A quick thought on Tom‘s Skousen podcast today. Skousen expressed dissent from the general tendency amongst Austrians to always be fearing the next financial bust, instead arguing that people ought to invest in the markets. He argues that the reason the US stock markets constantly do well year over year is because we are still a relatively capitalistic economy with enough freedom to encourage capital accumulation and profits, reflected in rising asset prices.
This is the type of thinking that I wanted to disagree with in my recent piece at Mises.org. I dont think this is why the markets seem to be forever on an upward trajectory. I think that the result of the nature of the Fed’s monetary expansion post 1980s is why the stock market seems to go up in perpetuity (with a handful of hiccups along the way of course). It has nothing to do with “free enterprise.”
I agree with Skousen that Austrians shouldn’t be so bear-market-oriented, but the reason for this is because of the power of the Fed and its Open Market Operations, not capitalism. I’ve been talking about this in depth with Robert Blumen, and it’s remarkable that not very many Austrians see the market as a result of the shift in the way government deficits have been funded since the Volcker years.
If anyone is interested in exploring this phenomenon in further detail, see the links in my article, but more importantly, David Stockman describes this transition in The Great Deformation in the section on the T-Bill Standard.