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Ep. 175 David Andolfatto Defends the Fed

Ron Paul used the fall in purchasing power since the founding of the Fed to argue that the central bank had hurt regular Americans. Fed economist David Andolfatto disagrees, but Bob pushes back.

Mentioned in the Episode and Other Links of Interest:

The audio production for this episode was provided by Podsworth Media.

About the author, Robert

Christian and economist, Research Assistant Professor with the Free Market Institute at Texas Tech, Senior Fellow with the Mises Institute, and co-host with Tom Woods of the podcast "Contra Krugman."


  1. Josh on 01/18/2021 at 3:37 AM

    “Is the government using the money for socially responsible projects…or is the government siphoning of the money to friends in the Caribbean? Those are two different things.”
    Two false things here:
    1. It isn’t the government’s money, it’s the Federal Reserve’s money that the government forces everyone to use.
    2. A fat cat in the Caribbean could be getting overpaid for their socially responsible companies. Exhibit A: military “defense”.

    • Thomas on 01/19/2021 at 4:31 PM

      His arguments are non- sequiturs. He provides derisive laughter instead of logic. But when you are on the side with all the power, your guns make the logic.

  2. Aaron on 01/18/2021 at 2:53 PM

    this guy has a weird fixation on democracy

    • Josh on 01/19/2021 at 4:23 PM

      Agreed; Democracy should be abandoned as should taxation.

    • Thomas on 01/19/2021 at 4:33 PM

      Because democracy is just, everything it does is just.
      But history shows that actual democracies last about 80 years and end in violence. We have a republic. Republics are much more stable.
      Does he really think the public has any control over the government? Is he that ignorant of politics, or thinks it works because it works for him?

  3. Thomas on 01/19/2021 at 4:35 PM

    Good episode. It shows that Bob had David’s response to Ron Paul correct. David’s response is not any more reasoned or subtle on careful examination. David is wrong, and does not care.

  4. Thomas on 01/19/2021 at 5:16 PM

    Ron Paul stated that inflation was a 95% tax on the people. David A says that Paul is naive. Much of David A’s defense to Bob M is that the rest of the world still wants American dollars, therefore the dollars are valuable. That is the logical fallacy of appeal to popular opinion.
    Just because the rest of the world is debasing their money faster does not mean the dollar is not debased.
    And what if the dollar is respected just because it is assumed it is good? Guatemala uses the Quetzal. How debased can the Quetzal get? Not that much because Guatemala does not have a large respected economy.

    The US has a large and respected economy, so it is the currency that can become the least valuable. When the crash comes, it will appear axiomatic that of course it had little value.

    The national debt of the US was mostly eliminated when it was redefined. Debt suddenly became only debt which serviced a loan. So only the payments of the US that went to principal plus interest was debt. Everything that was previously defined as debt was split into interest debt and “obligations.”

    The logic was this. Most of the payments are obligations. They are not required. Every person on welfare could suddenly go off welfare and those payments would cease. Every army retiree and their spouses could suddenly die, and those payments would cease.

    How else do you think the government was suddenly apply to balance the budget in 1998? Its not like they discovered a huge vein of gold on US government held land.

    “So we have all these obligations to something like 30-40 million current retirees and close to 80 million baby boomers who are about to start collecting Social Security benefits if they haven’t already. All those obligations are not reported as part of the government’s debt, so we are missing those off-the-book obligations. The accounting here is much worse, far worse than anything that Bernie Madoff, who ran that big pension Ponzi scheme engaged in, and anything that Enron engaged in. It’s really horrendous because the true debts of the country total about $205 trillion.”

    So with the budget “balanced,” spending took off again. David thinks this is proof of strength.

    • Tel on 01/23/2021 at 10:31 PM

      I doubt that the US economy will crash like you are describing … although using a virus panic for political purposes has done a significant share of damage. The “deplorables” needed punishment for wrongthink, let’s all hope they learned their lesson, so we can move on with unity and implementing Democrat policies in a bipartisan manner!

      As for Social Security, I agree there is a Ponzi element to it, but the logic works like this:
      * Congress can at any time change the payouts.
      * Therefore there is no accounting “obligation” for what is a voluntary payment.
      * Once a given payout is decided (i.e. when a pension starts to get paid) then it becomes accounted as a liability from there on, but only for that individual.

      Most people paying into Social Security believe there is an entitlement there … but legally no entitlement exists, all payouts could stop tomorrow if Congress passed that law. Politically, of course using money printing and inflation is easier than stopping the payments, and it would be great to hear further discussion if Bob can grab a bit more time from David to discuss the decision making element to this.

      Sure, inflation is a tax, and income tax is also a tax, and tariffs are also taxes … but each one has different effects on the overall way people behave and how they view the economy. Income tax discourages the natural inclination to work and earn, while inflation discourages real savings (combined with Capital Gains Tax which discourages successful savings). Tariffs of course discourage international trade. The inflation tax is more stealthy … David was happy to skip mentioning seniorage until he was prompted.

      The LIbertarian argument has always been that knowing the printing press is available, is likely to shift the decision making process and make bad government spending choice more likely. This is easy to imagine, but difficult to measure.

  5. Thomas on 01/19/2021 at 5:27 PM

    1:07 David: “clear” crisis. the fed had to come in (in 2008) ….

    Do you remember your high school and college logic class? The teacher said “your opponent will tell you what the weakest part of his argument is, because he will say ‘clear,’ or ‘clearly.'”
    Thanks David, you admitted there was no crisis.

    The Quantitative Easing was just to benefit the member banks of the Fed. The 1700’s economist, Richard Contillion, wrote that when the government dumps money into the country, those who get it first get the benefit of the money before inflation decreases the value? The Contilion effect. And instead of another superhero remoke, the life of Contillion deserve a film.

  6. Not bob on 01/21/2021 at 8:34 AM

    Kind of fascinating how there’s really no there there. They simply haven’t thought of these things.

    Especially the way he talks about the need to act now and understand later. Every time.

  7. clort on 01/22/2021 at 5:38 PM

    It was nice that Bob got David to admit the Fed exerts the power of seigniorage. This is the exactly hidden tax that Ron Paul refers-to. David falls back to the position of ‘ok yeah you’re right, but this is a democracy and you voted for this’

    Ok David but that appeal takes us out of the economic and into the political questions:

    1) How bout you guys stop getting upset when Ron Paul and the Austrians explain to the voters what they ‘voted for’ with factually correct (but necessarily brief and un-nuanced) soundbites?

    2) How strong is this democratic mandate for the Fed? None alive were of voting age when the Fed was set up, and we know the Jeckyll Island meeting and skullduggery that went into its creation – it was a monumental change to the nation that was not openly announced, debated or put to a popular referendum.

    3) We are told the Fed is setup to be apolitical, and inquiries by congressional representatives into its workings have been coldly rebuffed, so is it really something controlled by our elected representatives as you suggest it is?

    4) The Fed’s tactic up to the 1980s was to remain in the shadows, and critics were hounded, sometimes literally, by federal agencies. At some point, thanks to Ron Paul and the internet the Federal Reserve became too well known to hide from the public, so the tactic switched to “well it may have started out as a conspiracy but look, we clearly need it”. The origins in the shadows are actually quite relevant since you brought up the ‘democratic mandate’ claim.

    5) Do the 3.2 trillion USD worth of assets appropriated by the Fed in 2020 represent funding of public goods? If that’s the point of the exercise, why doesn’t Congress just print the money when they appropriate the spending, as the MMTers are suggesting? What’s the function of the roundabout money-as-debt scheme? Qui bono?

    Lastly I’ll add a point that rarely gets mentioned during the discussions about the Fed, namely that the ability to set interest rates, including those on government debt, amounts to a vast political power. It is an economic atom bomb, held by a few bankers, over the heads of the nominal government.

    So at the latest, when David appealed to ‘democracy’, these political points became relevant to the discussion.

    Thanks to David for appearing on the show and thanks to Bob for the consistently high quality of his podcast.

  8. will on 01/25/2021 at 9:13 PM

    Early in the show, he makes the claim that it’s “misleading” for Ron Paul to say the dollar has lost 95% of its value since 1913. I don’t follow. How so? He says, there were far fewer dollars back in 1913, that’s why it’s misleading. Well, yes the dollar has continuously lost value because the fed continuously prints money. There’s more money, and therefore the money has lost value. Ron Paul doesn’t belabor that obvious tautology, so he’s being misleading? Huh?

    Would have liked some push back from Bob on this. I get the impression the guest thinks of money printing as similar to a stock split. Well, yes, it is very much like a stock split, but one in which the company managers keep the newly printed shares for themselves.

    • Robert Murphy on 01/26/2021 at 6:22 PM

      Will, I’m not sure why you’re saying you wished I pushed back on this. That was the whole episode, wasn’t it? I was trying to show why Andolfatto’s defenses didn’t work, and that clearly the Fed was benefiting from all of this just like a regular counterfeiter would.

      • will on 01/26/2021 at 8:15 PM

        you should have asked, how is that statement misleading, please clarify.

        • will on 01/26/2021 at 8:37 PM

          Not that you didn’t push back throughout the rest of course, But that one word seems very telling to me.

      • Nick Hrones on 01/27/2021 at 1:32 PM

        I actually like the fact that Bob refrains from “pushing back” or “debating” in these episodes. I liken it to a “good cop” interrogation where the interviewee spills their guts and opens up in an unguarded way. It just amazes me that at this point in America that someone could look at the US government as some kind of benevolent actor.

        • will on 01/28/2021 at 12:36 AM

          Welp, I prefer unrestrained domination, flawless victory

  9. The NAPster on 02/03/2021 at 1:06 PM

    This was a very interesting show for highlighting how intellectually shallow the arguments are in favor of the Fed. The Fed pays lots of money to lots of PhDs to contribute very little of value. It would be cheaper for the Board of Governors simply to hold a book group around “The Theory of Money and Credit” and “What Has Government Done to Our Money?”

    When your arguments in favor of the Fed come down to trusting in democracy and our wise overlords in government, and using empirical data such as the CPI and PCE instead of solid economic theory to understand inflation, then you’re really “grasping at straws.” The “icing on the cake” was when the guest noted several times that when a crisis occurs, there is no time to ponder why it occurred, rather, it’s important just to act quickly and pump in more money.

    As frustrating as it was to hear, I’m glad that Bob didn’t push back too hard. This way, the guest was able to hang himself more definitively through articulating a broader range of horrendously untenable points.

  10. rld on 03/13/2021 at 5:42 PM

    Waiting for follow up analysis by Bob much like he did with Mosley and MMT. I enjoy the good cop interview style as it helps elucidate the ideas without clouding the it with defensive posturing. You have to give credit to David for doing the interview but I think it was a lack understanding of theory that allowed him to believe that he would be educating and not be educated

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