Talk about the walking dead. The op-ed in this morning’s Times by David Beckworth and Ramesh Ponnuru on how the Fed caused the Great Recesssion—you read that right—is a hilarious parody of the argument made by Milton Friedman and Anna Jacobson Scwartz on how the Fed caused the Great Depression. In their execrable book of 1960, these two claimed that by raising real interest rates in the aftermath of the 1929 crash, the Fed destroyed confidence in the assets held by the banks (stock market shares), and thus undermined the banking system as such.
Beckworth and Ponnuru make precisely the same argument about the Great Recession. When the housing market faltered in 2006-07, the Fed could have eased real rates, but no, they kept nominal rates the same and even talked about raising them (citing inflation), destroying confidence in the assets (mortgages) sold by the banks downriver, to fund managers.
See, government is to blame for the mess. Between them, Fannie Mae and Freddie Mac inflated the bubble by pouring money into housing, thus lowering mortgage rates, and then the Fed got stupid . . . by not lowering rates as the bubble collapsed! Impeccable reasoning, as long as you know nothing about logic, the place where conclusions are supposed to follow from premises, or about history, the place where real events outside of banks often take place.
This is not the first time persons of dubious political provenance have tried to resuscitate the rotting corpse of monetarist “theory” as the explanation for the Great Recession. Anna Jacobson Schwartz herself told the Wall Street Journal the same story peddled here by Beckwith and Ponnuru. And of course Niall Ferguson, the man who understands nothing except his own ambition, did, too, in a long article for Time magazine.
If you would like to sample their quaint idiocy, and read the best available explanations for both the Great Depression and the Great Recession, see my Against Thrift (2011) and subsequent pieces here at the blog.
But the question for today is, why does the Times put up with shit like this from the likes of Beckwith and Ponnuru? To seem objective? Engaged? Important? Up to date with the zombie fetish of popular culture? Or, in view of Ted Cruz’s candidacy, is the paper of record trying to tell this Republican that his ideas about the Fed’s perfidy and the gold standard aren’t too far-fetched for its pages?