Tuesday, February 9, 2010

The cause of depressions

Excerpts: John Tamny, Searching for a better understanding of depressions

What economists, commentators and politicians refer to as economic "depression" is not really economic at all. Instead, it should be said that when economies incur prolonged downturns, they do so as a result of governments putting a wedge between the natural instinct to work, and reward for that same work.

In short, business failure of any kind logically could not lead to a lengthy recession thanks to the existence of entrepreneurs eager to fix that which hasn't worked in the past. Instead, the word "depression" can only be a governmental phenomenon whereby governments tax, regulate, inflate and generally reduce our ability to trade freely such that our economic freedoms are compromised, and entrepreneurial incentives are taken away.

1 comment:

  1. Like the Austrians say, depressions have been given a bad name. The "depression" is really the uplifting part of the business cycle because that is when misallocated resources find more economical purposes and the structure of production is being suited to the consumers' tastes.

    The "boom" is the problem because it corrupts the structure of consumer desires. I welcome depressions like I welcome coughing when I have a cold. Both are merely signals that the body is coming into proper alignment again.