This is a several-points question (so if it doesn’t belong, I apologize and please delete). Been trying to convince friends to take a look at the splendid writings in your site - and one just sent me the following (any help in my response would be greatly appreciated):
"The argument that govt intervention to lower interest rates is undesirable needs to be challenged, I believe. Have long felt that Greenspan’s obsession with fighting inflation that did not exist by raising the bank, prime and inter-bank rates was wrong and unfair to the middle class which ended up paying historically high home interest rates (>4% in real terms corrected for inflation) and explains much of the working and taxpaying class stagnation of the 1990s and beyond. Now, when Bernanke lowers those rates, the Austrians protest. You know more about Mises/Austrians but I think that his/their ideas are, like the Federalist Papers, wonderful touchstones but limited because they do not take into account new technologies and certainly the global, supranational maretplace of today. In college I studied MicroEcon – the theory of the firm. I also studied MacroEcon, but Macro in 1960 really meant a national economy (because international trade accounted for but 4% of the GNP or GDP). Now we have a world economy to deal with. We also have technology tools that permit more knowledge and more rapid understanding of what is happening. Central governments back in 1912 had very little information at their fingertips; today we know by 6 Feb what happened to retail sales in January. At heart a conservative, I believe in the smallest government and least government intervention we can get away with. Unfortunately, it does little good to rely on Adam Smith in business cycles, in labor theory, or LvM in financial economics to deal with today’s world problems. They do serve as clarifiers in Econ 101 or in an Econ Theory, or History of Economic Thought classroom.
How empty. The fundamentals of monetary analysis do not simply change because technologies change, though the details might. Besides, Austrian monetary economics has advanced considerably since Mises. This friend of yours sounds ignorant of Austrian monetary economics, and thus unqualified to make such sweeping statements. What, exactly, about modern technology allows the Fed to correctly estimate the natural interest rate? What is its objective standard in absence of prices?
He clearly does not understand the business cycle and how inflation hurts the middle and lower classes the most.
The business cycle is created when artificially low interest rates created by the federal reserve encourage malinvestment, which then must be liqudated when it becomes clear the investments are not profitable. In other words, artificially low interest rates encourage people to be reckless in their lending and borrowing. This is exactly how the current housing bubble was created and this is primarily affecting the lower and middle classes.
Inflation hurts the lower and middle classes the most because new money enters the economy through the treasury bills issued by the federal government to the wealthy and politically connected and bought by the federal reserve. So the rich get the money first and they can use it before prices adjust. By the time the money funnels down to normal people, prices have already risen. This is a major reason why the cost of living keeps going up and up.
Thanks for your assistance - I was wondering the same about why technology would affect Econ’s principles and causative factors - except for transactional complexities and higher-order sophistication. Thank again!
And this second reply hits a home run in helping me out with my friend’s questionable reasoning. I’m always amazed at how people stick to their pet ideas so staunchly, regardless of proof to the contrary … and the older they get, the worse for any prospects of a new view of things. But there’s always hope. Thank you - I’m going to add this to my response to him as well (giving you both the credits for them, of course - all I care about is that he sees these errors in thinking).