Many advocates claim government intervention is necessary because markets are too unstable. The real instability, however, comes from the immense uncertainty over what government will do next with its vast and arbitrary power.
The fact that central bank policies become ineffective in reviving the economy is not due to the liquidity trap, but because of the decline in the pool of real savings. This decline emerges due to loose monetary and fiscal policies.
A common view is the bust is caused by various mysterious factors that have nothing to do with the previous boom. But that the main problem with Friedman’s model is the lack of a coherent definition of what a boom-bust cycle really is.
Behavioral economists say that since individuals are irrational, we need more state intervention in the economy. However, their criticism can be turned around: if individuals are irrational, government power is especially dangerous.