George Selgin brings to our attention this New York Times article highlighting the unorthodox views of Thomas M. Hoenig, the outgoing president of the Federal Reserve Bank of Kansas City. As Selgin notes, the article contains this:
“The central bank has to be, in a way, a neutral player, and yet we find ourselves trying to stimulate, and the effect is further leveraging,” he said. “If I thought zero rates would bring jobs, I’d want it forever. But it distorts the economy.”
He continued, “In 2003, when we lowered rates and kept them there because unemployment was 6.5 percent — look at the consequences.” Those consequences included the nation’s mortgage feast, followed by its current economic famine.
Selgin points out that Hoenig, whether he knows it or not, is saying what F.A. Hayek would have said. “I can’t help feeling that Hayek deserves a lot more credit than he’s getting for having put forward a theory which, whatever its general merits may be, seems to fit the recent boom-bust experience so well,” Selgin writes. “…[I]t seems to me that anyone who believes that the recent bust is to some important extent a consequence of past malinvestment that was sponsored by easy monetary policy ought to acknowledge the fact that F.A. Hayek spent much of his early career warning against this very possibility, and later won a Nobel prize for the work in question. That something akin to his theory, if not the very thing itself, is now subscribed to by many non-Austrians, either with no mention of Hayek’s contribution or with somewhat grudging acknowledgment of it only, seems to me both strange and unfair.”