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.Myth 4: A major cause of the crash was the big trade deficit in theU.S.Nonsense.There is nothing wrong with a trade deficit.In fact, there isno payment deficit at all.If U.S.imports are greater than exports, theymust be paid for somehow, and the way they are paid is that foreignersinvest in dollars, so that there is a capital inflow into the U.S.In that way,a big trade deficit results in a zero payment deficit.Foreigners had been investing heavily in dollars in Treasury deficits,in real estate, factories, etc.for several years, and that s a good thing, sinceit enables Americans to enjoy a higher-valued dollar (and consequentlycheaper imports) than would otherwise be the case.But, say the advocates of Myth 4, the terrible thing is that the U.S.has,in recent years, become a debtor instead of a creditor nation.So what swrong with that? The United States was in the same way a debtor nationfrom the beginning of the republic until World War I, and this wasaccompanied by the largest rate of economic and industrial growth and ofrising living standards, in the history of mankind. 154 Murray N.Rothbard: Making Economic SenseMyth 5: The budget deficit is a major cause of the crash, and wemust work hard to reduce that deficit, either by cutting governmentspending or by raising taxes or both.The budget deficit is most unfortunate, and causes economic problems,but the stock market crash was not one of them.Just because something isbad policy doesn t mean that all economic ills are caused by it.Basically,the budget deficit is as irrelevant to the crash, as the even larger deficitwas irrelevant to the pre-September 1987 stock market boom.Raisingtaxes is now the favorite crash remedy of both liberal and conservativeKeynesians.Here, one of the few good points in the original, or classical, Keynesian view has been curiously forgotten.How in theworld can one cure a crash (or the coming recession), by raising taxes?Raising taxes will clearly level a damaging blow to an economyalready reeling from the crash.Increasing taxes to cure a crash was one ofthe major policies of the unlamented program of Herbert Hoover.Are welonging for a replay? The idea that a tax increase would reassure themarket is straight out of Cloud Cuckoo-land.Myth 6: The budget should be cut, but not by much, because muchlower government spending would precipitate a recession.Unfortunately, the way things are, we don t have to worry about a bigcut in government spending.Such a cut would be marvelous, not only forits own sake, but because a slash in the budget would reduce theunproductive boondoggles of government spending, and therefore tip thesocial proportion of saving to consumption toward more saving andinvestment.More saving and investment in relation to consumption is an Austrianremedy for easing a recession, and reducing the amount of correctiveliquidation that the recession has to perform, in order to correct themalinvestments of the boom caused by the inflationary expansion ofbank credit.Myth 7: What we need to offset the crash and stave off a recessionis lots of monetary inflation (called by the euphemistic term liquidity )and lower interest rates.Fed chairman Alan Greenspan did exactlythe right thing by pumping in reserves right after the crash,and announcing that the Fed would assure plenty of liquidity forbanks and for the entire market and the whole economy.(A position Enterprise Under Attack 155taken by every single variant of the conventional economic wisdom,from Keynesians to free marketeers. )In this way, Greenspan and the federal government have proposed tocure the disease the crash and future recession by pouring into theeconomy more of the very virus (inflationary credit expansion) that causedthe disease in the first place.Only in Cloud Cuckoo-land, to repeat, is thecure for inflation, more inflation.To put it simply: the reason for the crashwas the credit boom generated by the double-digit monetary expansionengineered by the Fed in the last several years.For a few years, as alwayshappens in Phase I of an inflation, prices went up less than the monetaryinflation.This, the typical euphoric phase of inflation, was the Reaganmiracle of cheap and abundant money, accompanied by moderate priceincreases.By 1986, the main factors that had offset the monetary inflation andkept prices relatively low (the unusually high dollar and the OPECcollapse) had worked their way through the price system and disappeared.The next inevitable step was the return and acceleration of price inflation;inflation rose from about 1% in 1986 to about 5 % in 1987.As a result, with the market sensitive to and expecting eventualreacceleration of inflation, interest rates began to rise sharply in 1987.Once interest rates rose (which had little or nothing to do with the budgetdeficit), a stock market crash was inevitable.The previous stock marketboom had been built on the shaky foundation of the low interest rates from1982 on.Myth 8: The crash was precipitated by the Fed s unwise tightmoney policy from April 1987 onward, after which the money supply wasflat until the crash.There is a point here, but a totally distorted one.A flat money supplyfor six months probably made a coming recession inevitable, and added tothe stock market crash.But that tight money was a good thingnevertheless.No other school of economic thought but theAustrian understands that once an inflationary bank credit boom has beenlaunched, a corrective recession is inevitable, and that the sooner it comes,the better.The sooner a recession comes, the fewer the unsound investments thatthe recession has to liquidate, and the sooner the recession will be over. 156 Murray N.Rothbard: Making Economic SenseThe important point about a recession is for the government not tointerfere, not to inflate, not to regulate, and to allow the recession to workits curative way as quickly as possible.Interfering with the recession,either by inflating or regulating, can only prolong the recession and makeit worse, as in the 1930s.And yet the pundits, the economists of allschools, the politicians of both parties, rush heedless into the agreed-uponpolicies of: Inflate and Regulate.Myth 9: Before the crash, the main danger was inflation, and theFed was right to tighten credit.But since the crash, we have to shiftgears, because recession is the major enemy, and therefore the Fed hasto inflate, at least until price inflation accelerates rapidly.This entire analysis, permeating the media and the Establishment,assumes that the great fact and the great lesson of the 1970s, and of thelast two big recessions, never happened: i.e., inflationary recession.The1970s have gone down the Orwellian memory hole, and the Establishmentis back, once again, spouting the Keynesian Phillips Curve, perhaps thegreatest single and most absurd error in modern economics.The Phillips Curve assumes that the choice is always either morerecession and unemployment, or more inflation.In reality, the PhillipsCurve, if one wishes to speak in those terms, is in reverse: the choice iseither more inflation and bigger recession, or none of either.The loomingdanger is another inflationary recession, and the Greenspan reactionindicates that it will be a whopper.49Michael R.MilkenVs [ Pobierz całość w formacie PDF ]