Saturday, November 29, 2008

A Little Help from Gerard Jackson

Gerard Jackson has written a series of insightful articles about the likely consequences of the actions which appear forthcoming from the Obama administration. He is a pro at Austrian theory, and explains things much better than I do. Monetary Policy: Is the Fed Pushing on a Piece of String Obama's New Deal v. the US Economy Why Obama's Economic Program Will Collapse Most of my writing to this point has focused on the financial and debt problems, however, it is important to remember (as I have said before) that economics is really about stuff, not money. Money-stuff is just the medium we use for the exchange of stuff-stuff, and the problem with the government meddling with the money-stuff is that it causes distortions and irrational allocations of the capital-stuff we use to produce the consumer-stuff. The financial/accounting/debt problems are important in that they lead to malinvestment and distortions of incentives. Gerard Jackson points out a critical one: that by trying to "stimulate" consumption by transferring wealth from savers to spenders, either through "progressive" tax policy or through inflation, the result is to make business/production unprofitable. When there is no profit to be had, business has a tendency to stop producing the "stuff" we need, and people go unemployed. Once again, bad ethics (theft, redistribution) has bad consequences (poverty). The real solution is not to keep prices and wages at "reasonable" levels, according to government dictat, but to let them get to self-sustaining levels in the free market. This will allow entrepreneurs to "see" where shifts in production need to be made and new opportunities to satisfy consumer demand (and make a profit, by golly!) are to be found. Again, accurate price structures are the answer, not artificial ones. Take away the profit motive, and the entreprenurial genius rightfully sits on his hands.

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