by Jerry O'Driscoll* The U.S. economy has been growing slowly but steadily since the trough of the Great Recession in June 2009. Deep recessions are typically followed sharp recoveries. Not so this time. More recently, there is the mystery of low inflation. The Fed’s preferred inflation measure, the core PCE index, has consistently fallen short … Continue reading Fed Policy and Velocity’s Dance
by Alexander Czombera* If there is one single law in economics then it is that markets tend to equilibrium. Or, to align this with Grove’s law (“Technology will always win. You can delay technology by legal interference, but technology will flow around legal barriers”), the free market will find its ways, whether in white, grey … Continue reading Zimbabwean Currencies: Condoms, Sweets and Paper Money
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 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 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 Jerry O’Driscoll “Why is easy monetary policy such a sin? Because in such an environment, loans are cheap and borrowers can finance every project that they dream up. This results in excesses, and also increases the severity of the recession that inevitably follows when the bubble bursts.”
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 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 Andreas Hoffmann In today's publication Thomas Mayer writes that he is "an Austrian in economics." Mayer is the chief economist of Deutsche Bank Group and head of Deutsche Bank Research. Mayer argues that Austrian theory fits recent events well. He suggests that "Failure of the liquidationists to overcome the Great Depression of the early … Continue reading Thomas Mayer: “I am an Austrian in Economics”
by Jerry O’Driscoll I recently read Money, Markets and Sovereignty by Benn Steil and Manuel Hinds. I highly recommend it. The jacket blurb accurately summarizes the book’s importance: “Benn Steil and Manuel Hinds offer the most powerful defense of economic liberalism since F. A. Hayek published The Road to Serfdom more than sixty years ago.” … Continue reading Monetary Nationalism
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?
by Jerry O’Driscoll In today’s Wall Street Journal, David Wessel (“Capital” column, A5) revisits the question of whether current Fed policy is inflationary. He correctly states the Fed’s position is that inflation is caused by expectations. Inflation will stay low if people expect it to stay low. He quotes Fed Chairman Bernanke: “The state of … Continue reading Let Them Eat Chips
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
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
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
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”
by Jerry O’Driscoll In Tuesday’s Wall Street Journal, George Melloan makes the case that savers and investors lose under the Fed’s low-interest policy. He also argues that the policy leads to greater risk-taking by those pursuing yield. Presumably it is leading to the next asset bubble. But where?
by Jerry O’Driscoll Today I reread F. A. Hayek’s Nobel Lecture, “The Pretence of Knowledge.” Hayek was awarded the Nobel Memorial Prize in 1974 and delivered his lecture on December 11, 1974. I was amazed at how modern it was, and appropriate once again for the times. The 1970s were terrible times: stop-go demand management … Continue reading Hayek after 35 Years
by Mario Rizzo There has been recent discussion in the blogosphere of the so-called Austrian Business Cycle Theory (ABCT). (We must not forget to give the Swedish economist Knut Wicksell credit as well.) Some of it is interesting (mostly because of the comments) but much of it is ill-informed since the bloggers don't like to read … Continue reading Austro-Wicksellian Theory of the Business Cycle: An Informed View
by Jerry O’Driscoll In most respects, Irving Fisher appears to be the precursor of Milton Friedman and the first monetarist. In 1911, Fisher published The Purchasing Power of Money. It was his restatement of the quantity theory of money. In 1925, he authored “The Business Cycle Largely a ‘Dance of the Dollar,’” in which he … Continue reading Was Irving Fisher the First Monetarist?