It’s not really a mystery anymore. Actually it hasn’t been a mystery for 100 years or so. Economists have had a pretty good understanding of the what causes the business cycle since Mises and the other Austrian economists formulated it in the late 1800’s and early 1900’s. If I may drastically oversimplify , credit bubbles which frequently result from government interference in the capital markets cause an unsound investment boom which eventually has to result in a bust. (You just knew I’d blame it on the government didn’t you).
In the mid 70’s, I was studying economics in college. Keynesian economics tells us that when inflation is high, unemployment is low and vice-versa and that you combat recession by increasing spending and running deficits. My professors all seemed to throw up thier hands at the then current state of affairs including unemployment of over 8% and inflation of 14% – yes 14%. This was something never seen before, they said, we can’t explain it.
Pure and simple bullshit.
The Austrians have been explaining it for nearly 100 years. It’s all out there for anyone who wants to know. So why the braindead loyalty to Keynesian economics? Follow-the-money. Do you think the liberal establishment would EVER give up a rationale for increased spending and deficits? Keynesian economics is a pure and simple con to justify raping the economy by debt if not by taxes.
Of course Ron Paul has been saying this stuff ( a lot better than I do) for decades. The current rediscovery of clear Austrian answers to what the others consider illusive is lost on McCain and Obama but not on Bob Barr. Not only does he call the seizure of Freddie and Fannie the “bailout from hell” (we shouldn’t be rewarding economic incompetence on an enormous scale) but he points out that permanent tax cuts are what’s required to heal our economy, rather than one shot rebates or stimulus checks. People should know they can afford a new car or to add to their kid’s college fund – not just grab a new iPod. Uncertainty is a huge economic cost and fiscal whimsey at the hands of economically incompetent Republicans and Democratics is exactly why we are in this mess today.
BTW , let’s remember that what caused the disasterous economy of the 1970’s was a few decades of deficits, war and abandonment of sound money. Sound familiar?. Our leaders wouldn’t make the same mistake twice would they?
What fixed that disaster was massive deregulation (Carter and Reagen), huge tax cuts (Reagen) and comparatively better monetary policy by Paul Volker who managed growth in the money supply instead of interest rates. Volker was a monetarist – the alternative to Keynesian economics. Even back then we knew Keynesian economics was wrong. Monetarist theory attempts to avoid bubbles by growing the money supply at the rate of potential real growth , perhaps 3% , instead of constantly creating winners(bankers) and losers (businessmen, tax payers, wage earners, pensioners, YOUNG PEOPLE) by screwing around with interest rates. Hey – it worked pretty well in the early 80’s. Could we get an order of that ASAP?
Here’s an even better idea : Deregulate, big spending cuts ( it’s the war-stupid), big tax cuts and back the currency with gold so the government can’t screw it up.