I am principally interested in his comments from 7.47, where talks about the Austrian business cycle theory (ABCT). All of the flaws of ABCT are in display.
Some points:
(1) Garrison blames the central bank for the crisis, and repeats the ABCT explanation. Garrison relies on the unique natural rate of interest concept, which simply does not exist.
(2) Garrison ignores the role of asset bubbles funded by excessive consumer debt.
(3) His “free market in loans” explanation of the interest rate is a flawed real theory of the interest rate. Its analysis is an invalid attempt to model a modern monetary economy as though it were a barter economy where loans are made in real goods.
(4) Roger Garrison reveals that he is a free banker. He attempts to blame the central banks for over-issue of money, and absolve fractional reserve banking of responsibility. This strikes me as highly problematic. If Garrison is a free banker and supports banks issuing fiduciary media (in a commodity money system), then surely (according to Garrison’s own logic as the leading proponent of ABCT), it will be recipe for an economy hit by perpetual Austrian trade cycles. The idea that competitive free banking will not over-issue notes strikes me as devoid of any empirical evidence: many countries had no central bank in the 19th century (Australia, the US etc.), yet these nations still had business/trade cycles. Unless Garrison wants to explain those cycles without ABCT, then what caused these business cycles?
(5) Garrison admits that QE1 and QE2 have not increased the broad money supply significantly. Yet he still conjures up scare-mongering images of hyperinflation by the excess reserves entering the economy. Garrison’s idea that we are in unchartered territory with QE is false. Japan already did QE from 2001 to 2006. Japan’s experience with QE shows us how nonsensical these ideas are, and confirms the endogenous theory of money. Deflation continued for years despite QE by the Bank of Japan. Lending is demand constrained, and central banks can drain excess reserves without difficulty. If one wants to stop cheap money from a zero interest rate policy (ZIRP) or QE from being used in commodity and asset speculation, one can impose financial regulation on the flow of credit.
(6) Garrison, like most Austrians, is clueless about the recession of 1920–1921. The interested reader can see my debunking of the Austrian nonsense about that recession here:“The US Recession of 1920–1921: Some Austrian Myths,” October 23, 2010.(7) The claim that the New Deal made everything worse is false. America experienced a recovery from 1933–1936 under Roosevelt, with high real GDP growth and falling unemployment. When contractionary fiscal and monetary policy was implanted in 1936-1937 the economy collapsed into recession.
“There was no US Recovery in 1921 under Austrian Trade Cycle Theory!,” June 25, 2011.
The recovery in 1937 onwards was accomplished by increased fiscal policy. While the cartelist and price-fixing elements of the National Industrial Recovery Act (NIRA) were hardly any great aid in recovery and may have harmed it, this was the view of Keynes himself.
(8) Garrison’s explanation of stagflation does not move beyond a simple critique of neoclassical synthesis Keynesianism. He displays no knowledge of Post Keynesianism, or the fact that stagflation can be easily explained by Keynes’s General Theory.
