According to Treasury Secretary Timothy Geithner, Federal Reserve policy was “too loose for too long.” Some of us see Geithner’s remark as both a mea culpa on the part of the federal government and a confirmation of Austrian business-cycle theory. A more general examination of Geithner’s remarks on the subprime boom and bust, however, reveals the influence of Keynes, rather than Hayek. FULL ARTICLE
Source link: http://archive.mises.org/10035/secretary-geithner-hayekian-or-keynesian/
Secretary Geithner: Hayekian or Keynesian?
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Nice article.
There is one aspect of human behavior that can be predicted in part; that is abuse. It is inevitable that at some point, time and place abuse will take place within any process of economic opportunity. One interpretation of “loose” means that the potential for abuse was not properly accounted for within tactical policy, thus allowing for such abuse to take place.
One can argue that in order for a process to be abused, the process itself would have had to be injected into the whole by interfering with normal economic forces. And that is true, however, the current reality is that government does interfere; therefore protection from potential abuse should be the primary driver of such interference from this point forward.
Society can not be weaned off of interference overnight, but it can be protected while being slowly weaned off of it.
There’s no link.
Here’s the link:
http://mises.org/daily/3479
Whenever this happens, you can go to the home page to find the article, but I do wonder if a script is broken or something, as this has happened multiple times.
Yes, he acknowledges now that loose monetary policy was a contributing factor to this recession, but when times were “great” you never heard a thing from him at the New York Fed.
“this president is going to do what is necessary to get us through this … with the most effective, most carefully defined, most thoughtfully conceived programs that are available to us as a country.”
Notice the rhetorical devices in which Obama is referred to obliquely as “this president”. And referring to the plan which he wrote in a passive voice as, “[the] most thoughtfully conceived programs that are available to us as a country”, as if it is some kind of gold nugget discovered in a streambed.
One thing is for sure – when the plan fails, it won’t be anybody’s fault.
Ohhh Henry said: “One thing is for sure – when the plan fails, it won’t be anybody’s fault.”
It most certainly WILL be someone’s “fault”. It will be the “fault” of the “Free Market”. Nevermind the facts.
“It most certainly WILL be someone’s “fault”. It will be the “fault” of the “Free Market”. ”
Don’t forget the animal spirits.
To understand Geithner, and even more, to understand the many who support him we must understand why Keynesian policies are accepted. Keynes postulates a system that will in theory limit the bust by limiting the boom. There is a trade off.
The assumption is actually quite Austrian. If we allow excess growth to take place it will lead to an economic decline therefore we must both prevent excessive growth and limit economic decline. Do you hear echoes of the boom-bust cycle?
So without a proper model we will find ourselves actually supporting Geithner’s fallacy and not understanding why. Geithner’s plan is to limit the economic decline by injecting cash into the system so that the lower classes can consume what he sees as surplus production because of the drop in demand. If he can get consumers to consume rather than save then he can stimulate the economy. If the economy is stimulated then tax receipts in the future will make the deficits of today less painful tomorrow.
So tell me. If Geithner an Austrian or a Keynesian? Why?
What we are talking here is a difference between Keynes and some Austrians to the supply side model. Think about it.
From the article:
“In Austrian theory, loose monetary policy creates bias towards longer-term investment projects and away from current consumption.”
This must be a mistake. Right?
Apolitical Political Commentary!
Thursday, May 28, 2009
What’s Behind the Geithner Facade?
Geithner: Empiricist or Plant?
Is he an ego-driven interpreter of economic data or is he put in place by the unConstitutional coup to implement the economic terrorism of the ego-driven interventionists that feed off of and hover around the inner circle of the unConstitutional coup?
Can the answer be ‘yes’ and ‘yes?’
Aww, come on now, that’s like asking:
Barney Frank – brilliant intellectual, or chucklehead?
Nancy Pelosi – genious, or numbskull?
Obama – messiah, or evil emperor?
And we know all those answers, too!
Dick Fox, geithner’s assumption isn’t very Austrian, nothing in Austrian economics states that cause-effect actions have equal magnitudes. Take for example cigarette not put out causing a forest fire killing hundreds of people, not equal in magnitude. Yes the ABCT often states the misallocation of capital is related to the reallocation in magnitude, but this is a case by case basis. In the response to rational expectations article this idea is explained even better, i believe written by robert murphy.
Animal spirits cause liberals to be irrationally confident about government
economic regulations and irrationally pessimistic about capitalism. Therefore
liberals must be regulated by government.
I’m new at this so excuse me If I misspeak.
- Dick Fox
“we must understand why Keynesian policies are accepted. Keynes postulates a system that will in theory limit the bust by limiting the boom.”
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Keynes’ philosophy produces a system that will, through Government intervention via taxation, (in other words – Steal by using force – from those who can afford to spend & save/re-invest to those who can only afford to spend) create a false sense of growth because real “wealth” cannot be created if one spends someone else’s money through inefficient bureaucratic systems.
Case in point. To take a dollar from individual A through taxation, 30 cents would be used to pay those who work for the gov. to issue 70 cents to the recipient, Individual B. (whether directly or indirectly through forms of tax credits, subsidies, social welfare programs, etc..)
If you know about Austrian Economics you’ll realize the effeciency of savings and how that 1 dollar can produce more than 30 cents worth of “jobs” and 70 cents of potential spending. In the end its still 1 for 1. (Thus the saying digging/filling hole theory)
“The assumption is actually quite Austrian. If we allow excess growth to take place it will lead to an economic decline therefore we must both prevent excessive growth”
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A. its not Austrian.
B. you don’t prevent growth of any kind. What you rather do is allow free markets to dictate their own level of risk vs. reward without GOV. interference because it is always the good intentions of GOV. interference that pave roads to hell. ie. – unintended consequences. Growth will occur at a more natural rate if instead, you prevent policies to distort the natural equilibrium of free market economies. An example: FHA government backed mortgages which took away the Bank’s risk because the individual was ultimately not responsible if payment couldn’t be made.
“So without a proper model we will find ourselves actually supporting Geithner’s fallacy and not understanding why. Geithner’s plan is to limit the economic decline by injecting cash into the system so that the lower classes can consume what he sees as surplus production because of the drop in demand”
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There is no such thing as drop in Demand.
Instead what HE does not understand is the supply of goods and services are now over priced due to the public’s reaction to the problems easy money has created. (credit tightening / lost jobs / fear etc..)
Money and Savings are now more valuable to the average consumer than the excess supply of goods and services that now exist. It is why prices must be reduced rather than implementing policies that artificially keep them up.
“If he can get consumers to consume rather than save then he can stimulate the economy.”
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There are only 2 ways to make them consume.
A. – force feed stimulus via bad policies / lower interest rates which will indeed make it “appear” that savings is overrated and spending is safe again – which will only result in drastic inflation
B. – Prices need to drop drastically creating losses in the economy. (recession)
“If the economy is stimulated then tax receipts in the future will make the deficits of today less painful tomorrow.”
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Sure, you can tax people all you want but what happens when the reflated bubble pops again? That would mean hyperinflation. Then everyone losses purchasing power. Global goods would become unaffordable, especially to the poor.
“So tell me. If Geithner an Austrian or a Keynesian? Why?”
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I hope I answered your question.
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