Irish Liberty Forum

Archive for the ‘inflation’ Category

More on Inequality and Misuse of Statistics

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Ever taken a statistics course? Most stats lecturers devote a special moment to highlight how statistics can be misused. For instance my tutor once showed us a graph like this:



We can clearly see that there’s a correlation between ice-cream consumption and deaths by drowning. But what can we infer from this? It’s possible that eating ice-cream causes drowning (due to stomach cramps while swimming). It’s also vaguely possible that drowning deaths cause increased ice-cream consumption (mourning relatives might go for an ice-cream to cheer themselves up). However the most sensible explanation is that both ice-cream consumption and drowning deaths increase is due to another factor: the weather. People eat more ice-cream and go swimming more often in summer.

However, such a straightforward explanation is hardly ever seen in economics. The empirical approach often remains unquestioned. Consider this syllogism: in the past, taxes were low. Today, taxes are high. We were poor in the past but now we are rich. Therefore, increasing taxes causes prosperity. Such a view is completely ridiculous, yet almost completely unquestioned.

Or take the suggestion in the graph below. Income inequality sharply increased before two major recessions. Therefore it’s fair to assume that one causes the other.

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Written by 20000miles

October 9, 2009 at 5:51 am

May 2009: Irish Recession Still in Deflationary Phase

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We’ve got new central bank figures:

Monthly statistics from the Central Bank show the first net fall in mortgage lending since 1990. The figures also show a sharp fall off in credit card spending…

It is the first time that repayments on existing mortgages has been greater that new mortgage lending since the Central Bank began this monthly statistics series in 1990. The figures show that, overall, mortgage lending fell by over €100m last month.

Contrary to what most people think, deflation is a good thing. Under a free market monetary system, this imaginary digital “credit” would never have been brought into existence in the first place. As loans are paid in faster than they are being created, with the most speculative loans already in a state of default and evaporating from the system entirely, the money supply more closely reflects that which would prevail in a deregulated, decentralised system (however a pale imitiation it might be).

Written by Graham

June 1, 2009 at 8:38 pm

ECB Bailout of Ireland in full swing

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It’s a sign of the times that every public debt offering in Europe has become a “risk event”, with the Irish government among the most vulnerable to what would be a catastrophic collapse in demand. And no longer empowered to produce its own counterfeit money, it is ultimately reliant on the ECB to remain solvent.

The Sunday Independent reports that the ECB has finally started to play ball, providing the funds to ensure that no Irish government bond is left unbought:

Irish banks are using billions of euro from the European Central Bank (ECB) to buy up Irish government debt, the Sunday Independent can reveal.

It has emerged that the banks were “active” in a recent Irish government bond sale of about €1bn, and it was confirmed yesterday the repossession of Irish bonds at the ECB has occurred.

Irish banks are using ECB funds to “create the illusion” of demand on the international markets.

Incidentally, how reassuring that the same governments who collude in this type of activity are fighting the good fight against market abuse by private participants, defined previously here:

Market abuse may arise in circumstances where investors have been unreasonably disadvantaged, directly or indirectly, by others who:

* have used information which is not publicly available (insider dealing);
* have distorted the price-setting mechanism of financial instruments;
* have disseminated false or misleading information.

Of course, the governments themselves would never do anything like that.

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Written by Graham

May 3, 2009 at 10:22 am

Idle Resources Explained

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One of the main arguments that stimulus proponents have been making is that there are “idle resources” in the economy right now. Our productive capacity has not changed and our labour force has not lost its skills – yet these factors of production are laying idle. Thus, the government must “stimulate” these factors back into productive use. Any government spending cannot possibly “crowd out” private spending, as there is literally nothing to crowd out. Unfortunately, there is little explanation of why idle resources have piled up in the first place.

Here I will cite Peter Schiff, Tom Woods and Robert Murphy as to why resources are suddenly idle, why stimulating these resources is undesirable, and why targetting idle resources can’t possibly work.


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Written by 20000miles

April 7, 2009 at 7:26 pm

Posted in economics, inflation, USA, World

Keynesianism is Wrong, or, The Miraculous Exogenous ‘G’

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Here is Cato’s Dan Mitchell explaining the problems with Keynesian solutions to recessions.

Hat-tip to Krazy Kaju for his summary:

The idea that government fiscal stimulus can increase actual aggregate demand is false. That money needs to either be borrowed, taxed, or printed. If it’s borrowed, that’s less money that the private economy may borrow. If it is taxed, that is less money that the private economy has. If it is printed, that is less value per dollar that the private economy has. 

Written by 20000miles

April 7, 2009 at 7:15 pm

Posted in economics, inflation, money, news

It’s Just Harmless Counterfeiting

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There is a new blog about the Irish economy by a very impressive list of professional economists, which I’m sure that many of you have been following. It’s definitely a blog worth keeping an eye on.

One post that I noticed recently, “On German Concerns About US Monetary Policy“, contains too many interesting points for me to deal with in one post, but I would like to focus on one simple idea and see if my analysis can add to the conversation. The question is: are central bank asset purchases inflationary? And what about loans? I will write generally about my understanding of some important effects of money creation. Read the rest of this entry »

Written by Graham

March 21, 2009 at 12:03 pm

Inflation: Saviour of all Humankind?

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Found this economic propaganda piece lampooned on the LewRockwell blog:

Some thought exercises for the viewer:

1. Can real wages rise when the purchasing power of the dollar decreases and the “cost of living” increases.

2. Although the farmer was able to pay off his mortgage, how will consumers be affected by the rise in wheat prices? What will they do in response to the price increases?

Contrary to what the video might tell us, creating new pieces of paper have no miraculous healing powers for an economy. As Hoppe explains:

However, once a commodity has been established as a universal medium of exchange and the prices of all directly serviceable exchange goods are expressed in terms of units of this money (while the price of the money unit is its power to purchase an array of non-money goods), money no longer exercises any systematic influence on the division of labor, employment, and produced income. Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs.

But this means that any supply of money is optimal and, in that sense, that the supply of money is indifferent or “neutral” to the real processes of the economy. But, unfortunately, changes in the supply of money can have untoward and even devastating effects on the real processes of production.

Written by 20000miles

January 10, 2009 at 4:15 am