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Frank Shostak

Frank Shostak

Articles by Frank Shostak

Why Government Should not Fight Deflation

5 days ago

For most experts, deflation is considered bad news since it generates expectations of a decline in prices. As a result, they believe, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in …

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More Government Spending Won’t Make the Economy Grow

20 days ago

A key factor that constrains people’s ability to generate goods and services is the scarcity of funding. Contrary to popular thinking, funding for consumption and production is not about money as such, but about real savings. Note that various tools and machinery or infrastructure that people have created is for one purpose. That purpose is …

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Why the Pursuit of Profit Makes Us All Better Off

24 days ago

In most cultures, profit is seen as the outcome of exploitation of some individuals by some other individuals. Hence, anyone who is seen as striving to make profits is regarded as bad news and the enemy of society and must be stopped in time from inflicting damage. Profit however, has nothing to do with exploitation …

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Economic Growth Does Not Cause Price Inflation

October 7, 2019

Some commentators are of the view that whenever the economy gains strength it should be the role of the Federal Reserve to step in at some stage and introduce a tighter stance in order to prevent a general increase in the prices of goods getting out of control. However why should economic growth be positively …

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Do We Need More Savings Before We Can Have More Lending?

September 26, 2019

There is an emerging view held by many commentators that it is banks and not the central banks that are key for the expansion of money. This way of thinking is promoted these days by the followers of the Post Keynesian school of economics (PK). In a research paper by the Bank of England’s Zoltan …

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How Central Banks Promote Money-Creation by Private Banks

September 21, 2019

Some commentators consider fractional reserve banking as a major vehicle for the expansion in the money supply growth rate. What is the nature of this vehicle? Fractional reserve banking arises because banks legally are permitted to use money placed with them in demand deposits. Banks treat this type of money as if it was loaned …

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More Money Pumping Won’t Make Us Richer

September 16, 2019

Whenever a central bank introduces easy monetary policy, as a rule this leads to an economic boom — or economic prosperity. At least this is what most commentators hold. If this is however the case then it means that an easy monetary policy can grow an economy. But loose monetary policies do not generate economic …

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Slowing Money Supply Growth May Trigger a Recession

September 9, 2019

A slight strengthening in the momentum of consumer expenditure has prompted many commentators to suggest that as long as the US consumer continues to spend there is no risk of a recession ahead. The yearly growth rate of consumer expenditure at current prices stood at 4.1% in July against 4% in June. Notwithstanding still buoyant …

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How GDP Measures Help Create the Illusion that Money Pumping Grows the Economy

September 2, 2019

In response to a weakening in the yearly growth rate of key economic indicators such as industrial production and real gross domestic product (GDP) some commentators have raised the alarm of the possibility of a recession emerging. Some other commentators are dismissive of this arguing that the likelihood of a recession ahead is not very …

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Does the Boom-Bust Cycle Ever Result from Commodity Money?

August 26, 2019

Following the Austrian Business Cycle Theory (ABCT), the boom-bust cycle emerges in response to a deviation in the market interest rate from the natural interest rate, or the equilibrium interest rate. As a rule it is held, the tampering with the market interest rates by the central bank sets the boom-bust cycle in motion. Would …

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Real Savings Are the Key for Economic Growth

August 22, 2019

As long as the pool of real wealth is expanding, easy monetary policy will appear to “work,” and  loose monetary policy is likely to be incorrectly held as generating economic growth. Once, however, the pool becomes stagnant or starts declining, the “music stops” and no amount of central bank monetary pumping is going to “work.” …

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GDP Growth Isn’t the Same Thing as Economic Growth

August 12, 2019

To gain insight into the state of an economy, most financial experts and commentators rely on a statistic called the Gross Domestic Product (GDP). The GDP framework looks at the value of final goods and services produced during a particular time interval, usually a quarter or a year. This statistic is constructed in accordance with …

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Price Stability Is Overrated

August 5, 2019

The idea of price stability originates from the view that volatile changes in the price level prevent individuals from clearly seeing market signals as conveyed by changes in the relative prices of goods and services. For instance, because of an increase in the demand for apples, the prices of apples increase relatively to the prices …

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The Fed Chairman and the Phillips Curve

July 30, 2019

On July 11, 2019, before the Senate Banking Committee, the Federal Reserve Board Chairman Jerome Powell said that the relationship between unemployment and inflation in the US has vanished. According to Powell, “The relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago … and has gone …

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Are Expectations the Driving Force Behind Business Cycles?

July 22, 2019

According to Ludwig von Mises’s Austrian Business Cycle Theory (ABCT), the artificial lowering of interest rates by the central bank leads to a misallocation of resources due to the fact that businesses undertake various capital projects that prior to the lowering of interest rates weren’t considered viable. This misallocation of resources is commonly described as …

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Central Banks Aren’t Really In Control of Interest Rates

June 25, 2019

For most experts the central bank determines short-term interest rates by setting the target to the benchmark policy rate such as the federal funds rate in the US. Many economists are of the view that through the manipulation of short-term interest rates, the central bank by means of expectations regarding future interest rate policy can …

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Money Velocity and Economic Growth

June 19, 2019

After rising to 2.198 in Q3 1997, the ratio of US Gross Domestic Product (GDP) to money supply M2 fell to 1.433 by Q3 2017. Since then the ratio has bounced slightly to 1.457 in Q1 2019. Economists label this ratio as the velocity of money. Some experts regard the steep decline in the ratio …

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Low Inflation Is No Threat to the Economy

June 19, 2019

“When interest rates are low central banks don’t have much room to maneuver to deal with a crisis,” the New York Fed President John Williams said on Wednesday, June 6, 2019. In addition, according to Williams “if inflation falls, central banks will have even less room to maneuver when faced with a slowdown.” Furthermore, said …

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Correlation ≠ Causation

June 2, 2019

Often we observe that two pieces of data, which are not supposed to have any relationship, appear to have very high visual correlation. For instance, we may discover strong correlation between the intensity of a dog barking and movements in stock prices. One is then tempted to take advantage of this discovery in order to …

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The Real Meaning of Deflation

May 26, 2019

For most experts, deflation is bad news since it generates expectations for a decline in prices. Because of this, it is held, consumers postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. Consequently, this weakens the overall flow of current spending and this in …

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The Balance-of-Payments Myth

May 21, 2019

In March, the US trade account balance stood at a deficit of $ 50 billion against a deficit of $49.28 billion in February and a deficit of $47.4 billion in March last year. Most commentators consider the trade account balance as the single most important piece of information regarding the health of the economy. According …

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The Subsistence Fund Is the Heart of Economic Growth

May 12, 2019

What characterizes the modern economy is its complex structure of production that seemingly generates an endless amount, and an endless variety, of goods. It seems that the production structure has, as it were, a self-generating mechanism. Careful examination, however, shows that without a key ingredient, the entire infrastructure could not have emerged. The ingredient that …

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Economic Models vs. The Real World

May 7, 2019

The government’s releases of various economic indicators such as GDP, CPI and unemployment receive wide coverage in the media. In a measured and authoritative voice, various economists and other experts who are interviewed discuss their views regarding the health of the economy. A rise in an indicator such as GDP is interpreted as good news …

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How Human Action and Human Values Determine Prices

April 20, 2019

Why do individuals pay much higher prices for some goods versus other goods? The common reply to this is the law of supply and demand. What is behind this law? To provide an answer to this question economists refer to the law of diminishing marginal utility. Mainstream economics explains the law of diminishing marginal utility …

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The Neutral Interest Rate: The Fed’s Impossible Goal

April 13, 2019

It is widely accepted that by means of suitable monetary policies the US central bank can navigate the economy towards a growth path of economic stability and prosperity. The key ingredient in achieving this is price stability. Most experts are of the view that what prevents the attainment of price stability are the fluctuations of …

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Does Economic Stability Contribute to Growth?

April 11, 2019

During the period 1920 to 1960, we can observe that the annual growth rate of production was more volatile than between the period 1961 to February 2019. During the first period the maximum growth rate stood at 62% and the minimum growth rate at minus 33.7%. Between 1961 to present, the maximum growth rate stood …

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Can Government Stimulus Bring Us Out of Recessions?

April 3, 2019

When signs of economic weakness emerge, most economics experts are quick to embrace the ideas of John Maynard Keynes. For most economists, the Keynesian remedy is always viewed with positive benefits — if in doubt just push more money and boost government spending to resolve any possible economic crisis. In this way of thinking, economic …

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Central Banks Shouldn’t Fight Deflation

March 29, 2019

The real problem was the money supply inflation that happened during the boom phase. Combating deflation in the bust phase only superficially treats a symptom of the boom-bust cycle. Original Article: “Central Banks Shouldn’t Fight Deflation”.

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