White on Hayek
Russ Roberts’ podcast interview with Larry White is a fascinating listen.
White is one of the leading experts (along with Roger Garrison and Gerry O’Driscoll) on Hayek’s monetary thought. Roberts has developed into an outstanding interviewer, asking penetrating questions and making timely comments but allowing the interviewee to shine.
And shine White does. Wearing his deep scholarship lightly, he carefully and clearly explains Hayek’s business cycle theory and then leads the listener through the evolution of Hayek’s monetary thinking noting its several twists and turns.
While I had a few quibbles with White’s responses, I was particularly struck by his apparent support for a nominal GDP rule for the Fed as a second best solution to free banking. Under this rule, the Fed would strive to maintain the total spending on current goods and services constant over time, which would entail injecting new money into the economy through the credit markets anytime the public increased its demand to hold money. He does not explain why the implementation of this rule would not cause a distortion of the structure of market interest rates that leads to malinvestments and a Hayekian downturn in the economy.
White also briefly alludes to the shrinkage in nominal GDP that accompanied the onset of the current recession, which some economists now hold responsible for the depth of the recession. But nominal GDP declined only 2.7 percent over three quarters, from 3Q 2008 through 2Q 2009 and then began to grow again.
Taking a longer pespective, for the two calendar years of 2008 and 2009, nominal GDP rose 2.6 percent and declined 1.3 percent, respectively. Hardly a decline, one would think, that can explain the depth of the real decline. But, as I said, this is a minor gripe.
Congratulations to Larry and Russ for an enlightening and stimulating discussion of Hayek.