Friday, May 20, 2016

Top Trump Economic Adviser Says Fed Shouldn't Hike Rates

Trump Keynesian Economic Adviser
Larry Kudlow, who appeared on CNBC Wednesday, said the Fed should "stay put" and not hike rates at their June or July monetary policy meetings.

Kudlow has been linked to Donald Trump as a top economic adviser. During his appearance Wednesday, Kudlow used phraseology and an economic model similar to what Trump has recently stated,

He said that the Fed should raise rates only if there is an increase in price inflation and that he does not see that anytime soon. Trump said the exact thing during an interview with Reuters earlier this week:
 I happen to be a low interest rate person, unless inflation rears its ugly head, which could happen at some point. It doesn't seem like it's happening any time soon.
Kudlow also indicated he was in favor of corporate tax cuts. But he framed it as "fiscal stimulus," which means he is not in favor of cutting government spending, that is, he wants to see an even larger government deficit, not smaller government----pure Keynesianism.

As for his view that Fed-manipulated low interest rates do not damage the economy.  he completely misses the maladjustments between capital goods and consumer goods that occur with manipulated rates even if there is no significant price inflation.

As Murray Rothbard wrote:
 Even if prices do not increase, this does not alleviate the coercive shift in income and wealth that takes place...
 [I]f new money is created via bank loans to business, as much of it is, the money inevitably distorts the pattern of productive investments. The fundamental insight of the "Austrian," or Misesian, theory of the business cycle is that monetary inflation via loans to business causes over-investment in capital goods, especially in such areas as construction, long-term investments, machine tools, and industrial commodities. On the other hand, there is a relative underinvestment in consumer goods industries. And since stock prices and real estate prices are titles to capital goods, there tends as well to be an excessive boom. It is not necessary for consumer prices to go up, and therefore to register as price inflation. And this is precisely what happened in the 1920s, fooling economists and financiers unfamiliar with Austrian analysis, and lulling them into the belief that no great crash or recession would be possible. The rest is history. So, the fact that prices have remained stable recently does not mean that we will not reap the whirlwind of recession and crash.
Clearly, Kudlow doesn't understand this. He is stuck in a muddied Keynesian world view that looks favorably on high deficits and mad central bank money printing, and he is introducing Trump to that muddied view.


1 comment:

  1. Guys like Kudlow bug me because they try to present themselves as serious-minded, free market capitalists while endlessly calling for welfare for wall street. They dressed like they're going to work, but they're just losers on food stamps.