Yesterday was Cato’s annual monetary conference and Allan Meltzer gave the keynote address. Today at cato.org you can listen to a 7-minute Podcast of an interview with Meltzer summarizing his presentation. He has just completed the last 2 volumes of his history of the Fed.
Meltzer delivers a tough message: no nation that is spending as we are, running deficits as large as we are, along with a loose monetary policy, has escaped inflation. We must cut the deficits by cutting spending. He talks of a $500 billion spending cut. And he offers an innovative approach as to how, using applied Public Choice theory. Read the rest of this entry »
I used to think that Ludwig von Mises was exaggerating quite a bit when he suggested that Keynes was not really an economist. One way he did this was to associate Keynes with infamous monetary cranks like Silvio Gesell. The following quotation will give you a flavor of Mises’s opinion:
“John Maynard Keynes, late economic adviser to the British Government, is the new prophet of inflationism. The “Keynesian Revolution” consisted in the fact that he openly espoused the doctrines of Silvio Gesell. As the foremost of the British Gesellians, Lord Keynes adopted also the peculiar messianic jargon of inflationist literature and introduced it into official documents. Credit expansion, says the Paper of the British Experts of April 8, 1943, performs the “miracle . . . of turning a stone into bread.” The author of this document was, of course, Keynes. Great Britain has indeed traveled a long way to this statement from Hume’s and Mill’s views on miracles.” Read the rest of this entry »
With central bank balance sheets and government debt levels exploding, discomfort about future inflation arises. A discussion about the appropriate exit strategy from low-interest rate policies has started. The standpoints of central banks are different. The ECB seems more decisively in favour of an early exit. The Federal Reserve discusses the technical aspects rather than an early timing (see Mario’s earlier blog entry). The Bank of Japan is said not to exit earlier than in five years. What situation are we facing? A return to monetary policies that are neutral to inflation and bubbles is unlikely for four reasons: Read the rest of this entry »
In today’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.” Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.”
Spitznagel deals with The Theory of Money and Credit and does a good job presenting its principal arguments. What I found most interesting, however, is the author’s argument that the book is a warning today. Read the rest of this entry »
In a series of persuasive posts, Steve Horwitz at The Austrian Economists blog (here, here, and here) shows that Ludwig von Mises’s views on monetary economics were more or less the same as the Selgin-White-Horwitz (and I would argue the Garrison) free-banking, monetary-equilibrium view, rather than the Rothbardian one. This is not surprising given Murray Rothbard’s deviation from Mises on questions of monopoly, the minimal state, utilitarianism and other matters. While these posts will no doubt be resisted by some, they should move the discussion out of what Mises meant and into the analytical merits of arguments – and, I hope, into empirical work. (After all, Mises didn’t spend a lot of time on what his forebears really meant!)
Today’s Wall Street Journalhas an opinion piece by Fed Chairman Ben Bernanke. He assures us that the Fed has the tools and the willingness to restrain inflation when that is appropriate (not now). He recognizes it is all about timing. But everything is under control:
“Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.”
How good are Bernanke’s abilities as a forecaster? Thanks to YouTube we have evidence (HT: Bob Murphy).
“An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.” Ludwig von Mises, Human Action: A Treatise on Economics, 3rd edition, p. 858 (1966).
Since September, 2008 the Fed has been engaged in policy of unprecedented monetary expansion. Arthur Laffer provides the numbers in The Wall Street Journal for June 11, 2009. “The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10.” The stock market is booming, with the Dow Jones Industrials up 34% in three months.
Fed officials are concerned that financial markets have got ahead of themselves, apparently unable to connect their policy with its inevitable consequences. Today’s Wall Street Journal reports on its front page that there is a “bailout bubble” in the stock market. Businesses cannot spend the trillions of dollars of bailout money fast enough, so it is going into financial markets. Read the rest of this entry »
Under other circumstances, Paul Krugman would have made an excellent pope if we judge by his economics pronouncements. Let me take two examples from a recent New York Times column. This is my interpretation of what he is saying.
1. On the one hand, as Keynesians have always taught: There is no real danger of interest rates rising as the Treasury accumulates massive amounts of debt. This is because there is a vast surplus of (ex ante) savings out there just waiting to buy US treasuries at low interest rates. This is our official teaching.
2. On the other hand, there are economists out there sowing the seeds of heresies. It is understandable in this time of unprecedented events that even wise economists might be tempted to stray from the Truth. They are making statements that confuse the faithful in their daily activities (of buying and selling treasuries). They are frightening them with stories of inflation and high interest rates. Many, perhaps most, of these teachers have evil motives. These heretics are making it more difficult for the “church” to help us all to salvation.
Read the article yourself. Isn’t this what he is saying?
Of course, the recovery in terms of real output from the Great Depression began in the 3Q of 1933 and that did not preclude high unemployment rates and a further recession in 1937. Here. Let that pass for the moment.
If recovery begins, the discussion about why will also begin. Let’s confine ourselves to evaluating policies designed by the government to produce recovery. Read the rest of this entry »
