Monday, January 16, 2012

Government is incapable by its nature to treat causes and only treats symptoms.

L. Albert Hahn’s 1949 collection The Economics of Illusion; specifically, it’s from the final paragraph of that collection’s opening essay, “Cycles in Monetary Theory and Policy”:
As far as government interference itself is concerned, one should never forget that serious economic disturbances are the consequences of basic maladjustments. The effect of correcting or not correcting such maladjustments is infinitely greater than any artificial creation of demand by government in an economy that, in most sectors, is still free. Therefore an economic policy that concentrates on artificially filling up an investment or spending gap rather than on fostering adjustments – and thus creating demand in a natural way – is doomed to fail in any severe crisis.

The lamentable prescription is to treat the consequence – remedy the pain directly – treat the symptom. Such symptom-salving has obvious political advantages, chiefly because most people untutored in economics are naturally mercantilists and vulgar Keynesians: their economics is based upon that which is only most obvious – and inadequate demand is a most obvious source of problems for businesses and workers. So the underlying, deeper cause goes unnoticed and, hence, untreated – even, likely, worsened by the facile policy of treating only the symptom of inadequate demand by directly pumping up “aggregate demand.”

As F.A. Hayek observed in The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

0 Comments:

Post a Comment

<< Home