He very convincingly points out that in the absence of debt, there is no reason not to expect prices and wages to adjust both up and down as necessary. This would eliminate the deflation threat that the Fed is so clearly terrified of.
More importantly, he argues that stabilization efforts have a nasty side effect: the explosion of debt, which on its own becomes a much bigger threat to greater economic development. Its also evident that debt is one of the most effective tools to transfer wealth from the poor to the rich, creating a malignant cycle. More inequality feeds more debt feeds more inequality.
Of course, there's two problems. First, as Europe points out so well, wages are very sticky. It's damn near impossible to get them to adjust down, no matter how much pressure you put on them. Grant's argument depends on labor contracts that don't fix wages for years into the future. I just can't imagine any situation where people would find this acceptable.
Even worse, Grant's whole argument is only possible in the absence of debt, something that's appeared in almost all societies since the dawn of civilization itself. It's great to think of an infinitely flexible economy, but that's just not how the real world works. We need to borrow money from time to time, and paying it back locks us into a specific payment regime for years into the future. If deflation strikes, debtholders are in a lot of trouble.
This example is part of the incredible naivete and wishful thinking of the goldbugs. Yes, under the weird world where long-term contracts don't exist, a gold standard would be nice. Unfortunately, the world is messy, and a gold standard would just make it messier.
On that note, since we do live in a debt-ridden world, it wouldn't hurt to go through debt forgiveness a little more often.* Of course, this would depend on a more balance of power between creditors and debtors. And since creditors are usually wealthy and debtors are usually poor, that's definitely not going to happen any time soon. But a boy can dream.
*For the actual poor, not the well-off and well-employed who "suffer" monthly payments to Sallie Mae.
Of course, there's two problems. First, as Europe points out so well, wages are very sticky. It's damn near impossible to get them to adjust down, no matter how much pressure you put on them. Grant's argument depends on labor contracts that don't fix wages for years into the future. I just can't imagine any situation where people would find this acceptable.
Even worse, Grant's whole argument is only possible in the absence of debt, something that's appeared in almost all societies since the dawn of civilization itself. It's great to think of an infinitely flexible economy, but that's just not how the real world works. We need to borrow money from time to time, and paying it back locks us into a specific payment regime for years into the future. If deflation strikes, debtholders are in a lot of trouble.
This example is part of the incredible naivete and wishful thinking of the goldbugs. Yes, under the weird world where long-term contracts don't exist, a gold standard would be nice. Unfortunately, the world is messy, and a gold standard would just make it messier.
On that note, since we do live in a debt-ridden world, it wouldn't hurt to go through debt forgiveness a little more often.* Of course, this would depend on a more balance of power between creditors and debtors. And since creditors are usually wealthy and debtors are usually poor, that's definitely not going to happen any time soon. But a boy can dream.
*For the actual poor, not the well-off and well-employed who "suffer" monthly payments to Sallie Mae.
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