Booms and Busts

When there is a cascade of failing businesses at one time, it is easy to think of it as an economic contagion that is a by-product of capitalism. Yet, a cluster of business errors can be laid firmly at the feet of government.

Mainstream economists are at a loss to explain why the current regime of inflation and central bank interventions have been so economically devastating. Understanding Cantillon effects is vital to making sense of the current madness.

As the US economy slowly implodes, the government causing the implosion is not done with its economic destruction. The Federal Reserve remains the engine of inflation, while tariffs and other interventions help to finish the job.

Keynesian orthodoxy claims that the cause of recessions is a decline in so-called aggregate demand. Besides confusing cause-and-effect, Keynesians don't understand that downturns are the result of malinvestments made during the boom because of central bank interference in the economy.

Milton Friedman and the Monetarists believed that fluctuations in the money supply caused the boom-and-bust business cycles. Their solution—keeping money growth slow and steady—would still lead to business cycles.

Black swans don’t cause crashes: they reveal them. Mark Thornton shows how easy money breeds “sequestered capital” in opaque assets, priming the next bust.

Why do independent central banks exist in the modern economy? It was originally thought independent central banks would prevent government extravagance from creating inflation.

Red + green = brown. Mark Thornton shows how towering debt and easy money set the stage for hyperinflation.

In an attempt to explain business cycles, Milton Friedman came up with a plucked-string analogy. Like all Monetarist theories, however, this also had fatal flaws.

Few presidents—if any—in our lifetimes have done as much damage as George W. Bush did in his eight years in office. Unfortunately, a number of pundits are trying to rehabilitate his disaster of a presidency to contrast him to President Trump.