Peter Schiff, right idea, wrong delivery

I’ve watched Peter Schiff in the news a few times and I can’t help but wonder if he is hurting the cause of the free market more than helping. He appeared on Aljazeera recently to talk about rising food prices for example. I have no doubt that money printing is a major cause of rising prices in general. However there are a number of problems I see with his message and delivery.

One problem is that he sounds like a broken record. The message of money printing is repeated without much to actually sell it. While there is some general level of acceptance of this idea, most people can’t connect the dots. For example, we have been told that much of the newly “printed” money is locked up in banks doing nothing. Peter needs to address the fact that this was not just money printing since 2008 and that low interest rates for years has created massive amounts of money and, since the stock market is volatile and the economy is poor, that money is seeking other investments.

I also think Peter needs to educate people on the basics of commodity and future markets. The media is calling this the bankers “playground”. However, these markets serve a valid purpose and Peter needs to be able to articulate that. It should be mentioned that all these transactions are entered into voluntarily. It is government regulation that coerces people to do things they normally wouldn’t do.

Another issue is that, at least on the surface, Christine Haigh and others arguing that speculators are driving up food prices have a valid point. And when you google this, the stories are everywhere. Christine, and many others, are spreading the news. Given that the general public does not trust the banks at all right now, and that the person responsible for bringing this trading to Barclay’s was also apparently involved with libor rate fixing, arguing the counterpoint here is a tough task. One needs to come prepared with a plethora of arguments. Peter needs to explain that eventually prices would go up regardless of commodities trading. A speculators job is to find the correct price and if they don’t, they will lose money. However, I also think Peter needs to address the fact that there appears to be a correlation between deregulation and price volatility. I personally don’t have a good argument for that, but without that argument, it’s tough to fight this battle. Personally I think the best thing to do here is concede that maybe speculation causes spikes, but that speculation can’t hold prices high. This is because speculators will loose money if they are incorrect about predictions, either way, up or down.

Another critical point to make here is that holding interest rates low, as the fed has done, creates a scenario where investors have no safe place to put there money. Even U.S. government treasuries are being questioned on their safety, and whose fault is that? The money printers. In fact, in some cases in Europe, interest rates have sometimes been negative. They are so desperate, they will pay you to buy their money!

Another important point is that regulation does not work. Dodd-Frank was introduced in 2010 to address this issue, but failed, as regulation always does. If fact, this problem of regulating food commodities has been around since the 19th century.  And to give you an idea about how far this regulation idea has gone, there are actually proposals to criminalize commodity speculation. Peter needs to help Christine to understand that government regulation is just an opportunity for a politician to gain power, to say one thing in public and do another behind the scenes. In fact, it has been argued that regulation itself has caused rising food prices. This one point alone would have put a huge hole in Christine’s story.

Another point worth mentioning is that food prices are not the only commodity price rising. Investors, walking around with all this (almost) free money from the fed, are pushing prices up everywhere. Does that imply we need to regulate ALL commodity trading?

Peter should also point out that the CPI that seems to continue to be universally accepted as the rate of inflation can’t be trusted. You can’t make the statement that food prices are going up relative to CPI since you can’t trust CPI.

Early in the discussion Christine made the claim that there was almost universal acceptance that commodity speculation was driving up food prices. This claim seems to be a bald-faced lie, and if Peter had been able to refute this with real data, her argument overall would have been severely weakened. The actual data out there is not so definitive.

Another thing I’ve noticed about Schiff is that he tends to interrupt people. In the video linked above, he did this a few times. Unfortunately,  the Aljazeera anchor interrupted him a couple of times, and I couldn’t help but wonder if this was “tit-for-tat”. Regardless, this clearly turns people off to listening.

Another tactic I think I might begin to use is a bit of a twist on Schiff’s approach to the “money printing” debate. It would go something like “the central planners have had their chance to run the economy and now the stand around wondering why things are so bad. It hasn’t worked, they don’t have a clue why, yet free market economists not only predicted this but provide a solution diametrically opposed to central planning”.

I think Peter needs to understand that his presence is an opportunity to educate. Many of these people don’t seem to understand basic economics. I think of economists like Milton Friedman and Walter Williams who excelled at debate on these subjects while at the same time educating people.

Leave a Reply