Wednesday, January 14, 2009

Why can't he be Treasury Secretary?

Eugene Fama has another great post on his blog, this time covering bailouts and fiscal stimulus plans. The article is definitely worth reading in its entirety, but I'll quote his conclusion.
Even when there are lots of idle workers, government bailouts and stimulus plans are not likely to add to employment. The reason is that bailouts and stimulus plans must be financed. The additional government debt means that existing current resources just move from one use to another, from private investment to government investment or from investment to consumption, with no effect on total current resources in the system or on total employment. And stimulus plans only enhance future incomes when they move current resources from less productive private uses to more productive government uses - a daunting challenge, to say the least.
It's been over 150 years since the days of Bastiat, yet the government just keeps on breaking windows.


Joseph Mises said...

To quote Keynes:

"Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement..."

However, I would alter the following statement by substituting the "likely" with "going".

"...stimulus plans are not likely to add to employment..."

The government cannot create wealth, it can only reallocate resources from one individual to another, one voluntary association to another, and in doing so, it does so badly. It's a certainty of nature, the government cannot create jobs. The miserable failure of the New Deal programs, the countless make-work programs, are proud examples of Keynesian spending, anti-savings and paradox of thrift fallacies. Aside from this Keynesian hit fest, I'd like to point out that Professor Krugman is a blithering idiot.

Unlike the late, great, Dr. Murray N. Rothbard, because I am not yet an academic of higher intellectual tiers, I can bash Princeton scholars adhominum, and then proceed to slaughter there ideas.

--The Circle of Bastiat

Joseph Mises said...

On the free market, everyone earns according to his productive value in satisfying consumer desires. Under statist distribution, everyone earns in proportion to the amount he can plunder from the producers.