Econ von Strawman

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Robert Murphy shares this piece from Larry Kudlow:

In Hayekian and Misesean terms, bad investment and spending decisions are being remedied through the free-market corrective process. And, greased by easy money, today’s market correctives may produce a much stronger V-shaped recovery than the stock-market consensus expects.

Talk about misrepresenting a position! According to Hayek and Mises, using easy money to grease the wheels is the exact opposite of market correction. This is exactly what creates monetary inflation and unsustainable bubbles. So what looks like V-shaped recovery is actually, on the recovery end, only the illusion of recovery.This easy money gets funneled into bad investments which eventually come crashing down when the market can no longer support them.

This is like saying the Yankees are going to start scoring more points by trimming all that dead weight from behind the plate – by getting rid their pitching staff. He’s got some idea of how to win a baseball game, but only pays attention when the Yankees are at bat. In other words, he’s only understanding half of Austrian Business Cycle Theory – the part where easy money creates a boom, but doesn’t see the long term, stable strategy.  He’s analyzing a complex situation but only looking as far as his nose – while trying and failing to throw some peanuts towards the ‘free market’ crowd.

1 Comment  »

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