Nonsense from Alan Greenspan.

We plebs have always known that the top positions in most countries are occupied by idiots. This passage authored by Alan Greenspanconfirms the point. He starts:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.  There is no safe store of value.”

Whaaat? So Greenspan has never heard of inflation proof “stores of value” like shares, houses, land, inflation proof government bonds, etc? Hilarious.

Of course he is right in that absent the gold standard there is no HIGHLY LIQUID and inflation proof store of value. But what of it? Who wants to keep a large proportion of their assets in a highly liquid form? The VAST MAJORITY of ordinary people hold the vast bulk of their wealth in very illiquid assets like their house and car.

If there are a few billionaires who can’t think of anything to do with their wealth other than hold vast amounts of cash which is eroded by a small amount annually by inflation, I just couldn’t care less. In fact a modest amount of inflation is a brilliant form of tax: it robs stupid rich people who can’t think of anything to do with their wealth.

Greenspan continues:

“If there were (an inflation proof store of liquid assets) the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”

No, “deficit spending” is not “simply a scheme for the confiscation of wealth”.

Of course grossly excessive deficit spending which results in rampant inflation results in a form of theft: in that scenario it’s not just billionaires who are seriously inconvenienced – ordinary people are as well. But advocates of deficit spending do not advocate rampant inflation.

For the benefit of Greenspan and any other economically illiterate central bankers, the purpose of deficit spending is to bring full employment – though perhaps ensuring ordinary people have jobs is not high in the list of Greenspan’s priorities.

Of course a more or less continuous deficit decade after decade DOES BRING continuous inflation (assuming the deficit is larger relative to GDP than productivity improvements). But that decision to go for a 2% or so rate of inflation stems from the view, accepted by about 90% of economists, that 2% inflation (rather than 10% or minus 16% or any other figure) is about optimum. To that extent, the DEFICIT is not the fundamental cause of inflation.

Put another way, we could very easily achieve zero percent inflation even in the absence of a gold standard. It would be easiest thing in the world to do, though the price would be higher unemployment.  Well I could do it, though whether Greenspan could do it is more debatable.

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Hat tip to Stephen Williamson: http://newmonetarism.blogspot.co.uk/2012/09/alan-greenspan-and-gold-standard.html