Sunday, July 26, 2009

Economic Recovery

Americans are once again hoping for an economic recovery. If recovery comes, can it be sustained? Or will it soon collapse, as have recent upturns?

The answer depends on how the recovery is financed. If economic recovery is financed from the real savings of the American people, a sustained period of economic growth may occur. But if the recovery is induced by an artificial expansion of banking credit, any upturn will quickly abort...

The key to real growth, therefore, is to increase the amount of savings available for productive investment. If the savings pool is allowed to grow—without being choked by tax increases, government borrowing, or other hindrances—a sustained economic recovery can get under way...

This, then, is the decision we face. Do we reduce taxes and cut government borrowing, thereby expanding the savings pool and permitting a sustained economic recovery? Or do we try to induce yet another artificial recovery through credit expansion, and reap the whirlwind when it collapses?

read the essay

No comments: