Inflationary Recession, Once More — Summary

This file is a short standalone economic polemic by Murray N. Rothbard. Its scope is deliberately narrow: Rothbard reads the current downturn through a repeated historical pattern in which official optimism, central-bank confidence, and “fine-tuning” precede recession rather than prevent it. The essay’s opening conceptual move is to turn establishment complacency itself into evidence.

I am by no means a complete "contrarian," but I have one contrarian index to offer as a sound "leading indicator" of recession: every time establishment economists and financial writers trumpet the existence of a brave new world of permanent boom with no more recessions, I know that a big recession is just around the corner.

Rothbard structures the argument historically. The late 1920s “New Era,” the Keynesian confidence of the 1960s, and the Reaganite optimism of the 1980s all serve as examples of the same error: economists and policymakers repeatedly declare the business cycle conquered just before it returns. His main thesis is not simply that recessions recur, but that the modern interventionist regime has produced a worse hybrid: recession with continuing price inflation.

A half-century of Keynesian fine-tuning (from which we still suffer, despite the Reaganaut label) has not cured inflation or recessions; it has only accomplished the feat of bringing us both at the same time.

The essay then attacks the institutional management of recession knowledge. Rothbard treats the National Bureau of Economic Research not as a neutral oracle but as a symptom of the same technocratic culture: it waits too long, privileges dating precision over practical recognition, and thereby deprives the public of timely judgment.

The problem is that it takes many months into a recession for the NBER to make up its mind: by the time it pronounces that we're in a recession, it is almost over.

Against this caution, Rothbard makes his own diagnosis directly. He cites housing, unemployment, debt liquidation, and related indicators as sufficient grounds for declaring the downturn already underway. The point is partly methodological: economic judgment should not be suspended until an official committee has completed its retrospective classification.

Looking at the housing market, unemployment, debt liquidation, and many other factors in 1988, I am willing to state flatly that we are in another inflationary recession.

Rothbard’s Austrian framework appears most clearly in his account of recession as a painful but necessary liquidation of prior errors. He welcomes economists who describe recession as a cleansing of malinvestment and unsound debt, because this implicitly accepts the Austrian business-cycle view: booms generated by credit expansion distort investment, and downturns reveal and liquidate those distortions. His target is therefore not recession as such, but the inflationary credit and policy interventions that make the cycle more destructive.

The policy section sharpens the polemic. Rothbard argues that the dominant political response—raising taxes—is indefensible from every major economic standpoint. Tax increases, in his view, suppress saving, investment, and productive consumption while encouraging further government expansion.

Every school: Austrian, Keynesian, monetarist, or classical, would react in horror to such a plan, which obviously worsens a recession by lowering saving and investment, and productive (as opposed to parasitic and wasteful government) consumption.

His deficit argument is also political rather than merely accounting-based: higher taxes will not restrain the state, because they will become the occasion for more spending. The real burden is not only the deficit but the size and claims of government itself.

The one thing worse than a deficit, furthermore, is higher taxes; increasing taxes will only bring us more of both.

The essay concludes with a compact Austrian program: stop inflationary credit expansion, cut taxes, and cut government spending more drastically still. Its relevance lies in the way it joins business-cycle theory, institutional skepticism, and fiscal critique. Rothbard’s central conceptual moves are to treat elite optimism as a warning sign, reinterpret stagflationary recession as the predictable result of interventionist “fine-tuning,” reject delayed expert certification as a substitute for economic judgment, and present recessionary liquidation as the route back to sustainable growth rather than as a problem to be papered over by credit, spending, or taxation.