Check out Prof. Cowen’s popular econ blog: http://www.marginalrevoultion.com
Moving to the world of Monetarism, Tyler Cowen introduces Milton Friedman and evaluates the case for creating monetary stability.
Monetarism claims that money supply fluctuations drive the rate of inflation and deflation. Notable monetarist Milton Friedman proposed that stabilizing monetary supply would prevent excessive highs and lows that lead to inflation on one hand and economic downturn on the other.
The monetarist theory wins points for historical support; we can find plenty of evidence that deflationary pressures lead to economic downturns. Cowen takes us to the period of stagflation in the 1970s to show the monetarist theory at work. During this period, interest and inflation rates ramped up. When the Federal Reserve decreased the money supply, deflation and unemployment followed, just as the monetarists would have predicted.
But monetarism falls behind when it comes to practical ideas about how to control the growth of the money supply. How do you go about measuring money supply? Perhaps more importantly, how do you convince central banks to follow general rules limiting money-supply growth?
Check out Prof. Cowen’s popular econ blog: http://www.marginalrevoultion.com
What is the central claim of Austrian Business Cycle Theory? Cowen boils down the Austrians’ boom-bust explanation: when the government manipulates the money supply, entrepreneurs get false ideas about the economy and make unsustainable decisions. When the central bank inflates the supply of money, the real interest rate falls because there is more money to be lent out. Since money is cheaper to borrow, entrepreneurs ramp up investment and take on riskier long-term projects—a boom often follows. But the man-handled market environment doesn’t hold. False hopes lead to failures and an apparent boom, well, busts.
Tyler points to the housing bubble as a case study. Between 2001 and 2004, the Federal Reserve played fast and loose with credit. Booming borrowing to invest in housing inflated the housing bubble. But when house prices fell, these long-term investments proved to be unprofitable and brought on the bust.
How can we escape the cycle? Austrians propose that we steer clear of inflation—institute a gold standard or a monetary rule to avoid financial disaster. The rationale: a tighter money market means a more stable monetary supply that will enable entrepreneurs to keep expectations and investments in check. For many Austrians, kicking inflation takes on additional urgency based on their claim that once inflationary effects occur, the only corrective is to let investments fail and re-allocate remaining resources.
The Ideas in Action:
Turning to the Great Depression and our current financial crisis, Cowen explains that Austrians and Keynesians explain the downturns quite differently. For Keynesians and monetarists, both big busts could have been avoided if there was an increase in aggregate demand.
Austrians, on the other hand, blame the effects of loose monetary policy misleading entrepreneurs. Which theory does historical evidence support? One point in the Austrian corner: many credit bubbles, the Great Depression and recent recession included, correspond with periods of loose monetary policy.
But the Austrian angle has its shortcomings. First, put yourself into the mind of a bright entrepreneur for a moment; if you can reliably predict that loose money leads to riskier long term investments, wouldn’t you exercise caution while taking on new projects in easy-money times? Second, we have to look at more than two historical case studies; in a broader field of view, we can find many economic downturns that have been caused by monetary contractions rather than expansions.
On Wednesday, July 18, 2012, Congressman Ron Paul, lead sponsor of HR 459, the Federal Reserve Transparency Act of 2012, discussed why the Federal Reserve System is fundamentally flawed at the House Financial Services hearing on US Economic Outlook and Monetary Policy.
Are low interest rates good for the economy? Many argue we need low rates to increase spending, since these rates make borrowing money cheap. Prof. Davies explains, however, that lower rates don’t mean more spending; they mean more spending now rather than in the future. The choice for every individual is to spend more now (borrow), or spend more in the future (save).
So what interest rate is best overall? Prof. Davies says the best rate is the market rate—the rate we get when the Federal Reserve doesn’t meddle in financial markets. Individuals know better than the government how and when to spend their money, and should be left alone to make their own decisions.
Tom Woods guest hosts the Peter Schiff Show May 10, 2012. Check out Tom Woods’s Liberty Classroom: http://www.LibertyClassroom.com http://www.SchiffRadio.com http://www.TomWoods.com
This video, produced in 2008, tells the blunt truth about how destructive our tax system is, impoverishing Americans and creating wealth for the government to destroy our freedoms.
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Guest host Tom Woods is joined by economist Bob Murphy and Tenth Amendment Center founder Michael Boldin. Conventional wisdom is pilloried, mercilessly. http://www.tomwoods.com http://www.schiffradio.com
Bestselling author Tom Woods tries to figure out what non-Ron Paul voters could possibly be thinking. http://www.tomwoods.com/ronpaul2012 http://www.facebook.com/thomasewoods
In his latest Campaign for Liberty video, Congressman Ron Paul urges C4L members to keep up our efforts to support a full and thorough audit of the Federal Reserve.
April 27, 2011 – Congressman Ron Paul joins Dylan Ratigan for a follow-up discussion on the Federal Reserve’s very first press conference. Paul slices through Bernanke’s veiled remarks, exposing the contrast between Keynesian and Austrian economic theories.
March 08, 2011 – Congressman Ron Paul joins Neil Cavuto to discuss a variety of topics ranging from intervention in Libya, to personal comments from a Federal Reserve official, to the budget battle in Washington DC.
Dr. Joseph Salerno, VP of Academics at the Ludwig von Mises Academy, speaks to the crowd at CPAC 2011 about the methods and implications of the Federal Reserve System.
Dr. Joseph Salerno, VP of Academics at the Ludwig von Mises Academy, speaks to the crowd at CPAC 2011 about the methods and implications of the Federal Reserve System.
Dr. Joseph Salerno, VP of Academics at the Ludwig von Mises Academy, speaks to the crowd at CPAC 2011 about the methods and implications of the Federal Reserve System.
February 10, 2011 – Campaign for Liberty’s opening panel at CPAC 2011 covers the important issues of the day and announces plans for the upcoming year. Matt Hawes, Campaign for Liberty’s VP of Programs, speaks about the importance of auditing the Federal Reserve. Sign Campaign for Liberty’s “Audit the Fed” petition at www.auditthefed.com
February 10, 2011 – Campaign for Liberty’s opening panel at CPAC 2011 covers the important issues of the day and announces plans for the upcoming year. Matt Hawes, Campaign for Liberty’s VP of Programs, speaks about the importance of auditing the Federal Reserve. Sign Campaign for Liberty’s “Audit the Fed” petition at www.auditthefed.com
February 08, 2011 – Congressman Ron Paul joins Larry Kudlow to discuss the agenda for the Subcommittee on Monetary Policy’s hearing on February 9th. He compares and contrasts his own viewpoints with those of Congressman Paul Ryan, Chairman of the House Budget Committee. Ron Paul explains that interfering with interest rates is adverse to a truly free market and can be attributed as the cause of our economic problems. The subcommittee meeting will evaluate relationships between monetary policy and unemployment.
February 03, 2010 – Federal Reserve Chairman Ben Bernanke answers questions during a Q&A session at the National Press Club. The question in this clip pertains to auditing the Federal Reserve. Sign up at www.CampaignForLiberty.com for more updates!
Dec. 21, 2010 – Host of “Freedom Watch” on Fox Business, Judge Andrew Napolitano, lays down the plain truth of the Federal Reserve and exposes the “den of vipers” that has relentlessly sought to entangle and poison the financial system throughout American history.
