Bad Decisions have to be Corrected

"The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand, which must cease when the increase of money stops or slows down, together with the expectation of a continuing rise in prices, draws labor and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate - or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganization of all economic activity." Explained Friedrich Hayek* (1899 – 1992).

The way it works is simple: an economy is geared to produce for real demand. Or it is misled by artificially low interest rates to produce for a level of demand that doesn't really exist. The deceit can go on for a very long time. But, eventually, some form of adjustment must take place - usually a recession restores order by reducing both production and consumption. If it goes on for too long, or to too great an extent, as it did in Germany in the late '20s, economic activity becomes disorganized, and the Great Depression was started.

Economists don’t collect the on-the-ground information businessmen do. Government control of our economic lives amounts to totalitarianism. Hayek wrote: “Economic control is not merely control of a sector of human life which can be separated from the rest, it is the control of the means for all our ends.” In other words governments shouldn’t control the economy!

Right now the economy faces a major recession most likely to develop into a Great Depression, after a minor recession in 2001 that initiated the present economic malaise. A dramatic resort to central planning held off the necessary slump. Alan Greenspan before and now Ben Bernanke cut lending rates. George W. Bush and now Obama boosted spending. The resultant shock of renewed, artificial demand not only postponed the present recession; it pushed consumers, investors and businessmen to make even more outstandingly bad errors. Investors bought stock with low earnings yields. Consumers went further into debt. Government liabilities rose. The trade deficit grew larger.
Even on the other side of the globe in China, foreign businessmen geared up to meet the phony new demand; China has enjoyed a capital spending boom as excessive as any in the world ever has seen.

All of those bad decisions need to be corrected, one-way or another. What remains to be seen is how. As yet experienced those will be corrected in a painful ordinary way - with a huge economic slump, and likely a very long one. Or, could it become an extraordinary painful one, with a disorganization of all economic activity?

Huge bankers’ bonuses lead to excessive risk taking that brought the financial crisis and the economy on its knees. Bailouts were made to keep the financial system afloat, the bonus culture continued, as a result bankers continues to be irresponsible in their handling and subsequently go on with its excessive risk taking. What has been learnt? Nothing. Governments want to curb the banking system with new rules, but no one will follow up, because the tax money earned by the government or municipalities (New York, London, etc.) is more important than the excessive risk taking.

Another stupid decision is the hype about CO2 emission that shall cause global warming and destroy our planet. First, it looks like the planet will be destroyed by its financial behavior instead of anything else.
Member Lezlie wrote in a comment on Global Warming Swindle:

“This whole idea that CO2's are causing global warming is completely a scam, as they always follow a warming which is naturally created by the sun every 1000 years or so.

It is being done solely for political power reasons so the elitists can further fleece the people of whatever they have left after collapsing the economy & stealing all they can. But that is not enough they now want to play god & say who can breathe. If they get away with this I bet there will be a direct tax on how many breathes you take a day.”

The economy needs to be restructured and not revived.
There is no straightforward solution authorities don’t have one! They just are experimenting with throwing taxpayers’ money. They are in a hurry to put things right, but don’t take the time to investigate what really brought us in this mess, and don’t analyze the situation thoroughly to come up with adequate solutions and approaches. There is plenty around to learn from. But if people are put in charge that created the mess, don’t expect workable solutions, like Einstein once wrote, “Never expect the people who caused a problem to solve it.”


*If any twentieth-century economist was a Renaissance man, it was Friedrich Hayek. He made fundamental contributions in political theory, psychology, and economics. In a field in which the relevance of ideas often is eclipsed by expansions on an initial theory, many of his contributions are so remarkable that people still read them more than fifty years after they were written. Many graduate economics students today, for example, study his articles from the 1930s and 1940s on economics and knowledge, deriving insights that some of their elders in the economics profession still do not totally understand. It would not be surprising if a substantial minority of economists still read and learn from his articles in the year 2050. In his book Commanding Heights, Daniel Yergin called Hayek the “preeminent” economist of the last half of the twentieth century.