pay for war and welfare programs at least as far back as the Roman empire. We all know what happened to the Roman empire. Obviously there were many proximate causes of the collapse of Roman empire, but I argue the underlying cause was a willful debasing of the official Roman monetary standard by Roman political elites that was forced upon these elites when the cost of war and welfare programs outstripped their ability to pay for these costs through direct taxation.
As a history major you should appreciate how we are repeating history once again…
Since the Fed was established in 1913 the USD has lost 98% of its value as demonstrated in the following chart
From 1776 to 1913 the value of the dollar went up and down following alternating periods of inflation and deflation but the US dollar incredibly began and ended the period at roughly the same value. One dollar in 1776 was worth one dollar in 1900. Over the next 100 years the Fed sowed the seeds for the Great Depression with the low interest rate policy of the 1920s and then in order to ensure that no Great Depression ever recurred, the Fed ensured that neither positive or negative deflation ever returned. Thus, we've had a policy of consistently moderately positive inflation that has resulted in the dollar losing 98% of its value since 1913.
The Fed's monetary policy has succeeded since the 1940s to the extent it has prevented a return of the debt deflation cycle of the Great Depression, but it has failed miserably to the extent it also eliminated periods of "good deflation" that kept the value of the dollar constant over the course of the 1800s!
It took us about 100 years for the Fed to do to the dollar what the Romans did to their currency in about 200 years… the above chart recording the silver content of Roman coins begins in AD 61 and ends in AD 260; over this period the share of silver in the coins went from 100% to less than 5%.
When government debases money (either literally like in roman times or virtually like in modern times when the Fed electronically "prints" money), this sets in train a series of unintended consequences that undermines the stability of economy, financial markets and society in general.
Enlightened government can’t reverse these trends because enlightened government always costs more than it seems when the enlightened programs are designed. Thus, what inevitably happens is that the government raises taxes until it can’t raise taxes any more and is forced to debase the currency to pay for the enlightened programs.
Once the government debases money to pay for the welfare/war fare state it injects the economy and financial markets with corrosive and insidious distortions that sow the seeds of what Austrian economists call malinvestment. When capital is systematically malinvested (thanks to distorted signals caused by debasing of money), an economy cannot renew itself and remain a dynamic going concern.
That is why universal health care will never be part of the solution to the health care crisis in America or anywhere else in the world. universal health care might seem to be working in Europe, but these countries are up to their eyeballs in debt which they’ve accumulated to pay for social welfare states. It is impossible to “right size” progressive government because once the programs are started they grow like cancers until they kill the host.
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