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« The Over-Regulated Economy and the Technocracy Boom | Main | Just For Fun: Incentives, For The Grad Students Out There… »


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No sense.

Ultimately they are not only in that way tied, but they are also rooted in the same concept of spontaneous order versus centralized control: he ultimately concluded that free banking was the only workable monetary regime, just as free markets are the only workable production regime (which is the source of his thoughts on fiscal policy).

The guiding classical principal of finance was the balanced budget. That of monetary policy was the silver or gold standard. They were mutually reinforcing.

War disrupted both, but it was accepted that the end of war should see a return to guiding principles. That ended with WW1. There was a return to normalcy in the US under Harding and Coolidge in the 1920s, but the UK and the Continent had more difficulty. The New Deal removed both constraints.

This prompts the question of which theory are we talking about...

My guess is fiscal policy distorts the structure of production more so than the monetary policy does...?

Where's the evidence that Caplan has read Hayek in say the last 20'years?

Where's the evidence that Greg Ransom has read Pete's post accurately in the past 20 seconds.

Cowen NOT Caplan. People living in glass houses ought not to throw stones.


Sorry, make that,

Where's the evidence that Cowen has read Hayek in say the last 20 years?

Cowen has erroneously suggested that changes in perceptions of risk are not part of Hayek's macro.

(I've sent Cowen citations from Hayek's _The Constitution of Liberty_ which directly contradict that idea).

And Cowen has erroneously suggested that Hayek has identifies central banking policy exclusively as the causal source of a trade cycle -- and excludes such things as private banking, leverage and investment choices (e.g. "money from China") as causal source of a trade cycle.

That is plainly not Hayek, as any reading of Hayek's _Monetary Theory and the Trade Cycle_ makes plain.

I've seen no evidence that Cowen has read Hayek or is an authority on Hayek's work -- and much evidence that he is not.

And this is par for the course within the economics profession.

I've seen no evidence that Cowen has read Hayek .. in the last 15 - 20 years.

Mario Rizzo wins the thread.

Sorry for the Caplan on the mind.

Hayek says directly that socialism in its origin a totalitarian conception from totalitarian, brutal minded people.

Caplan recently wrote in a book that Hayek says that socialism was originally a good-hearted conception and that it only goes bad when bad people take over the reigns of power through a process where "the worst get to the top."

Caplan then was interviewed by Russ Roberts on the topic of Hayek's _The Road to Serfdom_ and his own new book (Caplan wrote the intro for this book), and Caplan as much as says that he hasn't read Hayek's book in a long time.

Tyler's comment is too vague. Without understanding the context it's impossible to know what he means.

More important question: who really cares what Tyler thinks about this, or anything else? Dude's a poseur.

re: Mario Rizzo - Poor Garett Jones. He should probably get a full blog anyway.

The modern distinction between monetary and fiscal is quite fuzzy. The central bank can only print money up to the amount of outstanding government debt, which must be created through fiscal policy. In times of crisis, the government will seize control of the printing presses to repudiate their debts no matter what institutional structure you start with, so without fiscal continence you'll go nowhere.

I rarely understand what Cowen is talking about. I can only imagine what his lectures are like.

Disagreeing with Tyler is one thing, dismissing him is quite another. Tyler is absolutely brilliant, and if you heard him lecture you would be amazed at his skill both in a large audience setting and in a small classroom. He is just simply one of the most fascinating minds you will run into. I am serious, and I disagree with him a lot. But never dismiss him, or underestimate him, those would be very bad mistakes.

It is difficult to interpret 140 characters of thoughts. Maybe he was referring to the fiscal effect of monetary policy.

In "Risk and business cycles" Cowen claimed that monetary policy should be interpreted as fiscal policy: issuing money changes relative purchasing power and has redistributive effects because money is worth more than its (physical) production cost (pp. 68ff).

If I understand it correctly, Cowen rediscovered the Cantillon (redistribution) effect but interpreted it as a redistributive effect due to seignorage instead of being due to delays between monetary injection and price inflation.

As far as I know, this transmission channel is investigated in monetary economics (I think it's in "monetary theory and policy" by Walsh, but I haven't studied it seriously yet) and in neoclassical models is considered too weak to yield robust non-neutrality.

20 years after the book, maybe he thinks that fiscal policy is stronger than the fiscal effect of monetary policy, which is quite weak.

I assume Tyler isn’t talking about the way that fiscal policy expansion can press the Fed into expanding the money supply even further to prevent rates for rising (endogenous monetary policy?).

Perhaps the idea is that fiscal policy creates changes in the capital structure that are very strong and subject to reversal due to politics.

For example, in NJ, there are subsidies of solar power. A friend of mine got into solar panel installation (versus other alt energy options) as a result of the subsidies. He said as much. This is a much more concentrated “injection effect” than simply lowering the interest rate at which any qualified borrower can access credit.

Then, Corzine passed something that required any subsidized solar firm MUST use thug union labor at dramatically higher cost. Boom turns to bust and the cost of inputs rise and destroy the profit.

One could say the same things about ethanol and the rest of the corporate welfare subsidy rip-offs. If the “age of austerity” does come, large swaths of the current structure of capital will find themselves needing to recalculate.

Interesting, but I see nothing self reversing in fiscal policy: as long as there is no policy reversal, in fact, distortions are persistent and not cyclical. That's what makes monetary policy important: it behaves differently in the short and in the long run.

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