# Did Monetarism work in the early 1980's? Is it a Quack Philosophy? **URL:** \ **Category:** Great Debates\ **Created:** [September 26, 2013, 6:35pm UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744 "2013-09-26T18:35:53Z")\ **Posts on this page:** 7\ **Page:** 3
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [September 30, 2013, 11:04am UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/41 "2013-09-30T11:04:31Z")
Fraudulent ratings and fraudulent loans ( and derivatives )are \*symptoms \*of an oversized financial sector aided and abetted by artificially low interest rates that do not reflect real savings. They contributed to the growth of the bubble only because they were so widespread. The only thing that explains their ubiquity is the government manipulating market forces, and failing to deal with the consequences of that (which is impossible, thus they shouldn’t manipulate in the first place.). ---
**Author:** ![WillFarnaby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/willfarnaby/32/514_2.png) [@WillFarnaby](https://boards.straightdope.com/u/WillFarnaby)\ **Post date:** [September 30, 2013, 11:07am UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/42 "2013-09-30T11:07:21Z")
> [@deltasigma](#): > > Except you seem to have no idea what actually caused the crisis so you’ll forgive me if I don’t take you very seriously. If you would like to continue to cuddle up with your entrenched ideology at night, that would be a wise move. [David Laidler:](http://www.econtalk.org/archives/2013/09/david_laidler_o.html) > [@](#): > > Yeah. I mean, that’s right. People keep calling these things ‘financial crises’. They are really asset market crises. And they happen on the margin between markets for financial assets and markets for real assets. Like real estate and factories and physical investment. I don’t think the monetarist story of the onset of the Great Depression by the way, or the monetarist story about the onset of this Great Recession, is quite plausible enough. I can’t find anything in the data in the 1920s or the data in the run-up to this event, that shows a degree of sort of conventional tightening of money growth that can account for the speed of the subsequent downturn. That really looks like, in both cases, an economy where something was going badly wrong in real asset markets, and it just needed a little bit of tap from the financial markets to set a downward spiral going. And, you’re right–the Austrians were the pioneers of this kind of analysis, in the 1920s even; and of course there are still Austrians around. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [September 30, 2013, 11:10am UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/43 "2013-09-30T11:10:34Z")
> [@WillFarnaby](#): > > If you would like to continue to cuddle up with your entrenched ideology at night, that would be a wise move. Ideology eh? I believe they’re called facts, but I’m not surprised you’re having trouble making the distinction. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [September 30, 2013, 11:18am UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/44 "2013-09-30T11:18:46Z")
> [@WillFarnaby](#): > > Fraudulent ratings and fraudulent loans ( and derivatives )are \*symptoms \*of an oversized financial sector aided and abetted by artificially low interest rates that do not reflect real savings. They contributed to the growth of the bubble only because they were so widespread. The only thing that explains their ubiquity is the government manipulating market forces, and failing to deal with the consequences of that (which is impossible, thus they shouldn’t manipulate in the first place.). I missed this gem. Your point, in case you forgot, was that Bernanke was blindsided by the crisis, implying that he shouldn’t have been. My response was that’s what tends to happen when fraud is involved. So your response is what exactly? It was Bernanke’s fault somehow when he wasn’t appointed until 2006 and it was Greenspan’s reckless policies that created the bubble? Now that is tasty pretzel logic you’ve got going right there. ---
**Author:** ![MilTan](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@MilTan](https://boards.straightdope.com/u/MilTan)\ **Post date:** [September 30, 2013, 11:48am UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/45 "2013-09-30T11:48:44Z")
> [@WillFarnaby](#): > > You made the claim that nobody saw the crisis coming. I made the claim that Austrians saw it coming. You were wrong. No amount of Krugmanesque demagagoguery will change that. This seems to be an instance of the old adage (paraphrasing, because I’m too lazy to look it up): “Economists have successfully predicted 12 of the last 10 recessions.” ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [September 30, 2013, 5:59pm UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/46 "2013-09-30T17:59:12Z")
> [@WillFarnaby](#): > > You made the claim that nobody saw the crisis coming. I made the claim that Austrians saw it coming. You have said this but not demonstrated it to be true. Can you show that economists of the Austrian school were particularly keen on predicting the 2007/2008 crisis? ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [October 2, 2013, 12:59am UTC](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744/47 "2013-10-02T00:59:08Z")
> [@RickJay](#): > > Can you show that economists of the Austrian school were particularly keen on predicting the 2007/2008 crisis? We can review the track record of various players. Playing the role of Cassandra was [Nouriel Roubini](http://query.nytimes.com/gst/fullpage.html?res=9C05E1D6133EF936A1575BC0A9609C8B63). In August 2006, Paul Krugman noted that he was, “…the only well-known economist flatly predicting a housing-led recession in the coming year.” Dr. Krugman added, “While I don’t share Mr. Roubini’s certainty, I see his point: housing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it’s hard to see how we can avoid a serious slowdown.” Now a lot of people noticed the housing bubble. [The Economist magazine](http://www.economist.com/node/4079027) stated in June 2005: “The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.” What made Roubini special was that he understood that the pain wouldn’t be localized to housing construction and Home Depot, but would rather infect the banking system and thereby spread to remainder of the economy. [Dean Baker](http://www.calculatedriskblog.com/2005/07/dr-baker-housing-bubble-fact-sheet.html) also grasped this in summer 2005. Ok, lots of people were correct about the housing bubble, rather fewer were able to trace through the implications of the bust. But some thought there wasn’t a bubble to begin with. [Barry Ritholtz](http://www.calculatedriskblog.com/2005/06/no-housing-bubble.html) was one example. [I see it didn’t hurt his career](http://www.ritholtz.com/blog/barry-ritholtz-curriculum-vitae/). Predictably the economist at the National Association of Realtors [denied there was a bubble](http://www.calculatedriskblog.com/2006/09/wikipedia-us-housing-bubble.html). But the editorial page of the Wall Street Journal denied the housing bubble as well. As did the [National Review](http://www.nationalreview.com/articles/218126/hate-burst-your-housing-bubble/jerry-bowyer) in summer 2006. In _Hate to Burst Your (Housing) Bubble: But there Isn’t One,_ they stated, “But recent data have supported what Larry Kudlow, Brian Wesbury, Steve Forbes, and BuzzCharts have been saying all along: A housing slowdown will take place, and it will be orderly. No bubbles. No pops.” Interestingly, that was precisely the time housing prices commenced [their steep descent](http://www.calculatedriskblog.com/2008/10/adjustment-process.html). But to my knowledge conservative love for Larry Kudlow, Brian Wesbury, and Steve Forbes has not abated. Among the loons, Lyndon LaRouche predicts economic collapse pretty much every year and takes a victory lap whenever there’s an economic downturn. [Previous page](https://boards.straightdope.com/t/did-monetarism-work-in-the-early-1980s-is-it-a-quack-philosophy/669744.md?page=2)