Reply #29: The Anatomy of Growth [View All]

[54anickel]

Long, but interesting read.

http://www.mises.org/fullarticle.asp?control=1491&id=67

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To make this more immediate, look at what those who read the financial press, listen to the business news, or follow the knockabout of politics, should recognize as what passes for popular wisdom today:

/snip> Then it goes on to dispute a long list of what been reported in the media as signs of a recovery and the wonderful fiscal policies that are being credited for that recovery.

snip>

Thus, the artificial boost delivered by a 25% currency devaluation, negative real interest rates, and a $500 billion budget deficit might yet dissipate itself in a variable and inherently unpredictable rise in costs. This will dash any entrepreneur's hopes of securing healthy gains from the rise in the prices he expects to receive.

If so, it will usher in a renewed stagnation in production—a stagnation which, remember, will be partially disguised by the helpful inflationary effects of government fiscal and monetary policy for a few fortuitous industries.

If this is not to lead to a commensurate reduction in consumption, it can only be offset by recourse to yet more credit, credit presumably built on further asset price inflation, especially in the housing market (if the Fed is lucky).

Indeed, to keep this game going will require a good deal of finesse, another large dose of disingenuousness regarding inflation and—you may want to underline this—a further period of inordinate laxity in setting interest rates.

Therefore, the overriding imperative to avoid a housing implosion, coupled with the self-imposed erosion of America's competitive edge on the world labor market, seems almost to guarantee that policy, both here and abroad, will stay too loose for too long in the vain belief that this will ease the problems caused by previous policy that was too loose for too long!

Thus, the likelihood is that the development of full-blown symptoms of an inflationary excess across much of the globe is presently as much of a certainty as anything in this volatile world with its top-heavy, distortive, and unstable monetary system can ever be.

Pessimists—especially the foreign variety who have investments tied up in the US—will here find resonance in the words of the Yankee treasury secretary, Henry McCulloch, quoted by Henry Hazlitt in The Inflation Crisis and How to Resolve it:

"It is corrupting the public morals. It is converting the business of the country into gambling and seriously diminishing the labour of the country. . . . Men are apparently getting rich while morality languishes . . . . Upon the demoralizing influence of an inconvertible government currency it is not necessary to enlarge. . . . It is not to be expected that a people will be more honest than the government under which they live, and while the government of the United States refuses to pay its notes according to their tenor . . . it practically teaches the people the doctrine of repudiation."

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