it's unfortunately wrong...the whole premise is wrong.
there is no 'new' economy...that's just a buzzword,
There is a new economy. It has come about via the PC and Internet. MSFT and INTC are so far the core of this new economy and they are two of the world's largest corporations dwarfing all the other DOW components. Those two are far more important to me than anything the other DOW components do.
similar to the 'new era' of the 1920's. the basic principles upon which the economy functions haven't changed, because human nature hasn't changed.
The '20s were also a new era completely unlike American society before WWI.
For example, economic historians now agree that the Fed's tight money policies in the late 1920s and early 1930s turned a garden-variety stock-market crash and recession into the Great Depression. Similarly, an extended series of mistakes by the Bank of Japan transformed the stock-market decline of 1990 and 1991 into a depression.
i wonder who the economic historians agreeing on this nonsense are? this is a myth invented by the monetarists in the sixties to buttress their theory.
It was Anna Schwartz and Milton Friedman. According to the newspapers of the time the FED which shared policy creation with the Treasury maintained relatively high interest rates in order to forestall the export of gold and thereby protect the monetary base and preclude a presumed collapse of trade. This was a policy pushed by Roosevelt and Treasury Secretary Morgenthau and later opposed by Marriner Eccles. This is much like the intent of the Democrats now to shrink the tax cut in order to preserve an ideal that they could never keep and which is now wrong and inappropriate just like the failure to create fiat money was in the early '30s. The FED shouldn't have raised rates in '28 and '29 to cool stock market speculation. They should have raised margin requirements, but they hadn't enough experience with such techniques. If they hadn't raised rates, the stock market surely would still have crashed, but it wasn't the crash that caused the depression. The crash caused authority to panic and push the wrong buttons. If FED and Congress hadn't gotten involved the US would have undergone a recession, but not the disaster authority precipitated. The killer was the raising of rates at the end of '31. Afterwards they did lower them, but the damage had been done.
..the reality is that the Fed of the early '30's cut rates a lot faster following the '29 debacle than its current incarnation in the wake of the April '00 NAZ crash.
It is a mistake to make the assumption that demand management can be achieved by interest rate manipulation. Interest rates are not always inversely and rigidly related to money supply. For example, in Japan now it's immaterial whether they lower rates or not. It is material if they create currency. After the damage from the '31 tightening, lowering rates didn't have any effect. They wouldn't have needed to do any of that had they just left things alone and let the people create the solution. Instead, the public cheered Roosevelt when he offered them words, but the depression went on any way. It's amazing how history looks on what occurred and heralds mediocrity as greatness, but that isn't anything new for history, and it is the way text books want to worship the advent of big government.
i do agree with them that the scope for policy errors by the bureaucrats is great - only those errors have been committed DURING the boom, not after it.
You are saying that they only make errors depending on what time it is when in fact the biggest errors come after the boom. That's when they have the greatest conviction to do good and to save the world which leads irrevocably to the greatest evil. That's the testament of the '30s that Friedman emphasized. It was an active FED and Congress during the early days of the depression which created horrible policies like tariffs, taxes, restrictions and regulations, which put a muzzle on the possibility of easy recovery. None of that makes it to the text books.
we have experienced an almost exact replica of the last k-wave autumn, which was the disinflation and productivity boom of the '20's,
Not quite. There was no such phenomenon as disinflation then. Prices were stable during the '20s following the war inflation and deflation/depression of '22. There was rising farm deflation which started in '26 and is more related to factors strictly agricultural. In contrast, during the '90s inflation rose every year. The difference is remarkable:
economagic.com (CPI US City Average, All items, old base 1967 NSA range 1913 - 2000)
As for productivity boom if you consider increases to productivity due to machinery and equipment, then there was a similarity between then and Greenspan's WinXXX productivity enhancement. Any economist worth two cents knows these aren't true productivity improvements or if they are, they actually only run at a max of 2% per annum. What these machines do is provide the belief to humans that if they work hard with the machines, they will prosper and create wealth. The machines only induce the will to make greater effort. That's where the true productivity lies, not in the increase in output from the lever factor of the machine.
coupled with the exact same profligate monetary policy which resulted from misunderstanding the disinflation phase of the k-wave. had interest rates been left entirely to the market, the malinvestment binge and credit/asset bubble needn't have occurred.
This is all you needed to say. It's the core of all the problems. Von Hayek taught that it's "pretense to knowledge". At Pelegrin he and Friedman agreed fully on this concept, because they both shared what Von Hayek captured in "The Road to Sefdom" that when authority has the power to do good, they surely find a way to do evil. This has been the experience of the 20th century that is almost completely lost on this era's economic "engineers", social equalizers, and text book writers. |
