23 Mar 2010

Links for Federalist Society Debate on the Federal Reserve

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[UPDATE below.]

This post supplements the opening remarks by Robert Murphy in today’s Federalist Society debate, “Did the Federal Reserve avert a second Great Depression?” held at Campbell Law School.

* This video documents my claim that Ben Bernanke has consistently misdiagnosed the state of the economy, both during the housing bubble and then in the aftermath.

* This chart casts extreme doubt on the claim that the Federal Reserve (in combination with TARP) restored lending to small businesses with its aggressive policies. Commercial lending had built to an all-time high until October 2008 (when TARP passed), and then it fell like a stone. Of course, it’s possible that without TARP and the Fed’s rescue of AIG etc., lending would have fallen even faster than it did. But my point is that the data paint the opposite picture from the one offered by the Fed’s defenders. Occam’s Razor supports my interpretation, namely that the Fed actively made the economy worse.

* This essay offers evidence that the Fed caused the housing bubble. If you want more reading on this topic, follow the links in the early part of the essay.

* This article casts doubt on the viability of the Fed’s “exit strategy.”

* Here’s an infomercial for my book on the Great Depression. All your questions answered!

* Finally, in the talk I alluded to the 1920-1921 depression, in which the federal government cut the budget tremendously and in which the Fed hiked rates to record highs. According to the conventional wisdom, this should have been the worst thing in the world for policymakers to do, and should have made the 1920s the most miserable decade in American economic history. But of course, the “Roaring ’20s” were arguably the most prosperous decade in US history. In social science we can’t run controlled experiments, but the contrast between the government’s response to the depression in the early 1920s versus the 1930s is pretty suggestive.

UPDATE: Forgot an important one. Here is the CBO’s March 5 forecast of the White House’s budget request for 2011. You have to use some algebra because they report figures in terms of % of GDP, but just from playing with the bullet points in the cover letter, you can compute that the CBO is saying the interest on the federal debt in 2020 will be $925 billion.

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