Interview with Mark Thornton
I enjoyed this interview with Professor Thornton, who saw the bubble while it was going on - and I recall all too well that I was personally doubtful about his case. I'm glad I never found the time to attempt a rebuttal. In any case, I have the highest respect for judgment, especially in light of how he, more than anyone in my view, was bang on about the cycle and its results. In particular, he here address recent claims that the Fed bears little responsibility. Mark has always been a calm voice of rationality and clarity on this and many matters.
Comments (4)
Bruce Koerber
Mark,
I read your forecasts over the years and didn't realize that some Austrians (Jeffrey Tucker mentioned this) were not sure about whether you were on the right track.
Of course there is nothing wrong with healthy skepticism and we all know about the infinite complexity of the economy combined with an uncertain future. But it seemed that you were working with pretty reliable indicators and were taking steps back to examine things in perspective along the way.
It sounds like you are building a good record of expertise to challenge the so-called experts who spew the Federal Reserve propaganda.
It is like having another person like Tom Dilorenzo, or Peter Schiff, or Ron Paul, or Peter Klein, or George Reisman, of unparalleled credentials ready to easily declare "check mate" if challenged to a contest.
Published: November 5, 2008 10:30 PM
Scott D
Last week I came across an article praising Ben Bernanke for having the foresight to recognize that we were headed towards a deflation crisis, and laying scorn on the "helicopter Ben" crowd. I clarified for readers that the deleveraging and pressure to deflate were a correction for past inflation and gently reminded them of Bernanke's wonderful foresight, when in 2005, he confidently declared, "there is no housing bubble". I then went on to link this article from Mark Thorton: http://mises.org/freemarket_detail.aspx?control=500
I encourage you to share that article with those who marginalize Austrian economics. Thorton does a fine analysis of the fundamental causes of the bubble and then gives a spot-on prediction of what unfolded in both the housing and financial markets. I searched for similar analyses from non-Austrian economists, but nothing even came close. Anyone who doesn't see the light after reading that is probably beyond all hope.
Published: November 6, 2008 11:17 AM
DS
Without actually using the word, at the beginning of the interview Professor Thornton gives a very simple but powerful explanation of mal-investment. Monetary inflation doesn't affect the economy equally, it goes to the most profitable short term path favoring certain industries (like housing). That would be bad enough, but the real affect that makes it so devasting for the economy is that this stimulation of one sector of the economy sucks additional capital into that industry at the expense of other industries. When the boom in that industry pops we are left with the bubble industry destroyed and the rest of the economy starved for capital.
The concept of mal-investment is the key to understanding Austrian Business Cycle Theory.
Published: November 7, 2008 6:31 AM
Bruce Koerber
Very good interview Mark.
Along the lines of the comments of DS:
Ahh, the logic of it all!
Ahh, the chain of cause and effect!
How refreshing to understand the world by exploring reality rather than trying to force reality into some artificial empirical model.
Published: November 9, 2008 7:46 PM