Wednesday, February 13, 2008

Munkhammar Finally Expresses Semi-Austrian Ideas

The great problem facing the cause of the free market is that most free market economist either ignores the great insight of Austrian economics about the negative effects of central bank inflation, or even worse, actively defends the central bank, as is for example the case of Cato Institute senior fellow Alan Reynolds and columnist and CNBC host Larry Kudlow.

As a result of how the negative consequences of Fed policy have been ignored or defended by most free market economists, the left will be able to get away with describing the deep problems of the U.S. economy as a result of "American capitalism", which will give them the credibility in economic issues. As Peter Schiff puts it:

"Unfortunately, most of the criticism of our phony economic expansion has come from the left. The mindless cheerleading of the right will leave them devoid of any credibility on economic issues. Ron Paul is the only Republican who can say “I told you so.” If, as a result of right wing rhetoric, voters blame capitalism for our problems, this nation will take a giant turn to the left. While many on the left have criticized the economy, they have mainly done so for the wrong reasons and their “solutions” will only make the situation worse."

It is therefore good that Johnny Munkhammar, formerly of Timbro now with his own firm Munkhammar Advisory, after having been silent about the issue in the past has now published a semi-Austrian analysis of the U.S. economy. Better late than never is certainly the case here. Reading the entire article requires registration, but Munkhammar has published some relevant excerpts on his blog:

"The idea that the state could and should run the business cycle seems almost unquestioned these days. But the stagflation of the 1970s demonstrated how very hard it is to predict exactly how economies develop, and that it is even more difficult to influence them. ...

Even if governments could know when, how, and how much to stimulate, the positive effects of stimulation - if there are any - in an open economy will to a large extent be exported. Economic research also shows that any residual positive effects will be offset by the need to raise taxes in the future to pay off the debts. ...

The current financial turbulence started in the US housing market, specifically the subprime sector. Very loose monetary policies certainly contributed to a housing bubble and very high lending in the US ? and in other countries. ...

Financial problems as a consequence of too much cheap money will not be solved by policies that provide even more cheap money and the European Central Bank would be well-advised to keep cool. ..."


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