Brad DeLong wrote:
> >>But in the longer term, Alan Greenspan, Fed chairman, may not be
> >>doing anyone a favour. Working off the excesses of an overvalued
> >>stock market is a painful but necessary process - and one that
> >>arguably still had some way to run in the case of technology
> >>stocks. By showing investors he will rescue them come what may, he
> >>is encouraging excessive risk-taking and the formation of future
> >>bubbles. Investors should ask themselves whether in fostering such
> >>a classic moral hazard the Fed is really being their friend.
> >
> >Sadomonetarism lives!
> >
> >Doug
>
> The ghost of the monetary overinvestment theory of depressions still
> walks the night, undead, seeking to drain the economy of its blood...
>
> Seventy years ago, John Maynard Keynes wrote:
>
> It seems an extraordinary imbecility that this wonderful outburst of
> productive energy should be the prelude to impoverishment and
> depression. Some austere and puritanical souls regard it both as an
> inevitable and a desirable nemesis on so much overexpansion, as they
> call it; a nemesis on man's speculative spirit. It would, they feel,
> be a victory for the mammon of unrighteousness if so much prosperity
> was not subsequently balanced by universal bankruptcy. We need, they
> say, what they politely call a 'prolonged liquidation' to put us
> right. The liquidation, they tell us, is not yet complete. But in
> time it will be. And when sufficient time has elapsed for the
> completion of the liquidation, all will be well with us again.
>
> I do not take this view. I find the explanation of the current
> business losses, of the reduction in output, and of the unemployment
> which necessarily ensues on this not in the high level of investment
> which was proceeding... but in the subsequent cessation of this
> investment. I see no hope of a recovery except in a revival of the
> high level of investment. And I do not understand how universal
> bankruptcy can do any good or bring us nearer to prosperity...
>
> He was right then. He is right now.
>
> Brad DeLong
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Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901