Murphy Triple Play
Oh my, once every 38 years, the stars align such that three hard-hitting articles debut on the same day. Today is such a day.
(1) In this EconLib piece I dissect the paradox of thrift, using Steve Fazzari’s EconTalk podcast as a springboard. If you have the time (and haven’t already listened to it), I strongly suggest you first listen to the podcast before reading my critique.
(2) In this Mises Daily Article I make the elementary–yet crucial–point that money and interest are different things. In particular, if we are in a situation where the market needs more money and higher interest rates, then central banks will necessarily aggravate one of the problems. On a purely free market, there would be no automatic association of “more money growth” with “lower interest rates” the way there is today. (NOTE: Some readers may suspect that I’m either taking jabs at, or cowardly siding with, Robert Wenzel in this article. But in fact I have been wanting to write this piece for months. If anything, it just made his critique of another piece that much funnier to me, since he was criticizing me for ignoring the difference between money and interest rates.)
(3) Finally, in this Freeman article I tackle the issue of whether deregulated derivatives are responsible for the crisis. In particular, I discuss the role of credit default swaps. Here is a good excerpt:
In situations such as the present crisis, there is a temptation for libertarian economists to look for specific government interventions that “caused” the problems. This is understandable, and indeed we have listed some of these factors. Yet we should also remember that failure is a normal part of the market process. Investors and entrepreneurs are not omniscient. Bankruptcies do not signal the inefficiency of the market any more than the overthrow of Newtonian physics proved the weakness of the scientific method—let alone that government should take charge of all scientific research.
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But even if the critics were right and the present crisis was largely caused by faulty forecasts made in the private sector, it would not prove a crushing defeat for free markets. After all, there are plenty of examples of horrible business decisions made by private individuals. The Edsel and “New Coke” flops, Decca Records’ 1962 rejection of the Beatles because “guitar music is on the way out,” and the rejection by a dozen publishers of the initial Harry Potter manuscript are all examples of stupendous entrepreneurial error. Given the advantage of hindsight, it is easy enough for us to laugh at the businesspeople who made such boneheaded calls, and critics of the marketplace could easily enough infer that the free market can’t be trusted with the task of innovation.
