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Brimelow on the Austrians

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11/03/2005

Peter Brimelow, writing on Marketwatch, has a generous link to my piece today, and writes:

Shostak's position is consistent with the Mises Institute's commitment to Austrian-style free-market economics, which rejects all central banking as government manipulation.

But his critique of Bernanke was echoed, curiously, by Paul Krugman — Bernanke's economist colleague at Princeton — with the difference that Krugman approves. In his Oct. 28 New York Times column, Krugman wrote of Bernanke:

"Nor is he a laissez-faire purist who believes that government governs best when it governs least. On the contrary, he's a policy activist who advocates aggressive government moves to jump-start stalled economies. For example, a few years back Mr. Bernanke called on Japan to show 'Rooseveltian resolve' in fighting its long slump."

The contradiction here is that economists now generally accept that "Rooseveltian resolve" exacerbated the slump — Shostak even quotes Bernanke saying as much in a 90th-birthday tribute to Milton Friedman.

This is alarming, because Krugman believes that the U.S. economy faces a "day of reckoning" stemming from an overdependence on what he sees as two unsustainable trends: the housing bubble and borrowing from Asia.

So Bernanke may well get his chance to show "Rooseveltian resolve."

I'm happy to say that one of the most telling critiques of Bernanke appeared on MarketWatch in March 2004, long before he became a household name, by occasional contributor John Brimelow (a relative of mine). (See story.)

Analyzing Bernanke's just-delivered speech on "Money, Gold and the Great Depression," John concluded that it "suggests Fed ambition on a scale not seen since the era of 1960s-style fine-tuning."

This included implied support for the much-rumored "Greenspan Put" underpinning the stock market in the short term — no wonder Wall Street's whooping!

But it raises, of course, the specter that all will ultimately spin off into an inflationary collapse as well.

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