The LA Time article  Ron Paul’s ideas no longer fringe mentioned in the previous post is a gold-mine of misinformation.

Paul traces his economic views to his frugal upbringing in Pittsburgh at the tail end of the Depression. He saved pennies from delivering newspapers and helping out his father’s small dairy business.

And his first economics class at Gettysburg College was an eye-opener, Paul said. When a professor explained how banks keep only a tiny part of their deposits on hand and earn money by lending out the rest, Paul discovered one of the “tricks” of the financial system.

In this case, a little bit of knowledge is a dangerous thing.  What his professor explained is called fractional reserve banking.  It is not a trick, but an essential part of a smoothly running capitalist economy.

If banks were required to keep all deposits on reserve, they would have no ability to lend money and earn interest. They would have to charge you a fee for safeguarding your money. Corporations can take advantage of the stock market to raise capital if they are large enough.  For the ordinary citizen to finance a home mortgage would require some new institutions.

So one important arm for providing credit to the economy would be cut off if you did away with fractional reserve banking.

There is a good reason to want this type of credit in an economy.  It allows the available credit to be adjusted to keep the economy moving.  If credit is too tight for the needs of the economy, the reserve requirements can be loosened by the Fed.  If credit is too loose, then the reserve requirement can be tightened by the Fed.

Just because the Fed, under a particular set of circumstances and leadership, did not do as good a job as it should have doesn’t mean that the idea of the Fed is totally wrong.

It does mean that a person like Ron Paul can learn a snippet of information and then turn off his hearing aid and not learn the rest of the information he needed to learn.  He then runs off half-cocked to develop absurd theories of how to solve problems.  Half-cocked seems to be the appropriate term.  He was half-cocked with knowledge.  Had he continued his economics education and become fully-cocked, he might have been able to do some good.

Follow this link to the nonsense article in the LA Times.

If this is the level of journalism that we can expect from the LA Times, then this country is in real trouble.

Fortunately for the world economy, most of the other countries will not follow our lead down this path of idiocy, if that is where we are going. Unfortunately for us, our competitive position in the world will be destroyed.

Of course in the LA Times’ alternate reality poverty will be declared to be wealth and we will still be the richest nation in the world.

Just to go after one false notion of Ron Paul, I will comment on the following quote from the article.

Paul contends that Austrian economics explains the most recent financial meltdown: “It says if you inflate too much, if you have no restraint on monetary authorities, you’re going to bring on a crisis.” Now, Paul says, administration policies are leading the country toward disaster.

Ron Paul’s first sentence has some merit.  The timing of his second comment is absolutely absurd. If he manages to get the right boom time policy implemented during the recession recovery, it will be a disaster.

Or as Keynes might have put it, it was absolutely against all Keynesian theory to run huge fiscal deficits during an economic boom such as what Bush was doing.  To have Alan Greenspan at the Fed pumping the economy when he should have been trying to rein it in is another part of the foolishness of the Bush era.

When the inevitable crash occurred, the Bush administration had already wasted the two tools that were needed.  We had to go to an even greater extreme to get them to work.

When we get through this and wiser heads, now in power, can carry out the other side of Keynes’ theory, the Congress will step in and mess it up if Paul has his way.

The other side of Keynes Theory is what Bush should have been applying during the boom times and which will be applied in the next boom if we can keep the reins of government out of Republican hands.  During boom times the government should be running a surplus and paying down debt. This was the Clinton policy.  The Fed can apply the appropriate restraint, but it won’t have to go to excess because fiscal policy will be running in the same direction as monetary policy.  During Reagan/Bush/Bush years fiscal policy was always fighting against monetary policy.

Economic theories that are developed to apply under certain circumstances can be a disaster when applied in the wrong circumstances.  We are not now in hyper-inflated pre-WWII Germany, so let us not apply the remedy for that situation now.  If we don’t do something stupid, we will never get to that German situation.

Ron Paul seems to have the knack to pick the exactly wrong policy for any given circumstance.  Maybe it just like the fact that even a stopped clock is right twice a day.

Follow this link to the article in The New York Times.

There were a few items in the list that I thought might be worth a follow-up.

The one that I have tried is:

READABILITY The single best tech idea of 2009, though, the real life-changer, has got to be Readability. It’s a free button for your Web browser’s toolbar (get it at lab.arc90.com/experiments/readability). When you click it, Readability eliminates everything from the Web page you’re reading except the text and photos. No ads, blinking, links, banners, promos or anything else. Times Square just goes away.

It works as advertised on a few web pages that I have tested it on.  It might take a day or so for me to figure out if it is really worth it.  It is very easy to add to your browser.  Once you do, you can apply it on this blog.