I've tried to maintain an open mind, because I have a lot of friends who find his writing perceptive. And sometimes I enjoy his articles. But I just can't abide this kind of apologetic tripe from a supposed libertarian, let alone a professor of economics. In describing the way the Fed has acted to shore up those financial powerhouses who made irresponsible investements in the sub-prime mortgage market, he shows that what really matters isn't a free market so much as the market the way it "should" look.
It is true that a more liquid short-term loan market can give a highly leveraged institution a second chance. An immediate infusion of cash can be a lifeline for a solvent, but illiquid, company. But keeping loan markets open is not a bailout; it's simply getting part of the economic infrastructure back on line, much as the police clear a road after a traffic accident. Note that when the Fed makes it easier for financial institutions to borrow money, the loan must still be repaid.
Pay no attention to rent seeking and broken window arguments. If you call your business "vital economic infrastructure", suddenly everybody's better off across the board when you get protected from your bad decisions! It doesn't make any sense to talk about the market punishing mere "economic infrastructure", so the Fed intervention must have been just mere, uninterested, unprofitable economic maintenance work.
I expect this from your typical regulation-is-awesome academic. But Cowen clearly has no libertarian credentials left whatsoever. To make such a laughably contradictory argument as this is unforgivable for a libertarian who professes to know economics:
The American public has a hard-enough time understanding relatively simple economic issues like the benefits of free trade, much less the Fed or monetary policy.
In the same breath, he conflates free trade and central planning of the economy, and then laments how little average Americans understand economics. Beats me, Ty.
Hat tip to Dean Baker, who is doing great work exposing pseudo-libertarians among the establishment.
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