I am part of a consortium of bloggers who have been recruited by the proprietors of Big Think to explore the roots of the financial crisis. Big Think is conducting a series of video interviews with a variety of experts; we bloggers are invited to submit questions to be asked in these interviews, and we have agreed to blog more or less simultaneously about those interviews as they are posted.
The first interview, with David Wessel of the Wall Street Journal, is now posted. Some of what he says strikes me as right, some strikes me as wrong, and some strikes me as confusing.
But some of the other bloggers in this project have thought far more deeply and carefully about these issues than I have, so rather than elaborate on my own reactions, I’d prefer to point you to theirs. In particular (and without necessarily endorsing their conclusions), let me point you to Scott Sumner and Arnold Kling. I can save you an extra click by observing that Kling, in turn, will simply (and sensibly) point you to what he’s already written on the matter.
The other bloggers in the consortium, some of whom have also weighed in, are Tyer Cowen at Marginal Revolution, Felix Salmon at Reuters Finance, James Surowiecki at The Balance Sheet, Mark Thoma at Economist’s View, Dean Baker at Beat the Press, Russ Roberts at Cafe Hayek, Dan Indiviglio at The Atlantic Business Channel, Will Wilkinson at The Fly Bottle, Megan McArdle at Asymmetrical Information, Jeff Friedman at Causes of the Crisis, Jim Manzi at The American Scene, John B. Taylor at Economics One, Ryan Avent at Free Exchange and The Bellows, Yves Smith at Naked Capitalism, Noam Scheiber at The New Republic
Steven – I’ve actually been dying to know your thoughts on the crisis ever since it took itself over the crest – I would assume you are a proponent of the Austrian business cycle theory? I’ve been drowning myself in books trying to understand it (from Woods’s pop “Meltdown” to Jesus De Soto’s deeply detailed “Money, Bank Credit and Economic Cycles”).
I think I have a firmish sort of grip of it. You have a central bank as a lender of last resort pumping money into a fractional reserve banking system, and the economic agents will naturally extend the production phases before the capital structure of the economy is willing and/or able to maintain the development until you reach a point of overextension and the whole system has to contract.
I just don’t really understand at what point does the turn occur? Theoretically, the fed should be able to continually accelerate money production indefinately to keep the whole ponzi scheme going (especially now that it’s all electronic – you could just write a computer algorithm).
I know you say you aren’t endorsing anyone’s conclusions but if you were who would it be?
I don’t recognize all the participants, but most of those I do seem to fit in the right wing-nut bag, like you. Is that a fair assessment?
Ummm. I didn’t actually intend to phrase that so offensively. My bad.
I meant that those I recognize all seem to be on the right.
When I read a list like that, I wonder how there can be 10% unemployment with so many new blogging jobs being created… :-)
It doesn’t make sense to categorize economists as right or left wing.
If you think Steven is wrong, try and prove him so. Name calling is highly juvenile.
CapitalistImperialistPig: No offense taken, really. But as far as your question goes, I’m not sure how to answer it, because I’m really not sure what left/right means when we’re talking about technical questions like the effectiveness of monetary policy. Surely there are vast differences among the people on the list; look at the links I gave to Sumner and Kling, for example.
Dave: I am not an expert on Austrian Business Cycle theory and I am sure that some of the other bloggers on this list could give you more authoritative answers than I about that theory. There’s a lot I don’t understand about what caused this credit crunch, but I’ve written elsewhere about some of the things I think I *do* understand; you can find these if you Google around for my writings on the Atlantic, the Washington Post, the L.A. Times, etc.
Dear CapitalistImperialistPig: no, the bloggers mentioned are not all on the right.
I’m really not sure what left/right means when we’re talking about technical questions like the effectiveness of monetary policy.
The more I read about this issue, the less sure I am that left/right has ever meant anything; anything, that is, other than an opposition between two shifting, unprincipled, tactical coalitions. That was as true of the French Revolution as of the 2008 US presidential election.
Of course, political theorists, having nothing better to do, have tried to invest this division with some profound essentialist meaning. But the interesting fact is that, from the French Revolution to the 1930s, the “essence” of left/right that they identified was almost the opposite of the consensus view in the USA after ww2 (with modern Europe having an inconsistent mixture of the old European and new American definitions). At least, this is the conclusion to which I have been forced after reading part of The Lost Literature of Socialism by George Watson.
Hello, I’m interested in fractional reserve banking and monetary policy leading to boom bust cycles and also a rapacious need to increase GDP. Are there any thought experiments in your book or good sources of discussion on this and the alternatives to fractional reserve banking elsewhere (for the non economist)? Thanks