Sunday, April 12, 2015

Cato Goes Full Keynesian

This is just terrible. Cato Institute, which was founded, by among others, the great Austrian School economist Murray Rothbard, now appears to be just another institute for pumping out Keynesian propaganda.

George Selgin, senior fellow and director of the Center for Monetary and Financial Alternatives at the Institute, is out with a blog post discussing the monetary policy of Ben Bernanke's Fed following the 2008 financial crisis.

At no point in the post does he frame the discussion with even a minor nod to Austrian School Business Cycle Theory.

He approaches his entire post from the Keynesian "aggregate demand" perspective:
The immediate cause of such slumps is a slow down or collapse of spending or “aggregate demand,” like the one that took place during the last half of 2008.  
Further, he does not recognize the great structural distortions currently in the economy as a result of Bernanke-Yellen money manipulations, but merely questions the method and degree of the manipulations that have implemented by the Fed. He essentially is calling in his post for more aggressive Fed money printing.:
 I’m not claiming that the new jobs attributable to Fed asset purchases weren’t worth it: creating money to combat cyclical unemployment isn’t the same as spending it in a state of full employment, so the numbers I mentioned don’t amount to any sort of cost-benefit calculation. What I am saying is that it’s worth pondering whether, had it handled things differently, the Fed might have created a lot more jobs, without having had to create nearly as many dollars.   Suppose, for instance, that, instead of engaging in sterilized direct lending, the Fed had taken steps to expand the monetary base as soon as demand started flagging   (or, better still, that it had expanded preemptively, as it had done on some prior occasions when markets were badly rattled).  Suppose that it had refrained from paying interest on bank reserves just when the economy was starving for want of lending and spending. 
This is a damn tragedy.

"If the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed, far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem. What we need is not a totally independent, all-powerful Fed; what we need is no Fed at all."-Murray Rothbard, Cato founder.



  1. DCitis. What would economists do without a Central Bank and elasticity? Criticize the Fed too blatantly, no way, no how (you’ll never eat lunch in this town again).
    Another sellout appears to be GMU-Mercatus, etc., no longer even close to being in the mold of what was a supposed free market Econ. Dept.
    Reading a great book from Feb. 1937 “Banking And The Business Cycle: A Study of The Great Depression In The United States.” It is amazing how the 3 authors nailed depression causation as Fed Induced (easy credit conditions), and how once again the same conditions appear to be building up. Recommend to all your readers, as well as those that have contracted DCitis.

  2. This is terrible. Cato is very disappointing. Heritage is reliably social con, and partly eco con and others... but Cato just seems to be missing some teeth from the gears. Tanner and Cannon were awesome in the pamphlet Replacing Obamacare but man, Cato has a lot of misses. How dumb do you have to be to fail to sell freedom?