Economies Don’t Die

Monty Pelerin * EconomicNoise.com

This country will die. History will record the cause as due to an event worse than the Great Depression. That diagnosis will be wrong.

Economies do not die except when they are murdered. Free markets are self-equilibrating, healing themselves unless they are prevented from doing so.

The very purpose of government intervention is to produce outcomes that otherwise would not occur. Intervention is always an attempt to overcome the natural equilibrium at which an economy would settle. Its very purpose is to thwart the intentions of individuals who make up the economy. Intervention is intended to alter the natural healing process.

Every so-called “economic” problem can be traced back to prior political intervention(s). Political actions deemed necessary today result from damages inflicted by prior government interventions.

Damages and distortions are cumulative. Once begun, politicians are unable/unwilling to stop intervening as the pain of allowing the economy to return to equilibrium increases with each intervention. Eventually an economy’s ability to grow and recuperate is impaired:

• Prices become inflated and distorted by liquidity and regulatory interventions. They no longer reflect true supply and demand.
• Capital is mis-allocated as a result of false interest rate signals. Eventually this capital is seen as unprofitable and is abandoned.
• Cheap lending and low lending standards encourage imprudent and eventually unsustainable levels of debt.

These distortions decrease an economy’s efficiency. General economic metrics like GDPeventually grow more slowly as a result, prompting calls for more political intervention. Eventually the distortions and disincentives grow to a point where standards of living and economies stagnate and then retrogress.

These relationships are as old as civilization itself. Politicians know, but they find it politically advantageous to ignore. The political class believes itself to be superior and entitled. They consider themselves to be above the law. For them, citizens are sources of plunder, to be exploited so that they may hold onto power and wealth. 

The economic crisis is coming. It will occur because feckless, venal “leaders” consider the personal cost of stopping their actions to be greater than continuing. That may be true for them, but it is not true for the country.

continue article at EconomicNoise.com:

http://www.economicnoise.com/2013/11/13/economic-failure-moral-failure/