The Dazzling James Grant
James Grant writes in the New York Times today, on cue as the housing sector bust continues. He seems to be the guy that the editors call whenever there is a downturn in the market. And every time he writes a variation on the Austrian theme that it all comes down to credit cycles generated by the central bank, which is forever attempting to gin up prosperity out the printing -- an attempt, he points out, that is ill-fated in every way.
"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich. In any case, to all of us, rich and poor alike, the Fed owes a pledge that it will do what it can and not do what it can’t. High on the list of things that no human agency can, or should, attempt is manipulating prices to achieve a more stable and prosperous economy. Jiggling its interest rate, the Fed can impose the appearance of stability today, but only at the cost of instability tomorrow."
Grant's key influence in life is not so much Mises or Rothbard but Roeopke and, in particular, his book Crisis and Cycles, which is not perfect in every way but a very good presentation of the Austrian theory.
What I find particularly striking is how Grant manages to write for this venue in a way that makes his analysis have the feel of being very mainstream, though its radicalism is just beneath the surface. Maybe the editors are too ill-read to know what's what or maybe he is just so darn talented that he can manage to pull it off in way that the editors are too impressed to say no. In any case, it is quite a prize for Austrians that the nation's leading newspaper has made an Austrian the official commentator on all issues of financial cycles. They keeping alive a tradition that began with Henry Hazlitt at the NYT and probably don't know it.
Comments (10)
Thank you, Jeffrey, for reproducing James Grant's excellent NYT's piece and for your informative commentary. As you reproduced above, perhaps Grant's most telling observation is the following:
“High on the list of things that no human agency can, or should, attempt is manipulating prices to achieve a more stable and prosperous economy. Jiggling its interest rate, the Fed can impose the appearance of stability today, but only at the cost of instability tomorrow."
If only the general public, in addition to economists and those at the NYT and similar media outlets would actually grasp and act in accordance with the fundamental significance of this statement, then the economy could experience stability and sustainable growth. Central bank interest rate manipulation is in essence price manipulation, and as Mises and other Austrian School economists have demonstrated, this specific instance of price manipulation has negative consequences, just as every other form of price manipulation does.
Furthermore, the rate of interest represents, in a sense, the price of time. Time permeates all production and is especially significant in advanced industrial/commercial economies that are characterized by extensive “roundabout” production, and an appropriate rate of interest is utilized to capitalize (i.e. price in the present) expected future cash flows from capital assets. Thus, central bank manipulation of the rate of interest arguably results in the most widespread negative consequences of any government price manipulation.
Published: August 26, 2007 4:46 PM
Excellent. Maybe the ignorami that constitute the majority of the population will acquire an actual knowledge of sound economics.
Published: August 26, 2007 8:15 PM
Isn't it true on the whole that Austrian business-cycle theory is the most widely admired part of the Austrian framework amongst non-Austrian economists? It's always seemed that way to me.
Published: August 26, 2007 11:51 PM
Yep. It's also the Austrian theory that suffers the most attempts at refutation by non-Austrians.
Published: August 27, 2007 5:50 AM
Colby:
You are indeed correct. But by some perverse aspect of human nature, the very satisfactoriness of cycle theory, its apparent "completeness," seems so explanatory that curiosity as to its place in a broader understanding of all economic phenomena is short-circuited (or separated and neglected) entirely.
This cannot be the fault of the Austrian School itself except to the very small degree which must be attached to the concept "insufficiently attention-grabbing" (especially when compared to the flotsam that dominates public discourse). Von Mises may have been as close as any to understanding the phenomenon as a result of a superfluity of men whose status and incomes (and these include not only those designated "economists," but also politicians, social theorists and commentors of many species, experts of many types whose principal market is one or another authority) are integrally bound and dependent on widespread misunderstanding and confusion.
If Austrian theory were more widely understood (and subscribed to) at even the level of most relatively common public intellectuals (academics), there would be room for few "names" as economists and a very few more engaged in related employment--in relatively short order, the Mises Institute could probably furnish all that were needed!
Most people (myself included) are inclined toward a somewhat selective mental laziness. As long as I can get NFL games without too much difficulty, I'm less interested in studying what other conveniences I might wring out of my TV remote--and so I remain an ignoramus in that respect.
If there were an underlying truth differentiating Austrian from other schools of Economics, it weould be that Austrians are more keenly aware of the impossibility of separating one aspect of economic understanding from any other: it's an "all or nothing" proposition.
Published: August 27, 2007 7:39 AM
like Frank Shostak, Grant is not a dollar bear (they all print money...) - see Shostak's 2/2/06 article
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"The dollar's weakness against the euro has boosted U.S. shareholders' returns from European investments. But with the dollar firmer, what is your outlook for the euro?
Grant: The euro is almost a contradiction in terms -- a currency issued not by a nation-state but by a confederation. These countries have no finance minister; they have no power to enforce geopolitical will. And yet the euro is meant to compete with the dollar as a reserve currency. No reserve currency has not had the strength of a powerful nation state behind it. All these facts are well known; none of them mattered particularly when the euro was trading at 80-odd cents to the dollar. But at $1.30 to the euro, they begin to matter more, especially when the political institution of the euro seems to be coming unstuck.
The real risk to holders of the euro is that bond yields within the euro zone have been mispriced. Greece used to borrow at 1,700 basis points over the German rate; now it borrows for 30 years at 30 basis points over the German rate. There's been a terrific wave of optimism about the bill-paying capacity of very marginal governments on the strength of their commitment to the euro."
http://www.marketwatch.com/News/Story/Story.aspx?guid={414532AE-BC13-4AE4-B235-E18640CD1295}&siteid=mktw
Published: August 27, 2007 9:35 AM
by the way Jeffrey,
you might be right about Grant being a big fan of Roeopke, but he certainly is a huge fan of Rothbard... I buy his newsletter every once in a while and he frequently mentions Rothbard in newsletters and his books.
In particular he points out how the Fed did actually attempt to pump massive amounts of money into the economy during the depression but to no avail.
Published: August 27, 2007 10:38 AM
sorry... you got me started...
"Grant told the standing room audience that he is a "gold believer" and though he thinks the price of the metal will go up he is an "expert at not knowing when."
Gold competes against other currencies, Grant reminded the crowd, "with one arm tied behind its back." While investments in other currencies pay interest, gold pays none, a huge disadvantage. "Every time I look at a compound interest table I am startled anew," Grant deadpanned.
While not paying interest, gold is an "investment in historical truth." Being long the yellow metal is essentially being short Alan Greenspan and the Federal Reserve."
http://www.lewrockwell.com/french/french22.html
Published: August 27, 2007 10:48 AM
It's not even economic ignorance. ever since the oklahoma city bombing in 96 or whenever it was, anything anti state has been very taboo.
Published: August 27, 2007 3:55 PM
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Published: September 1, 2007 2:28 AM