Tuesday, August 24, 2010

Economic Unintervention

"Right now, conventional wisdom says that the Fed should flood the economy with money and credit. But as we can see, it is precisely this path that created the problems to begin with. Besides, Japan tried this trick in the 1990s, even lowering interest rates to zero, without effect.
No Austrian economist was surprised when the Fed's dramatic interventions produced no lasting effect on the markets. Clemenza is correct to this extent: there is bad blood in the economy and it needs to be drained.
There are ways to make recessions easier to endure. Cutting taxes is one of them. Getting rid of regulations that hinder enterprise is another. The purpose of such efforts is not to stimulate demand (as Bush's advisers seem to think) but to unshackle entrepreneurship and permit the consuming public more freedom of choice."

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