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Here are the details surrounding my speech at the New York Federal Reserve Bank. First, I am surprised it actually occurred. Someone at the NY Fed tried to kill my speaking there as soon as he heard about my invitation.
Reaction inside the New York Fed to news of the invitation for me to speak was, indeed, fast and furious, once it became public inside the bank.
I am not going to go into specifics of who invited me, I believe that economist had a true curiosity about my views, but when he put out a formal invitation via email within the NY Fed (I received a copy), it was cancelled within 15 minutes of being put out (I also have a copy of the cancellation). So much for overall curiosity at the Fed about true differing views.,
The economist who invited me assured me that he was still arranging the speech. Yet, as the day grew closer, I feared that I would get word that my speech time would be cancelled.
When I arrived at the bank, the economist who originally invited me told me that there was a "schedule conflict" with a seminar and that the group meeting would be smaller than originally planned. That really didn’t bother me, I was in the Fed and those wanting to hear my speech would.
However, I did detect tension in faces, while I gave my speech, and perhaps some anger. But the anger soon dissipated.
As soon as I finished my speech and to defuse the tension, I asked an immediate question as to whether the economists present believed that Austrian Theory had a legitimate case to make. The eventual response came down to the statement by a Fed economist that there had been worse crashes in the economy before the start of the Fed. (Side note, this is a regular argument used by those supporting the Fed, they will claim that crises were worse before the Fed. I have seen fragmented work demolishing this view, but I think there is the opportunity for some economics student to delve into the pre-Fed period in America and delve into the crashes from an Austrian business cycle viewpoint and point out clearly how government was involved in such crises, if they were–which I suspect they were. Such a study would be extremely valuable in knocking a peg out from under the Fed supporters who attempt to justify the Fed by this argument)
I then asked one economist ( a 20 year plus veteran of the Fed) if he was familiar with Austrian economics. He said that in college he had taken two history of economics courses and then said that the Austrian school is part of the classical tradition. This told me that he was not aware of the important differences between the Austrian school and classical economics (and also the neo-classical tradition).
Later on in the Q&A, one economist remarked that he understood the Austrian school and that they were the group that wanted a constant increase in the money supply and developed the equation PV=MT. This, of course, is not the Austrian view, but a view held by the Chicago school. Thus, in one swoop, this economist demonstrated not only his ignorance of Austrian views on monetary policy, but also confusion about Chicago school views.
To diffuse the tension a bit more, when one economist made a particularly Keynesian statement, I said, "It does not sound like you are going to be walking out of here with me after lunch like I recommend." That brought laughter.
At another point, I told the story of how in a phone conversation with Lew Rockwell, Lew and I were discussing why I had received an invitation by the Fed and Lew said, "They are probably sick and tired of all those boring speeches that they have to listen to." That really brought laughter.
A good deal of the Q&A was about my Rothbardian view that prices should be allowed to decline. They were really fascinated by this view and clearly had never heard it before. One economist raised the question of how falling prices would impact assets. The answer is, of course, that an asset is valued based on its discounted value stream and that falling prices would be taken into account in the discounted present value models. However, I do not believe this view has yet been developed fully, and it is another good project for a budding economist.
Overall, I was simply amazed at the lack of knowledge of these economists about the Austrian school. It was very close to non-existent. This points out the extremely important work being done by the Mises Institute and also Ron Paul. The number of students with an understanding of Austrian economics is increasing at an exponential rate. I can’t imagine that future economists, even those who work for the Fed, won’t have some acquaintance with Austrian economics thanks to MI and Ron Paul.
My experience at the Fed points out the importance of intellectual debate and study. Clearly, the economists that I met at the Fed were brought up in an intellectual tunnel, where they had no exposure to Austrian economic theory. They read and study within a limited range of writers. But they were very curious about my view.
One economist asked me how I knew the housing market was going to crash. I responded that because of Austrian theory, I understood that money created by the Fed enters the economy at specific points and that it was obvious the housing market was one of the those points. I told him that I also knew that this would eventually result in price inflation (as the money spread through the economy) and that at that point the Fed would slow printing and the housing market would collapse, which is just what occurred.
I suspect that at the top of the Fed, there are some very evil types who understand the game is to protect the banksters, but I don’t think that is the view held by the outer ring. They have been brought up in the system and they don’t ask questions that threaten their pay checks (It was most difficult impossible to get the economists to discuss any of the erratic moves made by Bernanke) and work developing models within the twisted Keynesian model.
If you set a firecracker under them, like with the speech I gave and then treat them with respect while discussing their opposing views and lighten things up a bit after the firecracker has gone off, perhaps some impact will be made to the tunnel thinking that they have been exposed to their entire professional life. Even more important, hopefully my speech will help budding students to understand that the Fed propaganda machine claims lots of justifications for their money printing machines that when looked at closely can not be justified,. The greater the number that understand the failures of Fed thinking and operations, the closer we will be to ending the Fed.
Reprinted with permission from Economic Policy Journal.