Monday, April 25, 2011

Happy Days Are Not Here Again: NY Times on Disappointing Stimulus

Back in September of 2007, I warned that we should not expect what was then a dramatic interest rate cut by Bernanke to usher in a new era of prosperity. It seems that the New York Times has come around to the same conclusion. An article from yesterday's paper cites a number of economists who agree that there has not been very much to show from all that monetary stimulus.

The article notes that while the massive increase in the monetary base, has fostered inflationary expectations, eased credit conditions for some borrowers, and "pumped up the stock market," the effect on the social economy has not been noticeably beneficial. Economic expansion is slow and unemployment high.

The reason that my essay in 2007 was more right than wrong has nothing to do with any clairvoyance or special insight on my part. It is the product of using a sound, praxeological framework in which to do economic analysis. Understanding the significance of time in the production process and including capital theory in economic analysis allows us to make sense of the business cycle and also guide us in choosing policy to get us out of a recession as quickly as possible.

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