Those Who Fail to Understand Past Booms Are Doomed to Repeat Busts
If you understand Austrian business cycle theory–which says that recessions are the necessary consequence of malinvestments made during a government-induced boom–then this comment by a “strategist” is hilarious:
“I’m not talking about 50 basis points … we really have to take rates down to effectively zero,” Nightingale said, pointing out that U.S. rates “got down to one percent in the last recession and that wasn’t a bad one.”
Our modern macroeconomic paradigm, where the central bankers simply face a tradeoff between price inflation and economic growth, is bankrupt. It should have died with the stagflation of the 1970s, but instead it was only mostly dead.
I am going to have a very thorough discussion of this in a forthcoming Mises.org article; right now it’s supposed to run on Monday. Suffice it to say, our current mess was caused by Greenspan’s desire to limit the last recession. If we print our way out of this, we will simply cause Americans to erode more of the capital structure. The hole will be deeper, and another crisis will suddenly pop up “out of nowhere” to catch these CNBC strategists by surprise. “Whoa, looks like another productivity shock! Take the rates down, Ben!”
