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Mike D.,

The price of gold is too volatile to be a good measure of inflation, but it is an effective measure of confidence in the dollar, one that is largely independent of other factors of production:

http://goldprice.org/30-year-gold-price-history.html

You can see from a chart like this that confidence in the dollar (and many other fiat currencies) was at crisis levels in 1980. U.S. monetary policy inspired such confidence from 1980 to about 1999 that the price of gold was on a long term downward trend during the whole period. Other well managed currencies show the same pattern.

Since then, however, as in the late seventies, investors have started to lose confidence that the United States (and other governments) will ever be able to pay (or rollover) its debts without significantly inflating the currency, so they sell "risk free" Treasury bonds and buy precious metals and other commodities, causing out of control inflation that has little to do with the factors of production and everything to do with confidence in the long term value of a fiat currency.

When gold started trading around $400/ounce again I will be convinced that any remaining inflation is related to non-monetary factors.

Dave,

I'm really troubled by the argument you make about incentives and taxation.

Let's say that business is being taxed right now at $35 percent (personally I don't know what it is exactly, but just hypothetically). You're saying that at 35% businesses have incentives to risk investing in new things, and that if we dare increase their tax to 38%, they would, out of their own free will and choice, decide to no longer invest in new things. Is that really what you are saying? Because frankly that just simply sounds ridiculous. It seems to me that businesses had plenty of incentive to invest before Bush's tax cuts for the wealthy. Why should that change if we eliminate that tax cut? Are you really saying that businesses and the wealthy are really that selfish with their money? That they are that fickle? No wonder the rich are both so disliked and envied.

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