Tyler Cowen: prediction

Transcript context

…That may be, but I think there’re always two issues in a crisis. It’s can you prevent the crisis on the front end? And then what do you do once you’re in a crisis on the back end? It’s interesting that not only did they not choose to try to do something to prevent it, demonstrably, on the front end, and maybe you would have been very rational to have chosen not to do anything. But on the back end, when there was a debate about could you lower interest rates, flood the system with money? Obviously, the gold standard comes into play there and becomes very complicated, but there were obviously discussions about moving off of that, and that would have ultimately been the right thing to do, and probably would have been the right thing to do earlier than they did. For the most part, they sat on their hands. The good news is Ben Bernanke, I think, learned a lot of these lessons when he was doing his PhD at Princeton and took some of those lessons into the 2008 financial crisis, where he did decide to flood the system with money. While politically, it might have been a problem insofar as there were a lot of questions about bailouts and what the Fed did in that context, I think on a practical economic basis, it worked. I think two things I would have done is, have something like deposit insurance to begin with, and then do what Sweden did and get off the gold standard as quickly as is necessary, and then, I think, it would have been quite a mild downturn had one done those two things. And the Fed shouldn’t have to be worrying about what’s the right interest rate, because they don’t know, just like they don’t know now. They cut rates again as we’re speaking, what? It was yesterday. Some people think there is speculative fervor in the stock market. This is debatable, but it might be true, and they’re cutting rates? I don’t think they know. I’ll just go back to 1929 for a second in terms of, had there been bank capital requirements, for example, that would have changed some of this dynamic. Had there been restrictions on margin loans and maybe the amount of leverage people could capture. People were walking into brokerage houses all over the country, which had sprung up like Starbucks on the corners, and you’d give them $1 and they’d give you $10. I always wondered to myself, had somebody just stood up and said, “We’re not doing that anymore.” “Two to one, three to one — we’re good with that. After that, this is not allowed.” By the way, Carter Glass — in this book, he’s trying to impose a tax on trades. I’m not saying any or all of these things would have prevented it, but possibly there were measures you could have taken, and for lots of reasons, obviously, they weren’t.…

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