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The revival of Austrian trade cycle theory
It's coming from Basel.
Posted by Tyler Cowen on June 25, 2007 at 04:45 PM in Economics | Permalink
Comments
Oh dear. Greg Ip is being ignorant again.
Over on brad delong there have been several postings,
some involving me, about Bernanke's work. Bottom line:
Ip here is misreperesenting.
Ben Bernanke cut his teeth academically on publishing
about financial fragility in the early 1980s in the AER.
The sources on that were not Austrian, but (Post) Keynesian:
Hyman Minsky and Charles Kindleberger, plus the old neoclassical,
Irving Fisher, althoug I pointed out there that this idea was
orthodox classical in the 19th century, the main theory then of
business cycles, with John Stuart Mill giving its clearest
expression, and such odd ducks as the brilliant Sismondi and
the "I made a fortune in the bubbles" Richard Cantillon in the
early 1700s probably being the original theorist.
So, not long after 9/11, while he was on the Fed Board, Bernanke
was concerned about the possibility of a Japanese style deflation
that could trigger financial instability, and convinced Greenspan
and others to go along, based on "complexity concerns," as expressed
in Greenspan's AEA address of a couple of years ago. At the height
of this, Bernanke cited Milton Friedman on "dropping money out of
helicopters," metaphorically, which they did effectively, to offset
the threat of a potentially structurally destabilizing deflation.
When he went up for the Chairmanship, various commentators got on
Bernanke's case as an "inflationist," based on his "helicopter money"
remarks, with most of these commentators having no idea whatsoever
what they were talking about or what he was talking about.
Bottom line? No, Bernanke is not overly obsessed with excessive
inflation in general.
Posted by: Barkley Rosser at Jun 25, 2007 10:41:22 PM
Makes me feel better about writing an undergrad thesis called the Austrian theory of the business cycle while trapped in the matrix of European socialism :)
I remember a "professor" at my "defense" showing disbelief at me explaining the benefits of absolute price deflation. "If things become cheaper, no one would buy anything," was his reasoning.
Oh Europe...
Posted by: ralph ruben emmers at Jun 25, 2007 10:47:02 PM
ralph,
Something tells me that probably wasn't his reasoning. In fact, I'd be willing to bet that he was articulating something much less ridiculous that you either didn't understand or preferred to ignore (probably some version of the liquidity trap). No suprise. I see a lot of vulgar-Austrians misrepresenting the arguments of their opponents in this way (deflation is never baaaaahhhhd).
Tip for the future: Think of Robin Hanson next time you're arguing with your professors.
Posted by: Student at Jun 26, 2007 5:50:28 AM
Dear Student,
I only wanted to demonstrate his lack of awareness of the concept of a beneficial deflation in the absence of central banks, where productivity increases lead to falling real prices. This signaled to me how "paradigm-stuck" some Keynesians had become. Instead of openness to assessments of institutional foundations in place, and the effects they produce, it is safer to take the status-quo for granted, do some data-mining and provide an academic rationale for government intervention -- also good for a professor's job security in a country where the government is comfortable with the status-quo and pays their salaries.
Posted by: ralph ruben emmers at Jun 29, 2007 5:18:03 PM
