I've come to understand that until we fix our money creation system, we are structurally doomed to repeat the asset bubble cycle.

Will you please address this issue?

Currently the Federal Reserve (which is really a system of private banks) allows for private banks to create money out of thin air based on the fractional (or perhaps fictional?) reserve requirement.

When a loan is made, only 10% of the loan must be in the vaults. The bank gets to create the other 90% out of thin air. This is the prime cause of asset inflation. Any fix that doesn't address this, will ultimately fail. You might slow things down, but the failure will occur.

Article 1, Section 8 of the Constitution requires Congress to be in charge of money creation.

Money that is spent into existence by the government on public goods would be interest-free and debt-free, would not be inflationary and is exactly the best prescription for our financial misery today, and tomorrow and the next day.

Two interesting points: McArdle misses the problem with FICO scores as a determinant in loan processing. A household with a high FICO score and an income of $28,000 is not necessarily a better credit risk than a household with an income of $60,000 and a lower FICO score. In many cases people with lower incomes and high FICO scores got themselves into real trouble with ARMs and the like. What the bubble really showed was how bad some of these measures are.

Second, only early boomers had the opportunity to make a lot of money on their houses, as they were old enough to buy before the inflation of the mid-1970s. Younger boomers bought houses after the inflation and so don't benefit from buying in pre-inflation dollars.

Bravo on your ability to maintain your equanimity in a difficult debate that must have been frustrating at times. Debating a libertarian about the economy is like debating a creationist about evolution. It is more about religion and faith than reason. You did a great job.

Dean and friends of Dean:
Exciting new video reveals inner fantasy of followers of Hayek and the Austrian crowd:

If you look closely, you will see Ron Paul running shirtless with a spear in one hand, stop, feed savagely on a hairy pig, and then promptly lead a throng of numskulls off a high cliff.

I guess I scooped you this time, Mish.

Schiff! Aren't you the blond boy running around, striking poses and getting all war-painty on everybody? Remember, there is always some one bigger than you that may decide to eat YOUR BICEPS for lunch.

http://www.youtube.com/watch?v=8...h? v=8m_ZdBMI2gc
.

Sorry for the broken link, here is that liberating video:

http://www.youtube.com/watch?v=8m_ZdBMI2gc

If it still does not work, I made it my "Homepage" link, below.

These anarchist need to be exposed for what they are.

I think Megan is a little side tracked discussing the "job description". Its much more than that. Its should other assets beside Consumer Durables be considered when calculating "Inflation"

My own post on inflation and asset bubbles:
http://www.spreadsoncredit.com

I analyze college facility needs for a living. One of my clients is City University of New York. The North Hall at Hunter College, the building facing onto Park Avenue, is or was a WPA. McArdle seems to think all WPA projects were "make work" projects. With the benefit of 70 plus years of hindsight, I have to say the building looks just as real to me as any other in the university system. And BTW the building requires both a serious renewal and adaptation, a project that if executed would exceed one billion in today's dollars. And it would not hurt if the State of New York were "stimulated" into getting it done. I would assure McArdle that it would be a real project, meeting a real need, and employing real people... And did I mention that Lehman and Brooklyn Colleges have similar buildings?

Echoing Scott Page, my high school was built by the WPA. "Make work" can describe some of the homework assignments I had there, but it surely doesn't describe the building, which is handsome and still stands, proudly looming over Interstate 30 in Fort Worth.

Trying to wrap my brain around the idea that someone would believe that building a stout school is a boondoggle.

Wow, in the first seven minutes, Dean has to politely face off with someone arguing that "Greenspan should get a pass because, although he screwed up, we should be pleased with him, because he could have REALLY, REALLY, screwed up, given an alternative reality."

Please, don't tell me about the massive salary Megan gets as a "knowledge worker."

Trying to wrap my brain around the idea that someone would believe that building a stout school is a boondoggle.

I hear that. Ninety-nine percent of the time I'm insecure about what I know but then I watch or read McArdle and I feel like a flippin' economic genius.

I'm sorry for the second comment, I have to add this b/c it's been running through my head thanks to these clips:

"You know, you have such a stunningly superficial knowledge of what went on that it's almost embarrassing to listen to you."

I'm not sure how Dean avoided saying something very like that during the WPA discussion.

I guess it was because I hated high school, but my high school was built as part of the California version of the WPA. It was rehabbed in the 1980s, but it still stands and students still hate high school there.

My thesis predicts that Megan in actually the smartest person in this room:

Her message is but a small part of the linguistic massif that has risen up under the tectonic twin-pressures of marketing and advertising that has change America, forever, into Thinktankistan.

Education leads with the shining light of an expanding awareness. The think-tank, marketing model "educates us," and then retreats with a hiss, to then hide in the shadows until "further instruction" becomes possible, that is, when we are again, brutishly unawares.

Megan has plenty of company. When we all begin to question the truism that we repeat over and over, again, each of us can find think-tank spawn within our own minds, that was put there at the cost of tens of billions of dollars.

If survival is the highest value, then Megan is 'greater than I." I suffer in Thinktankistan. Megan flourishes. The incessant, think-tank ejecta, to me, is a rain of sulfur...a cloud of asbestos, that I can't escape.

For Megan, their message invites her to a shiny, new day, after yesterday, which too, was a shiny, new day.

She lives. I die. I guess that I'm the stupid one.

Dean, I agree with eRobin. It took great restraint to not go Zbigniew Brzezinski on McArdle.

We have many public buildings and parks in Whittier CA (yes Nixon's Whittier) that were beautifully designed and constructed by the WPA in the 1930's. They are still serving our Commons today.

The folks who built them thought they had jobs although McArdle would probably disagree. I wonder if all the folks working for the US aerospace & defense industry with government (taxpayer) funded contracts also ‘don’t have real jobs’ by her definition. Or are those ‘good government jobs’ because someone (defense contractors) can make big profits from the taxpayers’ money?

The thing about libertarian economic theory is that there is not one single example (anywhere, at in any time in history) where 'Libertarian laissez-faire rugged individual capitalism' has evolved by any natural process. No society has ever freely chosen it as their preferred economic model. The only societies where Libertarian laissez-faire has been tried (always unsuccessfully and tossed out after a decade or two), it has been imposed and maintained by force of guns & terror (Chile, Argentina, other South American dictatorships, etc.) or through economic extortion from the World Bank, & IMF (Russia, Poland, Asia in the 1990’s). If the US wasn’t the force behind the IMF / World Bank, we would be told to take this same bitter medicine that we have given to so many other nations in the past. This is the Milton Friedman / Alan Greenspan medicine that the libertarians like McArdle prescribe in opposition to Keynesian economics.

"You couldn't see it in 2002" -

"I saw it."

"Okay, you saw it."

Two sentences later:

"No one thought it was a bubble except some crazy people."

Has she no shame? Why I am bothering with this.

Well done Dean. I think a number of libertarian fallacies were exposed here. I noticed that she tried to defend Greenspan by saying – “but the bubbles were unknowable because its all so complicated and the cost of making mistakes is so great.” But then later argued that the Banks felt justified in taking emissive risks because they believe they had developed innovations and computer programs to help them manage risks.

But the golden line has to be “no one saw the housing bubble” “I did.” That comes close to one of my debates with a collage economics professor (or at least he claimed to be one) who tried to put me in my place after I had declared that “economics must respect the laws of physics.” It never ceases to astonish me when I bump into those who claim that modern economic policy is not so constrained.

#1, people use many metrics for employment because there are many ways to think about WHICH resources are being used HOW productively at WHAT rate of exchange WHERE and WHEN. there is no one magic unemployment or employment number that tells you everything.

#2, every time i hear an economic libertarian diss public spending to maintain the commons i get a little more sad. hopefully this will not kill me because i doubt it will stop.

#3, for pete's sake, "alan greenspan" is a placeholder. to argue that Da Fed couldn't watch over this or that aspect of the monetary system -- and i'm sorry, if you're scared of whatever-flation then asset bubbles should leave you paralyzed with fear -- unless you are a dolt -- well it wasn't just alan, was it -- it was the whole staff of the bank working on it. having a few people watching for bubbles: not a big problem. saint alan's personal calendar was not the issue.

#4, mowing lawns IS productive work. not only does it help maintain the value of local properties, you can use the grass leavings to construct a straw man argument. (environmentalists, by encouraging xenoscaping, do economic harm. not only would maintaining home value be less labor intensive, destroying jobs, but you would have to throw stones at your opponent, making you look mean instead of crafty.)

Dean Baker is a stone cold killer.

warning: the following message is incredibly funny.

http://www.markfiore.com/new_deal_or_no_deal_0

Has anyone ever done a study on the correlation between libertarians and Asperger's syndrome? There's something really... peculiar... about the way most libertarians talk about groups of people.

Maybe the government could find Megan some work in the field of crafting job descriptions.

Or the government could pay Megan to read some of the books behind her and learn some things.

"Dean argues that it is the Federal Reserve's responsibility to prevent bubbles -- even if it happens to make the job of a central banker more difficult."

That's like arguing that it's a rapist's responsibility to prevent pregnancies--even if it happens to make the job of a rapist more difficult.

Interesting video the democrat blames the government’s agent (Greenspan) and the libertarian defends the government’s agent. The democrat argues that the Federal Reserve should and can ignore the will of the people.

I wonder if the USA economy is just too big a part of the world economy and therefore a mistake by the Federal Reserve (and BTW the FDIC - in 2003 the FDIC, the insurer should have threatened to drop insurance on the banks that were making these bad loans if they kept making these loans) causes the whole world economy to plunge so even exports cannot pull us up. IMO it is not possible to never make a mistake.

I agree with the poster above called Fiat Money that we should try to end or at least reduce fractional reserve banking (some libertarians call it fraudulent reserve banking) or if we cannot politically get rid of fractional reserve banking or get to free banking perhaps we need 5 or 6 Federal Reserves and currencies in the USA.

About the unemployment numbers in the 1930’s, In defense of FDR I think that you cannot compare the numbers before the SS tax with the numbers after because the SS tax encouraged people to work secretly without letting the government know that they were working. IMO true unemployment of 9%, the number that dean uses for 1937, is really bad and 1937 is 7 years after the bottom, I find it hard to believe that that number is accurate. Along that line I lived in Honduras for a while and official statistics there showed very high unemployment (like 30%) but people where working in the grey market but not reporting income. I know people here now who are collecting un-employment but are working and making money.

Government creating jobs for the sake of creating jobs is brings up some good issues. For example the classic example of paying people to dig holes and them pay them to fill them in means that government would be using work for some other reason than production because Government could have just given them the money. Is it too keep people from staying home and drinking?

I often wonder if we would be better off getting rid of minimum wage welfare unemployment etc. and write a check to everyone in the country. The big problem with that idea is that it would probably increase anti-immigrant feelings.

I find Dean interesting and thought provoking.

That was really painful to watch. However, it prevented me from ever thinking I need to read McArdle, so it's worth it I guess.

In his own defense on the stock market bubble Greenspan could site the Asian Financial Crisis of 1997, the failure of Long term capital and fear of y2k. The housing bubble was created much as a response to stock market bubble crash and an overreaction to 9-11. I have often laughed at Greenspan’s not wanting to tighten for fear of y2k ad then loosening due to 9-11 as if it would have significant economic impact. On y2k why did he not poll people about their y2k plans. If he did he would have found that they were not planning much so he could have tightened prior to 1/1/200. He was an old out of touch man who over reacted to evens. He even once talked about the wealth effect of people drawing money out of their homes as a good thing!

Ah god this was excruciating, she hasn't got a clue what she's babbling about. You could only laugh at her at some points.

Why Dean, Why. Why are you doing a bloggingheads with her? I'm not even going to watch this, as that will only be helping McMegan's credibility. You are an economist. She has an MBA. She claims to be an "econo-blogger". If you'd like to debate other economists on bloggingheads, by all means. But don't let McMegan continue to pretend she has an economics background. Her repeated misstatements on basic economics (various blogs have done a good job tearing her apart for lacking basic economic literacy, notably Crooked Timber). This woman has no qualifications to pontificate on economics, as evidenced by her repeated idiocy and the fact she was dumb enough to get an MBA at all. Though I guess she was smart enough to convert two year degree in schmoozing into a credential that convinced a leading American magazine to give her a high paid blogging job. Sigh.

Hey, here's a thought - McArdle isn't really working. What an annoying, pompous dunce.

"I'd do it gratis, they wouldn't even have to pay me for it."

Hearty lols at this part.

It is amazing how fact free Megan is. And it is not a real surprise that she and the English Major (Amity Schlaes) are now the Conservative Movement's experts on the Great Depression as they both prefer to deal in constructing plausible "narratives" that sell as the truth.

Admittedly this is just more antidote, but growing up in the suburbs of Cook County in the 1960s, I noticed that almost all the bridges across the Des Plaines river had been built by the WPA. Likewise much of the infrastructure for the Forest Preserves and local parks. But of course to Libertarians like Megan such social goods are a kind of theft on a par with the guy who stole her bicycle (her famous ur-story on how she became a libertarian conservative).

I do agree with fiat money above-- there's no reason for the US government to outsource its seigniorage power to the Federal Reserve banks.

As for the BHtv clips, wow-- that really wasn't a fair fight but it was fun to watch Dean take her arguments apart.

A libertarian analyzes the world based on reason, not emotion. But, before anyone say that that is a good thing, imagine the emotion-less activity of BTK, the serial killer. Reason, without emotion, is sociopathology, verging on psychopathology (ie, BTK and Ayn Rand, and the "person" of The Corporation).

In the interview, don't Megan's sentences and arguments sound disjointed, similar to output from an AI prototype? That is because only emotion allows us to humanely organize our language output, something AI machines cannot yet do. Through emotion, we can poetically organize our thoughts by properly feeling where each word should go, and which argument should follow next,..we are efficiently measuring each and every meaning, putting everything in its proper place. Megan, apparently, is emotionally constrained, or handicapped, to put it mildly.

So, the WPA built many good things, but also extended the lives of many people who, otherwise, would have died. This latter point, Amity Schlaes, nor Megan McArdle, would understand, because they are just dusted off, articulate and salaried sociopaths, or psychopaths, of course, similar to the modern day corporation.

The BLS unemployment stastistics for the Hoover Depression (1930-1940) counted those working on the WPA work relief programs, and those in the CCC as UNEMPLOYED.

These government relief jobs thus did not distort the employment figures and make the essentially meaningless.

Now, the employees working in private industry to make the foodstuffs, radios, clothing and other items purchased with WPA paychecks were in fact counted as "employed".

As someone who formerly used to bother posting under Megan's comment section let me personally assure you, it's far worse than this on a daily basis.

If you think she's bad, you really should go over there and check out the comments from your average, libertarian, Megan ditto-head.

Please, don't tell me about the massive salary Megan gets as a "knowledge worker."

Ha ha ha ha. Good one.

What's the going rate for ignorance per hour?

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