Wednesday, April 02, 2008

Lessons in Free Market Economics

Professor Sowell gets back to writing about the economy:

There was a real irony in the recent intervention by the Federal Reserve System to provide the money that enabled the firm of JPMorgan Chase to buy Bear Stearns before it went bankrupt. The point was to try to prevent a domino effect of panic in the financial markets that could lead to a downturn in the economy.

The irony is that it was almost exactly a hundred years ago -- 1907, to be exact -- that the original J.P. Morgan arranged a bailout of a troubled financial institution for the same purpose of preventing a panic that could end up with the whole economy declining.
Read the whole thing here.

The column is interesting because he ends his column with these words:
There is no question that the people who run the Federal Reserve System today are a lot more knowledgeable about economics than those who ran it back in the days of the Great Depression. Indeed, the average student who has passed Economics 1 today is probably more knowledgeable than those who ran the Federal Reserve System back during the Great Depression.

Being a disinterested government official does not mean that you know what you are doing. That fact gets left out of the equation in a lot of proposals for new government programs.
What Professor Sowell doesn't say is that even if we know more now than we did during the Great Depression, that still isn't enough knowledge for one person, the Fed Chairman, to make decisions that he is expected to make.

Speaking of free market economists, Vox Day has an interview up with Dr. Frank Shostak. Have you ever wondered what the difference is between Friedman's Chicago School and Mises' Austrian School of economic thought? What is the Austrian theory of the business cycle? Why is having a central bank a waste of time? Listen to the podcast here and find out.

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