CovOps
 Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious
 |  Subject: Return of the Dead Hand  Thu Jun 25, 2009 5:57 pm | |
| For much of the world, the period from the 1960s through the early 1980s was an era of ever-greater government intervention into the economy. The period, an expansion of policy built on an intellectual foundation of Marxism, socialism, corporatism, and progressivism culminated in economic stagnation and inflation in the market-oriented mercantilist-interventionist countries such as the "Great Society" in the United States and economic collapse in the Marxist dominated Soviet block.[1]
Policy was changed and reoriented successfully in country after country toward a framework more consistent with the ideals of capitalism, with outstanding results. The long period of stagnation and, in many cases, decline were, within several years and to the surprise of many critics, turned into a sustained period of growth and development accompanied by new or renewed prosperity and increasing economic liberty.
Per Brink Lindsey this return to markets was not something forced on policy makers but was a deliberate response to the "wide failures of central planning and top down control."[2] Lindsey went on to caution against undue optimism about the continuation of this trend toward greater prosperity:
The world is just beginning to overcome a century-long infatuation with state-dominated economic development; market competition continues to be hindered by a wretched excess of top-down controls, and at the same time undermined by a lack of supporting institutional infrastructure. The invisible hand of the market may be on the rise, but the dead hand of the old collectivist dream still exerts a powerful influence.
A major significant failure of the resurgence of market-oriented policies was a failure to reform the monetary system. This failure left significant control and direction of all aspects of money, credit, and financial flows under central-bank planning and control. The resulting monetary and financial crisis is not a market failure, but a central-planning failure — an artificial boom is a centrally controlled misdirection of production.
The resulting crisis is a "mini" calculation failure. This failure to build economic success and freedom on a solid foundation — a market determined money, a sound money[3] — has resulted in two Fed-originated boom-bust cycles in the last ten years. The most recent and most severe was a direct result of the Fed's overstimulating the economy in 2002–2004 in an attempt to postpone a necessary correction. By keeping the federal-funds rate too low (as viewed ex post even by mainstream critics[4] ) policy successfully masked the misdirections of production from the previous boom, prevented or postponed the needed corrections, and, predictably, misdirected production in other channels — housing and commercial real estate relative to the earlier dot-com boom — making the necessary redirections more severe.
The most recent crisis has been used by opponents of capitalism to undermine the intellectual foundations of the reforms of the 1980s and '90s. Critics incorrectly blame the end of the latest boom and current collapse — which is frequently labeled the worst financial crisis since the Great Depression[5] — on laissez-faire capitalism and greed run amok. The response of voters and policy makers to this crisis, has in the United States, accelerated a return of the dead-hand philosophy, with the result that the proven-failed policies of the past have returned, masked as hope and change.[6]
More: http://www.mises.org/story/3516 |
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