Monday, December 3, 2012

So-Called Austrian Economist: The Taylor Rule Isn't A Deviation from Manipulation of Money and Credit

I see no other way to read this Peter Boettke comment other than an implication that the Taylor Rule is somehow not a manipulation of money and credit:
Manipulation of money and credit (evidenced by deviations from the Taylor Rule) resulted in a pronounced business cycle culminating in 2008. 
This to me reads as though Boettke is implying that the Taylor Rule is somehow a method by which we can measure against manipulation of money and credit. But, as the Fed writes:

Taylor rules are simple monetary policy rules that prescribe how a central bank
should adjust its interest rate policy instrument in a systematic manner in response
to developments in inflation and macroeconomic activity. 
When the concept inflation is discussed here, it is price inflation. The Austrians are the one group that point out that damage can be done to the economy via capital structure distortions even when there is no price inflation. Thus, for the Austrian economist, the Taylor rule is nonsense, since it looks at a frequent but not necessary symptom of the capital structure distortions, i.e. price inflation. Why a so-called Austrian uses the Taylor rule by which to measure money and credit manipulation, when the Taylor Rule, in Austrian terms, is itself a money and credit manipulation, baffles the mind.


  1. Looks like Nicholas Deak was an Austrian economist, "If Nicholas Deak had never existed, Graham Greene would have tried — and failed — to invent him. Born and raised in Transylvania during the last decade of the Austro-Hungarian Empire, Deak received a Ph.D. in economics from the University of Neuch√Ętel in 1929 and held posts with the Hungarian Trade Institute and London’s Overseas Bank before taking a post in the economics department of the League of Nations shortly before World War II."

  2. I don't think the Taylor Rule has much to do with pure Austrian Economics. It is designed to take some of the politics out of Fed decision making (if the rule is adhered to), however, I believe it also allows for a certain level of annualized price inflation, something I have a problem with. In my world, the only role a government or central bank should have is to simply do the utmost to maintain the purchasing power of money(fiat or commodity based), nothing more, nothing less. None of this 2 percent a year inflation that the present Fed is on record as their target. Think about it, if a currency in real terms inflates 2 percent a year, in a decade it has 20 percent less purchasing power. Taken to the extreme it loses total value. Unless individuals are able to stay ahead of this through inflated wages, or whatever, they see a decline in their standard of living.

    The greatest threat western economies face today is very simple, a money supply that hour by hour becomes ever worthless.

  3. So are you the keeper and arbiter of monolithic Austrian purity? First, you read something into a point which was pretty much dicta anyway, and then make a big freakin' deal out of it, and ignore the larger point of the post, which is something that actually is important.