For my write-up today on Ron Paul’s End the Fed, I’ll use as my starting-point a question that Paul asks Ben Bernanke on page 100:
“I have a question about the GDP. In the first quarter, our GDP didn’t do so well. It was less than 1 percent [annualized]. Our population growth average is about 1.5 percent. So, if we have total wealth divided by the population, we actually have negative growth. Could this not be part of the explanation on why some people feel inequality; that they’re not doing as well in the economy.” Bernanke responds that this was temporary and now growth is higher.
I’m interested whenever Ron Paul addresses the issue of income inequality. Here, he appears to argue that some feel it because the Gross Domestic Product is not keeping up with the increase in population, and thus there are people who have less. I agree with Ron Paul that, if people in the middle-class were doing all right economically, there wouldn’t be as much of a concern about inequality: Why care about how much money the rich are making, when you are doing all right? But I wouldn’t say that the concern about income inequality is only due to a growing population and economic growth not keeping up with that, for I believe that there are other factors as well: America’s eroding manufacturing base, for example.
Paul refers to this discussion with Bernanke while talking about his exchange with Bernanke over whether Bernanke regarded economic growth as inflationary. This did not set well with Paul, who believed that growth was a good thing. Bernanke responds that he agrees with Ron Paul that productivity leads to less inflation. At the same time, Bernanke said earlier in the exchange that the growth needs to be sustainable—that “We need to have a pace which matches the underlying productive capacity” (page 97). This probably means that economic growth cannot outpace the resources that we have to produce goods.
I can’t say that I understood the entirety of the exchanges between Paul and Bernanke. But I do have some questions. Doesn’t Paul himself argue that economic growth is not necessarily a good thing, when he decries that the Federal Reserve is pumping money into the economy? The Federal Reserve, after all, is doing so to encourage people to start businesses and to produce. While Ron Paul believes that pumping money into the economy leads to inflation, couldn’t the increased productivity that results from doing so bring the prices down? And shouldn’t Paul be agreeing with Bernanke that growth must be sustainable—-for Paul himself argues that producing a bunch of goods that few people buy because of their failure to save does not help the economy. Moreover, Paul speculates that some believe that there is economic inequality because population growth has exceeded GDP. Couldn’t that detail be useful to someone who wants to argue that there should be more money in the economy, since there is currently not enough money to go around?