Monday, October 25, 2010

What Would Friedman do, according to CATO?

Of course, we needed no further proof. It is well known that CATO represents the beltway libertarian view - the libertarian view that is acceptable in polite company. In other words, the view that excludes Lew Rockwell, the Mises Institute, and anyone associated with either.

However, we were handed further evidence in spades, courtesy of the following editorial:

"What Would Milton Friedman Say about Fed Policy Under Bernanke?"

This is a gem. For those of you who thought that libertarians believed in...liberty, well CATO has another idea. Let's look at some of the highlights:

"However, Friedman's views may not be well understood even by those who would claim him as their intellectual fountainhead — which could be problematic for policy-making."

Right off the bat, CATO is supporting "policy making", not so subtle code for government intervention, meaning market intervention by force and coercion. Isn't this a little wide of the libertarian mark?

"...the Fed should aim to stabilize inflation expectations."

Now wait a minute. Even much of the mainstream is beginning to recognize that the FED IS the CAUSE of inflation and inflation expectations. CATO appears not to even advanced this far from the command and control policies that have brought the world economy to the brink. The FED as the cause of inflation should aim to stabilize expectations? It has been said enough: since the creation of the FED almost 100 years ago, the dollar has lost well over 95% of its value. In the 100 years prior to this, the value has been almost completely stable.

"...the Fed should try to minimize swings in nominal income."

A Soviet Commissar couldn't have said it better.

"Similarly, were Friedman alive today, he would balk at the notion that the Fed is out of ammunition. He would remind us that in the early-to-mid-1930s, when the economic environment was far worse and short-term interest rates were near the zero bound, monetary policy easily generated a recovery. Therefore, the Fed could do likewise today.

"Friedman would likely make the case today for more aggressive monetary action. It is time for "Helicopter Ben" to earn his nickname."

The acceptable libertarian think tank is advocating for an even more aggressive FED policy than the one seen over the last two years. On the one hand, stunning. On the other hand, expected. This is, after all, CATO.

If one thing the last two years has proven, anything espoused by Chicago School monetarists (including Friedman) as regarding centrally planning the money supply is a failure. Nowhere was it ever expected that in one month a central bank would more than double its 95 year old balance sheet. If someone wrote a dissertation on the reasons why such beneficial actions would need to be taken one day, please let me know. If these desperate actions haven't convinced you of the fallacy of centrally planned money, then nothing will.

But of course, such central planning has been discredited - both in the Soviet Union, and now in the halls of the Federal Reserve. However, we shouldn't expect to read the obituary in the mainstream press. And of course, we will not read about it from CATO.

Some professors associated with GMU have come out against the FED (this was discussed heatedly at The Daily Bell more than once over the last month or two), and advocate free-market money and banking. GMU and associated institutions are supported by the Koch brothers, the same people that support CATO. It would be refreshing to read a strongly worded rebuttal to this editorial from one of the scholars.

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