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Subject:
Obama's Stimulus Package
Hugo
11/10/2009 8:58:49 AM
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| With the US and other governments currently engaged in massive debt financed spending, or "stimulus" packages, I thought it was time to recall what a genuine economist had to say about such policies. Friedrich Hayek at his Nobel Prize reception lecture in 1974,
"In fact, in the case discussed, the very measures which the dominant "macro-economic" theory has recommended as a remedy for unemployment, namely the increase of aggregate demand, have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. 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 the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour 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 disorganisation of all economic activity. The fact is that by a mistaken theoretical view we have been led into a precarious position in which we cannot prevent substantial unemployment from re-appearing; not because, as this view is sometimes misrepresented, this unemployment is deliberately brought about as a means to combat inflation, but because it is now bound to occur as a deeply regrettable but inescapable consequence of the mistaken policies of the past as soon as inflation ceases to accelerate."
If Professor Hayek is correct, and I unconditionally believe he is, then our current governments (I do not exclusively refer to Obama's or even contemporary regimes) have chosen very erroneous, wealth destroying, socially damaging and counter-productive policies indeed. Unfortunately the nature of Keynesian policies is that they are economics' version of the perpetual motion machine. The more destructive they prove, the more politicians sceam for increased government action and so on. |
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