Fed Vacancies Filled

Finally, some progress on filling Fed vacancies:

The Senate on Thursday confirmed two nominees chosen by President Obama for the Federal Reserve Board of Governors, overcoming Republican objections and bringing the seven-member board to full strength for the first time since 2006, before the economic crisis.

The History Project

A new effort to support graduate student study in economic history and the history of economic thought:

The Joint Centre for History and Economics is delighted to announce the History Project, an initiative supported by the Institute for New Economic Thinking, with the object of encouraging a new generation of historians of the economy and economic life. At a time when the need for historical understanding of large-scale economic changes is extraordinarily great, the Project seeks to provide support for young historians who are interested in economic history, the history of economic thought, and political and cultural histories of economic life.

Some Good Questions

From Carpe Diem:

Since oil speculators got the blame for rising prices in February, do they now get the credit for falling oil prices in May?  How exactly does the “speculators cause high oil prices”crowd now explain the falling oil prices?  Do speculators somehow contribute to only rising prices, but not to falling prices?  Do speculators only trade when prices are rising, but somehow exit the market suddenly when prices are falling?  To be fair to speculators, it seems like the popular press should be giving them credit now for the falling oil and gas prices.

The Great Depression and Austrian Economics

Bruce Bartlett opines on the Great Depression and Austrian economic theory:

Representative Paul is here reciting the “Austrian” theory of the Great Depression. It says that even though there was no inflation during the 1920s, somehow or other inflation nevertheless caused the Great Depression. According to the Bureau of Labor Statistics, prices were either flat or falling throughout the 1920s – i.e., deflation.

 

But the Austrian school believes there was actually some sort of double-secret inflation because the money supply increased. They believe the same thing is happening right now.

One curious feature of the Austrian argument that Fed intervention is always undesirable is the fact that the Austrians who promote it never seem to ask the most basic economic question: might intervention be justified in cases where the costs of inaction are extraordinarily high?  In other words, why not think of government intervention in plain old cost/benefit terms as Friedman/Schwarz did in concluding that the Fed’s mistake was one of doing far too little to prevent the economic collapse in the 1930s?  Perhaps the Austrians do this and conclude that the benefits of intervention never outweigh the costs, but that seems highly implausible in scenarios like the Great Depression (if not then, when?).

And Bartlett is right – there was no inflation in the 192os to speak of.  Here’s the chart of CPI from 1920 to 1929 (from measuringworth.com):

The more troubling criticism for the Austrian theory of crises has long been articulated (most clearly by Bryan Caplan).  The Austrian theory relies on an unexplained irrationality among businessmen who are continually fooled by the Fed into believing that “artificially” low interest rates are the actual market interest rates.

As Caplan noted,

Even if simple businessmen just use current market interest rates in a completely robotic way, why doesn’t arbitrage by the credit-market insiders make long-term interest rates a reasonable prediction of actual policies? The problem is supposed to be that businessmen just look at current interest rates, figure out the PDV of possible investments, and due to artificially low interest rates (which can’t persist forever) they wind up making malinvestments. But why couldn’t they just use the credit market’s long-term interest rates for forecasting profitability instead of stupidly looking at current short-term rates?

There are other objections, of course.  See Marginal Revolution here and Paul Krugman here.

“History Matters”

David Warsh has an interesting new post on economic history matters at Harvard.

Interview with Ronald Coase

NPR interviewed Ronald Coase about his new book (yes, that’s right, a new book at the ripe old age of 101) on China.  You can listen to the interview here and find the book here.

My favorite line from the interview reveals refreshing humility, especially for someone in Coase’s profession:

I’ve been wrong so often I don’t find it extraordinary at all.

Another Kind of Economic Indicator