Economist Blames Downturn on Fed's Inflation
by Ari Armstrong
[The following article originally appeared in the September/October 2001 edition of Colorado Liberty.]
In an article posted August 22 to www.mises.org, John Cochran, chair of the economics department at Metropolitan State College, argued current economic troubles were caused by inflationary policies by the Federal Reserve.
"The current crisis is unambiguously an 'Austrian' crisis. Even if one wants to pretend, al la Paul Krugman in a recent New York Times op-ed, that the 'U.S. economy's problem is "self-defeating optimism,"' one should recognize that the 'self-defeating optimism' is directly attributable to market responses to the excessive creation of money and credit initiated by the Federal Reserve System beginning in the mid-1990s."
Cochran argued that in order to prevent future problems, "the remedy is simple: avoid inflations by stopping the Fed's power to inflate."
Cochran is an adjunct scholar of the Ludwig von Mises Institute, a leading American voice of the "Austrian" tradition of economics. Mises, along with his Nobel-award-winning student Friedrich Hayek, argued that economic downturns are primarily caused by monetary inflation and the resulting faulty investments. Mises' works also informed Ayn Rand, Murray Rothbard, and other leaders of the modern libertarian movement. Cochran's article was titled, "Hayek's Law and Rothbard's Wisdom."
Cochran also argued that, regardless of how long the Fed pursues inflationary policies, economic recovery is hastened by leaving markets free to correct the problem.