Thursday, January 08, 2009

Lowering Expectations

Obama now says that if the government doesn't do anything, the current slump will last for several years. Saying that now of course provides him with a higher probability of perceived success by, as a continued slump would be interpreted as at least not having made things worse, while some form of recovery would be credited to him.

In reality, government intervention will ensure that the problems continue. While the "stimulus package" combined with higher doses of inflation might provide a recovery in at least official statistics, any such hypothetical recovery will likely be short-lived, and followed by more slumps, similar to the pattern of short-lived recoveries in Japan in the 1990s.

The way to provide a really lasting recovery would be to follow the more non-interventionist path of Warren Harding during the deep but very short-lived 1920-21 slump, as described by for example Jim Powell here.


Anonymous Jon said...

Powell's article states that the roaring 20's were a direct result of the taxing and spending decreases Harding implemented. But Austrian's usually attribute the boom to the Fed inflating the currency. I realize it could be both, but how do you decouple the two causes if you can.

12:51 AM  
Blogger GS751 said...

Well Said

2:15 AM  
Blogger stefankarlsson said...

Jon, I don't see the problem in acknowledging that the boom of the 1920s had both a sound and an unsound component. In what way do you mean it should be decoupled?

9:20 AM  
Anonymous Jon Robinson said...

I guess I would want it to be decoupled so you could show that both are right and to what degree if possible. What would keep someone from saying we don't need to lower taxes and decrease spending because we can just inflate the money supply to stimulate the economy? Or, what would keep someone from attributing the crash to lack of government spending? I believe the Austrian method of applying logic based on a priori knowledge can be used to analyze and correctly interpret the facts and furthermore in accordance with moral laws (private property). What is the reason these methods aren't regarded highly in most circles then? Why the argument over every historical aspect of economics?

10:15 AM  

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