Hayek would have told the ECB to print more money

Luis Arroyo sent me the following graph:

I get frustrated when I read people arguing the Eurozone problem is that the ECB can’t come up with a one-size-fits-all policy stance.  As if monetary policy is too tight for just a few small stragglers on the edge of Europe, comprising just a few percent of the Eurozone GDP.  Actually money is even tighter in Europe than in the US.  It’s too tight for every single Eurozone member.   Nominal GDP is well below the levels of early 2008.  Obviously in that situation many people, businesses and governments will have difficulty repaying their nominal debts.  Look at the path of nominal income before the crisis (blue line); that’s the income trajectory that people and governments were expecting when they contracted their nominal debts.

Obviously several small countries made extremely foolish decisions.  Greece faked its national accounts and Ireland agreed to bail out bank creditors.  So they’d be facing some problems under the best of circumstances.  But without the big drop in NGDP the Eurozone debt crisis would be far smaller, indeed would be relatively easily contained with a few bailouts.

How ironic it’d be if the ECB destroys the euro it was set up to protect, by obsessively trying to raise its value.  They should have consulted King Midas.

Or perhaps Hayek, who warned what would happen if nominal incomes were allowed to decline.

HT:  Thanks to Luis, and to Niklas Blanchard who finally taught me how to right-size graphs.

Living in a country with Hayek’s stable NGDP monetary rule

A recent post by Bill Woolsey showed that Japan’s NGDP has been amazingly stable since the early 1990s (with just a dip in late 2008.)  This article in the NYT describes what happened after Japan adopted a stable NGDP monetary policy:

OSAKA, Japan “” Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo “” for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage.

Few nations in recent history have seen such a striking reversal of economic fortune as Japan.

.   .   .

The downsizing of Japan’s ambitions can be seen on the streets of Tokyo, where concrete “microhouses” have become popular among younger Japanese who cannot afford even the famously cramped housing of their parents, or lack the job security to take out a traditional multidecade loan.

These matchbox-size homes stand on plots of land barely large enough to park a sport utility vehicle, yet have three stories of closet-size bedrooms, suitcase-size closets and a tiny kitchen that properly belongs on a submarine.

“This is how to own a house even when you are uneasy about the future,” said Kimiyo Kondo, general manager at Zaus, a Tokyo-based company that builds microhouses.

.   .   .

The decline has been painful for the Japanese, with companies and individuals like Masatohaving lost the equivalent of trillions of dollars in the stock market, which is now just a quarter of its value in 1989, and in real estate, where the average price of a home is the same as it was in 1983. And the future looks even bleaker, as Japan faces the world’s largest government debt “” around 200 percent of gross domestic product “” a shrinking population and rising rates of poverty and suicide.

But perhaps the most noticeable impact here has been Japan’s crisis of confidence. Just two decades ago, this was a vibrant nation filled with energy and ambition, proud to the point of arrogance and eager to create a new economic order in Asia based on the yen. Today, those high-flying ambitions have been shelved, replaced by weariness and fear of the future, and an almost stifling air of resignation. Japan seems to have pulled into a shell, content to accept its slow fade from the global stage.

.   .   .

The classic explanation of the evils of deflation is that it makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. But in Japan, nearly a generation of deflation has had a much deeper effect, subconsciously coloring how the Japanese view the world. It has bred a deep pessimism about the future and a fear of taking risks that make people instinctively reluctant to spend or invest, driving down demand “” and prices “” even further.

.   .   .

A Deflated City

While the effects are felt across Japan’s economy, they are more apparent in regions like Osaka, the third-largest city, than in relatively prosperous Tokyo. In this proudly commercial city, merchants have gone to extremes to coax shell-shocked shoppers into spending again. But this often takes the shape of price wars that end up only feeding Japan’s deflationary spiral.

There are vending machines that sell canned drinks for 10 yen, or 12 cents; restaurants with 50-yen beer; apartments with the first month’s rent of just 100 yen, about $1.22. Even marriage ceremonies are on sale, with discount wedding halls offering weddings for $600 “” less than a tenth of what ceremonies typically cost here just a decade ago.

.   .   .

“It’s like Japanese have even lost the desire to look good,” said Akiko Oka, 63, who works part time in a small apparel shop, a job she has held since her own clothing store went bankrupt in 2002.

This loss of vigor is sometimes felt in unusual places. Kitashinchi is Osaka’s premier entertainment district, a three-centuries-old playground where the night is filled with neon signs and hostesses in tight dresses, where just taking a seat at a top club can cost $500.

But in the past 15 years, the number of fashionable clubs and lounges has shrunk to 480 from 1,200, replaced by discount bars and chain restaurants. Bartenders say the clientele these days is too cost-conscious to show the studied disregard for money that was long considered the height of refinement.

“A special culture might be vanishing,” said Takao Oda, who mixes perfectly crafted cocktails behind the glittering gold countertop at his Bar Oda.

After years of complacency, Japan appears to be waking up to its problems, as seen last year when disgruntled voters ended the virtual postwar monopoly on power of the Liberal Democratic Party. However, for many Japanese, it may be too late. Japan has already created an entire generation of young people who say they have given up on believing that they can ever enjoy the job stability or rising living standards that were once considered a birthright here.

Yukari Higaki, 24, said the only economic conditions she had ever known were ones in which prices and salaries seemed to be in permanent decline. She saves as much money as she can by buying her clothes at discount stores, making her own lunches and forgoing travel abroad. She said that while her generation still lived comfortably, she and her peers were always in a defensive crouch, ready for the worst.

“We are the survival generation,” said Ms. Higaki, who works part time at a furniture store.

Hisakazu Matsuda, president of Japan Consumer Marketing Research Institute, who has written several books on Japanese consumers, has a different name for Japanese in their 20s; he calls them the consumption-haters. He estimates that by the time this generation hits their 60s, their habits of frugality will have cost the Japanese economy $420 billion in lost consumption.

“There is no other generation like this in the world,” Mr. Matsuda said. “These guys think it’s stupid to spend.”

Deflation has also affected businesspeople by forcing them to invent new ways to survive in an economy where prices and profits only go down, not up.

Yoshinori Kaiami was a real estate agent in Osaka, where, like the rest of Japan, land prices have been falling for most of the past 19 years. Mr. Kaiami said business was tough. There were few buyers in a market that was virtually guaranteed to produce losses, and few sellers, because most homeowners were saddled with loans that were worth more than their homes.

Some years ago, he came up with an idea to break the gridlock. He created a company that guides homeowners through an elaborate legal subterfuge in which they erase the original loan by declaring personal bankruptcy, but continue to live in their home by “selling” it to a relative, who takes out a smaller loan to pay its greatly reduced price.

“If we only had inflation again, this sort of business would not be necessary,” said Mr. Kaiami, referring to the rising prices that are the opposite of deflation. “I feel like I’ve been waiting for 20 years for inflation to come back.”

One of his customers was Masato, the small-business owner, who sold his four-bedroom condo to a relative for about $185,000, 15 years after buying it for a bit more than $500,000. He said he was still deliberating about whether to expunge the $110,000 he still owed his bank by declaring personal bankruptcy.

Economists said one reason deflation became self-perpetuating was that it pushed companies and people like Masato to survive by cutting costs and selling what they already owned, instead of buying new goods or investing.

“Deflation destroys the risk-taking that capitalist economies need in order to grow,” said Shumpei Takemori, an economist at Keio University in Tokyo. “Creative destruction is replaced with what is just destructive destruction.”

Before commenters like Greg jump all over me, re-read the intro.  I never claimed the adoption of the 0% NGDP growth policy had anything to do with the dreary story described by the NYT.  And I’m not sure it does.  There’s nothing wrong with touting a country as a smashing success in one area, even if you disagree with its policies elsewhere.  I’m always praising Singapore’s fiscal policy, yet I detest many policies of the Singapore government.  It could well be that the bad performance of Japan’s economy was caused by supply-side factors unrelated to monetary policy.  Some bloggers even claim the Japanese haven’t done all that bad.

And yet . . . let’s be honest.  This is a big problem for the 0% NGDP growth fans.  Japan’s slide into stagnation co-incided almost exactly with the (de facto) adoption of a stable NGDP rule.  And it’s the only country I know that has adopted this policy.  And before the policy was adopted most mainstream economists thought deflation was a really bad idea.  Put that all together and I think “zero percenters” have got a massive PR problem.

Yes, the US grew rapidly in the late 1800s under deflation, but we had strong NGDP growth.  Japan doesn’t.  Are there any examples of countries doing well with stable NGDP?  I don’t know of any.  Unless someone can find plausible counterexamples, that makes Hayek’s argument a really hard sell.

Why is this important?  Because Hayek’s argument underlies the Austrian view that monetary policy was too “inflationary” during the 1920s, despite no rise in the price level.  He argued NGDP should have been kept stable, so prices could fall with productivity gains.  This argument also underlies some of the critique of Fed policy in the 2000s, as price inflation wasn’t all that high.  In fairness, some point to the rapid NGDP growth after 2003 as a problem, and I partly agree.  So the critique of the Fed in this case seems stronger from a NGDP targeting perspective.  But still nowhere near as strong as the critique of their policy of allowing NGDP growth to plummet in the midst of a financial crisis.

Milton Friedman vs. the conservatives

After my recent trip I was appalled to discover the number of leading conservative voices opposing monetary easing.  Even worse, many seemed to assume the Fed was already engaged in monetary stimulus.  Before considering their views, let’s examine the thoughts of the greatest conservative monetary economist of all time, Milton Friedman.  Here he discusses the zero rate problem in Japan:

Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.

.   .   .

After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.

Friedman was absolutely right, near-zero interest rates are an almost foolproof indicator that money has been too tight.  Were he still alive, I can’t even imagine what he would think of the views being expressed by his fellow conservatives.  Here is Minneapolis Fed president Narayana Kocherlakota:

Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers. But the Fed does not have a means to transform construction workers into manufacturing workers.

Actually money has been tight.  And those construction jobs were mostly lost in 2007 and early 2008, when employment was still high.  The serious unemployment problem developed in late 2008 and early 2009, and reflected a generalized drop in AD across the entire economy.  And manufacturing has also shed lots of jobs.

Update:  Regarding 2007-08, I should have specified construction jobs associated with the housing bubble.  The subsequent sharp fall in NGDP obviously cost construction jobs in commercial and industrial building.  But those were cyclical losses due to tight money, not misallocation problems.

The right seemed to have latched onto the view that since tight money can’t be the problem, it must be some mysterious “structural problem.”  Obviously there may be some structural problems, indeed I have argued that some government labor market policies are counterproductive.  But there is nothing structural that could explain the sudden dramatic jump in unemployment between 2008 and 2009.

Even worse, we already have a perfectly good explanation for that rise in unemployment; in 2009 NGDP fell at the fastest rate since 1938.  You’d expect a massive rise in unemployment from this sort of nominal shock, even if there were no structural problems.  Now of course there is a respectable argument that the US currently faces both problems.  But economists who make that argument (e.g. Tyler Cowen) correctly note that this means we need more monetary stimulus.  They simply warn us not to expect miracles.  But unless you are an extreme RBC-type who doesn’t believe monetary shocks matter at all (and most conservatives are not) then how can one not favor monetary stimulus?

I suppose one argument is that we are “recovering,” and hence that no more stimulus is needed.  People seem to have forgotten that deep recessions are generally followed by fast growth.  Both NGDP and RGDP growth was very fast in the first 6 quarters of recovery from the 1982 recession.  But now we are getting only 4% NGDP growth, not the 11% of the earlier recovery, so how can we expect the 7.7% RGDP growth of the recovery from 1982?  Even worse, David Beckworth presents data (from Macroeconomic Advisers) that NGDP peaked in April, and actually declined in May and June.  We may see the already anemic 2nd quarter numbers revised downward this week.  Goldman Sachs expects less than 2% growth in 2011.  And a rise in unemployment.  That’s no recovery.

If we really were facing structural problems, then on-target NGDP growth would lead to stagflation, as in the 1970s.  Conservatives keep insisting that high inflation is just around the corner, and Paul Krugman keeps making them look like fools.  This pains me because I like most conservative economists more than I like Krugman.

Friedman and Schwartz noted that in the 1930s the low interest rates and high levels of liquidity (cash and reserves hoarding) lulled people into thinking money was easy.  Thus pundits during that era pointed to all sorts of structural problems, which were actually symptoms of the Depression, not causes.  So I have been disappointed to read statements like this one from Edmund Phelps:

THE steps being taken by government officials to help the economy are based on a faulty premise. The diagnosis is that the economy is “constrained” by a deficiency of aggregate demand, the total demand for American goods and services. The officials’ prescription is to stimulate that demand, for as long as it takes, to facilitate the recovery of an otherwise undamaged economy “” as if the task were to help an uninjured skater get up after a bad fall.

The prescription will fail because the diagnosis is wrong. There are no symptoms of deficient demand, like deflation, and no signs of anything like a huge liquidity shortage that could cause a deficiency. Rather, our economy is damaged by deep structural faults that no stimulus package will address “” our skater has broken some bones and needs real attention.

Or William Poole:

More bond buying from the Federal Reserve won’t help the U.S. economy, because purchases can’t remedy the main problem plaguing the U.S., which is fiscal and regulatory uncertainty, former St. Louis Federal Reserve President William Poole said.

While the Fed buying more debt will bring rates down, it won’t inspire spending and lending given uncertainties in the U.S. ranging from tax cuts to health care reforms.

Or Gerald O’Driscoll:

A policy of low interest rates is a textbook response of monetary authorities to the economic weakness brought on by deficient aggregate demand. The policy is justified by pointing to various ways in which money can promote economic activity””including by stimulating investment, discouraging savings, encouraging consumption spending, and allowing individuals to lower their debt burdens by refinancing existing debt. While these effects are theoretically plausible, this textbook policy does not apply to our present situation.

First, our lingering crisis and economic weakness was brought on not by a Keynesian failure of effective demand, but by a Hayekian asset boom and bust. Second, the textbook case for low interest rates treats the policy as one of benefits without costs. No such policy exists.

Yes, Hayek did briefly oppose monetary stimulus in the early 1930s.  But in the 1970s he admitted that he had been wrong, as the problem was not simply “misallocation” resulting from an asset boom, but also insufficient nominal spending.

Or the Wall Street Journal:

As the Bible says, we know that our redeemer liveth. And on Wall Street and Washington these days, the economic redeemer of choice is the Federal Reserve. When the Fed’s Open Market Committee meets again today, markets are expecting a move toward easier money that is supposed to prevent deflation, re-ignite a lackluster recovery, revive the jobs market, and turn water into Chateau Petrus.

It’s a tempting religion, this faith in the magical powers of Ben Bernanke and monetary policy, but it’s also dangerous. It puts far too much hope in a single policy lever, ignores the significant risks of perpetually easy money, and above all lets the political class dodge responsibility for its fiscal and regulatory policies that have become the real barrier to more robust economic growth.  .  .  .

As for the current moment, the Fed has maintained its nearly zero interest rate target for 20 months, while expanding its balance sheet by some $2 trillion. By any definition this is historically easy monetary policy, and not without costs of its own.

Not by Milton Friedman’s definition.  And then it gets worse:

This is the real root of our current economic malaise””the conceit of Congress and the White House that more government spending, taxing and rule-making can force-feed economic expansion. Now that this great government experiment is so obviously failing, the politicians and the Wall Street Keynesians who cheered the stimulus are asking the Federal Reserve to save the day. Mr. Bernanke should tell them politely but firmly that his job is to maintain a stable price level, not to turn bad policy into wine.

So that’s what it’s really all about.  I agree that Obama’s economic policies are highly counterproductive.  But unlike some conservatives I am not willing to unemploy millions of workers to win a policy argument.  I guess that’s the difference between hard core conservatives and pragmatic classical liberals like Friedman and I.  We should do the right thing and then put our trust in the democratic system.

Update:  I should clarify that my attack here was not directed at all conservatives–most are well intentioned, but rather the sentiments in the WSJ editorial.  On many policy issues I agree with the other conservatives mentioned here.

BTW, when I researched the Great Depression, I was shocked at how the conservative Wall Street establishment hated dollar devaluation, despite the fact that the stock market obviously loved it.  I noted (to myself) that “at least the modern WSJ is much better; they often use the market reaction to policy announcements as a way of establishing their likely effects.”  I guess the WSJ has reverted back to the primitive pattern of the 1930s.  “Yes, the markets are screaming for easier money, probably because it will boost the economy.  But we can’t have that because it might make Obamanomics look successful.”  Plus ca change . . .

HT:  Marcus Nunes, JimP, 123, Ryan Avent.

What did Hayek really think of deflation?

My comment on Mario Rizzo’s post attracted a lot of attention.  Some commenters (including Mario Rizzo) have suggested that I misunderstood Hayek’s views on deflation.  Perhaps he only favored deflation as a result of technological progress.  Or perhaps he was talking about the problem faced by Britain after it resumed the gold standard in 1925.

Here is Lawrence H. White commenting on a Hayek quotation from 1933:

Hayek (1933c, p. 176) worried that the process of readjustment after 1929 was being delayed by “the rigidity of prices and wages, which since the great war has undoubtedly become very considerable.” He blamed the rigidities for the magnified unemployment and thereby for the deflation (not mentioning the US banking crisis and monetary contraction in this context), but hoped that the deflation might restore price and wage flexibility the hard way:



“There can be little question that these rigidities tend to delay the process of adaptation and that this will cause a “secondary” deflation which at first will intensify the depression but ultimately will help to overcome these rigidities.”

A few comments:

1.  Wage rigidity was a problem in Britain throughout the entire interwar period.  They had persistently high unemployment for much the same reason that the eurozone has had high unemployment (relative to America) in recent decades.  Wage rigidity was not a big problem in the US until Hoover discouraged firms from cutting wages in the 1930s.

2.  White shows that Hayek thought deflation, in and of itself, was a bad thing (unless caused by technological progress.)  But in the early 1930s he was willing to accept deflation as a way of addressing what he thought was a greater evil–wage and price rigidity.

3.  Hayek’s preferred policy was NGDP targeting, which would actually call for inflation during a period of falling output.  Thus Hayek’s 1930s-era support for deflation was ad hoc–specifically aimed at the problem of rigidities.

4.  It is not correct to say that the abstract Austrian model, or Hayek’s preferred nominal target, is one that calls for deflation during a depression.  His early 1930s policy views went against his theoretical writings.

Just in case anyone thinks White and I have taken Hayek out of context, and that he didn’t really favor deflation during the early 1930s, then consider this statement from the 1970s:


I am the last to deny – or rather, I am today the last to deny – that, in these circumstances, monetary counteractions, deliberate attempts to maintain the money stream {NGDP], are appropriate.  I probably ought to add a word of explanation: I have to admit that I took a different attitude forty years ago, at the beginning of the Great Depression. At that time I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy. Perhaps I should have even then understood that this possibility no longer existed. … I would no longer maintain, as I did in the early ’30s, that for this reason, and for this reason only, a short period of deflation might be desirable. Today I believe that deflation has no recognizable function whatever, and that there is no justification for supporting or permitting a process of deflation.

Hayek was not dogmatic.  Perhaps he saw that the deflation of the early 1930s did not make wages more flexible; indeed governments reacted by making them more rigid.  In any case, Hayek consistently argued that NGDP targeting was the optimal monetary policy in a well-functioning economy, and late in his life he came to view it as also being the optimal monetary policy in a non-well-functioning economy.   As you know, that is also my view.  In that sense I am a Hayekian.  But in general I prefer his views on microeconomics to his writings on macroeconomics.

PS:  I just noticed that right before I posted this Mario Rizzo added a second comment to my earlier post.  I think we basically agree.  I share his concern that extended unemployment benefits may be increasing the unemployment rate.  As an aside, I’d like to revamp our UI system around private accounts.  If we must have the government involved during recessions, I’d rather any extra or extended benefits be paid out in lump sums, as that would make labor markets more flexible.

Keynes vs. Hayek: A sterile debate

Mario Rizzo recently commented on a Keynes/Hayek debate from 1932.  Here is the link to the debate (which includes some other notable interwar economists.)

Keynes, et al, give a standard argument for discouraging thrift during depressions, based on the famous “paradox of thrift.”  I find this sort of argument very frustrating, as it is not clear what problem they are actually addressing.  However, if you look at the subsequent development of Keynesian economics, it is pretty clear that Keynes believed that his policy would reduce the problem of deflation by boosting aggregate demand, not aggregate supply.  So far so good.  If we wanted to use the famous MV=PY equation, then Keynes seems to be arguing that more spending would boost V, although it is possible that there are some indirect linkages that would also boost M.  But in either case this raises the question:  If you want more M*V, why not just increase M?  Keynes would probably respond with some sort of liquidity trap argument, which we now know is wrong.

Hayek’s response is just as maddening.  Is he saying that increased thrift would not raise AD?  Or is he saying that it would not raise RGDP?  He does mention the fact that they all agree that deflation is undesirable, but then suggests that this is an argument against cash hoarding, not against saving.  Well yes, but the Keynesian argument can be translated into monetary language as follows:  More saving will lower interest rates and thus encourage people to hoard cash.  That argument may or may not be correct, but nothing Hayek has to say addresses this issue.  Hayek’s letter also contains some arguments based on real factors, such as frictions and misallocation, but those don’t directly address the Keynesian claim that more thrift lowers AD, and hence causes deflation.  And Hayek also misses the opportunity to push for more monetary stimulus (instead he discusses reforms such as trade liberalization), probably because at that time he was opposed to more monetary stimulus.  Trade liberalization is a good policy at any time, but doesn’t do much to address the problem of deflation.

And Mario Rizzo may have been too generous in assuming that Hayek opposed deflation.  Here is Rizzo:

The letter signed by F.A. Hayek and Lionel Robbins (and others) is noteworthy because, first, it makes clear that “everyone” is in agreement that deflation is not desirable and should be avoided.

And here is the Hayek passage he was commenting on:

“It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation in itself is desirable.”

Note that a careful reading of the letter shows that Hayek did not indicate that he opposed deflation, rather he suggested that no one thinks “deflation in itself is desirable.”  In fact, in 1932 Hayek favored deflationary policies as a way of reducing wage and price stickiness.  He thought deflation was bad, but was a price worth paying to eliminate the greater evil of wage and price rigidity.  In the 1970s he changed his views and regretted supporting deflationary policies in the early 1932s.  (Lawrence H. White provides the quotations in this article.)

To get intelligent commentary on the interwar situation, forget about Keynes and Hayek, and instead read Irving Fisher, George Warren, Hawtrey and Cassel.  They made mistakes too.  But at least they understood that monetary policy was the key to the Depression.

Rizzo concludes with the following observation:

It does not take much to see that the issues are basically the same today. The positions of the opposing sides are also the same. As I have said many times before, the great debate is still Keynes versus Hayek. All else is footnote.

I have to admit that a few years ago I would have thought Rizzo was wrong.  I thought we were far past the sort of sterile debates that occurred in the 1930s. I thought we had the models and policy tools necessary to address demand shortfalls.  But as should be obvious from my recent posts, during this recession we have reverted back to the muddled arguments of the 1930s, where concepts are not well-defined and it is almost impossible to figure out what model people are using or what policy goals they have in mind.  And that’s a shame.

PS:  Please don’t write in and say I misunderstood Hayek, and that he was interested in time, capital, disaggregation, blah, blah, blah.  I know that.  And I’m not saying his opposition to fiscal stimulus was wrong, or that all his “real” arguments were wrong.  It is quite likely that building swimming pools is not the best way out of a depression. But his arguments don’t address Keynes’ claim that less thrift would boost AD and stop deflation.  Even worse, I have the feeling that Hayek thinks he did address Keynes’ claim.

HT:  Tyler Cowen