Booms and Busts

Recorded at the Ludwig von Mises Institute; Auburn, Alabama; 8 October 2010.

Austrians get a bum rap for their prescription for recession. The readjustment process is not cruel; it is about permitting production to align more closely with consumer preferences. Recovery, like growth and development, requires forward-looking planning.

It is not the system of private enterprise and free markets that is responsible. It is the suspension of that system. It is not capitalism but interventionism and monetary uncertainty that are responsible for the persistence of the slump.

Some people are saying that all we need is optimism, as if our attitudes alone cause and fix the business cycle, and as if the real world doesn't matter at all. Actually, the "bad attitudes" of consumers and producers are the real fix: they lead to deleveraging and saving.

Shostak suggests that the NBER's definition does not provide an explanation of what a recession is all about. Instead it describes the various manifestations of a recession. And this is precisely what is wrong with it.

What matters for individuals is not whether they are employed as such but the purchasing power of their earnings.

Bernanke and the other macro wizards will just so happen to find that their models point them toward bailing out the major bankers and other politically connected titans of finance.

"Through Fed monetary policy, the dollar is cheapened to produce an economy on steroids that eventually breaks down."

By whatever name you call it, this massive "pump priming" by the US monetary authorities will engender exactly the same results it always has: malinvestment, dollar debasement, and speculative mania.

Discarding the possibility of a change in public labor policy, the only means of restoring equilibrium in the labor market is through a sustainable increase in aggregate demand for labor — an increase in private investment.