Friday, July 24, 2009

An Austrian Remedy for Japan


In his latest post, Professor William Luckey follows-up on a piece that appeared last week in the Wall Street Journal on the demise of the Japanese economy and its relation to our own sorry situation in the US. Thank you Mr. Keynes.
It is very seldom that economists have a laboratory in order to test theories. For an Austrian, this is not a problem because the axioms of economics are apodictic, meaning they are self-evident. But even so, to the average non-economist, some verification is nice as an illustration. Normally, a specialist in economics is necessary to delve beyond the host of activities in the economy and the government to isolate the economic factors that lead, say, to a recession. Praise God! Besides the Great Depression, which I find easy to diagnose, we have such a laboratory—JAPAN...

So, you the reader, tell me, will this gigantic stimulus plan work? As any economics student knows, productivity only grows by investment, not consumption. If you doubt this, take the rest of the summer to read Jesús Huerta de Soto’s book Money, Bank Credit and Economic Cycles, available at Mises.org. What President Clinton started to call “investment” was a euphemism for the same kind of government spending we have now, just smaller. It was not investment at all. Take the recent housing boom. It was caused by expansion of the money supply by the Federal Reserve, artificially lowering interest rates, making buying houses more attractive, and because of rising demand, building them, and putting a huge strain on the building industry, forcing wages and prices of everything used to build, up until it became too expensive to buy a house.

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