So when Henry Paulson argues that it is necessary to pump money into credit markets to prevent them from freezing up, he doesn't bother to realize that the money he pumps into the credit markets is coming directly out of the very same credit markets.
Those of us not receiving the new money will be crowded out of the market only to see the prices of our purchases rise and our planning and value of our savings dissipate as it takes more and more money to do in the future what we could today have done for less.
The law of comparative advantage tells us that no matter how much more productive they are than the rest of us, even people who are very productive can be made better off by trading with people who are not.
Bernstein's book takes us outside the here and now and helps us understand the big picture, and he does this by looking at the details of goods traded in lands far away in all times.
By outlawing short selling, the Securities and Exchange Commission outlawed a practice that produces information necessary for financial markets to function smoothly.
Q: So what's the solution?
A: Get out of the way. Let the market work.
If the market is left to its own devices, the price will be an accurate reflection of what something is worth at a given point in time. When the government intervenes, it forces the prices to lie: the signals about the costs and benefits of different actions will be distorted.
It was Boetie's view that the state is the least plausible institution on earth, one that would be overthrown in a day but for propaganda and ideological error.
"The government package is not going to rescue the economy, but it will rescue activities that the economy cannot afford and that consumers do not want."
It was credit expansion and the attempt to keep prices high that prolonged the Depression, which would otherwise have ended by 1931 or 1932. On this point Bernanke is all wet.
