by Andreas Hoffmann and Nicolás Cachanosky The Federal Reserve’s (Fed) and European Central Bank’s (ECB) policy responses to the recent financial disasters offer two tales of unintended consequences. Our previous post outlined undesired effects of the Fed’s policies. In this post, we suggest that the ECB’s stabilization policy did not only fail to achieve its … Continue reading Unintended Monetary Policy Effects – Tale II: ECB Crisis Policies
by Taiki Murai and Gunther Schnabl[*] In the second half of the 1980s, 13 Japanese city banks climbed into the group of the world's largest banks, boosted by a domestic speculation boom. With the bursting of the Japanese financial “bubble” in the early 1990s, a gradual decline followed. Since then, the Japanese city banks have … Continue reading The Bank of Japan Creates a State-Led Monopolistic Banking System
by Nicolás Cachanosky and Andreas Hoffmann Even when a policy is successful in achieving its desired ends, we have to consider its unintended and unforeseen consequences, resulting from cumulative market adjustments to policy changes that make it hard to judge the overall outcome of a policy in our complex economy. The Federal Reserve and European … Continue reading Two Tales of Unintended Consequences of Monetary Policy – Tale 1
by Gunther Schnabl* The Brexit and the election of U.S. President Donald Trump were unexpected and were followed by a search for explanations. Subsequently, the common view spread that globalization is at the root of the frustrations of more and more people who are susceptible to strong nationalist statements from populists. This is surprising because … Continue reading Globalization Alone Does Not Produce Losers!
by Andreas Hoffmann A growing number of economists suggest that governments in highly indebted countries should consider liquidating debt via financial repression. In other words, they want governments to intervene in financial markets and push government borrowing costs below the rate of inflation to erode the real value of debt. In a previous post, I … Continue reading Are we all Debt Liquidationists now? … No!
by Andreas Hoffmann Government debt levels in many advanced economies, especially in Southern Europe, in the US and in Japan, have reached peacetime records. People are worried and rightly so: C. Reinhart and K. Rogoff have provided evidence that elevated debt-to-GDP ratios may contribute to stagnation or even debt crises. As austerity policies are unpopular … Continue reading Beware of Financial Repression
by Roger Koppl Oliver Blanchard tells us “Where Danger Lurks” in the macro-finance world. The big theme is nonlinearity, which is a profoundly conservative move: DSGE modeling is just fine and we don’t need to rethink it at all. We just need to add in some nonlinearities. Blanchard does not tell how to calibrate a … Continue reading The Blanchard Danger
by Mario Rizzo The expansion of food stamp eligibility in response to the Great Recession was part of the so-called stimulus package. There were several aspects. First, there was a simple increase in the maximum amount allowed to beneficiaries of about 14%. There was also a tremendous drive to get people who are eligible, but … Continue reading The Macroeconomics of Food Stamps
by Mario Rizzo The Fed has become desperate, not because the American economy is currently falling apart, but because the economy has stubbornly failed to respond well to the policies of the “best and the brightest.” And now, as if to welcome the impending chairmanship of Janet Yellen, stories are surfacing in various places about … Continue reading The Return of Inflationism?
By Richard M. Ebeling Nobel Prizing-winning Keynesian economist, Lawrence Klein died on October 20, 2013, at the age of 93. A long-time professor of economics at the University of Pennsylvania, he was awarded the Nobel Prize in 1980 for his development of econometric (or statistical) models of the United States “macro” economy for purposes of … Continue reading Lawrence Klein: Keynesian Economist Who Wanted to Sidestep the Constitution
By Jerry O’Driscoll Cyprus is the latest country to succumb to the financial rot in the European Union. Once a banking center, its citizens now cannot pay for their own imports. Exporters are demanding cash only for goods sent to Cypriote businesses. Credit has dried up. Businesses are closing because they have no goods … Continue reading Cyprus
by Jerry O’Driscoll In today’s Wall Street Journal, John Taylor explains why the U.S. recovery has been tepid while money growth has been very rapid. The recovery has set records for its weak pace, while money growth has set records for its rapidity. Taylor supplies some of the numbers. Taylor continues an argument he made … Continue reading Easy Money, Slow Growth
by Mario Rizzo There has been a lively debate on forecasts of high inflation made by those worried about the Fed’s recent policy of quantitative easing. For details I refer the reader to Daniel Kuehn's excellent blog. The question to which I address myself is solely “What do these predictions have to do with core Austrian … Continue reading Clarifications of the Austro-Wicksellian Business Cycle Theory
by Mario Rizzo I now favor expiration of the Bush era tax rates for everyone. Why? Because the only way to curb spending in the long run is to make as large a number of Americans as possible truly feel the consequences of the expenditures they appear to desire. If Americans saw the cost of the gigantic welfare … Continue reading Raise Middle Class Taxes Now!
by Jerry O’Driscoll The 30th annual Cato monetary conference was held in Washington, D.C. on November 15th. The theme was “Money, Markets, and Government: The Next 30 Years.” It was heavily attended in Cato’s new state-of-the-art Hayek auditorium. Jim Dorn has ably directed it over its entire history. Because of the conference’s breadth and depth, I … Continue reading Money and Government
by Mario Rizzo The above table is from the November 8th issue of the Wall Street Journal. The figures for the fiscal cliff consequences are usefully stated for next year and not for the next nine years as those who want to suggest that the numbers are truly impressive (or want to scare children) typically use. Consider … Continue reading Fiscal Cliff: Sense and Nonsense
by Mario Rizzo Douglas Irwin, a very fine economist at Dartmouth College, has a very puzzling opinion piece in yesterday’s Financial Times. The root of the puzzle is that Irwin seems to accept what I consider the naïve monetarist view, yet calling it by a new name “market monetarism,” that the effectiveness of monetary policy largely … Continue reading “Modern Market” Monetarism?
by Gene Callahan I had believed that Tony Carilli and Greg Dempster ("Expectations in Austrian Business Cycle Theory: An Application of the Prisoner's Dilemma," The Review of Austrian Economics, 2001) made a major advance in Austrian Business Cycle Theory by hitting upon the correct solution to the challenge presented by, for instance, Gordon Tullock, who … Continue reading O’Driscoll and Rizzo Got There First
by Chidem Kurdas In 1930, John Maynard Keynes dashed off an amazing prophecy. Extrapolating from the productivity gains of the past centuries, he came to the bold conclusion that the fundamental economic problem of scarcity would fade away in 100 years or so. Thanks to technological innovation and the accumulation of capital, the ancient condition … Continue reading Keynes, the Future and Present Austerity
by Mario Rizzo Although by the standards of contemporary economics, I am a historian of economic thought, I am not a historian of economic thought, properly considered. Thus my major interest in F.A. Hayek’s business cycle theory is not from the point of view of a historian. My interest is only incidentally in how Hayek’s contributions … Continue reading Yes, Paul: It is Hayek versus Keynes
by Jerry O’Driscoll I addressed the Greek situation and the wider EU debt crisis in an op ed in The Wall Street Journal on Wednesday, November 2nd (“Why We Can’t Escape the Eurocrisis”). It is also posted today on the Cato homepage. I explain the linkages between the US and the EU, particularly among financial … Continue reading The Crisis in the EU
by Andreas Hoffmann and Gunther Schnabl It came as a surprise to many: the Swiss National Bank announced an exchange rate target. Accordingly, the Swiss franc will be held above the level of 1.20 francs per euro. Switzerland gives up a part of its sovereignty, when the ECB makes bad press in buying trash-rated euro … Continue reading No Way to Escape for the Swiss National Bank
by Jerry O’Driscoll In the August 24th Wall Street Journal, Harvard Professor Robert Barro penned a hard-hitting op ed: “Keynesian Economics vs. Regular Economics.” He contrasts the lessons of standard economics with some of the unsubstantiated claims of Keynesian economics. He zeroes in on the idea that transfer payments provide economic stimulus. Transfer payments in … Continue reading “A Divine Miracle”
by Mario Rizzo The difference between a conservative and a classical liberal/libertarian once again is manifest. The conservative wants to get the debt crisis over with even at the cost of some tax increases and not so reliable budget cuts. He thinks that, in the end, there will be some budget cuts, the deficit will … Continue reading A Moment of Truth in the Debt-Ceiling Impasse?
by Jerry O’Driscoll The monetary analysis of the housing bubble focuses on the impact of low – even negative – real rates of interest on housing demand. That theory suggests the Fed must be inflating new bubbles with its continued policy of a near-zero federal funds rate. Skeptics ask where are the bubbles? In today’s … Continue reading Where is the Bubble?