Only at GMU

by Don Boudreaux on July 6, 2009

in Monetary Policy

Here’s some graffiti scrawled on Robinson Hall at George Mason University.IMG_0134

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{ 50 comments }

T Rich July 6, 2009 at 7:46 am

You guys need to be careful that you are not caught!

Speedmaster July 6, 2009 at 8:28 am

LOL, well-done! ;-)

Warren Miller July 6, 2009 at 8:49 am

The artist missed a nice rhyming opportunity: "Shred the Fed." Still, it shows that good education is alive and well at at least one institution! Keep up the good work, guys.

Daniel Kuehn July 6, 2009 at 8:50 am

So… I always find the Paulite approach to the Fed problematic and naive…

But you've gotta appreciate this :)

How much campus chalk graffiti is announcing sorority events or wishing happy birthdays. Not that that stuff is unimportant, but this is a step up :-D

Rafi July 6, 2009 at 9:37 am

Sweet. If only I saw that on the walls when I was at college…

J Cortez July 6, 2009 at 9:43 am

I don't like graffitti, chalk or otherwise, but I definitely agree with the sentiment.

Ben Struck July 6, 2009 at 9:56 am

I live in Phoenix Arizona, and I have seen that same slogan interspersed amongst the graffiti several places downtown.

Gil July 6, 2009 at 10:35 am

Chalk isn't exactly hardcore.

Lawrence Snead July 6, 2009 at 10:43 am

That graffiti has actually been up since at least the end up May. It would make me smile every morning as I walked to my summer class.

Seth July 6, 2009 at 10:49 am

Graffiti I saw in my childhood got me thinking about economics and politics.

Wondering why someone would scrawl, "Die Kapitalist Pigs" on a building inspired me to look under the hoods of the various systems of decision-making power amongst us humans.

MnM July 6, 2009 at 11:01 am

I guess this is what happens when an econ honor society turns into street thugs.

Maybe it was signed "Omicron Delta Epsilon 4 LIFE, biznitch!"

;o)

John July 6, 2009 at 11:03 am

Graffito in a MIT lavatory… Heisenberg might have been here

dg lesvic July 6, 2009 at 11:34 am

There was an interesting discussion of the Fed at ThinkMarkets, under Keynes vs Hayek, that I got involved in, and is cropping up again, under Bubbles or Growth.

dg lesvic July 6, 2009 at 11:54 am

And our friend here, Lee Kelly, was also very much involved in those discussions.

Curious July 6, 2009 at 12:59 pm

It's not the fed that is the problem, it's the amount of government's spending. Does anybody believe that the government will stop spending without the fed?

John Papola July 6, 2009 at 1:29 pm

Rock on!

@dg lesvic,

True, the government spending is the problem. But if the government were constrained by the need to borrow and ultimately tax for all of its spending, instead using the hidden tax of inflating, there would be dramatically more popular push-back.

The relationship between current borrowing and future taxation is much easier to understand than the relationship between monetary expansion and the jagged rise of prices and assets bubbles. Those things, as we've seen, can be blamed on other factors in ways that the public believes (or ignores). $145/barrel oil gets blamed on "greedy oil companies" instead of currency depreciation, for example.

Bush couldn't take the country to war, propose Medicare part D all while cutting taxes without interest rates going through the roof as bond issuance soared to cover the shortfalls. Obama couldn't propose government takeover of education, healthcare, finance, auto and energy while expanding the military without the same.

So indeed, END THE FED.

Pingry July 6, 2009 at 1:43 pm

End the Fed?

How amateurish…….

Aside from graffiti, which is destruction of property, and anti-libertarian, let's not forget that the Fed is what is shielding innocent people from the externalities which could be far worse.

If they hadn't acted as a lender of last resort by trying to unclog credit markets, and increasing the monetary base because of the massive reduction in velocity, then we would be sitting in the next Great Depression right now

–Pingry

Daniil July 6, 2009 at 1:51 pm

Pingry, you forget that money supply does not end with a central bank. In a free market for money, excess demand for it would be recognized by free banks and satisfied. Read Larry White on free banking.

dave smith July 6, 2009 at 2:00 pm

Pingry, you're really fun at parties, aren't you?

Also, you might have your facts wrong. At every University I've been a student or faculty, chaulking is OK.

S Andrews July 6, 2009 at 2:02 pm

If they hadn't acted as a lender of last resort by trying to unclog credit markets, and increasing the monetary base because of the massive reduction in velocity, then we would be sitting in the next Great Depression right now

And yet, the only peace time great depression ever in the history of the United States happened on Fed's watch.

BTW, Great depression didn't become great in the first year. Until 1931, the depression that started in 1929, was only a "normal" business cycle. While no one can say if this current downturn will come close the Great one from the past, it is too early to rule out such a possibility.

Pingry July 6, 2009 at 2:30 pm

A few points here….

To Daniil:

When risk aversion increases profoundly (because of massive counterparty risk via financial frictions), then free banking (among irresponsibly overleveraged banks) is not going to work. Read Joseph Stiglitz if you want to learn about information asymmetry and financial frictions.

To dave smith:

Yes, I am fun at parties, and while I do not know which universities you speak of, at mine chalking is permitted 'n the sidewalk, not all over the buildings.

To S Andrews:

You have committed a sunk cost fallacy. I would be the first one to blame the Fed for the Great Depression, and thanks to Milton Friedman and Anna Schwartz (among others, like Bernanke), we have a much better idea about how to prevent these things from happening again. But a funny thing happened on the way to the financial crisis, because you see, libertarians and conservatives who correctly blame the Fed for the Great Depression failed to read what Friedman suggested about how they could have prevented it, namely by increasing the monetary base (Irving Fisher and JM Keynes called for the same thing at the time). And yet, when the Fed acts responsibly the next time around to try to prevent massive spillovers to innocent people, they get attacked by a bunch of Austrian clowns who say foolish garbage about how the 'role' of a recession is to 'flush out the fat' and 'mop up the excess' and 'pave the way' for the next expansion. There's nothing as amateurish among self-proclaimed experts as silly chatter about "liquidating malinvestment."

And, as a nice little lesson, allow me to tell you that this fallacy stems from the convoluted belief that the invisible hand works to drive weak companies into bankruptcy and consequently free up scarce resources for better use only when the economy suffers some downturn. So, people who unwittingly say these things, implicitly assume that the invisible hand is weak and clumsy at NAIRU, and strongest in a recession, when, in fact, they have everything mixed up.

Anyone who seriously believes this (and they almost invariably support free markets, sometimes with a religious-like zeal without actually understanding them), makes an incredibly flawed implicit assumption that the invisible hand works its magic in a recession, and it cannot deal with these things at full employment. In reality, I think the invisible hand is at its best at full employment, and we do not know enough about it in a recession, and so its effectiveness in allocating resources and stimulating aggregate demand back to full employment is questionable.

Indeed, I think with the awesome power of the financial crisis, the invisible hand would not have pushed us to full employment in any reasonable amount of time (we're all dead in the long-run, right?), if at all, and thus far, I really think that Bernanke and the Fed have generally done the right thing by not letting the financial crisis "take care of itself" as many laissez-fools wanted.

The Fed is doing the absolute right thing, and it's a shame that the people with the biggest mouths seem to know the least about such sophisticated issues.

–Pingry

Daniel Kuehn July 6, 2009 at 2:34 pm

S Andrews -

What about 1873 and 1893? Those could pretty easily be described as depressions – they didn't come during wars. There was also no central bank at the time.

As for the Great Depression – it's fairly universally held that whatever pitiful expansionary policy the Fed did take on at the time, it certainly wasn't enough to prevent the money supply from contracting – which was exactly what turned a "normal business cycle" into a depression. I know the ABCT story holds that it was the central bank that created the preconditions for depression, but I haven't seen that presented as rigorously as Friedman's point that they didn't act enough.

As for the current recession coming close to the Great Depression – thankfully it's not looking like the Great one here in the U.S. (probably thanks to the Fed, to bring this full circle!) – but take a look at the Eichengreen numbers on VoxEU. The extent to which we're tracking the great depression when you look at output, trade, etc. globally is striking.

dg lesvic July 6, 2009 at 2:41 pm

Daniel,

You wrote,

"What about 1873 and 1893? Those could pretty easily be described as depressions – they didn't come during wars. There was also no central bank at the time."

But there was still no free banking, for there were legal tender laws, forcing you to take US greenbacks as tender in payment.

S Andrews July 6, 2009 at 2:43 pm

Pingry,

Petty cheap attack never makes a good argument.

You said all these in your comments –

1. bunch of Austrian clowns who say foolish garbage
2. There's nothing as amateurish among self-proclaimed experts as silly chatter about "liquidating malinvestment."
3. it's a shame that the people with the biggest mouths seem to know the least about such sophisticated issues
4. as many laissez-fools wanted.

Is it because you feel insecure as a person and insecure in your beliefs that you need to resort to such lowlife names calling and references.

you say

I think the invisible hand is at its best at full employment, and we do not know enough about it in a recession

and yet you are absolute about what needs to be done -

The Fed is doing the absolute right thing, and it's a shame that the people with the biggest mouths seem to know the least about such sophisticated issues.

and you say

You have committed a sunk cost fallacy.

How is my comment "sunk cost fallacy"?

Pingry July 6, 2009 at 2:50 pm

And two more points:

I completely agree with Daniel Kuehn, and also, if it seems like I have repeated myself slightly in the same blog comment above, the reason is that I simply did a copy-n-paste of the same stuff I posted at Cafe Hayek and elsewhere so many times . I combined it with something new that I wrote today, the basic idea is that I incessantly repeat that recessions are neither necessary nor needed. I must admit that it' getting a bit tedious to keep trying to enlighten people who subscribe to an overly simplistic worldview because it does not require hard thinking and it jives with their deeply held view of how things should work, but as thinking people know, they don't work as such.

Furthermore, the Austrians have it wrong, and, there is no perfect monetary system which would prevent these financial crises. In case you haven't noticed, these things seem to occur with alarming frequency, and yes, the Great Depression was caused by a foolish adherence to the gold standard for all you gold fetishists out there.

We would obviously like to stay at full employment as much as possible, and perhaps in the distant future we may master economics enough to eliminate recessions. But I really like what Michael Woodford has said about monetary policymaking. He believes that we should aim for perfect price stability at the macro level [which would go a long way in preventing and lessening the pain of recessions], and perfect price flexibility [so the invisible hand can do its thing] at the micro level.

So, the best way to achieve that, which we know of thus far, is to continue to refine our explicit version of inflation targeting while having some serious financial regulation.

S Andrews July 6, 2009 at 2:50 pm

Irving Fisher and JM Keynes called for the same thing at the time

If only they believed in their own words…Both lost a fortune during the great depression.

If they knew so well that Fed is not following their recommendation, why did Irving Fisher continuously expect a recovery through out the 30s. Is it a case of sunk cost fallacy?

S Andrews July 6, 2009 at 3:01 pm

I completely agree with Daniel Kuehn

Year Nominal-GDP Real GDP
1872 $8.23 $112.9
1873 $8.75 $122.5
1874 $8.48 $124.7
1875 $8.16 $124.5
1876 $8.31 $129.7
1877 $8.52 $136.1
1878 $8.38 $140.5
1879 $9.36 $156.9
1880 $10.4 $169.9

1892 $16.4 $300.5
1893 $15.4 $283.1
1894 $14.1 $269.6
1895 $15.6 $300.5
1896 $15.5 $295.5
1897 $16.2 $308.2
1898 $18.1 $341.9
1899 $19.5 $365.3

Yeah, that really looks close to the great depression.

Gold standard prevented us from getting out of all those recession. There have been so many depression where only going off the gold standard helped get us out!

gold fetishists out there

I find it funny that people have to resort to this type of name calling every time they attempt to make an argument. I feel sorry for you Pingry.

BoscoH July 6, 2009 at 3:15 pm

I'd have gone with "Bernanke is skanky".

Daniel Kuehn July 6, 2009 at 3:40 pm

S Andrews -
RE: "I find it funny that people have to resort to this type of name calling every time they attempt to make an argument. I feel sorry for you Pingry."

Are you kidding? Within the last week you have:

1. Said I had the attention span of an eight year old.

2. Called muirgeo a "disgusting lunatic", a "detestable excuse for a man", an "idiot", a "bonehead heckler", a "fascist", a "scum of the earth virus", a "dork", a "blood sucking vampire", and a "lying hypocrite"

3. Called bill gates and warren buffet "statists"

At least "gold fetishist" has some relevance to the argument at hand – and the only implied insult is that the accused "gold fetishists" cling too naively and too tightly to what they consider "sound money". But that's not really an insult – it's just a position that pingry holds – that you or others hold too tightly to this so-called "sound money".

S Andrews July 6, 2009 at 4:10 pm

For #1 in your list, I apologize. While I might be reluctant to admit this, you are a more worthy voice from the other side on than many others. Your version of fallacies are worded much better and better put.

For #2 in your list, it was in response to muirgeo resorting to shouting ( blog comment equivalent would be typing in all Caps, asking for FREAKING EVIDENCE ) while at the same time calling this a pathetic blog of cry babies; where he's been a regular visitor for several years. There were other disgusting terms he used.

#3. In my opinion, they are all statists. I didn't realize that is such an insult – liking calling somebody a laissez-fool, fetishist, or big mouth, unsophisticated. You are going too far here to find fault. I don't see a general derogatory connotation attributed to that word.

Daniel Kuehn July 6, 2009 at 4:14 pm

S Andrews -
As for the depression… interesting stuff on 1873. I did some googling and it seems as if that was primarily a psychological depression – really more of a "great deflation".

But your own numbers on 1893 show a 10% contraction of real GDP. Isn't that a little disconcerting for you?

Daniel Kuehn July 6, 2009 at 4:15 pm

S Andrews -
RE: "You are going too far here to find fault. I don't see a general derogatory connotation attributed to that word."

Only a week back… I'm sure I could find other gems :)

S Andrews July 6, 2009 at 4:18 pm

and the only implied insult is that the accused "gold fetishists" cling too naively and too tightly to what they consider "sound money".

He naively believes that all of world's problems can be blamed on gold.

it's just a position that pingry holds – that you or others hold too tightly to this so-called "sound money".

You know nothing about what I hold tightly or loosely. So don't be so quick to jump to any conclusion. Unlike you or Pingry, I don't get aroused by pictures of dead politicians printed on pieces of paper. I have no such fetish. I have no fetish for any legal tender laws either.

Daniel Kuehn July 6, 2009 at 4:25 pm

S Andrews -
I see! The two wrongs make a right approach ;-)

Which, if you think about it, is an approach that justifies muirgeo's words in the first place.

Daniel Kuehn July 6, 2009 at 4:27 pm

S Andrews -
RE: "You know nothing about what I hold tightly or loosely."

Which is why I deliberately wrote "you or others"… because I honestly wasn't following that part of the discussion.

S Andrews July 6, 2009 at 4:27 pm

Only a week back… I'm sure I could find other gems :)

I am sure you could, and I could find somebody else who incited such a response. But it is a waste of my time.

S Andrews July 6, 2009 at 4:31 pm

muirgeo is a jackass and I will say it again and again. I have been reading his inanities for 3 years. For me, that's ample time to come to a conclusion.

S Andrews July 6, 2009 at 4:36 pm

But your own numbers on 1893 show a 10% contraction of real GDP.

Sure, it does. There was Sherman Silver Act, bimetallism, McKinley Tariff, all to blame for the crisis. I admire Grover Cleveland for standing pat. Government subsidized railroad industry bust.

Daniel Kuehn July 6, 2009 at 4:41 pm

S Andrews-
RE: "Sure, it does. There was Sherman Silver Act, bimetallism, McKinley Tariff, all to blame for the crisis."

OK – I'd certainly agree that a tariff isn't going to be beneficial for the economy. But the point was, you said that the only peace-time great depression "ever in history" happened on the Fed's watch – presumably as an indictment of the Fed. And when you listed the GDP numbers you sarcastically said "ya that really looks close to the great depression".

I just want to reign in the "blame the fed" view of the Great Depression – particularly the anti-Friedman view that the Fed was too expansionary (there is a decent case to blame the Fed for being too contractionary).

S Andrews July 6, 2009 at 4:42 pm

I forgot to mention the great drought of the 1890s in an economy that was still heavily dependent on farming.

LowcountryJoe July 6, 2009 at 4:43 pm

>>If they hadn't acted as a lender of last resort by trying to unclog credit markets, and increasing the monetary base because of the massive reduction in velocity, then we would be sitting in the next Great Depression right now<<

If the desired effect was to unclog so-called clogged credit markets, then elimanating the unfavorable tax treatment on debt instruments would have been an excellent and long-lasting approach to get more savers/lenders to market. Equities enjoy better tax treatment and housing, as an asset, the best tax treatment.

S Andrews July 6, 2009 at 4:46 pm

According to Christina Romer, the unemployment rate at it's peak was estimated to be around 12% during 1890s, A far cry from the 20-25% experienced for almost a whole decade during the 1930s.

I just want to reign in the "blame the fed" view of the Great Depression – particularly the anti-Friedman view that the Fed was too expansionary (there is a decent case to blame the Fed for being too contractionary).

Central planners can't get it righ, unless by luck. Debating whether it was contractionary or expansionary is besides the point

SteveO July 6, 2009 at 4:49 pm

God dammit.

As time goes by I find longer and longer spans of days where I feel like bothering reading through the comments.

Now, I dip in again to see what's happened and as could be predicted, it's descended to the same 3 or 4 people calling each other names.

Would you people go away?! Please. Start your own blog. Don't you have anything to do all day? A job? This space has become 95% pollution. I really wish they would charge per comment here.

Christ. I used to enjoy it here.

S Andrews July 6, 2009 at 4:49 pm
S Andrews July 6, 2009 at 4:50 pm

Christ. I used to enjoy it here.

I remember you SteveO. Even back then, you used to make such paternalistic comments.

Daniel Kuehn July 6, 2009 at 4:51 pm

S Andrews -
Yes, and Legerbott put it at 18% I believe, and either way that's high in an economy where it's much easier to "exit the labor force", not be in the unemployed count, and work on the family farm.

It was a really bad downturn – it was and is considered a depression, as I understand it. I'd guess this one will too. It's not just unemployment – it's depth of GDP shortfall, and it's the length of it that are also important factors.

RE: "Debating whether it was contractionary or expansionary is besides the point"

Maybe not to you, but it's central to the point of people who want to "end the fed" – it's expansionary policy that is their perennial concern. And indeed – it is the constant, low, expansionary policy that advocates of the Fed like so much!

Daniel Kuehn July 6, 2009 at 4:53 pm

RE: "I remember you SteveO. Even back then, you used to make such paternalistic comments."

Haha! My thoughts exactly S Andrews. Actually – only one insult has been hurled today (gold fetishist), and whether that was an insult or not is still being disputed ;-)

richard July 6, 2009 at 5:04 pm

It's only them kids playin'

Ike July 6, 2009 at 5:19 pm

The Fed is unstoppable.

Nadal had the best chance, and Roddick was outmatched.

Maybe if Nadal can get Fed back on clay…

Crusader July 6, 2009 at 6:02 pm

So are we officially in Great Depression 2.0?

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