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A Kind Word for the Austrian School

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  • A Kind Word for the Austrian School

    A Kind Word for the Austrian School
    July 2006 (Paul McCulley - PIMCO)

    Bill Gross teases me that I’m not just a Keynesian, but a religious Keynesian. There is an element of truth to that, as evidenced by the fact that the only major piece of art that I own is a portrait of Keynes by Salisbury, the preeminent portrait artist of Keynes’ time. And it hangs in my office, presumably watching over me. So, Bill does have a point.

    As a practical matter, however, I also have deep appreciation for other schools of economic thought. And, yes, that includes the Austrian School. Indeed, there is much overlap between Keynesian thought and Austrian thought, even though many think they are antithetical lines of thinking.

    I was reminded of this recently when reading a brilliant essay by William White, of the Bank for International Settlements – Is Price Stability Enough?1 Mr. White’s core thesis is that low and stable inflation in goods and services prices, presumably the holy grail of central banking, is not a guarantee of steady growth in real economic activity.

    AntiSpin: If we were avowed Keynesians at a time when the U.S. government is running a quasi- Kleptocracy in the name of Keynes, I'd be creating a bit of distance between myself and Keynes, too. It's a great piece. The money shot comes from Greenspan:

    "In perhaps what must be the greatest irony of economic policymaking, success at stabilization carries its own risks. Monetary policy – in fact, all economic policy – to the extent that it is successful over a prolonged period, will reduce economic variability and, hence, perceived credit risk and interest rate term premiums."