26 October 2011

Karl Denninger v. Ron Paul

Karl Denninger makes a proposal:

The Federal Reserve Act of 1913, as amended, explicitly states that one of the goals of monetary policy is Stable Prices (and the word "Stable" is defined in Websters as "unchanging.")
The original Coinage Act (of 1792) provided that the penalty for intentional debasement of the currency was death.
It's time to bring that law back onto the books and start enforcing it; the gallows can be erected right in front of the Wall Street "bull" or in front of the Washington Monument - pick one.

Karl is correct in noting that the Fed has failed in its legally required duties, and should thus be prosecuted.  Karl has also taken Ron Paul to task for calling for the abolition of the Fed since the Fed is technically under the purview of the House, and should thus be prosecuted at the behest of the House.  The problems with Karl’s analysis are twofold.

First, Ron Paul is one representative among hundreds.  Even if he called for prosecuting the Fed and enforcing the laws that bind it, he would still have needed over two hundred representatives to agree with him.  Given that Ron is one of a very small number of politicians with his head not buried in the sand, it seems unlikely that calling for enforcing the laws regulating the Fed was going to gain traction.  As such, one could argue that Paul was acting pragmatically by not fighting this particular losing battle.*

Second, if the laws governing the Fed are going to be disregarded by those in charge of enforcing them, then it is better to simply end the Fed instead of trying to manage it.  The experiment with letting the government manage the money supply has thus proven to be an unmitigated disaster.  This is due, in part, to congress’s unwillingness to enforce the law.  If this trend continues, then it would seem more prudent, in the long term, to stop waiting for congress to get its act together and simply dispense with the system altogether.

This is where Ron Paul displays more foresight than Denninger.  Ron Paul is basically conceding that the Fed cannot be regulated like it should, and so the only way to prevent it from debasing the currency is to simply get rid of it altogether.  Denninger seems to think that it is likely that congress will grow a spine in the next couple of years; Ron Paul is looking beyond that and asking why worry about relying on politicians when we could simply abolish the problem altogether.

Anyhow, this is convoluted way of saying that both Denninger and Paul are right in diagnosing the problem with currency debasement.  Their solutions differ because the two men have differing opinions on the nature of government.  Paul thinks that politicians are unlikely to enforce the laws on the books.  I’m inclined to agree with him, which is why I would argue for ending the Fed.  However, I’m not going to complain if politicians want to start prosecuting Fed officials.

* Of course, one could also argue that it’s hypocritical to pose as an ideologically consistent politician if one is actually going to act like a pragmatist.

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