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January 31, 2015

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J. Patrick Coolican:

Dissecting one of Ron Paul’s dangerous ideas

Why anti-Fed message of libertarian congressman — on the stump in Southern Nevada — is flawed


Steve Marcus

Republican presidential candidate Rep. Ron Paul, R-Texas, speaks during a rally at the Green Valley Ranch Resort in Henderson on Tuesday, Jan. 31, 2012.

Ron Paul Rallies the Faithful

Republican presidential candidate Rep. Ron Paul, R-Texas, and his wife, Carolyn, arrive for a rally at the Green Valley Ranch Resort in Henderson on Tuesday, Jan. 31, 2012. Launch slideshow »
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J. Patrick Coolican

Reaction to Rep. Ron Paul usually veers from mild amusement at the crotchety uncle or respect for his consistency. Sure, he wants to do away with Medicare and Social Security, but hey, he hates all the wars and would legalize pot, so go Ron Paul.

In a brisk 10-minute speech at Green Valley Ranch Resort in Henderson Tuesday, Paul laid out his message of personal freedom, asking Americans to “assume responsibility for themselves and the consequences of their actions.” The crowd, some 400 strong, roared.

In the end, we tend not to engage his often dangerous ideas. But we should.

The conservative echo chamber is relentless — Valerie Plame wasn’t a covert operative, Barney Frank caused the housing meltdown, global warming is a hoax. If you don’t debunk the errors, before long you’re at Thanksgiving and your eyes are popping out of your head after you hear, “Well, everybody knows Obama is a fascist. Someone forwarded me an email telling me all about it!”

Paul would like to do away with the nation’s central bank, the Federal Reserve, and return to the gold standard, which means we could only issue as much money as we have in gold to back it up.

Paul claims this would stop the problem of inflation.

When Paul called for new monetary policy at Tuesday’s rally, the crowd broke out into a chant: “End the Fed! End the Fed!”

The argument is that the Federal Reserve, which has the greatest influence over the money supply, has given us inflation, thus destroying our purchasing power.

To start with, inflation is not a problem right now. The Fed has effectively controlled inflation since Paul Volcker, who was appointed by President Jimmy Carter, began to rein in inflation 30 years ago. (Most important, inflation rates have been stable and predictable, which allows for economic planning by firms and households.)

Since the 2008 financial crisis, the Fed has tripled the money supply. And ever since, gold obsessives like Paul have been predicting rapid inflation. But it hasn’t happened — inflation has been about 1.5 percent per year — because the economy has been so depressed.

The real risk after the financial panic of 2008 was deflation, a rapid decline in prices and wages that would have stifled economic activity even more, which is why the Fed fought it with aggressive action.

Second, Paul is mistaken about how rosy things were before the Federal Reserve, which was created in 1913, or before President Franklin Roosevelt took us off the gold standard.

Here’s Elliott Parker, a UNR economist: “It’s an absurd argument because before the Fed prices were unstable in the short term, and long term there was a long period of deflation.”

Parker’s data from the 19th century show that inflation and deflation rates swung wildly, which stifled economic activity because of uncertainty. There were frequent financial panics, exacerbated by the lack of a stabilizing hand like the Fed. (You think 2008 was bad? The world would have collapsed without aggressive action by the Federal Reserve.)

Also, Parker points to what’s known as the “Long Depression,” which lasted from the mid-1870s to nearly 1900. The problem was that to bring about more economic activity required more money, but there was a limited supply of gold so the amount of money stayed the same. As a result, prices kept falling. (You have 100 widget firms chasing $100. Then you have 200 widget firms chasing $100. Each dollar is now more valuable, and prices fall.)

Soon there’s less incentive to build widgets. Factories produce less, requiring fewer workers. With fewer workers earning money to buy goods demand falls and prices continue to decline. The economy grinds to a halt.

“Prices falling may seem attractive for consumers, until they realize that wages and everything else are all falling, too,” Parker says.

Is the Fed perfect? Of course not. In fact, its policies helped contribute to the Great Depression — though in that case it failed to deal with deflation, not inflation.

And as Paul points out, after the tech bubble and 9/11 recession, the Fed left interest rates too low for too long, which helped fuel the housing bubble. The even bigger failure of the Fed in the run-up to the financial crisis, however, was its failure as a key banking regulator to scrutinize the banks. But of course, Paul doesn’t believe in regulation, so he can hardly complain about that.

Here’s Parker again: “Criticize the Fed all you want, and perhaps even propose improvements. But there is no evidence that getting rid of the Fed and replacing it with private banking along the lines of a gold standard would help the economy at all. None. In fact, the idea scares the hell out of me.”

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  1. Wow. This article is just so biased and wrong on a lot of points. Inflation is not a problem? While yearly inflation may not rise at a huge level, prices on everything have KEPT inflating over and over and over to the point where everything is so expensive nowadays. Of course that is excepting well-to-do guys like yourself. People like me who work minimum wage jobs go paycheck to paycheck, not because we don't work enough, but because everything is SO expensive. This is due to inflation. Deflation has to happen or prices only rise and never fall. Deflation is not always a bad thing.

    "The real risk after the financial panic of 2008 was deflation". Yes, deflation was a risk. But instead the Fed kept inflating prices. So now, we are creating ANOTHER bubble by propping up prices, when the free market demands that prices need to be lower. That is a BIG reason we are in this economic mess today. NO ONE, including the government (excluding really rich people like Romney) can afford anything anymore. In turn wages keep being raised, putting a burden on businesses, causing joblessness. I mean it's just all a big vicious circle that you are COMPLETELY ignoring!

    You talk about the "Long Depression" going until around 1900. Well what happened around 1900? McKinley became president. What was his platform? The gold standard!!! Aha! We have found something here!

    So while it was nice for you to "dissect" (tear down) one of Ron Paul's "dangerous ideas", a more unbiased, journalistic approach to this article would be to look at BOTH sides of the issue, instead of just giving a couple sentences to fly by a couple things the Fed has done wrong. But of course you people in the media can't leave bias out of anything...

  2. You're confusing price fluctuation with inflation. Inflation is literally an increase in the money supply. And prices have been under control since Voelker? If you consider 4 percent a year under control, consider that under the gold standard prices fell while wages remained steady. More stuff, same money. That's called economic growth. It's just a different metric than we're used to. This Elliot Parker fellow is just extremely stupid or sublimely evil. What he calls a depression is in fact a contraction. If you fear contractions, consider that the German economic miracle under Erhard in the post war period took place with a 93 PERCENT contraction in the money supply. In fact, the "long depression" period that Parker refers to was the greatest period in the increase of true wealth in this country's history.

  3. Ahhh..smell that? The bozone layer around the libertarian posters is particularly strong. They remain a small fraction of the public that will never be in touch with reality. Good article Mr. Coolican!

  4. "Inflation is not a problem?"

    My house is worth $40,000 less than when I bought it in 2002. You call that inflation? Wow.

    "Inflation is literally an increase in the money supply."

    This comment uses one of many creationist definitions of 'Inflation', chosen out of a hat, which support the argument of the moment, not facts.

  5. "The even bigger failure of the Fed in the run-up to the financial crisis, however, was its failure as a key banking regulator to scrutinize the banks. But of course, Paul doesn't believe in regulation, so he can hardly complain about that."

    Coolican -- you stepped in it with this one. For starters, the primary fed regulator for the big banks is the Office of the Comptroller of the Currency (OCC). Historically it runs interference far them more than it regulates them. And Paul has a point -- this country went from the gold standard to one based on paper, meaning true value became just an illusion. Repeated crashes are inevitable.

    "...the actual argument is Congress is Constitutionally mandated to have control over our money supply. Instead they voted to have a PRIVATE institution take over their duties which the FED does in secret without oversight of any kind."

    dawnrising -- excellent point! Congress abdicated to the bankers then and now. Nothing new -- see Jefferson below.

    "Or, you could just not bother and pretend that inflation is really really low and that the Fed is just there to protect us little people."

    btreynolds -- another excellent post! Sadly that applies to government at any level, including our very own Metro. Proof -- what happened to that $62 million the Supreme Court made the state give back to the local water ratepayers for a system never built? Last I saw in the Sun all the local governments were squabbling over who was going to get it to balance their budgets.

    "While you may be concerned about some of Paul's Ideas. The truth is most of them will not get passed."

    Dmitchell -- your post nailed it all. Paul is the only one talking about the basics, starting with the Constitutional limits our imperial federal government likes to ignore. And why not? He's labeled a kook by We the herd when he brings them up.

    "...I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -- Thomas Jefferson in his May 28, 1816, letter to John Taylor

  6. Here is another fantasy:
    "using something besides the US dollar will land you in prison."

    Freedom does not mean that anyone can print their own money. America as a country has a monopoly on the currency, not the FED. Anyone who thinks otherwise is in Tra-la land.

  7. In May 2011, Paul said he would not have ordered the raid that killed Osama bin Laden, calling the operation "absolutely not necessary".

    He would have done it differently, stating that America should have worked with the Pakistani Authorities who had arrested Khalid Sheikh Mohammed and other terrorists who were then tried in court.

    So Ron Paul believes that Osama bin Laden could have been found Guilty in Pakistan! Ron Paul is a freak.

    Paul has such a collection of pathetic political nonsense that it's not possible to know where to start.

  8. "So Ron Paul believes that Osama bin Laden could have been found Guilty in Pakistan! Ron Paul is a freak."

    SunJon -- you're being hasty here. Paul has a very good point. The promise of our Fifth Amendment is "No person shall be ... deprived of life ... without due process if law." I don't see a qualification for citizenship. Yet our government is murdering people around the globe, including their families and other innocents, with impunity. Some on the hit list are American citizens living abroad. Vote for whoever you want, naturally, but be sure your reasons are better than this.

    "In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. " -- Olmstead v. United States, 277 U.S. 438 (1928), Justice Brandeis dissenting

  9. No, thanks.

    YOU dissect what goes on in Mr. Ron Paul's head.

    I personally don't care what sloshes around in his brain pan cavity.

    And if you actually look at it objectively how his campaign is running, his numbers show he ain't that popular. Especially after the revelation of writings earlier on in his life that border on hate crimes. Whether he wrote them or not, they STILL appeared in his newsletters. He had to sanction them. Can't disengage himself from something that came from literature that has been confirmed were edited by him.

    He's unelectable. His ideas are only pick and choose this, but neglect other things. And he does that to pander for votes. He don't have an overall idea of how to help America. And if he does, it would be an unmitigated disaster.

    Keep him back in Texas.

    I have had enough of politicians from Texas on the national stage representing me or anybody. Texas is a fine State and I have nothing against anybody from there, but their politics sucks. I only need to point to recent political history. We're supposed to learn from mistakes, not repeat them. I don't want to go back to the Bush years. I want them relegated to history. I don't want them re-visited.

  10. More bias from Coolman. The Fed is artificially keeping inflation under control and it can't do that forever. Obama has been printing money, running up the money supply. We all know about bubbles after the internet and housing bubbles. This one will make them look like play toys. Paul is right to get rid of this bastardized thing that was prohibited by the constitution. And he's right about his entire platform. We need him badly right now, but unfortunately, with the left wing media like Coolman spreading lies, we'll never get him.

  11. Here's a fun little homework assignment for the author. Pick a product, anything. It can be a house, a car, clothes, food, oreos, anything. Compare the price right now to the price in 1971 (which is when we actually left the gold standard, might want to fix that). Then look at the price of the same product in 1930. Then come back and tell us again how inflation is no biggy and it's been totally under control for decades now. I think you'll find that it's laughable to believe we've averaged even 4% year over year since 1971. Go read a book, and then attend an "end the fed" rally.

  12. "More bias from Coolman. . .Paul is right to get rid of this bastardized thing that was prohibited by the constitution."

    Dave202 -- I don't see any bias in Coolican's article. This is highly controversial and complicated issue about what this country's actual, unaccountabile power players do behind closed doors. Good call on Rep. Paul.

    "Nothing exists except atoms and empty space; everything else is opinion." -- Democritus (460-370 B.C.E.)

  13. The fact that a headline is being writen (poorly, at that..but thats expected...except moderators who dont like it when the critics are criticized) about someone who never gets more than about 7%, consistently poor placings, track record of iffy performance in Congress, and takes a LEFTIST view socially (drugs) and with foreign policy, shows the Sun's decline. Make that Vegas' decline since the late 90's. And ya'll want this guy as Prez? Why not a story on folks who throw their vote away, just as Sarah Palin keeps plugging for.
    I see cowards all around me....cowards (and DONT tell me off topic, personal attack, and all other BS meow meow meows....)

  14. anyone of the three is better then Romney. We called kids like him goodie to shoes. He demonstrated that in the debate when he asked the moderator for help.
    What would he do in a time of crises? I believe you all know the answer to that question. Let him show his tax returns for the last 10 years .
    Last but most importantly even though he had a blind trust he was free to tell the trustee what are you doing you know I am running for president I cannot hide my money off shore don't do that to me.
    Oh yes guys like him are legal yet they are also very immoral
    Vote for any of the 3 just be smart and not vote for goodie to shoes

  15. Chunky says:

    Artificially suppressing inflation is hardly any different than artificially increasing the money supply which has lead us to our most recent financial meltdown. The inflation bubble will inevitably pop as do all bubbles.

    Detaching our money supply from the gold standard has led to the government running the presses in excess of $14t dollars of debt.

    The general populace is paying the price now for spending more than they could afford. Our country will inevitably pay the price too and it won't be pretty.

    Why is balancing the budget such a difficult concept?

    That's what Chunky thinks!

  16. Just to take one of your points: "You think 2008 was bad? The world would have collapsed without aggressive action by the Federal Reserve." I can't fathom why people rush to believe this sort of thing just like we rushed to believe the Iraq WMD thesis.

    From 1999, when congress repealed the Glass-Steagall act in order to enable the merger of Citibank+Travelers, Wall St investment banks knew they had Washington's guarantee and acted accordingly, bundling undocumented mortgages into exotic derivatives and selling $trillions of what they knew was junk. Then when the asset bubble burst in 2008 Wall St got its Washington bailout (performed by Geithner then head of the NY Fed!). There was never any risk to our FDIC-insured bank deposits. The bad loans needed write-downs and the investment banks needed to go bankrupt - it's called capitalism. David Stockman (interviews on NPR, Moyers, etc - see youtube) calls it an urban legend that credit would have dried up. On the contrary trillions in free money from the Fed didn't ease credit to mainstreet b/c the bailout prevented asset prices from adjusting.

    Anyway, thanks for writing an article on issues, even if I don't agree with much of anything you say.

  17. Inflation is caused by too many dollars chasing too few goods.

  18. Glad I got my two cents in....oops three cents when adding for inflation.

  19. If, the Federal Reserve has done nothing wrong since 1913, I don't see why there is such resistance to them being audited as Ron Paul has suggested and pushed for - for several years! I believe that a good part of the problems that we have in this country presently have very much to do with the lack of transparency in all levels of government. I believe that we, as American citizens have the right to know the TRUTH. I for one, am tired of hearing rhetoric that suggests that we wouldn't be able to understand what the Federal Reserve has done. I am suspicious of what the Federal Reserve has done because they have hidden their deeds behind an iron curtain since their inception. Half of our nation's debt is interest that we owe to the Federal Reserve. It is ludicrous that we do not control our own monetary system. It has been said: "the one that controls a country's monetary system has the TRUE control of that country." I want the Federal Reserve to be audited and if in that audit it is found that there has been criminal activity I want all responsible to be prosecuted to the full extent of the law...ALL!

  20. As the Emperor said: "Good. Use your aggressive feelings, boy. Let the hate flow through you."
    Obviously I don't have time to respond to all of the comments, but Prof Parker has created a Web page on the subject:
    He includes academic papers showing, in the first one, for instance, linkages between deflation and recessions. Be sure your bomb shelter has plenty of food and that your guns are locked and loaded, everybody.

  21. "Be sure your bomb shelter has plenty of food and that your guns are locked and loaded, everybody." - J. Patrick Coolican

    Good advice, especially after reading some of the more extreme comments here.

    More to the point, cigarettes were used as an alternative currency immediately following WW2 in Germany, mainly Berlin, for a while. It is not entirely unreasonable to think ammunition could serve as well, in coming years.

  22. Laughing at J. Patrick's "Return of the Jedi" quote.

  23. Say anything you want but there is one main reason that Mr. Paul will NEVER be elected to lead this county.

    "Americans to "assume responsibility for themselves and the consequences of their actions."

    That is a great idea but it is not the American way. To many want everyone else to support them and be responsible for all the bad decisions they make in life.

    To many want someone else to "pay their fair share" for the way of life they want but are not willing to work for.

    The biggest problem is not the elected leaders, they give to many what they think they want. The biggest problem in America is Americans.

    Be careful what you wish for because you might not really want the results.

  24. Paul has a couple of good ideas and on everything else he's just plain Crazy. I'm concerned though that the electorate is so disenfranchised by Both Parties Pandering to Wall-Street, The Banks, Oil Companies, Billionaires and everyone else willing to buy them. Ordinarily a voice like Paul's would never be listened to. The Political Parties had better take heed, there is extremism in the winds from many sides that are totally fed up with the entire Corrupt Capitalist system.

  25. "many sides that are totally fed up with the entire Corrupt Capitalist system."

    It's not capitalism that is corrupt. It is a corrupted government and crony capitalism that is corrupt. Remove those two entities and society will prosper.

  26. Here is an excellent, if light-hearted, look at Keynes vs. Hayek ideas:

    There are other items on the site that are worth looking at, too.

  27. "Capitalism is relatively new in human history. Prior to capitalism, the way people amassed great wealth was by looting, plundering, and enslaving their fellow man. Capitalism made it possible to become wealthy by serving your fellow man".

    Walter Williams

  28. Does Ron Paul have some good ideas.. yes. Will I vote for him.. no.

  29. J. Patrick...


    Of course you KNEW this would happen, dintcha'?

    The 'Ron Paul Revolution' is 'Ronulans', and as BOTS for the cause, they are vociferous & fanatical...

  30. Mr coolican

    If you were not aware that whenever you publish data that shoots down the tea party's stated ideological goals you will be bombarded with with insults and other foul comments. But I believe you were aware and still had the courage to do so.


  31. NunyaBizness asks: "Haven't you been paying attention?"

    I have.

    There are incredible differences between now and the Bush years. The economy is not slowing down anymore. There is an uptick in employment. Not big differences, but we are progressing, slowly getting out of the hole that Bush left us in.

    Correction to your argument: We are not still in Iraq. Just the embassy and troops to protect them. As of December 31, 2011, all American involvement in war has ceased in Iraq.

    We're still in Afghanistan, but it just came out today that all wartime troops will be gone in 2013, leaving only military for training purposes.

    Drone attacks in Pakistan have been objected to by the Pakistan Government. And they have ceased. Just recently.

    You talk about sanctions on Iran with talks of bombing them. Partially true. Sanctions are ongoing, along with other nations, against them. The talk of bombing Iran is not coming from President Obama nor anyone in his administration. That talk of bombing is directly linked to Tea/Republican Party politicians only.

    Another correction: After a request for help from the Arab League, and in conjunction with NATO, America became involved in a limited campaign to help the Libyan freedom fighters. And it worked. Our cost? Just about one billion dollars. It was the thing to do. Because we are a part of the United Nations. To do nothing would have been worse.

    I don't understand how you blame Egypt on the American Government. Perhaps in the past we provided aid to Mubarak, but we do that with other countries we altogether don't agree with. It's just how things work when you are a superpower. But in fairness to President Obama, he did call for him to step down, offering solidarity with the people of Egypt and their decision how to run their country.

    None of your things you bring up make sense. They are just generalities that mean nothing, but by saying them it's supposed to fit your agenda.

    One thing for sure, Mr. Paul could not have done any better in foreign affairs than President Obama has.

    Actually, if Mr. Paul got involved, we would have ended up somewhere else than the forward progress we are seeing now.

  32. Question for GOPReallySUX:

    Why is it that when you type the truth here in comments, there are right wing nutnoids that take the facts you have pointed out, twist them around, spout them back to you, and make you sound like you are Charles Manson and bent on nothing but the decline of America and world destruction all of a sudden?

    I swear to Christ that some of these comments on LV Sun articles are pretty much the same as when Admiral Turner Joy faced when he sat across from the Korea People's Army (KPA from north Korea) and the Chinese People's Volunteers (CPV) negotiators in the early 1950s, trying to hammer out a truce agreement to end the conflict on the Korean Peninsula. Said negotiations took approximately TWO YEARS to figure out. Mostly because KPA/CPV were hardheaded and kept wanting more and more and more and more and most concessions they could get.

    I just think it's incredibly hilarious how you have to fight to get the truth out there all the time. And the truth is the truth. Can't be anything but that.

    To some of the commenters out there, it's just about the same as trying to explain to a caveman what the hell a wheel is.

  33. Capitalism is an economic system and not social. In its simplest form, it is survival of the fittest. One of it's many unregulated forms can produce poverty, sweat shops, child labor, child slaves, deadly working conditions, dictators and killers, who are among the many in its ranks.

    Slavery is an institution that survived nearly 240 years in the 'land of the Free', simply because property rights had a priority over human rights...and this can also be a form of Capitalism.

    Ron Paul thinks he is going to 'Fix' the Capitalistic system by eliminating or re-designing the Federal Reserve. Paul ignores wars like Iraq without justification, which are used to enrich the contractors. Paul ignores the thieves at the head of American Financial empires that created this destructive recession and instead, focuses on the Federal Reserve as the 'root of the problem'.

    Ron Paul lives in La-La land and could never know what he is looking at, like so many other tulip brained minds from Texas.

  34. KillerB: "Paul has a very good point. The promise of our Fifth Amendment is "No person shall be ... deprived of life ... without due process if law."

    How would you assure due process of law in Pakistan? Will you be setting up an American Tribunal or Military Court in Pakistan or leaving those tasks to the Pakistanis?

    Bin Laden could no more experience due process of law in Pakistan then Adolf Hitler could among his native countrymen in an imaginary post war Germany that ran without the presence of the Allied Military. After the Nazi leaders were tried and put to death, or committed suicide, their bodies were usually burned and the ashes scattered to prevent pilgrimages by thousands to their burial sites. Nazi leaders are still idolized in Germany today.

    The Taliban can't wait to take Afghanistan back after NATO leaves and they will bring in their own form of justice, not ours.

  35. I have read through the comments several times and have concluded that many simply do not understand why Ron Paul takes the positions that he does. It is simply he took an oath of office to defend the Constitution, and his positions are based on a careful analysis of that document. Thus, Ron Paul knows that the Federal Government should not be exercising certain powers that should be only exercised by the States . . . and he wants to shut down those Federal powers, and let the States assume those roles. Ron Paul is a believer is Austrian Economics, as am I, and believes that Keynesian Economic, which provides justification for Government Intervention into the private sector, is simply very wrong. And in matters of Foreign affairs, who on this board will argue with his message of peace with a very strong self defense posture?

  36. Why are you still quoting Parker? Goodness.

    The long depression was a period of incredibly rapid rising standards of living and wealth. Production went up, innovation marched on, prices fell and most people were made better off. Farmers and bankers didn't like it very much though because everyone else was doing quite well while they were struggling.

    Parker doesn't know his economic history.

  37. Coolican, why don't you talk with other economists besides Parker? George Mason University has a bunch of austrian and non-austrians who can give you a better account of what is going on and why...

  38. yes, I clicked your link. Please stop quoting Parker. He leaves out too much important information. Parker is the reason why everyone should learn economics - so you don't get fooled by economists.

    GDP is an imperfect measure of quality of life - especially in the long run. It does not capture rapid the impact of many technological changes.

    Government spending also impacts GDP - government spending can prop up GDP by definition (its counted as part of GDP) not that the spending actually helps anyone (it may or may not).

    Innovation can also push prices down while also increasing productivity and standard of living. It can also bring down GDP even though people are better off. Oil prices dropped significantly during the long depression - so much so Standard Oil almost single handily put the whaling industry out of business. Oil prices dropped dramatically, even after adjusting for inflation.

    Parker would have us believe this is all a bad thing. Nonsense. He's not giving the reader enough information and Coolican doesn't know enough economics to ask the hard questions.