Friday, July 17, 2009

Tom Woods and the Economy

These recent attacks on capitalism are not only wrong they are misdirected. One of the greatest myths about the free market in the United States is that we have one. The U.S. economy – after a hundred years of Progressive Era reforms, the Square Deal, the New Deal, the Great Society, and, most recently, government ownership stakes, rescue packages, stimulus packages, and bailouts – is a mixed market economy. Behind the façade of the free market is a myriad of government prohibitions, restrictions, and regulations.

So, if it is not the failure of the free market, then what is it that has caused the worst economic crisis in this country since the Great Depression? More importantly, what is the cure?...

Government intervention is the cause of the current economic meltdown, not the cure...

Woods considers the Federal Reserve’s previous interventions in the economy "to push interest rates lower than the market would have set them" to be "the single greatest contributor to the crisis." He equates the Fed’s money and interest rate planning to the now-discredited economic central planning of the Soviet Union. And even though government and Fed intervention is the cause of the crisis: "There is nothing the government or the Federal Reserve can do to improve the situation, and a great deal they can do to prolong it," he writes.

The business boom-bust cycle is not "an inherent feature of the market economy," argues Woods. Following the Austrian economists Ludwig von Mises and F. A. Hayek, he singles out the central bank as the culprit – "the very institution that postures as the protector of the economy and the source of relief from business cycles." Additional government interference is then exactly when prolongs the bust and delays the recovery...

Woods gives his perspective on some cures to restore the economy to health: let firms go bankrupt, abolish Fannie Mae and Freddie Mac, stop the bailouts, cut government spending, end government manipulation of and control over money, and put the actions of the Fed on the table for review – the institution "responsible for more economic instability than any other."

read the essay

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