THE CRISIS — WHAT WOULD MILTON FRIEDMAN SAY?

Well, perhaps something like this.

What Friedman could tell us in the midst of crisis is perhaps helpful, but to understand the ultimate cause of this artificial boom and inevitable bust cycle, the work of Friedrich Hayek is much more relevant.  The Hayekians gave warning in advance of the structural disorder in the economy created by interests rates set far below the natural rate, a disorder in the price system across the time strucre of the economy, embodied in the housing boom and housing bubble.

Friedman and the Friedmanites by contrast were left in total darkness, without a clue that anything significant was happening.

To understand what insight allows the Hayekians to see what has been happening, and why the Friedmanites are left as clueless as the Keynesians, let me recommend this little essay by Roger Garrison.  Or you can order Garrison’s outstanding book Time and Money.

UPDATE:  On the makings of the crisis I might also recommend yesterday’s article in the WaPo by Hayekian Peter Schiff.