[Rumford]

Like maybe don't put a Soviet-style central committee in charge of the money supply?

It's depressing to me that modern economies like the US and Europe can be so shot through with central planning, and then when they produce bad results everyone pretends it's the fault of some freewheeling laizzes-faire policy that never existed.

[crdoconnor]

>Like maybe don't put a Soviet-style central committee in charge of the money supply?

The US didn't have this at the end of the 19th century and they suffered through multiple bouts of mass unemployment and deflation as a result. That's why the Federal Reserve was created.

Central planning can be done well or badly. It can't not be done at all.

[Rumford]

The latter half of the 19th century up to WW1 was the USA's longest sustained period of high growth and high economic mobility. No central bank. Moderate deflation was the norm. According to the likes of Paul Krugman Americans should have been eating dirt and living in caves by 1913, but the exact opposite happened. Growth that the Keynesian technocrats have yet to match.

Except even then, government intervention in money fixed a certain price ratio of gold and silver. When that ratio no longer reflected the real market prices, chaos predictably appeared in the banking system. Go back over the history of the late 19th century panics and you'll notice one metal was fleeing the country and causing a lot of controversy. That's a government price control at work, not unfettered capitalism. The Federal Reserve Act was the wrong solution.

And yet even with the Fed, there's the stubborn little fact of the crash of 1920 -- bigger than that of 1929 -- and the rapid recovery that followed. The Fed, Congress and the Presidency did basically nothing and it was over in 18 months. So judging from the objective facts laying before us, it looks like the central planners perform best when they avoid central planning.

[Houshalter]

We've had multiple bouts of mass unemployment with the federal reserve. And they are much more severe and much longer than recessions were before the federal reserve. Or at least that's the argument I hear from people against the federal reserve.

[jbooth]

The words 'soviet style' in this comment are an insult to anyone who's ever read a history book.

[Rumford]

The existence of central planning anywhere in Western financial systems is even more insulting. After watching the examples of our good neighbors to the East you'd think we would have learned our lesson by now.

[licnep]

Actually, central banks in both the US and Europe have very little control over the money supply.

The money created by central banks only accounts for about 3% of the monetary base, the remaining 97% of money that circulates in the economy is created by private banks, lending money out of thin air. Therefore money supply is actually dictated by how confident private banks are to lend to the public. A central bank can try to incentivize lending by lowering interest rates, but in the end it's private banks who choose whether to lend or not (in Europe it didn't work so well..).

It's still a pretty fucked up system either way. I think more people should work on the issue of money supply, it's probably the single most important problem in any economy.

[jqm]

Banks (in the US) can't just lend out however much "fake" money they chose depending on how confident they are.

There is a reserve ratio that must be met. That is the percent of deposits that must be kept on hand and can't be lent out. This rate is dictated by the Federal Reserve (the central bank) in the US. Adjusting this rate allows more or less lending and thus influences inflation. So in short... central banks have a lot more control over the money supply than they themselves simply creating money out thin air.

[shawkinaw]

Do you have a link that explains this lending mechanism? I saw it referred to in a previous HN discussion a while back, and would like to know more about it, since it sounds ludicrous.

[alextgordon]

What mechanism are you talking about? The eurozone had low interest rates and no QE -- pretty much the epitome of "hands off".

[omginternets]

>laizzes-faire

It's laissez-faire