Great Quote on Recessions
May 14th 2009 03:47
From Johan Norberg:
This is a great point that clearly does not get taken into consideration by policymakers. A recession occurs because the market forces are acting to shift resources to where they are more valuable. The problem already occurred when the resources were over-invested in housing. The current downturn is the market trying to "fix" the problem of over-investment. However, policymakers were happy when housing was booming and are doing everything possible to prevent resources from leaving the housing sector. The above point needs to be taken more seriously, so recessions can be portrayed as necessary evils that fix a problem, rather than the problem themselves.
As the Austrian economic school taught us, the recession is not the problem, the boom was the problem and all the mistaken investments that happened then because of cheap money. We won´t be able to start again and see new companies start expanding and hiring until bad investments are terminated and capital is transferred from the unsustainable to the sustainable.
This is a great point that clearly does not get taken into consideration by policymakers. A recession occurs because the market forces are acting to shift resources to where they are more valuable. The problem already occurred when the resources were over-invested in housing. The current downturn is the market trying to "fix" the problem of over-investment. However, policymakers were happy when housing was booming and are doing everything possible to prevent resources from leaving the housing sector. The above point needs to be taken more seriously, so recessions can be portrayed as necessary evils that fix a problem, rather than the problem themselves.
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