As the Washington Post recently reported, "The Federal Reserve Board has recently waged a vigorous campaign of defense, arguing that it was better to have boomed and busted than never to have boomed at all." Poetic perhaps, but is it sound?
Critics of Austrian theory maintain that there is no justification for the notion that businessmen should fall prey again and again to an artificial lowering of interest rates. Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates. Frank Shostak responds.
Given the economics of the cycle, writes Sean Corrigan, there are no easy choices. Standing the path of recovery are huge, perhaps unprecedented, imbalances, record indebtedness perched atop still-overblown asset prices, the ire of powerful vested interests, and a blind dedication to a whole pharmacopoeia of quack remedies and misdiagnoses.
The Federal Reserve System may have run out of room to maneuver. Facing a looming recession, it resolutely lowered its discount rate and frantically expanded its credits. Eager to stimulate the sagging economy, it enabled and encouraged businessmen to invest more and consumers to go ever deeper into debt. Yet the specter of recession refuses to fade away.
As the markets continue to wallow in bear territory, and as consumer—and, more important, investor—confidence falls, writers and commentators of all stripes have weighed in to give their two cents’ worth concerning the key question: who or what is at fault?
here are those who want to believe that a market economy is itself unstable, prone to periods of excess and in need of stabilization by some outside authority. As Jeff Madrick wrote recently for the New York Times, “government itself is a necessary bulwark against recession.”
The alarm raised by mainstream economists that corporate cost cutting will undermine the real foundation of the economy is based on a flawed view of the essence of savings. On the contrary, writes Frank Shostak, cost cutting is an important means in correcting previous erroneous decisions so that real wealth can be generated again.
The June 3, 2002, issue of The Nation heralds the 2001 Nobel Laureate Joseph Stiglitz as a "rebel with a cause." That characterization is certainly a stretch for an economist, who is former senior vice president of the World Bank and who adheres to orthodox Keynesian doctrine, the dominant economic paradigm of mainstream political and economic theory for the past 50 years.
