In his latest article for CentreRight, Steve Baker highlighted recent articles here at the Cobden Centre by James Tyler and Kevin Dowd, which questioned the mainstream economic views of Ambrose Evans-Pritchard.
Steve noted that because monetarists focus on aggregates, and ignore the structure of production, they give policy advice that sows the seeds of future problems. He illustrated this with a quote from Hayek’s Nobel lecture:
The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity.
In the comments section a lively discussion ensued, which Professor Dowd concluded with a call to set aside doctrinal issues, and focus on insights relevant to the problem at hand:
I would suggest there are three key questions:
1. Is the financial/banking system broken or is it fundamentally sound? [My answer: the system is clearly broken, and this is a structural problem that cannot be resolved by macroeconomic measures. The way I would tackle this problem is posted at http://www.libertarian.co.uk/lapubs/econn/econn111.pdf]
2. Do we need fiscal ‘stimulus’? [My answer: absolutely not. Fiscal ‘stimulus’ has brought the country to the brink of insolvency, and we desperately need a credible program of cuts in government spending and future commitments to take us back to solvency.]
3. Do we need more monetary expansion, low interest rates, QE, etc? [My answer: most definitely not. Current monetary policies are highly irresponsible, and not only create an inflation time bomb but also, by keeping interest rates at (I would have to say, obscenely) low levels, are artificially propping up the banks and creating the seeds of yet more asset price bubbles, wasted ‘investments’ and so on.]
Focussing on these questions I think would help us to see where agree and this is far more important than focussing on the points where we might disagree.
Above all, we need to dislodge the conventional wisdom [sic] in favour of bailouts and conventional Keynesian/expansionist policy responses. We can surely agree that these are discredited. Our problem is to get this message across effectively to policy and opinion makers and so pave the way for the radical reforms that are necessary to get us out of this mess.
In this spirit, the Cobden Centre collaborated with Prof Philip Booth at the IEA, and Dr Eamonn Butler of the Adam Smith Institute on a seminar, Why today’s political class needs Ludwig von Mises, held yesterday at the IEA. Steve reports that the event was “a great success throughout with a good atmosphere despite running over time on questions”.