TeeJaw Blog

Recessions End — If Only Politicians Will Allow Them To

Posted in Economic Theory, Government and Politics by TeeJaw on Tuesday, February 15, 2011, 11: 11 AM

The Heritage Foundation has posted F.A. Hayek’s top ten do’s and don’t in a recession.

Here’s my attempt to condense them into one sentence:

Recessions in a complex free market are normal and constitute a necessary and wonderful self-correcting mechanism to restore equilibrium if, and only if, central planners restrain their urge to interfere with these natural processes by imposing cures which are invariably worse than the disease and lead to further disease in the economy.

You still need to read them all, one sentence can’t do justice to it.

The current recession ended, we are told, in June of…was it 2009 or 2010? I forget. That may be technically true by the definition given to what is a recession by the so-called experts. But if you are still unemployed, or you have seen your cost of fuel and food increase dramatically while your income stayed the same or went down, the so-called end of this recession may not mean much to you. That is what the rule of experts gets you.

While on the subject of recessions, Here are a some ideas once considered blasphemous but increasingly becoming accepted as historical fact:

  • FDR’s New Deal did not save the country from the Great Depression. It turned what might have been a severe recession into a depression and prolonged it beyond the point where it would have ended on its own.
  • It is not correct to say World War II ended the Great Depression. It is more correct to say World War II ended the New Deal which together with war time production allowed the Great Depression to end. Even without war time production, the Great Depression would have ended almost as quickly once the New Deal was stopped in its tracks.
  • The government under both Hoover and Roosevelt created the Great Depression by enacting the Smoot Hawley tariff, the Federal Reserve imposed a tight money policy, and taxes were raised dramatically. If there had been no New Deal, and none of the government actions mentioned above, there would have been a recession but not a depression.

A key quote from F.A. Hayek which once understood makes it clear: “The purpose of economics is to teach men how little they actually know about what they imagine they can design.”

The lessons of history are poorly learned.  The problems in the healthcare and health insurance could have been easily cured by repealing state and federal legislation that was causing the trouble, but instead Obamacare was enacted.  Like the New Deal and the Obama Stimulus it’s a cure worse than the disease that will lead to further disease.

What is needed is greater respect for positive non-intervention.

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