Monday, January 18, 2010

Freedom's Vision of Monetary and Political Reform

We are regular readers and commenters on the economics blog Nathan's Economic Edge.  Nathan Martin of the aforementioned blog and Bill Still of The Secret of Oz have joined together to publish a document named Freedom's Vision.  Martin describes Freedom's Vision thusly:

The hope is that [the Freedom's Vision documents] explain the basis for change in the same way that the Federalist Papers did when Hamilton and Madison were exchanging ideas about the Constitution. Thus, we await and welcome your ideas, and even your criticisms.

And with that, we would like provide our thoughts on the proposals outlined therein.

The three key proposals of Freedom's Vision are (1) monetary reform, (2) political reform and (3) a new direction for the future:

1. Monetary Reform – We must replace our unjust, debt-backed money system and cleanse debt and derivatives without creating severe inflation or deflation; without creating a supreme “moral hazard;” and without crashing the entire global economic system in the process.

2. Political Reform – We must exclude large special interests from political decision-making. Removing this influence will accomplish a great deal in ensuring that the quantity of money remains under control and that politicians can go back to working and thinking on behalf of the people, not just in the short term, but also in the long term.

3. Direction for the Future – A change of direction is clearly needed. We are rudderless, and without proper goals to move forward our economy and society will continue to drift. While we feel this is desperately needed, we are focusing on the first two for now. When successful with the other two, the third will follow, but we need to be thinking about direction now!
    Monetary Reform
    The first proposal - monetary reform - is a non-starter.  A radical restructuring of our monetary system is impossible at the moment because of a lack of political will.  Ron Paul is struggling to even get a basic audit of the Federal Reserve, so attempting to replace that institution at this time is just not feasible. Freedom's Vision even admits this...

    One way or another, this over-leveraged system is going to crash and be replaced by something else.

    The current system must be allowed to reach its inevitable conclusion and finish itself off before a replacement can be seriously considered.  What will the end of the current monetary system look like?  Nobody knows but it will not be pretty.  When it does happen, our view is that a temporary stop-gap solution will be needed to calm the waters before a brand new system can be put in place.  Freedom's Vision outlines a transition period between the current monetary system and the proposed one but speaks as if the current monetary system is as it stands today and not after a collapse, which is the only time that the proposal has a realistic chance of being implemented.

    Thus, the proposal needs to outline how to pick up the pieces after a collapse.  The most obvious candidate for this role is one or more gold backed currencies.  For this reason, we feel that gold bugs, hard money advocates and the backers of Freedom's Vision are natural allies, so it is perplexing to us why Martin dismissed the usefulness of gold in his essay The Fallacy of Gold Backed Money.  His points in that essay are well noted but the usefulness of gold as a temporary solution is overlooked.  In the time of panic, people natural grasp for what they have been able to trust in the past.  Gold has a long and storied history of wealth preservation and thus fits this role perfectly.  Bringing gold bugs and hard money advocates into the conversation also increases the potential backers of Freedom's Vision by leaps and bounds.

    Political Reform
    Let's move on to the second proposal - political reform.  We think it is a mistake to list this proposal second in that it is naturally the first step towards getting monetary reform and not the other way around.  There is zero political will to change the monetary system but there is definitely a growing desire among the people for political change.  The public is waiting for a third party that represents both fiscal conservatives that have been betrayed by Republicans and anti war liberals that have been betrayed by the Democrats.  These two groups have more in common than the mashed together Republican base of religious southerns and rich people or the Democratic base of social liberals and poor people.  Think about it.

    Thus, Freedom's Vision can be most effective today by focusing on the creation of a viable third party that represents fiscal conservatives and anti war liberals.  Fiscal conservatives are covered by the monetary proposals but the anti war liberals are left out in the cold by the proposal.  There are notes in the proposal about war in general but Freedom's Vision does not mention either Iraq or Afghanistan once.  This is an oversight both from a politically opportunistic angle and a fiscal conservative one, since the wars are damn expensive.

    A New Direction for the Future
    A new direction for the future is a collection of proposals containing everything from education, energy, science, medicine and space exploration.  These are all nice points of discussion but are frankly not worth talking about when the government is going broke.  The priority is to cut the size of government and any and all new programs should only be considered once current levels of spending are reigned in.

    Final Words
    In conclusion, we feel that Freedom's Vision has some interesting proposals but misses the mark in a few ways.  #1 the focus should be on political reform via the creation of a viable third party.  Monetary reforms can enter the discussion but quite frankly voters have no interest in this subject and gaining their support does not require it anyway.  A better tactic is to gain their approval through issues they already understand, such as government spending and the two wars, and then introduce them to monetary reform once they are already on board.  At that point, monetary reform will be a natural extension of the general platform of the party.

    Once a third party is in place with clout (it does not need to take the presidency or majority of either house) only then will the ball begin to roll.  The monetary reforms are nice to discuss but they are a non-starter until the current system collapses.  Feel free to write proposals and discuss them at length but it is nothing but a hobby for the time being.  Once the system collapses and the aforementioned third party is represented, only then will monetary reform be possible.  This path to successful reform will be unbelievably difficult but it at least has a chance while all other methods seem entirely impossible.

    And with that we leave the reader with the full version of Freedom's Vision embedded below for perusal:

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