Democracy in Deficit and holding A Tiger By the Tail
|Peter Boettke|
Since 2008, I have argued that to gain an understanding on the current situation economists should consult James Buchanan and Richard Wagner's Democracy in Deficit and Hayek's A Tiger By the Tail. Its not like these are esoteric references, but instead summary statements from 2 of the 3 top critics of Keynesian economics among Nobel Prize winners (Hayek, Friedman, and Buchanan). Buchanan tackles the political legacy of Keynes as embodied in deficit financing and accumulating public debt. Hayek addresses the inflationary legacy of Keynesian economics.
Current affairs seem to confirm the Buchanan and Hayek analysis. Manipulation of money and credit (evidenced by deviations from the Taylor Rule) resulted in a pronounced business cycle culminating in 2008. Debt crises plague not just Europe, but at the municipal, state and federal level in the US. And both the ECB and the Fed have engaged in significant efforts to meet the economic crisis with aggressive monetary policy. So aggressive in the US, in fact, that monetary policy has been focused not only on short term manipulation of credit (QE3), but also efforts to make sure that long term signals that spur inflationary hedging are muted (Operation Twist).
However, fewer economists than I would have believed take the warnings of Buchanan and Hayek seriously especially given the political and economic history of the past 60 years. This is true even among many market-oriented thinkers. See, for example, David Beckworth's recent post at Macro and Other Market Musings "The Biggest Myth About the Fed," and Scott Sumner's recent post at The MoneyIllusion "It makes very little differnce how new money is injected."
Mais
Since 2008, I have argued that to gain an understanding on the current situation economists should consult James Buchanan and Richard Wagner's Democracy in Deficit and Hayek's A Tiger By the Tail. Its not like these are esoteric references, but instead summary statements from 2 of the 3 top critics of Keynesian economics among Nobel Prize winners (Hayek, Friedman, and Buchanan). Buchanan tackles the political legacy of Keynes as embodied in deficit financing and accumulating public debt. Hayek addresses the inflationary legacy of Keynesian economics.
Current affairs seem to confirm the Buchanan and Hayek analysis. Manipulation of money and credit (evidenced by deviations from the Taylor Rule) resulted in a pronounced business cycle culminating in 2008. Debt crises plague not just Europe, but at the municipal, state and federal level in the US. And both the ECB and the Fed have engaged in significant efforts to meet the economic crisis with aggressive monetary policy. So aggressive in the US, in fact, that monetary policy has been focused not only on short term manipulation of credit (QE3), but also efforts to make sure that long term signals that spur inflationary hedging are muted (Operation Twist).
However, fewer economists than I would have believed take the warnings of Buchanan and Hayek seriously especially given the political and economic history of the past 60 years. This is true even among many market-oriented thinkers. See, for example, David Beckworth's recent post at Macro and Other Market Musings "The Biggest Myth About the Fed," and Scott Sumner's recent post at The MoneyIllusion "It makes very little differnce how new money is injected."
Mais
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