No Way to Escape for the Swiss National Bank

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

“A Divine Miracle”

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”

A Moment of Truth in the Debt-Ceiling Impasse?

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?

Resource Allocation Distortions in the Great Recession: Empirical Evidence

by Mario Rizzo The recent annual report of the Bank for International Settlements (BIS) has focused attention on the sectoral imbalances in the previous boom that resulted in the Great Recession. This is a refreshing change from the excessively aggregative analyses of the Keynesian-stimulus crowd.   It is well known that John Maynard Keynes himself was … Continue reading Resource Allocation Distortions in the Great Recession: Empirical Evidence

What Peter Diamond Doesn’t Understand

by Mario Rizzo I read with interest Peter A. Diamond’s opinion piece in The New York Times, “When a Nobel Prize Isn’t Enough.” Professor Diamond, by all accounts a very competent economist at MIT, is complaining that he really IS qualified to be a member of the Board of Governors of the Federal Reserve System. … Continue reading What Peter Diamond Doesn’t Understand

The Role of the Perverse Elasticity of Credit Money

by Andreas Hoffmann I want to bring a recent comment by Sornette and von der Backe to the attention of the reader (in Nature 471, p. 166, May 2011). Sornette and von der Backe remind us to pay more attention to disequilibria caused by the fractional reserve banking system to explain the emergence of crises. … Continue reading The Role of the Perverse Elasticity of Credit Money

Krugman’s No April Fool’s Joke — Unfortunately

by Mario Rizzo I have been on an enforced vacation by the failure of my previous laptop. Now that I have access to my old files, permit me to begin where I left off at the beginning of April. The topic is of “eternal” significance. In an April 1st (print edition) opinion article Paul Krugman … Continue reading Krugman’s No April Fool’s Joke — Unfortunately

Are market rates below the natural rate again?

by Andreas Hoffmann and Mario Rizzo We know from Wicksell’s (1898) Interest and Prices, there is something important about the interest rate that balances saving and investment in an economy over time. This equilibrium interest rate is called the “natural rate of interest”. When market interest rates are below the natural rate, an unsustainable credit … Continue reading Are market rates below the natural rate again?

Easy Money, Emerging Market Miracles and the Revival of Industrial Policies

by Andreas Hoffmann and Gunther Schnabl While most advanced economies continue to suffer from high unemployment and record debt levels, monetary expansions in the advanced economies feed a tsunami of carry trades, hiking asset and raw material prices and accelerating growth rates in emerging markets from Brazil over the Middle East to China. While capital … Continue reading Easy Money, Emerging Market Miracles and the Revival of Industrial Policies

Hayekian Credit Booms

by Andreas Hoffmann Currently there is an interesting discussion in the blogosphere on how it is possible that in Hayek’s Prices and Production framework consumption and investment can increase at the same time. In my opinion they cannot, or only very slightly, but this is not a problem! Because, 1) the explanation is not one of the … Continue reading Hayekian Credit Booms

The Fed Has No Clothes

by Jerry O’Driscoll   Philadelphia Fed President Charles Plosser gave a major speech on Monday at the Central Bank of Chile.  In the polite language of central bankers, the speech constitutes a systematic criticism of not only current Fed policy but of the Fed’s entire response to the financial crisis. Plosser’s speech updates Milton Friedman’s 1967 … Continue reading The Fed Has No Clothes

Macroeconomics from a Pre-Keynesian Perspective

by Mario Rizzo   The principal component-idea of macroeconomics – aggregate demand and aggregate supply – trades on the analogy with the Marshallian individual market demand and supply analysis. For many students this makes the idea of macro-aggregation seem quite uncontroversial, almost “natural.”   My “complaint” will not be about aggregation in general. We are always aggregating … Continue reading Macroeconomics from a Pre-Keynesian Perspective

Brad DeLong Should Read More

by Mario Rizzo   In March of this year Brad DeLong wrote a post called “More from the History of Economic Thought: John Stuart Mill Contra Say's Law, 1844”   It contained a long quotation from John Stuart Mill from his essay “Of the Influence of Consumption on Production,” in Some Unsettled Questions of Political Economy (1844, … Continue reading Brad DeLong Should Read More

The Second Austrian Moment

by Mario Rizzo   This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal.   We are now witnessing many important … Continue reading The Second Austrian Moment

“There is no such thing as macroeconomics.”

by Jerry O’Driscoll Not my words, but those of Armen Alchian, as reported by William Allen in Econ Journal Watch.  Allen has written his memoirs and a history of UCLAs economics department in “A Life Among the Econ, Particularly at UCLA.” To a great extent, it is the story of Alchian and the core group … Continue reading “There is no such thing as macroeconomics.”


by Mario Rizzo Professor and Fed Chairman Ben Bernanke did not predict the financial mess and subsequent "Great Recession" -- at all, never mind the extent of each. So now he is charged with predicting where the economy is going and how to prevent or ameliorate further deterioration of the lackluster "jobless" recovery by the … Continue reading A VERY SIMPLE QUESTION

Perils of Macro Aggregation

by Mario Rizzo   Richard Ebeling, as usual, does an excellent job of showing how the inability to see macroeconomic phenomena as the outcome of complex micro-processes leads to poor policy prescriptions. Take a look at his response, at edited by Richard Wenzel, to a post by Tyler Cowen at Marginal Revolution. The upshot is … Continue reading Perils of Macro Aggregation

Tyler Cowen’s “Risk and Business Cycles”

by Mario Rizzo I am happy to report that Tyler Cowen's book, Risk and Business Cycles: New and Old Austrian Perspectives  is now available, as of July 15th, in a reasonably-priced paperback edition from Routledge. (I am sure that Amazon will be making it available soon.) This is not an orthodox Austrian approach. In fact, Cowen criticizes that version. However, … Continue reading Tyler Cowen’s “Risk and Business Cycles”

The Dismal Jobs Picture

by Jerry O'Driscoll   Steve Horwitz has stimulated a lively discussion of the slow recovery in jobs at Coordination Problem.  There are two letters in today's Wall Street Journal addressing the issue.  One letter references an earlier article in the July 10th Journal.  The article is titled "Debt, Bank Troubles Leave U.S. Trailing in Job Growth." … Continue reading The Dismal Jobs Picture

Just Lend And Be Done With It!

by Mario Rizzo   Recently, there have been reports in the Wall Street Journal and the Financial Times that Ben Bernanke and others are concerned that banks have not been lending “enough” to small businesses. The accusation is that lending standards are too strict.  As Jack Hopkins, the director of the Independent Community Bankers of America, … Continue reading Just Lend And Be Done With It!

Still Hearing Defunct Economists in the Air: Krugman’s Misplaced Attack on Hayek

by Richard Ebeling*  On July 9th, Nobel economist and New York Times columnist, Paul Krugman, gave his read on the recently unearthed letters between J. M. Keynes and F. A. Hayek in the London Times in October 1932, which have been posted and discussed on ThinkMarkets. (and in the Wall Street Journal). Krugman insists that Hayek … Continue reading Still Hearing Defunct Economists in the Air: Krugman’s Misplaced Attack on Hayek

F.A. Hayek and Tyler Cowen

Do we have more evidence of the continuing great debate between Hayek and Keynes? In the now "famous" 1932 letter to The Times of London signed by F.A. Hayek, Lionel Robbins, T. E. Gregory and Arnold Plant, we read:  The signatories of the letter referred to [by Keynes, Pigou et al.], however, appear to deprecate … Continue reading F.A. Hayek and Tyler Cowen