So you think Paul has/had it right in believing we should go back to a gold standard?

To be honest, I have no idea -- I don't feel like I understand the issue well enough. I'd probably opt against -- I don't think any government has the discipline to stay on it, and falling off a peg is almost always disastrous. But I do think that money is very, very weird. What is a dollar backed by? It's backed by the fact that the US government insists that its citizens (including its corporations) give the government some of these dollars every year. So, is it backed by guns? Threat of jail? Sure looks like it, no?

(I'd also like to go on record as betting that there will be another giant crisis in the 1-10 year time frame of municipalities and states going under. Wonder how the feds will handle that.)

why ?

A great many already face deficits. A shrinking economy in many areas will reduce the tax base (more pressing and more certain in many areas is plummeting property tax revenue).

And we haven't even talked about the 500 pound gorilla -> pensions. The baby boomers start retiring en masse. And if you think that looks bad for social security, take a look at the structural problems in local and state government.

I think of money simply as an arbitrary, abstract way that society agrees to use to exchange goods and services. Gold is pretty arbitrary to begin with---why this particular shiny yellow metal? It has no practical use. If society is sufficiently mature to accept a currency without gold, so much the better. If society can balance accounts without a physical basis for currency, there is no real reason to have a physical basis, except perhaps as a fallback in case the rest of the system comes crashing down. But everybody could wake up and decide to stop valuing shiny yellow metal just as easily as they could decide to stop valuing these numbers and slips of paper that are modern money.

I think modern money is really backed by the will of society, rather than coersion by the government. Government can do little without the will of society, after all. Those billions of tax dollars would do it little good if everybody decided that they would accept no payment but truck tires. Society accepts modern currency (I think) because it is the best combination of convenience and (apparent) security available at the moment.

I would also like to point out that we never really understand anything. We obviously don't understand the integers, for instance---if we did, why would such simple questions as the Goldbach conjecture still be floating around? However, we can sometimes predict the consequences, and often, this is all that is necessary. This ability to predict can be derived empirically, with a very poor understanding of the underlying system.

I think, however, that the actual influence of government on the economy is not usually very large. Note that for all the energy and optimism of FDR's New Deal, the country's economy did not really get back on its feet until World War II gave it a boost (or so it would appear).

I also think that our ability to predict the future (economically and otherwise) is very limited. After all, we tend to remember predictions that were correct, or close to correct, much more than we remember inaccurate predictions. In psychology this is called illusory correlation; it's pretty well documented. After all, if we could predict whether a given financial exchange would be gainful with 53% accuracy, we'd be doing pretty well after a few years of trading.

I disagree that the government can't do anything without the will of the governed. The government does a *great deal* without it. Moreover, as long as the government can threaten jail if it doesn't get tax dollars, no one is going to be avidly going for truck tires and forgoing money.

Yes, money is a medium of exchange. But is it simply a social convention that everyone agrees to? I'm not convinced that's what's going on here in the US. The US currently has a fiat currency backed by taxation system now, and has been wholly so more or less ever since we went off gold. Typically a fiat currency collapses once the government isn't supporting it with taxation. Fortunately(?) we won't have to see what happens when that stops. The government won't stop taxation any time soon. (This isn't the only kind of money possible, but it's the kind we have now.)

An interesting perspective on the topic of money creation: http://www.youtube.com/watch?v=ThXpjmfyiMQ

Thanks. As for your other point, namely that it would be difficult for anyone to understand the world economy, why ? What would you consider as necessary to truly comprehend its workings and why has it become impossible ? I'm assuming you don't mean a complete knowledge of the subject, since nobody ever has a complete knowledge of their subject.

I mean that it has become such a very complex system that most models would have very serious flaws. For example, I'd say the human brain is still such a system -- no one is close to modeling its activity (and when we're close to that, we're probably finished).

I went on record as predicting meltdown in cities and states. Less than a couple weeks later, CA and MA are both asking for bailouts. That brings my financial prediction record to 5-for-93 or something like that.

To BoySoprano: Read the recent stories about prisoners using mackerel as currency. No idea how accurate they are, but it does lend some credence to your thesis!