Monday, January 12, 2009

 

Idle Resources: Does "Depression Economics" Change the Rules?

I argue "no" at mises.org. This article is on the long side, but I really thought it important to carefully pick apart the claim that tradeoffs disappear when there are unemployed workers and other resources lying around. An excerpt:
Although Krugman and Thoma have made the only rhetorical move left to salvage their disastrous recommendations, their claim is wrong: the normal rules of scarcity do still apply, even in the middle of a depression. No matter the scenario, government spending channels resources away from the private sector. Even if the project employs workers who were previously unemployed, this still retards the genuine, private-sector recovery from the slump, because that is one less worker available to be hired by an entrepreneur.

If the government wants the economy to recover as quickly as possible, the solution is simple: cut spending, cut taxes, stop inflating the money supply, and stop changing the rules every three days. But this solution won't be adopted, since it doesn't allow the politicians to pose as generous saviors.

# posted by Bob Murphy @ 9:55 AM


Comments:
Dr. Murphy,

Great essay. I would link it on Thoma's site, but it will likely get deleted, too.
# posted by Anonymous Anonymous : January 12, 2009 at 11:15 AM
 
Yes, it retards the genuine recovery, but I would add: governement spending is subject to opportunity cost (think Bastiat). Every resource we use now we won't be able to use tomorrow (nor now, since it crowds-out private investment, but as many would argue, there is not much private investment now anyway). And in the end, we're worse-off when factoring in the value of what's produced with these ressources.

To clearly evaluate the cost of the bailouts and stimulus, you need a dynamic analysis. T1 and T2.
# posted by Anonymous Anonymous : January 12, 2009 at 12:59 PM
 
You also made brief mention of tax implications, but didn't really emphasize government priorities toward spending as a tremendous burdon on the tax payer and the dollar itself. If we are to build bridges in EVERY corner of the US, so we help everyone equally, it will require vast sums of money that must be paid by actually functioning projects that are healthy. It may even cause some healthy projects to fail with increased tax burndons, artificially inflated increases in demand in labor, material, and availability, not to mention the prospects of removing the necessity of creativity within the market by inserting fake, temporary jobs where real, longterm industries must be created.

With that being said, I am a realtor in Seattle with a small group of subscribers to my articles. I would like to send my group this article. I know they would like it and we could get some really entertaining responses from some very conservative rich folks (a few actually seeing some of these government handouts...)
Please let me know if there is a problem with me using the article, samuelh@johnlscott.com

Thanks and keep up the great work!
# posted by Anonymous Anonymous : January 12, 2009 at 2:02 PM
 
Sam,

Feel free, just pls put the original Mises.org link.

Also, in my next article I hit the point more about how this is just redistributing wealth from taxpayers to the unemployed/other recipients of stimulus money.
# posted by Blogger Bob Murphy : January 12, 2009 at 2:12 PM
 
Bob, tradeoffs might not tradeoffs "disappear" when there are unemployed workers and other resources lying around, but aren;t they reduced?
# posted by Blogger TokyoTom : January 13, 2009 at 11:24 PM
 
Post a Comment

Subscribe to Post Comments [Atom]





<< Home

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]