Re: What To Do About the Recession by William L. Anderson

From: Robert J. Bradbury (bradbury@aeiveos.com)
Date: Sun Nov 04 2001 - 22:20:57 MST


Anderson said:

> the inevitability of this current recession began when the Fed began to
> force down interest rates during the mid-1990s. The Fed's actions had a
> major role in triggering a boom, especially in the high-technology sector
> of the economy. As the boom continued, it was fed by artificially low
> interest rates and a false belief that we had entered a "new economy" in
> which business cycles were a thing of the past.

Is there any "real" evidence that the Fed is completely to blame here?
Could there not also be some blame to be shared by the economists who
were pointing out the tremendous gains in productivity that were
being attributed to the application of information technologies
(finally), or to the accumulation of wealth that migrated into
the hands of VCs who spent it all too often on yet-another
dot-com business plan, or on the newly minted stock owning
public who felt they had to play the market at never-before-seen
P/E ratios or risk losing the lottery?

To argue that the Fed caused the recession by fueling a boom
with low interest rates and then to argue that they cannot
create another boom with similar methods seems to argue that
the principles are only in effect when the economists want
them to be.

I don't disagree in general with the points being made, I just
object to the idea of an argument of the form "A is true
(the Fed can cause a boom) except when an economist doesn't
want it to be true (it won't work this time)".

Robert



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