Re: Ron Paul and Chairman Bernanke discuss economics
Both the neoclassical and the Austrian economists blame the Federal Reserve for the Great Depression. There is only disagreement as to precisely how the federal reserve did it. And this is why they are both wrong. The free market has a mind of it’s own, and the central banks simply cannot control it.
For example: Bernanke believes he can re-inflate the housing bubble by low interest rates and quantitative easing, but it doesn’t work. The most important factor — aggressive lending — is missing, and the government control over that practise has only diminished over time, thanks to the lobby of the same aggressive lenders and their money trust. This disproves both the statement that the central bank caused the inflation of house prices, and has any control over the deflation.
In this mock interview Bernanke claims that the free market needs the intervention of the central bank to keep the economy stable. I doubt whether he would ever say this, because it goes against the deepest held believe of neoclassical economists: the justice of the free market.
Mass hysteria and superstition among bankers and investors form an ongoing threat to the economy, a constant source of both over- and underinvestment. On the other hand, blaming the government or governmental institutions is just common laziness.
My argument would be that as long as the Federal Reserve is involved, there is NO free market. How can a market be free when the price and availability of "money" is manipulated? Can the central bank CONTROL the market? No. Can the central bank INFLUENCE the market? Absolutely. Control is when your buddy is driving and you grab the steering wheel and put the car in the ditch. Influence is when you point out the naked woman on the side of the road and he drives into the ditch.
Did the Fed CAUSE the inflation of home prices? I would say that they certainly contributed greatly to the environment that allowed prices to rise so dramatically. True, poor lending practices created a greater pool of borrowers. However, if there had not been cheap money to borrow, prices would have remained more stable. I believe the fault lies with all involved in the mortgage mess; unscrupulous lenders, hyperemotional ignorant borrowers, and the folks in charge of the price and availability of money.