Altes Elliott-Wellen-Forum - An die Pumpen, Männer / Artikel, engl.

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26.12.2002, 20:16

An die Pumpen, Männer / Artikel, engl.

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http://www.mises.org/fullstory.asp?control=1124
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Man the Pumps!

 

By Sean Corrigan 

[Posted December 26, 2002]

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Forget Greenspan's
timorous optimism about the economy—after all, ask yourself when,
in the course of the whole dirty dozen of futile rate cuts, he last talked its
prospects down?

No. Just like the tired old stock promoter he
is, Bookie Al always thinks better days are 'round the corner, so
puh-leeze, People, let's perform our own analysis instead of relying on the
Chairman's CNBC sound bites.

After all, this is a man who incessantly talks
about increased productivity, yet understands it so little that he expounds
the twisted doctrine that the ability to produce more with less and thus to
lessen scarcity and so increase provision for the future—in other words, to
build more useful capital—leads to higher real interest rates.

If you don't see the error in that contention,
ask yourself why Swiss bond yields are lower than Brazilian ones—with or
without the inflation component subtracted.

Worse, he contends that faster productivity
growth will necessarily lead to higher nominal wages, missing the
point entirely that it tends to increase real wages—more product
produced by labour should imply a greater exchange value imputed to the
workers—but that it says nothing at all about the direction of nominal wages.  

Just to emphasis the intellectual confusion
being suffered, his colleague, Bill Poole of the St Louis Fed, has even popped
up since Sir Alan spoke to blame
the supposed increase in productivity for costing America an extra 2
million jobs!

This is the oldest of Luddite myths, that
capital makes labour—as a whole—redundant. Perhaps <st1:place>
Poole</st1:place>
 would like to throw his sabots at the computer screen and
send us back to a handicraft economy, so that there will be work enough for
everyone just to ward off starvation!

As if improving living standards—which is
what genuine improvements in value productivity, rather than
simply BLS-measured material productivity, would bring—could, at
the same time, lead to greater poverty!

More important than all this in Greenspan's
speech was the grudging admission that there is merit in recent research
conducted by the BIS that"price stability"—the
nonsensical mantra intoned relentlessly by central bankers everywhere—is no
guarantee against financial instability and may even prove conducive to it.

To us Austrians, of course, however heartening
it is to see such matters aired in the mainstream at last, this is hardly news.
Hayek, for one, wrote nearly seventy years ago:

<blockquote dir="ltr" style="MARGIN-RIGHT: 0px">

'The rate of interest in an expanding
economy… just sufficient to keep the price level stable, is always lower
than the rate which would keep the amount of available loan capital equal to
the amount simultaneously saved by the public.'

[/i]

In other words, trying to keep prices level
when output is increasing inevitably implies a hidden--and thus often more
insidious--inflation and a distortion of the structure of production away from
that able to be sustained by consumer preferences and voluntary savings.

Elsewhere, Hayek underlined the point, by
noting that:

<blockquote dir="ltr" style="MARGIN-RIGHT: 0px">

'Disturbances described as resulting from
changes in the value of money (the obverse of a change in the price
level) form only a small part of the much wider category of
deviations from the static course of events brought about by changes in the
volume of money.'

[/i]

Greenspan, typically, introduces this whole
subject only to absolve himself of all responsibility for taking steps to
address the inherent deficiencies of present policy, muttering weakly instead
about risks of 'an unacceptable amount of collateral damage to the wider
economy' due to Bubble pre-emption and casting doubt on the issue of
whether Bubble-popping 'restrictive credit regulations' might
prove less 'conducive to wealth creation over time than our current
regulatory system.'

Frankly, on that last point, we would doubt
whether the events of the past few years leave much doubt that the current
system is not, in fact, a positive impediment to genuine wealth creation (as
opposed to the mere inflation of asset prices)!

But while poking holes in Greenspan's
half-logic offers far too little a challenge to provide much in the way of
sport, there was, yet again, a reiteration of the overriding policy directive
as well as an intimation that this is a global, not merely a national,
imperative.

'The meaning of deflation and the
characteristics that differentiate it from the more usual experience of
inflation are subjects being actively studied inside and outside of central
banks.' (Note the plural.)

'As I testified before the Congress last
month, the <st1:country-region>
<st1:place>
United States</st1:place>
</st1:country-region>
 is nowhere close to sliding into a pernicious deflation. Moreover, a
major objective of the recent heightened level of scrutiny is to ensure that
any latent deflationary pressures are appropriately addressed well before they
became a problem.' (Notice we now don't even have to wait for
realized deflation, just the latent —i.e. Greenspan-observable—kind.)

'Clearly, it would be desirable to avoid
deflation. But if deflation were to develop, options for an aggressive
monetary policy response are available.' (As we have long warned.)

Was it just a Freudian slip to start this
encomium for Keynesian debasement with a reference to the Gold standard? In
all probability it was merely inadvertent, but the contrast suggested between
real, hard money, freely chosen by market processes, not arbitrarily by the
State and its Financiers, was no less resonant for the fact that it was
implicit, rather than as shockingly explicit as in
Bernanke's recent speech on the subject.

All you 'Don't Fight the Fed' types should take
note: the bank's unequivocal battle cry is 'Man the Pumps!'



------

Sean Corrigan is a principal of www.capital-insight.com,
a London-based economic consultancy. See his Mises.org Articles
Archive, or send him MAIL.
See also the Study
Guide on Business Cycles. He was
interviewed at the Mises Institute prior to his
lecture on the"What Happened to Recovery?" You can listen to the
audio of his speech here,
and follow his charts and research here.


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