How about Pocohontas?

Enjoyed the book, thanks.

I don't who or what you're talking about.

Do you mean Cause and Cure of the Depression?

Tried to create a link directly to it, but thought I couldn't do it.

EXCELLENT point. It should be raised more often here.

When I said that I agreed with Ping, I meant with has assertion that there didn't need to be unemployment. But that assumed that inflation had been the only act of intervention. For, in an otherwise free market, there would still be no unemployment. While the capitalists lost their investments, their displaced workers would simply move on to other, lower paying jobs.

The greater unemployment during a recession is a consequence of the fact that the boom period of the boom and bust cycle had masked an unemployment problem that already existed, and the bust simply exposed it.

For example, while a minimum wage law had raised wages above the free market, equilibrium, full employment level, the level at which there could be full employment, the inflation reduced real wage rates back to equilibrium, full employment levels. But, then, the deflation raised them again to disequilibrium, unemployment levels.

If you're not going to reinflate, and not repeal the minimum wage law, and other deterrents to employment, how will the unemployed ever get reemployed? Only through more investment and the increasing productivity of labor.

Proving something to your own satisfaction is not the same as proving it to the satisfaction of others. (discrediting is a form of “proof”)

Your logic chain may be a sound as a rock, but your premises are another matter.

Excellent analysis.

But I ddnt' like this statement at the end.

“But I might be wrong, since I’m an amateur.”

You're a lot more right than most professionals.

Your analysis appears to be built on the assumption of an economy producing GDP widgets or some other amorphous blob of undifferentiated “goods” that are manufactured using capital with a “K”.

But none of that is true in reality. In reality, it appears that a modern capitalist economy is composed of highly complex, highly specific structures of capital goods that are complimentary in often very specific ways. A GM factory isn’t costly converted into a windmill factory just because you expand the money supply. Human capital is specific too, though much more flexible than auto assembly robots. If you’ve spent your life learning how to operate an auto assembly robot productively, there’s likely to be some time after a career change during which you retrain before you’re productivity and value can match your former skills.

So when excessively loose monetary expansion (both central bank driven AND private bank driven) leads to a temporary boom in ALL goods, the reality is that some of those industries MUST see a fall in demand as the economy adjusts to the higher input prices and interest rates (assuming the central bank fights the ensuing inflation). These firms will be forced to write down their capital. That GM plant must, sadly for them, liquidate if there isn’t sustainable demand for its output. That liquidation allows capital to move into the uses that are hopefully sustainable.

The aggregate approach you’re suggesting seems utterly blind to the cost of sectoral shifts, relative prices and demand and capital devaluing. It’s all just GDP widgets built with K. There’s a reason durable/capital/producer’s goods prices go through a larger boom and bust than final consumer goods. Keynesian/monetarist macro doesn’t seem to account for that fact at all.

Moreover, your claim that “Recessions are never needed for anything” is mighty confident given that all of industrial history has continued to have them. The “we just didn’t do a big enough stimulus” counterargument is the height of unfalsifiable scientism. Still, in a sense, I completely agree. So what’s the answer? DON’T START A BOOM WITH CHEAP MONEY.

It’s the rising input costs that burst the bubble. A hair of the dog doesn’t fix that problem, it just shifts it using the redistributive power of inflation.

The invisible hand may get confused when a credit expansion clusters business errors and thus dumps the entire economy into a period of search for new opportunities all at once. Adding more noise to the signal with additional inflation only makes that discovery process that much harder that much more likely to be in error once more.

Countercyclical monetary policy, aiming to stabilize nominal income to prevent a secondary contraction, is a separate issue from REAL “depression prevention”.

Depression prevention means preventing unsustainable booms and the sectoral shifts that inevitably follow.

But I might be wrong, since I’m an amateur. The Austrian story just makes more sense and seems better supported by reality than the “hair of the dog” perpetual boom story to me.

2. Why to prevent the supply from collapsing? If I have $100 that buy me a dinner or if I have $1 that buys me the same dinner, what's the difference?

3. What is the difference between assets and consumption? Isn't it only the intended use? If I buy a new car, is it an asset or consumption?

You wrote,

“Recessions are never needed for anything, period. Bad decisions and so-called “malinvestment” can be taken care of at full employment.”

I agree. While capitalists lose capital, there is no reason why, in a free market, their employees couldn't find other jobs right away.

In a free market, the recession would be a micro disaster, limited to those who had lost their capital. It is only interference with the market that turns the micro into a macro disaster. The problem is not the mistakes in the market itself, but the political reaction to them.