End This “Expansion” Now Chairman Powell!
Everyone is wondering when this less-than-a-dozy of an economic expansion is going to slide into recession. The Fed, in concert with the world’s other central banks, has created a ten year episode of “The Walking Dead,” so when is it going to be over already?
Doing their best Stiller and Meara routine in Atlanta earlier this month, Janet Yellen said, “I don’t think expansions just die of old age,” to which Ben Bernanke quipped, “I like to say they get murdered.”
The central bank creates expansions and then murders its darlings, to borrow a phrase. Austrian economists say booms are the problem, with low interest rates breathing life into ill-conceived ventures and, once hatched, keep them from death’s door, wasting capital to the detriment of society. Recessions and depressions cleanse the economy of these malinvestments, re-aligning production with society’s collective time-preference.
However, at Bloomberg, Peter Coy doesn’t invoke the Austrian view but instead pronounces,
The open secret of the economics profession is that its practitioners don’t have a theory for why expansions die. Or rather they have several theories, each of which contradicts the others and none of which is fully supported by the data. Because economists don’t know why recessions start, they can’t predict when one will start.
So, while Jerome (call me Jay) Powell continues to shrink the Fed’s crisis-bloated balance sheet and (recently anyway) raising the fed funds rate, “Economists surveyed by Bloomberg see only a 20 percent probability of recession over the coming 12 months.”
If the majority of economists are right (and they never are) this “everything boom” will continue. But, Powell, not being a PhD economist, but a lawyer by training and not held hostage by Lord Keynes’ theoretical straight jacket, may continue puncturing the bubble. We can hope, as Murray Rothbard explained in “America’s Great Depression,” and reprinted in the essential new “Rothbard A to Z,”
The “boom,” then, is actually a period of wasteful misinvestment. It is the time when errors are made, due to bank credit’s tampering with the free market…. The “depression” is actually the process by which the economy adjusts to the wastes and errors of the boom, and reestablishes efficient service of consumer desires. The adjustment process consists in rapid liquidation of the wasteful investments…. the depression is the process by which the economy returns to the efficient service of consumers. In short, and this is a highly important point to grasp, the depression is the “recovery” process, and the end of the depression heralds the return to normal, and to optimum efficiency. The depression, then, far from being an evil scourge, is the necessary and beneficial return of the economy to normal after the distortions imposed by the boom. The boom, then, requires a “bust.”
So what happens if Chairman Powell takes his foot off the brake and instead, hits the gas, as many, including Donald J. Trump encourage? Rothbard again provides the answer, from “Libertarian Forum” and “Rothbard A to Z,”
any hint of recession causes the government to panic and turn on the inflationary taps once again…. given any inflationary boom, a recession is painful but necessary, in order to return the economy to a sound state. The political prescription that flows from the Hayekian theory is, of course, the diametric opposite of the Keynesian: stop the artificial inflationary boom, and allow the recession to proceed as fast as possible with its work of readjustment. Postponement and government attempts to stop or interfere with the recession process will only drag out and intensify the agony, and lead to our current and probably future turmoil of inflation combined with lengthy recession and depression.
Put us out of our misery Chairman Powell.