Friday, October 4, 2013

Cochran on the Real Lessons Learned from Government Rescue Attempts

John Cochran has written an excellent essay "New Lessons from the 'Rescue' and the Failed Stimulus" correcting a faulty Wall Street Journal piece by David Wessell that seeks to uncover the lessons we have learned since the financial meltdown and recession of 2008.

Cochran notes:
Wessel appears totally oblivious to the fact that absent the Fed as an enabler with its overly expansionary credit creation policy, first in the 1990s, and then in the mid-2000s, neither the dot-com boom-bust with its unfinished recession, nor the housing bubble, general boom and subsequent bust, which precipitated the financial crisis, would have happened.
Cochran explains why both Fed intervention and fiscal stimulus were not merely useless, but actually destructive hindering recovery.

Such a conclusion is not a throwing up of the hands and embracing a do nothing policy. As I explain in my book Foundations of Economics, there are many things that the state can due to help usher in a quicker, sustainable recovery:
In order for entrepreneurs to redirect resources toward their most productive use, they must be able to calculate profit and loss using market prices. Therefore, the markets for all goods should be allowed to adjust to their new equilibrium levels. The money stock should in no way be inflated. Taxation, government spending, and regulation on business should be reduced.

No comments:

Post a Comment