The Recession Should Be Helpful, Reducing Excesses
NORTH EGREMONT, MASS. — FED-bashing, blaming the Federal Reserve for failing to avoid recession in the United States, has been, is, and probably will continue to be, a convenient cry of many economists. Blame someone, some cause - blame, blame, blame. What a convenient, simplistic way to solve the ``evil'' of recession. Perhaps it would be helpful to start from some other premise than assuming a recession is evil. What if a recession is helpful? What if a recession puts a stop to speculation and greed long enough to avoid a depression? What if the underlying long-term growth of the economy was greater during alternative periods of expansion and recession than during the most recent eight years of no recession - as it was?
We are told the Federal Reserve could have avoided the current recession by making interest rates lower and the availability of money easier.
We are not told what we would have had if the recession were avoided. What is ``good'' about real estate speculation, stock market speculation, commodity speculation? What is good about over-expansion of high-tech companies, excessive purchasing of autos through profit-losing incentives, excessive borrowing, and all the other nonsense perpetrated in the name of economic expansion?
Where is the easier money to go and who is going to take advantage of the lower interest rates? Are we to encourage banks to make more speculative loans?
Should the Federal Reserve have encouraged the excesses and maladjustments in the economy in order to avoid a recession whose reason for being is to correct those ill-conceived and faultily implemented travesties on a sound economy? In fact, actions to avoid a recession would have been irresponsible, liable to bring about considerably worse than a recession.
There is also the question of assigning blame to as simplistic a ``cause'' as the Fed's behavior. ``The'' economy itself is a misnomer. Economic activity is never the same from one second to the next. All sorts of interacting elements are at work during any particular period.
Fed action takes place under varying conditions at all times. Thus, Fed actions are acting upon something different all the time. The acted-upon is as vital to what happens as is the action. Fed action or inaction is never ``the'' cause of what happens.
Chairman Alan Greenspan undoubtedly was referring to this lack of a sole cause for the level of the money supply when he discussed the money-creating function of the banking system in spite of what the Fed does or does not do.
Productive economic activity itself would create money through a banking system even if there were no Federal Reserve. We are all familiar with the printing press ability of the federal government. Of course, the Federal Reserve is involved, but the Fed does not dictate federal fiscal policy, government expenditures and income.
Instead of blaming some one or some thing for the recession, one could start crediting some one or some thing for the recession. It would be just as erroneous in singling out some simplistic explanation, but at least it would recognize the salutary aspects of a recession in dealing with the unsavory aspects of an expansion.
Even now, as a recession persists, can we be so sure easier money is a good idea? Are we sure all the excesses and maladjustments in economic activity have been eliminated or lessened sufficiently?
In a world in which a making-money-from-money mind-set is submerging productive economic activity, the Fed's encouragement of more money could result in channeling more resources away from, not into, really productive economic activity. The roaring stock market is a sad testimony to lower interest rates and easier money.