The president of the Minneapolis Fed, one Narayana Kocherlakota, decided to devote the entire 2012 Annual Report to not one but two interviews with . . . . . . . . himself.   The interviews are a celebration of economic stupidity.  A few excerpts:

“Quantitative easing has the impact of pushing down on longer-tern interest rates.  And that should be directly stimulative to the economy because by pushing down on market interest rates, people are led to think, ‘Hmm, maybe I shouldn’t be buying those assets that are paying such a low yield.  I should spend money instead.’”    No need to save, invest, or work and produce; just spend, spend, spend, like a nation of spoiled rich kids.

“We’d like to push it [interest rates] down further and can’t.  That should be a signal to the fiscal authority to be more interventionist in the economy” with a “future consumption tax” to “encourage current spending.”

One chapter of David Stockman’s new book, The Great Deformation: The Corruption of Capitalism in America” that will be of special interest to Austrians is chapter 13 entitled “Milton Friedman’s Folly.”  Here are a few snippets:

“Friedman’s single variable-fixed money supply growth rule was basically academic poppycock” (p. 262).

“[B]y unshackling the Fed from the constraints of fixed exchange rates and the redemption of dollar liabilities for gold, Friedman’s monetary doctrine actually handed politicians a stupendous new prize.  It rendered trivial by comparison the ills owing to garden variety insults to the free market, such as rent control or the regulation of interstate trucking” (p. 264).

“The very idea that the FOMC would function as faithful monetary eunuchs, keeping their eyes on the M1 guage and deftly adjusting the dial in either direction upon any deviation from the 3 percent target, was sheer fantasy” (p. 265).

“[T]he Greenspan and Bernanke Fed have been wholly preoccupied with manipulation of . . . interest rates, and have relegated Friedman’s entire quantity theory of money to the dustbin of history.”

“Friedman jettisoned the gold standard for a remarkable statist reason” (p. 267).

“Friedman thoroughly misunderstood the Great Depression and concluded erroneously that undue regard for the gold standard rules by the Fed during 1929-1933 had resulted in its failure to conduct aggressive open market purchases of government debt, and hence to prevent the deep slide of M1 during the forty-five months after the crash” (p. 268).

“Friedman thus sided with the central planners” (p. 269).

“At the end of the day, Friedman’s monetary treatise offers no evidence whatsoever and simply asserts false causation; namely, that the passive decline of the money supply was the active cause of the drop in output and spending” (p. 271).

“For all practical purposes, then, it was Friedman who shifted the foundaton of the nation’s money from gold to T-bills” (p. 273).

“It was Friedman who first urged the romoval of the Bretton Woods gold standard restraints on central bank money printing, and then added insult to injury by giving conservative sanction to perpetual open market purchases of government debt by the Fed.  Friedman’s monetarism thereby institutionalized a regime which allowed politicians to chronically spend without taxing.”

 And on top of this, I might add, it was Milton Friedman who, as a U.S. Treasury Department statistician during World War II, was responsible for the institution of income tax withholding.

“[T]he clique of political hacks around Karl Rove who ran the Bush White House were so unlettered in the requisites of sound money and free market economics that, over and over, they caused the nation’s top economic jobs to be filled by statists and Keynesians.  Thus, professors Glenn Hubbard, Greg Mankiw, and Ed Lazear had no problem whatsoever advising George Bush that two giant tax cuts and two unfunded wars were entirely copacetic from a fiscal viewpoint.  After all, the huge resulting deficits provided a Keynesian pick-me-up to the prosperous classes.”

– David Stockman, The Great Deformation: The Corruption of Capitalism in America, p. 50.

“Henry Hazlitt . . . titled his March 1969 Newsweek column “The Coming Monetary Collapse.”  Hazlitt publicly warned the White House that ‘one of these days the United States will be openly forced to refuse to pay out any more of its gold at $35 an ounce.’  The result, Hazlitt insisted, would be a ‘run or crisis in the foreign exchange market’ that could end convertability entirely.  ‘If it does . . . the consequences for the United States and the world will be grave.’  Hazlitt could not have been more clairvoyant.  The postwar monetary order was at a crucial inflection point.  It would soon lurch into a forty-year spree of global debt creation, financial speculation, and massive economic imbalance . . .”

–David Stockman, The Great Deformation, p. 117.

“Newly minted central bank money stimulated rapid private debt extensions, which was used to bid-up asset prices, which elicited more collateralized credit, which drove asset prices even higher.  The Austrian economist Ludwig von Mises had explained this type of credit boom cycle way back in 1911, but by the 1990s the hubris of monetary central planners superseded the plaintive monetary wisdom of an earlier age.  In those benighted times, economists and legislators alike knew the difference between the honest savings of the people and bank credit made out of thin air.”

– David Stockman, The Great Deformation, p. 337.

“[T]he stated purpose of the Wall Street bailouts — to avoid a replay of the 1930s — was drastically misguided.  It was based on a phantom threat which arose overwhelmingly from the faulty scholarship of a single official . . . who had come to head the nation’s central bank. The analysis was actually not even his own, but was the borrowed theory of Professor Milton Friedman.”

“Forty years earlier, Friedman had famously claimed that the Fed’s failure to run its printing presses full tilt during certain periods of 1930-1932 had caused the Great Depression.  Bernanke’s sole contribution to this truly wrong-headed proposition was a few essays consisting mainly of dense math equations.  They showed the undeniable correlation between the collapse of GDP and the money supply, but proved no causation whatsoever.”

“In fact . . . the great contraction of 1929-1933 was rooted in the bubble of debt and financial speculation that built up in the years before October 1929 . . . . the . . . central bank [is] now led by an academic zealot who had gotten cause and effect upside down.”

– David A. Stockman, The Great Deformation: The Corruption of Capitalism in America, pp. 42-43.

“On the Inherent Instability of Apple Computer Products” by Bill Gates.

“On the Inherent Instability of Microsoft Computer Products” by Steve Jobs.

“On the Inherent Instability of Ford Automobiles” by co-authors from Chrysler, General Motors, and Toyota.

“On the Inherent Instability of Chrysler, General Motors, and Toyota Automobiles” by the Ford Motor Company.

“On the Inherent Instability of Private Money” by Daniel Sanches, Federal Reserve Bank of Philadelphia (No relation to the Mises Institute’s Danny Sanchez).

“Robert Morris’s nationalist vision was not confined to a strong central government, the power of the federal government to tax, and a massive pubic debt fastened permanently upon the taxpayers.  Shortly after he assumed total economic power in Congress in the spring of 1781, Morris introduced a bill to create . . . the first central bank . . . the Bank of North America . .. modeled after the Bank of England.”

–Murray Rothbard, A History of Money and Banking in the United States

“The Bank of the United States promptly fulfilled its inflationary potential . . . .  The result of the outpouring of credit and paper money by the new Bank of the United States was . . . an increase [in prices] of 72 percent [from 1791 to 1796)."

--Murray Rothbard, A History of Money and Banking in the United States

The Bank of the United States "ran into grave difficulties through mismanagement, speculation, and fraud."

--James J. Kilpatrick, The Sovereign States

"[Henry Clay's] income from this business [general counsel to the Bank of the United States] apparently amounted to what he needed: three thousand dollars a year from the bank as chief counsel; more for appearing in specific cases; and a sizable amount of real estate in Ohio and Kentucky in addition to the cash . . . . When he resigned to become Secretary of State in 1825, he was pleased with his compensation.”

–Maurice Baxter, Henry Clay and the American System

“I believe my retainer has not been renewed or refreshed as usual.  If it be wished that my relation to the Bank [of the United States] should be continued, it may be well to send me the usual retainer.”

–Letter from Daniel Webster to Nicholas Biddle, president of the Bank of the United States

The Bank of the United States “is a monster, a hydra-headed monster equipped with horns, hoofs, and tail so dangerous that it impaired the morals of our people, corrupted our statesmen, and threatened our liberty.  It bought up members of Congress by the Dozen . . . subverted the electoral process, and sought to destroy our republican institutitons.”

–President Andrew Jackson

“Congress gave [Treasury Secretary] Hank Paulson. . . $700 billion, and the first thing he did was to take $125 billion out of the bag and give it to his pals at the nine biggest banks and investment banks in the country.  Never one to display ingratitude, he gave $10 billion to Goldman Sachs, the firm he had headed before passing through the revolving door to the Treasury.”

–Robert Higgs

If you would like to learn more about the history and economics of American banksterism, consider taking my new Mises Academy online course entitled American Bankster, which will feature Murray Rothbard’s power elite analysis of banksterism in history.  The course begins on the evening of March 14 and runs for five weeks.

My graduate school professor and one-time George Mason University colleague, the Nobel laureate economist James M. Buchanan, has passed away at the age of 93.  In a 1990 article in the Review of Austrian Economics I argued that many (or most) of Jim Buchanan’s most important contributions to public finance and public sector economics are rooted in his Austrian School, subjectivist roots.  Jim’s books, Cost and Choice, and What Should an Economist Do? should be considered classics in the modern Austrian School literature on subjective cost theory.  The methodological foundations of Professor Buchanan’s approach to economics is laid out in these two books. 

It was Professor Buchanan who, along with his faculty colleague (and former UVA student) Richard Wagner, among others, who controlled the graduate program at Virginia Polytechnic Institute and State University when I entered the program in 1976.  They adopted Human Action and Friedman’s Price Theory as the two texts for the first semester of the Microeconomic Theory course.  It drove the game theorists nuts but provided students like me with an extraordinary, once-in-a-lifetime learning opportunity.   Professor Wagner was in charge of at least some of the visiting lectures that year, and one of his speakers was none other than Murray Rothbard. 

Professor Buchanan never described himself as an Austrian, but he was familar with the literature and made very significant contributions to it.  His longtime collaborator, Gordon Tullock, always said that it was Human Action that “made me an economist” (Professor Tullock never earned and economics degree; he holds a law degree from the University of Chicago). 

The quotation of Professor Buchanan that I placed at the top of my 1990 RAE article reads:  “I have often argued that the Austrians seem . . . to be more successful in conveying the central principle of economics to students than alternative schools . . . or approaches.”  Indeed he did, and he was right.