Freedom From the Fed Fix

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by Gene Epstein: A
Tale of Two Meltdowns

is currently considering an emergency stimulus measure, tentatively
called the Bubble Act," ran the mock-news story in the satirical
weekly The Onion, "which would order the Federal Reserve
to begin encouraging massive private investment in some fantastical
financial scheme in order to get the nation’s false economy back
on track."

While the Fed
generally needs no such encouraging, the story had the ring of non-literal
truth. Economists of the Austrian school have been telling us for
many years that the source of boom-and-bust is the artificial expansion
of money and credit brought on by the Federal Reserve.

And just to
anticipate the usual objection: Boom-and-bust cycles certainly were
a common occurrence before the advent of the Fed. But before the
advent of the Fed, the artificial expansion of money and credit
was also a common occurrence. The central bank was merely a way
to institutionalize the process, while not incidentally giving economists
another seat at the tables of power.

That last point
is crucial. Why is mainstream economics so unclear on the causes
of business cycles? Perhaps because mainstream economists have been
seduced by explanations that would elevate their power – usually
variations on the bogus theory originally advanced by John Maynard
Keynes. That business cycles can actually be caused by an institution
whose abolition would diminish the power of economists is not an
insight that economists are eager to grasp.

the rest of the article

18, 2009

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