"Most people are in arrested development and cannot use logic." Jacob.
"Competition and capitalism are hated to-day because of their tendency to destroy poverty and privilege." William Hutt
"America is unique in that our economy is totally dependent on global charity." Peter Schiff

Wednesday, June 15, 2011

John Carney no Austrian

Here's an article by John Carney in which he quotes the Nobel Prize winning F.A. Hayek, a famous Austrian.
Sadly, the article is full of basic misunderstanding of economics, and is certainly not of an Austrian character.
Link for the article is Hayek on Why the Fed Cannot Create Inflationary Stimulus

Carney is saying, and thinks Hayek is saying, that as long as inflation comes as a surprise then that's good. By inflation he means of course higher prices, not the Austrian definition. In the old days, he says, this could be done by printing money.
But nowadays, writes Carney, it's too late. We have come to expect higher prices. As a result, money printing may either not produce higher prices, or may increase consumer spending without increasing jobs, or may create asset bubbles, but no jobs. And all because we knew the inflation was coming.
All of which strikes me as total nonsense, and certainly not AE.
I'll grant him that the article from Hayek does say one thing he does. If the higher prices are as expected, not higher than expected, they will not create new jobs. The idea being, I suppose, that the higher prices [=higher nominal profits] have been foreseen and acted upon in advance. Whoever was supposed to be hired from this year's higher prices has already been hired last year.
But there is a huge difference between the context of this insight in Carney's article and in Hayek's. Carney assumes that higher than expected prices are a GOOD THING for the economy. If only we had more and more of that magical elixir. Sadly, we have run out. But at least we have still have some inflation, [even though everyone guessed it was coming], which may have been responsible for the stabilization of the financial system.
Hayek, on the other hand, emphasizes that there is a price to pay for such a phony economy with its phony jobs. First is higher prices. Second is malinvestments, in particular the rise of companies who can only survive with constant inflation.

So  we can be happy that the MSM is quoting Hayek at length. Someday they may even understand him.

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