It’s interesting how during a bust, the Austrian School suddenly gains greater prominence and people act as if the Austrians are just another player in the mainstream (which isn’t really true as much as we might like it to be). Here is a recent case of this: Andy Laperreire in the WSJ:
The Fed’s loose monetary policy has hurt the average American. Here’s how:
- Rolling asset bubbles have depressed wages by spurring unproductive investment, first in the tech and telecom sectors and more recently in housing. This has reduced the funds available for other, more productive investment that could have increased real economic output and raised wages and living standards. Austrian school economists call this “malinvestment,” and it is an inevitable byproduct of credit bubbles.
- The stock market and housing bubbles created windfall gains for some (who sold at the right time) and windfall losses for others (who bought at the peak). Many speculated or acted irresponsibly during both bubbles, and have reaped what they sowed. But others were innocent victims of the boom-bust dynamics. For example, young families who bought their first home in Florida or California during the past few years will suffer for years to come the economic consequences of buying at the peak of a historic bubble. (Proposals in Congress to offer temporary tax credits for purchasing homes would create more arbitrary windfall gains for a few at taxpayer expense, while doing little to alter the fundamentals of the housing market.)
- The boom-busts have caused massive and unnecessary employment dislocation. Responding to market signals, many workers flocked to the tech and telecom sectors in the late 1990s and the housing-related sectors in recent years, only to earn a pink slip during the bust. Not only does this cause financial and emotional hardship, the waste of human capital hurts the economy overall. A flexible labor force is one of the great strengths of the U.S. economy, but policies that cause unnecessary dislocation are economically destructive.
- The Fed’s loose monetary policy is causing inflation and reducing the purchasing power of Americans’ paychecks. Headline inflation is well above the Fed’s target, and the reduced purchasing power is readily seen in the declining value of the dollar, and rising food and energy prices
