Yup, that's the reason for going off a metal standard in the first place. Most people don't realize just how far back the US government started stealing from the taxpayers, but it has been going on for quite a while. Keynes take on taxation and the relationship of government to production has driven that - he basically said it was OK to use inflation to rob your people so long as you were also robbing your creditors.

I don't think that Keynes is misunderstood - I think you may not like what other schools think of him, but I don't think they misunderstand him.

For one thing, he missed the basic fact that government spending comes from other productive organizations. So every time the government takes money through taxes, fees, etc, it is removed from the productive section of society. Then it pays for government operations. *Then* it's used for programs, etc. The government multiplier can't ever be 1 or more, so that whole aspect of Keynesian is ill-considered nonsense. The rest of his theory is equally invalid once considered logically. His math lines up - brilliant mathmetician - but he missed some essential fundamentals of economic decision making.

It would have happened eventually as you can't mine precious metals just because your economy has grown and other methods or dealing with that tend to be rather messy. Plus, unless you can control the supply and dictate the only legal price it doesn't work so well.

The point is that when his theory comes into play there is no other non-essential spending going on. People aren't buying things that they can live without in a very literal way. Businesses aren't borrowing, lending or spending at all. And unfortunately, he died without really making it clear what the rest of his thoughts on the matter were.

Just like we had in 2008 at the beginning of the mess.

Like I said, the other schools have largely misunderstood what he meant in that particular book. Granted, Keynes was a master agitator, but in this particular instance he was correct. When nobody is spending any money at all, somebody has to prime the pump. Stealing from creditors is pretty much the only option in cases like that as you can't just seize assets through eminent domain and you can't tax what isn't spent either. So, you spend the money you borrow and you pay it back in part via inflation.

And assuming you've done it correctly the system as a whole gets better. It's a niche that really shouldn't come up very often, but at that point it was the second time in 4o years that the world had a depression of that magnitude.

Also, keep in mind that things like supply side economics are in a similar state, they're the correct policy move only under very specific circumstances and to fix a very specific problem and yet it's common to hear people in policy making position say that we need to lower taxes on the rich because somehow that will result in more tax revenue coming in. Which is only true to the extent that Keynes' multipliers are true.

Come to Hungary .

1 USD = 235.69 HUF
1 EUR = 289.64 HUF
1 GBP = 365.10 HUF

Here in the UK the price of University-level education has just tripled to £9,000 per year. Tell me how that works.

I remember how a candy bar cost 20-25p. The price is, again, about triple. That's not just for luxuries but normal things like bread and milk. Power companies just announced record profits - again. Taxes have been jacked up to their highest level in memory. Then people wonder why there were riots in the streets last summer.

A little utopia :
http://en.wikipedia.org/wiki/United_Federation_of_Planets#Economics

You know, if somebody would tell the morons in Parliament that the US isn't perfect perhaps they'll stop trying to copy us.

The USA isn't the problem. It's just consumerism gone mad. The other day I went to a city called Bath and went to their new shopping center. Instead of grass, there was a pitch of astroturf outside the Apple building where people were pouring over the new iPods and iCrap, and outside the buildings are fake 'medieval' styled. Why do we have all these fake shopping malls? And where do we get the investment from exactly? Oh right! We must borrow it from somewhere.

I shouldn't sweat it though, we have a minimum wage and a great education system. But the inflation in this country is stupid. Living on the breadline myself, I see prices inching up all the time. Just things like electricity bills, bus tickets, books for college, even socks... you have to watch every penny.

That wasn't quite what I meant. The problem is that other countries copy the US because the US has been hugely prosperous over the last 60 or so years, without understanding why we ended up with so much prosperity or what we're doing to actively undermine our own economic well being. There was a time when we could outcompete the rest of the world with one armed tied behind our back. Unfortunately for us that's no longer the case and all these bullshit trade treaties like NAFTA, the WTO and such are just leading to large amounts of money being redistributed from the US with little gain for us other than cheaper goods.

I tend to get a bit cranky when people bring up how rich people are in the US largely because they don't typically bother to do any of the work to adjust for our incredibly screwed up income distribution. Worse still, I'm not really sure that the standard of living is really that much higher than it is here in China.

EDIT: More specifically to the point, the removal of taxpayer support for students as a way of handling deficit spending in the long run it tends to be an incredibly expensive way to save money.

I think you're buying into the media too much. The USA became prosperous through slavery, coercion and invasion, not through the apple pie "we saved the day" version of events. Treaties like NAFTA guarantee that the rest of the world becomes America's manufacturing center. Other countries don't 'copy' America, they get a gun pointed at their head and told to open up their markets to rich and well-organised companies.

Why should other countries account for America's corrupt economy? Honestly, when I went to the USA, I couldn't believe how cheap everything was. The reason is because it treats the rest of the world like its personal factory. Removing taxpayer support for students saves money in the long run, but students ARE taxpayers; a less educated economy means less tax revenue, less social stability, and poorer prospects.

Not really, the period during which the US became a super power didn't actually have any of that going on. Slavery itself was never a particularly profitable venture and would have gone away on it's own had it not been for the cotton gin. Slavery itself was never particularly profitable and by the time of the civil war the US North was subsidizing the US South because there was so much more productive labor going on by free men in the north.

As far as invasions go, the US hasn't won a war since WWII and even that was a joint effort. Prior to WWI we did do a fair amount of invading, but the country didn't become a prosperous super power until well after the Spanish American war which as far as I can recall was pretty much the last time we had any success at invading other countries for our own gain.

What's more, it isn't the US' responsibility to look out for the rest of the world. You folks in Europe made it damn clear that we're only to help out when the Europeans ask for it, regardless of where it is in the world. You guys could have had what we have in the US, you chose to have multiple World Wars during the 20th century rather than doing more productive activities.

Typical European ignorance. Because we made sacrifices, and still do, to ensure that we have the largest economy in the world. We pay for things out of pocket that you pay for via taxes, we have no right to sick leave in most parts of the country or vacation anywhere in the US. There are tons of rights that you folks have in Europe that cost money that we don't have.

As for the prices, things are cheap in the US because there isn't a mandatory 2 year warranty like there is in Europe and the companies building them aren't held to the same standards that they are in Europe. AFAIK there still isn't a ban on lead in electronics in the US, or we were way behind the European regulatory agencies in implementing a ban. Here in China the prices are even lower than they are in the US and the warranties are non-existent.

Before you make those sorts of assertions you really should do at least some research into why, because most of the time the truth isn't quite what it looks like on the surface. Things would be more expensive here as well if there was a mandatory 2 year warranty on all goods, you couldn't use lead and whatever other regulations there are in Europe that aren't here in China or the US.

I add more, but it would involve me saying things that involve Chinese politics and that's not my place.

Just a small remainder, or history lesson if you will. Before January 1st 2002, ie. between 1999 and 2001, the Euros was not legal tender and was only used in accounting, meaning that it replaced the previous ECU, which was a basket of currencies from all states participating in the ERM. In that period, ONLY the most stable countries were able to join the Euro, as dictated by the Convergence criteria, which were set by the German central bank. Greece joined the new system in 2001, which was in hindsight a (major) mistake, but we won't solve the issue with 20/20 hindsight. Other than that, all countries were stable one and the only question that arose was with Italy and Belgium. Furthermore, Germany got saved by the so-called Belgian criterion of 60% GDP public debt or approaching this level. Since then, the only new member states that have joined are Slovenian, Cyprus, Malta, Slovakia and Estonia. Countries, which while not the most "German" of member states (with the exception of Estonia and Slovakia), are not unstable in the sense that they could destroy the Euro.

Oh, and need I remind you that it was Germany and France that destroyed the Growth and Stability Pact in 2005, as they didn't wish to be put under Excessive deficit procedure?

Germany stands to lose the most in the event the Euro gets dropped. Let's leave for the moment Sinn's talk about TARGET 2 (as important as it is) and focus on two things. The first is the currency, as the Euro, in comparison with the Deutsche Mark, is nicely devalued, meaning that German exports, since the introduction of the Euro, are cheaper both to your EU partners and customers in the Rest of the World. Should the Euro disappear, the new German currency would appreciate greatly, causing massive damage to the German economy (http://www.spiegel.de/international/europe/bild-840643-368108.html).

If we move now to the more pressing matter of trade, should the Euro fall, the dangers that occur when trading in different currencies will rear once again their ugly head, which, together with a strong German currency and the fact that almost 75% of EU's trade is done with herself, EEA and Turkey, will cause a strong fall in Germany's GDP. Since the current crisis is not a liquidity crisis, but a balance of payment crisis, the fall of the Euro will wreck havoc with what little balance remains, causing additional economic downturn in all European states, to the point that I wouldn't be surprised if every country will have to ask for help from the IMF, as it they willl otherwise be unable to have the funds required even to trade abroad. In addition to all of this, the internal market would be put into question during the introduction of the new currencies, putting into danger the whole European project. Now, I don't agree with the Polish Foreign minister who thinks that in this case war will return to Europe, but I wouldn't bet against him completely.

I understand the German position and I agree with you. But mistakes and bad decisions were made on both sides of the divide and right now there is no other alternative than to push through this together. If we don't stand together now, divided we will most certainly fall in the future. As to how, here I agree that everyone should be involved and have a say. The European project, now a popular one, also needs popular support. So as to how that can done, well, we can start a new thread on the subject. For starters, I recommend Habermas, who has recently published a book in German on the subject.

I was referring to the linked actual historical data from U.S. where (annual) deflation was observed.