The REAL Solution to the Coming Economic Crisis
My previous article demonstrated how the free market solves a boom-bust crisis and is the only solution, its effectiveness depending upon the magnitude of the crisis and, more importantly, how much the government intervenes in response. The bigger the problem created by the Fed, the greater the crisis and the more government intervenes, and the slower the economy recovers.
Here we consider how the market works most effectively, with the efficiency of the process maximized by policy restraint. Like most illnesses, recessions can be “cured” with rest, hydration, nutrition, and fresh air, rather than major surgeries and dangerous medications.
The solution begins with getting rid of the initial monetary causes and allowing market participants, especially entrepreneurs, to adjust to the new conditions. Entrepreneurs will reallocate resources according to current consumer preferences and away from the previous policy allocations. There is no easy, straightforward market playbook for an individual entrepreneur to consult. Should a pizza restaurant stay open one hour later or use in-house delivery drivers? The owner could figure it out, but policy makers would have no idea of where to even begin to answer such questions.
Consequently, policy makers approach the problem with a high level of ignorance. Their policy “tools” are simplistic, nonspecific, and almost uniformly counterproductive. Therefore, any attempt at policy mitigation will only worsen and lengthen the negative impacts of the crisis. As Murray N. Rothbard concluded, “Government hampering aggravates and perpetuates the depression.”
However, the bureaucratic mind of public officials goes “warbling back to the fire” of more government intervention, and this is the big danger. They have no ideas or policy tools that work. The costs they impose and the agony they create are pain they do not endure themselves, creating huge burdens and destroying resources in the process.
Public officials might be lauded for their efforts to “do something” to address the crisis, but their efforts only undermine corrective and recovery efforts. FDR’s manic “New Deal” of government intervention in the Great Depression actually was a decade of dismal failure leading to catastrophe. Hence, we need to understand the crisis and the correct solution in order to avoid economic disaster.
The correct policy to address the economic crisis is referred to as laissez-faire. The marquis d’Argenson used this phrase for the first time in print in 1751. It was first uttered years earlier by a French entrepreneur to the famous French finance minister and mercantilist the “Great Colbert” in response to a question of what the state can do to help the economy. (France ignored the advice, and a century later, French society was torn asunder by government intervention and hyperinflation.)
The phrase means “leave it to us” or more bluntly, “leave us alone.” There are many policies that enhance economic recovery and growth, but this standalone cure for the cycle crisis simply requires a noninterventionist government stance. This policy regime allows the curative process of the market to work as quickly, effectively, efficiently, and humanely as possible to resolve the crisis.
This solution is so unsatisfying to the bureaucratic mind that some specifics are in order. Here we borrow from Rothbard’s depression policy recommendations.
First, stop inflating the money supply and refrain from intervening in the credit markets. Ideally, markets should be alerted that this neutral stance is just the initial phase of a longer-term policy of monetary reform that involves the closing of the Fed itself and doing away with all the props to monetary policy, such as fiat money, fractional reserve banking, and the Federal Deposit Insurance Corporation.
Early social man viewed money suspiciously and latched on to the notion that money was the key to wealth disparities. It is true that
Article from Mises Wire