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Source link: http://archive.mises.org/8199/the-government-wrecks-the-economy/

The Government Wrecks the Economy

June 15, 2008 by

At this point it is just a waiting game for the National Bureau of Economic Research to declare that we have been in recession. Of course they work from past data; we all do. But the data will show what has been true for months. Investment is falling. Unemployment is rising. The trends are consistent with every single recession on record. Have a look for yourself.

All that is bad enough. Maybe your job is secure. Maybe you are out of the stock market. Maybe you aren’t waiting for a return on some real estate investment. The problem that hits everyone is inflation, which is roaring out of control in all the sectors we care about. We have entered the double digits, and if producer prices forecast consumer prices, we are in for tougher times ahead.

So what does Washington do? In an act of incredible stupidity, Congress has passed an extension of unemployment benefits. The old rule remains true: if you subsidize something, you get more of it. So this will give us more unemployment. No question about that. It will thereby worsen and prolong the problem. FULL ARTICLE

{ 6 comments }

Fephisto June 15, 2008 at 11:02 am

*face-palm*

When did the U.S. become a latin-American country?

Steve Consilvio June 18, 2008 at 11:20 am

So the big question is: where does inflation come from?
The answer is obvious: we all create it, not just the government.
You may find this interesting:
http://www.behappyandfree.com/Home/story.html
When the system is a vicious circle, everyone is to blame, regardless of where they are in the circle; or nobody is to blame. Follow the math!

fundamentalist June 18, 2008 at 12:31 pm

Steve: “…we all create it, not just the government.”

Actually, there are some important laws in economics that prevent the process described in your link from happening. That process might work for individual goods over short periods of time, but it would not create a general price increase over a year or more. Only increases in the money supply by the Feds can do that.

Brian Gladish June 18, 2008 at 2:01 pm

Steve,

A quick read of Rothbard’s What Has Government Done to Our Money would help you a lot.

Then you might think about whether or not you would ever see an orange without the people in the middle who get it to you, for a profit, from California and Florida.

There’s a lot more, but that would be a start. However, if you choose not to investigate you will make a consumate politician.

P.M.Lawrence June 18, 2008 at 9:09 pm

Steve Consilvio, what you link to describes inflationary pressure and not inflation as such. Inflation only occurs once more of the monetary medium is issued, “printing money”. Some people argue that inflation is (rather than “occurs when”) the US government releases certain financial instruments, but this is a misunderstanding at two levels:-

- The USA isn’t the only government in this game (so the description is only of how the USA does it), and it still could print money if it chose to (so the USA doesn’t inherently do it that way, it’s just a circumstance).

- It’s technically possible to issue the financial instruments and trigger institutional actions to cover them, and then you wouldn’t get inflation after all. That’s what used to happen in the 19th century, when governments sold bonds to bring bullion into their countries when there was a shortage. Interest rates shifted in response, and the governments had to balance their budgets so they had to retrench spending and/or raise taxes to match – but there was no inflation in the world economy.

The key point is, things are set up so that releasing those financial instruments is connected so as to trigger more monetary medium being created. It causes inflation because of the set up, but in its own right it’s actually an inflationary pressure. So, some inflationary pressures do cause inflation, but there has to be something in the set up to make that flow through. You can imagine a country with statutory institutions that respond to, say, CPI changes to give public servants pay rises and issue monetary medium in step. In a country like that, yes, the things you link to would indeed cause inflation, but only because of the added circumstance that sets up a trigger connection. They are not inherently inflationary in their own right. Other things being equal, the inflation is self correcting as one price rise means a shortage of monetary medium elsewhere in the system, as the total monetary medium is what mathematicians call an invariant.

Steve Consilvio June 20, 2008 at 6:35 am

“Inflation” is the rise in the price of goods and services. If I buy something for a dollar, and sell it for two dollars, I “create” inflation, although we usually describe it as “profit.” In other words, profit IS inflation.
The government must constantly create new money to keep up with the private economy, not vice-versa. Of course, the government is part of this cycle, too. Taxes is a form of profit (revenue) just like profits on goods or money (interest.) What do they all have in common? Buy Low – Sell High. “We all create inflation,” is a true statement, since we all need “revenue” which is a mathematical phenomenon, not just the physical movement of goods.
As the link I posted shows, the apple can move from point A to point Z just as easily regardless of the profit margin used. It is the math we use that creates inflation, not the government.

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