New IEA Discussion Paper on the Great Recession

Steven Horwitz

Earlier today the Institue of Economic Affairs released my Discussion Paper "Causes and Cures of the Great Recession."  There's not much that's new in there, but I do think it's a handy summary of some of the things I've been writing on this topic over the last few years.  The IEA blog has a condensation here.  A snippet:

The recession and recovery are the economy attempting to shed capital and labour from where it is no longer profitable and then figuring out where it would be better used.  This process takes time, which is why recessions have unemployment and slow growth.

Boosting aggregate measures of consumption and investment through government stimulus will not help, as the problem lies not in macroeconomic aggregates but in the microeconomic allocation of resources. Only those located in the context of the market have the knowledge and the feedback processes provided by prices and profits to make the decisions that will reallocate resources as quickly and effectively as possible. The decentralised decision-making and learning processes of the free market, and not more of the government intervention that caused the problems, can accomplish the millions of corrections are needed to get resources where they belong and return to a sustainable pattern of high employment and growth.

Comments

[Mario Rizzo]

I like it. I'll use it for my undergraduate course in the Fall.

[Allan Walstad]

Read it. Well-stated.

[Nikolaj]

Steve Horwitz: "Key contributions to Austrian business cycle and macroeconomic theory include Hayek (1966 [1933]; 1967 [1935]; 1975 [1937]), Mises (1966, ch.20), Horwitz (2000) and Garrison (2001)."

That's called modesty. I mean really...One chapter by Mises and the entire book by Horwitz.:) And the Brooklyn-Alabama-Madrid school down the memory hole, it does not exist. Just read Horwitz and Hayek, two titans of the ABCT.:)

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