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.

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