The Fed

Brian Wesbury, chief economist at First Trust Advisors, offers in th

Gordon is incensed that a few "analysts," including myself and Professor Stan Liebowitz of the University of Dallas, have argued that the bursting of the housing bubble has caused the chickens to come home to roost, so to speak, after thirty years of government policy pressuring banks to make tens of billions of dollars in bad loans to people with low (or nonexistent) credit ratings.

What Rothbard was describing, as have other Austrian-school economists, was the business cycle — when "businessmen are misled by bank credit inflation to invest too much in higher-order capital goods," like land, plant and equipment.

In the present article I am not taking a stand on whether price inflation will be high or low in 2008.However I will say this: If you are revising your inflation forecasts downward because of your expectation of sluggish economic growth, you might want to rethink that logic.

Instead of decrying the penny, economists should recognize its potential to combat government inflation and advocate a return to an even harder currency. Coins may be expensive for the government to make, but this ensures that our money retains some value, regardless of what the government does. Do we really want free money?

The problem here is that the original Friedman thesis was wrong.

Capitalism should not be condemned, since we haven't had capitalism.

The Great Depression would have been worse without its only saving grace: all goods were cheaper than before. The major mistake of Hoover and FDR was in thinking that low prices were somehow the cause of the Depression rather than the effect.

The very existence of a centrally planned apparatus changes the real economic data, and so changes what the "correct" number of cars should have been, even if we could agree on the criteria for correctness.