During the lunch, Wolf asked Bernanke about critics who argue that the Fed shouldn't have intervened in the downturn, that the downturn would have been self-cleansing.The only economic school to hold this view is the Austrian School.
Wolf and Bernanke don't mention at their lunch the Austrian school by name, but that certainly is the school of thought they are discussing.
Here's the exchange:
Other critics argue, I note, that the Fed’s intervention prevented the cathartic effects of a proper depression. He teases me by responding that I have a remarkable ability to keep a straight face while recounting what he clearly considers crazy opinions.
I add that many critics still expect hyperinflation any day now. “Well, we were quite confident from the beginning there would be no inflation problem. And, of course, the greater problem has been getting inflation up to target. As for allowing the economy to go into collapse, this is the Andrew Mellon [US Treasury secretary] argument from the 1930s. And I would think that, certainly among mainstream economists, it has no credibility. A Great Depression is not going to promote innovation, growth and prosperity.”
I cannot disagree, since I also consider such arguments mad. Nevertheless, I note, we have to recognise that neither he nor the Fed expected the meltdown.
Actually, as Murray Rothbard and Robert Higgs have both pointed out, the Great Depression was not prolonged because of monetary policy but because of other government policies that did not permit the economy to self-cleanse.
Bottom line: Bernanke's distortion machine was working well in Chi-town. His "book" tour seems to be as much about dissing Austrian economics and gold, then it is about promoting his book. He fears the Austrians.
-RW
