pywong
5th May 2009, 07:53 PM
May 6, 2009
THE BEAR'S LAIR
The correct recovery paradigm
By Martin Hutchinson
If a high saving, low-inflation, reined-in government environment is the necessary state for economic recovery from disaster, then the correct policies to pursue become obvious:
# Interest rates should be increased to provide adequate returns for savers and rebuild the capital stock.
# Public spending should be reined in sharply, in order to get closer to budget balance without having to increase taxes, which inevitably dampens activity.
# Economic losers should be starved of capital and liquidated, in order to free up resources for the new industries that need to arise.
# Inflation should be treated as a leper because of its erosion of savings, while a moderate amount of deflation should be welcomed, as it will increase the value of capital and thereby produce more and better new businesses.
# Trade should be freed up, in order that new business opportunities appear and Joseph Schumpeter's "creative destruction" can work its magic.
# Labor laws should be eliminated as far as possible so that wages and employment can re-set to market levels, while labor mobility within the domestic economy should be encouraged. (However international labor mobility in a recession depresses living standards in the higher-wage economy, allowing unscrupulous employers to drive wages down to Malthusian levels.)
More… (http://www.atimes.com/atimes/Global_Economy/KE06Dj02.html)
THE BEAR'S LAIR
The correct recovery paradigm
By Martin Hutchinson
If a high saving, low-inflation, reined-in government environment is the necessary state for economic recovery from disaster, then the correct policies to pursue become obvious:
# Interest rates should be increased to provide adequate returns for savers and rebuild the capital stock.
# Public spending should be reined in sharply, in order to get closer to budget balance without having to increase taxes, which inevitably dampens activity.
# Economic losers should be starved of capital and liquidated, in order to free up resources for the new industries that need to arise.
# Inflation should be treated as a leper because of its erosion of savings, while a moderate amount of deflation should be welcomed, as it will increase the value of capital and thereby produce more and better new businesses.
# Trade should be freed up, in order that new business opportunities appear and Joseph Schumpeter's "creative destruction" can work its magic.
# Labor laws should be eliminated as far as possible so that wages and employment can re-set to market levels, while labor mobility within the domestic economy should be encouraged. (However international labor mobility in a recession depresses living standards in the higher-wage economy, allowing unscrupulous employers to drive wages down to Malthusian levels.)
More… (http://www.atimes.com/atimes/Global_Economy/KE06Dj02.html)