Sunday, January 7, 2018

Setting the 'Palm Beach Post' Straight on the Boom-Bust Cycle

Jason Peirce emails:

I don’t get much time to write much of anything these days, but I saw an article on an artist who uses dying flowers as a metaphor for the boom-bust cycle (as if it is a natural phenomenon). I just had to write a letter-to-the-editor on this one. The paper is the January 6 edition of the The Palm Beach Post, as we’re down in Palm Beach County now. You’ll enjoy the reference to you and your fine book.



  1. I love how "When will Krugman be accountable?" Is the next letter to editor!

    We have to keep fighting the good fight. One idea at a time. One conversation at a time.

  2. That's great! And in a despicable left wing rag like the Palm Beach Post!!!

  3. I thought boom-bust cycles DO (would) occur naturally in a free-market, except on a much smaller and less extreme scale? Since even in a free-market there would still be at least some small amount of misallocation of capital (imperfect knowledge), and so, periodic adjustments (the bust cycle) would still be necessary. Or maybe I'm incorrect, in that the adjustments---the reallocation of capital---would be constantly occurring in the aggregate, and not occur en masse as in our current world, and as such would not be noticeable---?

    1. You're confusing simple bad decisions and bad calls by entrepreneurs--which lead to bankruptcy, and actual misallocation capital. Misallocation of capital is the result of manipulation of the interest rate by a rapid increase of the money supply. The direct effect of increasing the money supply in the market is to fool all actors into thinking there are more savings (thus more capital) than they actually exist, which entices actors to allocate capital to long-term projects where they wouldn't otherwise. The increase in the money supply is entirely man-made.

    2. Your second notion is correct. There will always be individual entrepreneurial error in any market system, completely free or partially free. But in a market free of state interference with the money supply, you wouldn't expect to see the "cluster of errors" that you see today in earlier stages of production across so many industries at once. The only (material) common element across these stages of production is sensitivity to interest rates, which is what is manipulated by the state's interference with the money supply.

    3. Ah, I get it. The "boom" cycle is "a cluster of errors" where everyone is misled by government's distortions. And it's not just mistakes or errors of judgment ("mis-investment" if you will), as would occur in any business, but rather, it is "MAL-investment."