“American economist Scott Sumner has recently argued that the Fed cannot be blamed for the inflation that led to the Wall Street Crash because the money supply measures that reveal the inflation were not publicly available at the time. As Robert Murphy has responded, the fact that doctors of the time didn’t understand bacteria does not affect the cause of deaths during the bubonic plague. Whether we “blame” central bankers or not is really a secondary consideration to our attempts to understand what happened and why. By assigning blame we suggest that the Fed should have done better. It encourages us to think “if only it did X everything would be ok”. But the problem isn’t that individuals focused on the wrong targets, and the solution isn’t to work out how they can improve. The lesson should be that the nature of central banking – the attempt to centrally plan the monetary system – imposes an epistemic burden on policymakers that they cannot possibly ever fulfil. The Fed wasn’t to blame for the crisis, because any argument for what it “should” have done is insincere. We should absolve it from culpability, and remove the shackles of expectation that we place upon it. It did the best it could be expected to do. And that wasn’t enough.”
– Antony J Evans, economist and what I would call a “sensible-shoes Austrian”.
Terrible counterexample, since we actually still don’t know what really caused the Black Death, history books notwithstanding.
http://history.howstuffworks.com/middle-ages/black-death5.htm
JP – I was just about to do an identical posting to the one you just did.
Evidently we get some of the same emails.
I’m not sure I get the ‘sensible-shoes Austrian’ here, Johnathan. I wrote a longer post, but our corporate content filter ate it, so I’ll be brief.
There’s a huge difference between a third party that acts upon the victim of an illness, and fails (for example a physician from the 1780’s using antimony and mercury compounds to cure syphilis) and the actions of an organizations whose interference in a situation are the proximal cause (or at least, one of the proximal causes) of a situation. Even if only morally, and not legally, the former is less blameworthy than the latter.
Anyway, it’s not clear to me how much of the last part of that article really reflects Evans’ views, rather than his observations of Scott Summers and Bob Murphy’s views, but my gripe with the article is that Evans articulated the Knowledge Problem right there in that last paragraph.
He then proceeds to comment that we need to absolve the Fed of blame because they’re incapable of meeting their mission – which of course undermines their whole justification for existance.
The correct response to such a failure, in a sane world HAS to be that you reduce the ability of an incapable entity to do more harm. You can do that by eliminating it, or by wresting the reins from its death-like grip and shuffling it off into irrelevance.
The last three sentences are particularly telling – If we have no expectations of the Fed, which allegedly, we should have – then what is the proper function of the Fed? If they did the best it was expected to do, and it wasn’t enough, what is Evans’ policy prescription? Are our Top Men not good enough? Is the Fed too ‘independent’?
Assuming that Evans really accepts that the Knowledge Problem is insurmountable, it wouldn’t have been hard for him to publish a conclusion.
Is the inability to complete a sequence to a logical conclusion the hallmark of a ‘sensible-shoes Austrian’? Or is it the unwillingness to deliver an explicit rhetorical coup-de-grace to an argument?
I recognize that Evans may have been working within a set of publication parameters that constrained his ability to publish a longer article, but the best I can say for that article is that he hasn’t dropped his second boot.
Well the Housing Inflation was on propose taken off from the common Inflation indexes.
That is why inflation seemed stabilized all this last decade.
And why the bubble went unnoticed by many.
Strangely the “growth” from Housing was not taken from the Growth indexes.
It is about time that libertarian institutions start to show their inflation indexes. The State shouldn’t have the monopoly of Statistics.
I completely agree with Bod’s comment. But I’ll go a bit farther and say that the quoted passage is, if not nonsensical, at least wholly unhelpful. Evans’ point seems to be that since it was humanly impossible for the Fed to have prevented “the inflation that led to the Wall Street Crash” (an assertion with which I disagree, but we’ll let that pass), assigning them “blame” for their failure is not only pointless but wrongly implies that it was possible for them to have done better. But the Fed is the entity which took the action, however ineffectual, and it is entirely proper that it bear the blame for the result. If the patient died of blood loss due to the excessive application of leeches, the blame lies with the physician regardless of the efficacy of leech therapy.
If the Fed truly believes that it could have done better, it is blameworthy for its failure. But if it actually agrees with Evans’ thesis that any better result was impossible because, as he says, we placed on the Fed “an epistemic burden . . . that they cannot possibly ever fulfil” (although I doubt that any regulator would ever display such humility), it is still blameworthy for failing to admit to its incapacity, and for permitting everyone to labor under the delusion that it was in control.
The way I read it, Evans is arguing that since the Fed has an ‘epistemic burden’ impossible to fullfil, we should not seek to reform the Fed (or any central bank) but abolish it. I don’t see why he couldn’t use just one more sentence to complete the argument; maybe that’s too much to stomach for the average London commuter and Evans is hoping that they’ll draw the logical conclusion themselves. I certainly do not think that Evans is saying ‘oh well, c’est la vie’ and resigning himself to the status quo.
Why assume the housing bubble was unintentional? Paul Krugman, et alia, explicitly advocated creation of a housing bubble following the dot-com crash.
Somethings are complicated and some things are not complicated.
This is an example of the latter.
The Fed “could not have prevented the inflation” (of the money supply) the Fed CREATED it and DELIBERATLY so.
Every time the bubble (first 1980s bubble then the dot.com bubble then the other bubbles – eventually the housing bubble) looked like it was bursting Alan Greenspan rushed in to “save the world”.
Alan Greenspan basked in the headlines around the world that he “had saved the world” AGAIN AND AGAIN.
But what did he actually DO?
He expanded the money supply he INFLATED the money supply – AGAIN AND AGAIN.
Let us say that I shot Johnathan – not once but several times.
And I basked in headlines (around the world – in “Criminal Times” or whatever) that I had shot Johnathan.
Now I turn round and say…..
“I could not have prevented the shooting of Johnathan – I did not have the official medical report till afterwards….”.
I SHOT JOHNATHAN – not once, but several times, I continued to shoot him whilst he was laying on the ground in a pool of blood.
So for me (the Federal Reserve and its defenders) to then turn round and say “I could not have prevented the shooting of Johnathan – I did not get the official medical report till long after the shooting”……????????????
This can only be an insanity defence.
The way I see it, to borrow Laird’s example, the Fed isn’t the physician but the leech. The Fed is what it is, and it does what it does, according to it’s nature.
the physician is to blame, for applying the wrong treatment (central monopoly banking).
The problem with assigning “blame” is that more often than not, it’s a way to avoid dealing with the problem itself.
When an issue arises, if one examines the process that led to it critically, it often turns out that it’s the process at issue and that “blame” is often a lot less deserved by any one party than would occur if one just jumps into playing the blame game.
Blame is good for finding scapegoats while the party carries on regardless, for fixing actual problems, not so much.
Blame is also good for punishing the guilty, not merely for assigning scapegoats.
I’m a ‘heads on spikes’ kinda guy when it comes to the Fed, but even if you believe that the problem was caused by essentially well-meaning Fed Board members who were utterly clueless and/or self-delusional concerning the disaster they were promulgating, it’s a very bad idea to not blame them.
A 5-year-old kid who burns your house down may not be explicitly culpable for his acts, based on his age and maturity, but it was still his action that caused the fire.
A bunch of alleged economic experts who burn your economy to the ground, and continue to add fuel to the fire – to this very day – can’t claim the same defense. And they certainly shouldn’t expect to be forgiven for their actions – let alone rewarded by keeping their liberty and jobs.
It probably goes without saying that I feel the same way about their political masters.
Want to fix the problem?
Then END THE FED – that is an essential step (although not enough on its own).
Sadly Wall Street is into “fixes” of its own – like the junkies they are, they demand ever more “fixes” (in this case of credit money from the Federal Reserve).
So if you hear that Wall Street likes a political candidate – run away from that person as fast as you can.
…and possibly (one can always naively hope) for preventing the guilty from doing any further damage. It’s not like the Fed has been abolished and we are beating a dead horse.
Oops…my comment was supposed to be an immediate followup to Laird’s, but two other great comments got in between…oh well:-)