Friday, July 17, 2009

Burning the Casino Down

One particular difficulty I run into when discussing economics is that so many people seem to be ignorant of the fact the economy has principles and causal factors by which it runs; instead they think of the economy as some sort of big casino that the government needs to regulate after a bad deal, especially so in this recession. Luckily, however, we have people like Doug Reich to provide excellent commentary. Today I would like to point your attention to his post titled Obama: Please Try This at Home, which examines the underlying reasons as to why economic stimuluses do not work and why the ones recently passed will actually do harm. What is so great about the post is that it is written in a language specifically for those who have no knowledge of formal economics, so it is perfect for forwarding in e-mails. I cannot quote any notable excerpts since the whole essay is worth reading.

I would also like to direct your attention to his philosophical/psychological analysis titled Rational Animal Spirits, which is a dissection of the mentalities of our current central planners (i.e. politicians) and an explanation as to why forgoing principles is very harmful, if not fatal. A noteworthy excerpt:

If you are trying to eliminate the effects of a particular problem, do you think it would ever help to understand the causes that give rise to the effects? For example, if a building were on fire, do you think it would help that the firemen in charge understood what tends to fuel a fire and what tends to extinguish it? If they did not understand the causes, wouldn't they be as likely to throw a ham sandwich on the fire as to pour water upon it? ...Obviously, if one does not understand the causes, the solution may actually be worse than the problem itself. At best, the supposed solution can only mitigate or eliminate effects through random chance.

Both of these analyses give further clarity into our current times and show us what must be done about the economic crisis: the government must stop throwing gasoline on the fire.

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