July 25, 2011

The Surgery Was a Success, but the Patient Died.

Pretty please take time to read Tom Price's latest piece.

My favorite part:

Rothbard‟s thesis is most striking in relation to the role of government. His first and clearest injunction to return the economy to “normal” prosperity is: don‟t interfere with the market‟s adjustment process.

“The more the government intervenes to delay the market‟s adjustment, the longer and more gruelling the depression will be, and the more difficult will be the road to complete recovery.

Government hampering advocates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure.”

Rothbard goes on to list the various ways that government might hamper the market adjustment process. The list exactly constitutes the preferred “anti-depression” measures of government policy. What is striking today is how many of these measures are being actively pursued by western governments. The most egregious are highlighted below:

Prevent or delay liquidation: by lending money to shaky businesses, calling on banks to lend further, etc.

Inflate further: further inflation blocks the necessary fall in prices, delaying adjustment and prolonging depression.

Keep wage rates up: artificial maintenance of wage rates in a depression ensures permanent mass unemployment.

Keep prices up: keeping prices above their free market levels will create unsaleable surpluses, and prevent a return to prosperity.

Stimulate consumption and discourage saving: any increase in the relative size of government in the economy encourages people and companies to consume rather than invest, and prolongs the depression.

Subsidize unemployment: any subsidisation of unemployment will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are available.

Paul Ryan to Ben Bernanke

Congressman Ron Paul addressing US Federal Reserve chairman Ben Bernanke, Financial Services Subcommittee on Monetary Policy, July 13, 2011:

“We hear that in the future we’re going to have a better economy and everybody hopes so, but it’s hard for me to believe because I look back on our past three years and what Congress has done and what the Fed has done is literally injected about $5.3 trillion and I don’t think we got very much for it. The national debt went up by $5.1 trillion; real GDP grew by less than one per cent; unemployment really hasn’t recovered – we still have 7 million people that have become unemployed.. one statistic that is very glaring if you look at the charts is how long people are unemployed. The average time used to be 17 weeks – now it’s nearly 40 weeks. Nothing there reassures me.. Also, when we talk about prices, we’re always reassured that there’s not all that much inflation, and we’re told that they might start calculating inflation differently with a new CPI.. of course, we changed our CPI a few years back. There’s still a free market group that calculates the CPI the old-fashioned way. They come up with a figure – despite all this weak economy – that prices have gone up 35%, 9.4% every year, and I think if you just went out and talked to the average housewife, she might believe the 9.4% figure rather than saying it’s only 2%. So I would say what we’ve been doing isn’t very reassuring with all this money expenditure.. Spending all this money hasn’t helped. That $5.3 trillion didn’t go to consumers, it went to buying bad assets, it went to bailing out banks, it went to bailing out big companies.. lo and behold, the consumer didn’t end up getting this, the consumer lost their job, their houses and their mortgages..”

The Proper Role of Government

I saw this over at Cafe Hayek and thought it was one of the best things I have ever read on the role government should play in our society and lives:

The passage below is from an essay written in 1830 by Thomas Babington Macaulay; its title is “Southey’s Colloquies on Society“:

It is not by the intermeddling of [English poet laureate] Mr. Southey’s idol, the omniscient and omnipotent State, but by the prudence and energy of the people, that England has hitherto been carried forward in civilization; and it is to the same prudence and the same energy that we now look with comfort and good hope. Our rulers will best promote the improvement of the nation by strictly confining themselves to their own legitimate duties, by leaving capital to find its most lucrative course, commodities their fair price, industry and intelligence their natural reward, idleness and folly their natural punishment, by maintaining peace, by defending property, by diminishing the price of law, and by observing strict economy in every department of the state. Let the Government do this: the People will assuredly do the rest.