Having My Doubts About Ron Paul

I've started to read Ron Paul's book, End The Fed, and my doubts about Congressman Paul are rising.

I have always had a reasonably favorable opinion of him for these reasons:  (1) he didn't sound like every other text-book republican, revering Reagan and parroting his supply-side theories while giving little credible voice to the accumulation of debt which Reagan, and Bush after, and Bush II after, championed and indulged in; (2) he showed personal and political courage as to (1); (3) he consistently and repeatedly railed against deficit spending in times other than national emergency such as WW II.  His protestations against the Fed were always a bit opaque to me, more than a bit.  I never quite followed them, and further, they never really jived with what I knew of the Fed or its role as the U.S. central bank.  But, I certainly left open the possibility of critical gaps in my knowledge.  And that's why I was happy and excited to read the book.

But my concern is rising, as I said, and if it keeps going that way, it's going to chip away at my above 3 reasons for generally thinking favorably of Paul, for the simple reason that it's going to chip away at my opinion of  him personally, and that affects everything else.

Specifically, in this case, I am talking about his blatant out-of-context quote of Ben Bernanke on p.10.  People who quote out of context do so quite consciously, particularly if they are scholarly, have access to the full text from which the quote was drawn, and use footnotes assiduously, as does Dr. Paul.  There was something about the quote which SEEMED out of context right from the start.  So I used his footnote, and I checked.

Here's the excerpt Paul quoted, from Bernanke's remarks to the National Economists Club in November of 2002:

"The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.  By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars for those goods and services.  We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

And this was Paul's comment following the quote:

"I'm not sure that the Fed governor has ever been so frank about the Fed's power.  To be sure, he was not condemning it.  He was explaining it.  He believes in it.  Like the eighteenth-century money crank, John Law, whose antics fueled the Mississippi Bubble, Bernanke believes he as discovered the magic means to prosperity."

The reason why the Bernanke quote sounded out of context, is because at the place in the book where it occurs, Paul is railing against Fed actions following the economic crisis of 2008 which include, according to him, a large increase in "the monetary base" to an unprecedented level.  I put that in quotes because I still need to find out what he meant by that.  If he meant that the Fed injected the big increase he cited (from $856 billion to $1749 billion) directly into the economy in the form of newly printed money, then I believe he is mistaken, because that amount clearly would have been inflationary, and inflation has remained low.  But Paul was clearly expressing the fear that Fed actions could and would be inflationary, and true enough, the Bernanke quote is clearly describing how to generate more inflation.  But here's why the Bernanke quote seemed out of context - the Fed's primary mission is maintaining LOW inflation.  So for Bernanke to be describing how the printing of money is both easy and inflationary is both (1) an obvious point, and (2) something he only would be discussing in the context of a discussion on combating DEFLATION.  So I looked it up.

From Bernanke's remarks, here's the paragraph immediately before and immediately after the one Paul quoted (the part Dr. Paul quoted is in blue):

"The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).8 Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation."

My reaction to that is it's blatantly and reprehensively out of context.  To insert a Bernanke quote on deflation in the midst of a discussion of the threat of runaway inflation of the like and kind of "Weimar Germany" (as Paul refers to 5 paragraphs earlier) is shameless.  I mean it gets my sharpest rebuke, over and beyond plagiarism.  With plagiarism, you are taking credit for someone else's words.  What Paul did was another form of lying.  Words and paragraphs require their context to convey their meaning.  By lifting that paragraph, he manufactured an unintended meaning to buttress his belief.

That just sucks.  And if I meet the man, I'm going to ask him about it.

I don't know how that quote could have been an "accident", or anything but intended.  But, I'm willing to grant him or his editor, if someone different, a mulligan and keep reading.  If I find another such cynical and calculated effort as that, I hope those of you out there who support him will talk to me at length, and tell me why I should, because that kind of thing speaks to the guy's character, and it's not right.

Comments

[Kirk]

Joe,
As a registered independent, who only recently joined your blog, I find your intellect quite refreshing and appropriate, thanks. As far a Ron Paul, I have found some of his positions to be applaud-able, but like you I find this practice very questionable. I look forward to hearing more as you conclude your reading.