This “Summer Seconds” series gives you a second chance to read classic posts from the NOT PC archives. This time, part of a piece written back in October 2008, before the last election, when I was among those warning that all the remedies bandied about by all the alleged economists would not generate recovery, would delay whatever turnaround might have happened, and would instead be the cause of other, further, crises—just as those remedies did when the likes of Hoover and Roosevelt used them to extend the 1929 correction for another fifteen years.
When markets need to correct, when real savings are being consumed on malinvestments that urgently need to to closed off, then here's seven things you can do to make sure that the necessary correction will not happen [with the more rational reaction shown in square brackets]:
- Prevent or delay liquidation by propping up shaky businesses and shaky credit positions. [Better instead to flush out the malinvestments quickly, so recovery can get under way.]
- Further inflate the money supply, creating more malinvestments and delaying the necessary correction. [Better to maintain the currency’s purchasing power rather than dilute it.]
- Keep wage rates up --or keep money wages constant when prices start falling (which amounts to the same thing) -- which in the face of falling business demand is a sure recipe for unemployment. [Better to take your cut now, and give your business a chance to restructure.]
- Keep prices up (by means of the likes of green-plated building regulations) or add new costs to struggling businesses (such as the dopey Emissions Tax Scam), delaying the necessary corrections that will make businesses profitable again. [Better to let prices fall to the new level they need to post-crash. Trying to help recovery by artificially re-inflating prices is like backing over someone you’ve run over in your car, and hoping that will make your victim better.]
- "Stimulate" demand by spending on "infrastructure" projects just to make it look like the government is doing something -- when what that something actually does is to take money from profitable businesses in order to bid resources away from struggling businesses. [Better if government cuts its coat according to its new cloth, without competing with struggling businesses and raising the prices of now-much-scarcer resources.]
- Discourage saving and investment by increasing government spending (all of which is consumption spending) and maintaining high tax rates. [Better if government cuts its coat according to its newly poverty-stricke cloth, without taking now-much-scarcer resources away from struggling businesses.]
- Subsidise unemployment with make-work schemes paid out of money from profitable businesses that bid resources away from struggling businesses, delaying the shift of workers to fields where genuine jobs would otherwise be available. [Better to abolish all minimum-wage laws, so everybody who wants to work can work—and work in a job that pays its own way.]
As Murray Rothbard points out in America's Great Depression (from which I draw the above seven points) when you list logically the various ways that government could hamper market adjustments and hobble the adjustment process, you find that you have precisely listed the favourite "anti-depression" arsenal of government policy.
[ I said in 2008 that all these variants of stimulunacy would be used, and would fail—just as they were and did in the First Great Depression. Sadly, I was right. ]