From the Editor May/June

When I was an economics undergraduate back in the 1990s, central bankers at the Federal Reserve were more or less above criticism. Those were the days when Alan Greenspan was acclaimed as “the maestro” and it was simply assumed central bankers could skillfully plan the economy to ensure growing prosperity forever. This isn’t an exaggeration. In 1998, the Wall Street Journal published an op-ed by MIT economist Rudi Dornbusch claiming that we have. . .a policy team that can prevent recessions indefinitely. He concluded: “This expansion will run forever.” Recession did hit in 2001, of course, with enormous implications for the future of the US economy. This was when Greenspan decided to deliberately create a housing bubble to “stimulate the economy.” This was followed six years later by the housing crash and the most severe recession since 1982.

Yet, through it all, the credibility of central banks and central bankers has remained all too resilient. Few Americans learned the right lessons from the Great Recession and housing crash caused by the Fed’s inflationary monetary policy. Instead, the Fed managed to convince much of the public—and certainly much of Wall Street— that the Fed had somehow fixed everything. The Atlantic captured the mood of the establishment in 2012 when the magazine’s editors published an issue with Fed Chairman Ben Bernanke on the cover and declared him “the Hero” who “saved the global economy.”

Now it’s 2023 and it’s been more than a decade since the Federal Reserve adopted vast new powers that it calls “unconventional monetary policy.” The Fed has monetized trillions of dollars of debt and has been blatantly political in how it has partnered with the regime in countless schemes from locking down the economy to racking up new debt at unnaturally low interest rates. Still, we continue to hear that everything is under control, and that the central bank will engineer a “soft landing,” abolish price inflation, and make everything be okay.

Sound economics tells us otherwise, and it’s not a surprise we’re now dealing with the effects of all those Fed technocrats “saving” the economy.

Price inflation hit a forty year high in 2022, and average real wages have now fallen for twenty- four months. Recession indicators from housing prices to the yield curve to manufacturing are flashing warning signs. The size and scope of bank failures in recent months already exceed those of 2008. Through it all, the central bank has no answers and no plan except to inflate the money supply even more, and bail out billionaire bankers yet again.

Some opponents might look at this and think, “Good. When things go south, people will see how bad the central bank really is.” Unfortunately, there is no guarantee that economic crisis leads to people putting the blame in the right places. The 2008 crisis and its aftermath have shown us that no matter how damaging the Fed is, it can still convince the public that the Fed is also the solution. After all, the Fed has at its disposal an adoring mainstream media and decades of university faculty telling students that government planners can solve all our problems.

On the other hand, economic crises present an opportunity. When crises hit, ordinary people begin looking for answers. We’ll work to supply those answers. This, of course, has long been central to the mission of the Mises Institute. Austrian school economics offers the best and most trenchant analysis of the dangers of the central bank and the banking cartel it protects. It’s the Austrians who best understand how monetary inflation and government policy—not free markets—cause the recessions that impoverish the public while empowering the state.

This is why in this new issue of The Austrian we’ve brought in two of our top economists, Senior Fellows Alex Pollock and Brendan Brown, to talk about their new books on money and central banks. In both books the authors examine the many grave mistakes central banks have made and are making. Both authors also have a practical understanding of how politics distorts money and makes economic crises worse. In addition to this, David Gordon reviews two new books, including Brad DeLong’s book on economic history, and a new book of essays in honor of the great monetary economist Jesús Huerta de Soto. We hope you enjoy it.

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