Thursday, July 29, 2010

The Work Of Depressions

Interesting stuff and perspective.

I’ve been surprised by a lot of things since the financial crisis broke, few of them good. One of the truly amazing things, however, is the return of full, 1930s-type liquidationism — the idea that a slump serves a useful purpose, and that stimulating the economy, even through monetary policy, is a mistake. And so we have Raghuram Rajan in today’s FT arguing that with 9.5 percent unemployment, long-term unemployment at record levels, and falling inflation, we need to … raise interest rates:

This is all familiar to students of the history of thought; there’s virtually no difference between what Rajan is saying now and what Schumpeter said in the midst of global economic collapse:

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