The Ethics of Economics

[jillian]

I was watching a show the other day and the discussion turned to the Austrian school of economics. One of the participants in the discussion felt that the government should allow all businesses to fail that would fail naturally and that the market would right itself eventually.

The other participant said, well, perhaps the economy would ultimately right itself; but a) isn't that a bit of a risky experiment to take; and b) would you want to live in a country that allowed millions of its people to become unemployed, with all that entails, as business after business "corrected" itself?

My question? Would you want to live in a world like that? And why or why not?

 

[Kevin_Kennedy]

One might counter with, isn't it risky to spend trillions of dollars you don't have in an attempt restore prosperity to businesses there isn't a real demand for? I don't want people to be unemployed, but they have to get out of an area that is wasting resources and into a more productive avenue. If a business cannot succeed without the help of the federal government then it needs to go out of business because it is a drain on our economy.

 

[jillian]

One might counter with, isn't it risky to spend trillions of dollars you don't have in an attempt restore prosperity to businesses there isn't a real demand for? I don't want people to be unemployed, but they have to get out of an area that is wasting resources and into a more productive avenue. If a business cannot succeed without the help of the federal government then it needs to go out of business because it is a drain on our economy.

Thanks for your response.

And my response would be that we already KNOW that economic stimulus works, not withstanding the revisionist history that the Roosevelt haters like to proffer.

How is it a drain on the economy if it keeps people working who in return pay taxes to the government and in turn keeps the economy growing.

That's the thing... you let everyone go out of business? Where's the economy going to recover to? With most of your country living in poverty? A world that looks like Upton Sinclair's The Jungle??

And, frankly, the way the banks handled themselves, it's pretty clear that when you leave business alone and de-regulated, they don't act in the interst of the marketplace... they act in their own short term interests. And that's why the Austrian School is so counter-intuitive to me.

 

[RoadVirus]

I was watching a show the other day and the discussion turned to the Austrian school of economics. One of the participants in the discussion felt that the government should allow all businesses to fail that would fail naturally and that the market would right itself eventually.

The other participant said, well, perhaps the economy would ultimately right itself; but a) isn't that a bit of a risky experiment to take; and b) would you want to live in a country that allowed millions of its people to become unemployed, with all that entails, as business after business "corrected" itself?

My question? Would you want to live in a world like that? And why or why not?

I argee that we should allow businesses to fail. Let Economic Darwinism run it's course. Make people learn from their mistakes.

Of course, with this financial crisis, the problem is the gov't can't stay out of it because there's too much at stake. Letting the banks crash and fold would put us in an economic upheavel so severe, there'd be no chance of recovery. However, i think instead of bailing out the banks directly, the gov't should've negotiated with the financial companies that didn't take a serious hit and start selling off pieces of the more damaged companies. It would've been cheaper and easier.

 

[jillian]

I argee that we should allow businesses to fail. Let Economic Darwinism run it's course. Make people learn from their mistakes.

Of course, with this financial crisis, the problem is the gov't can't stay out of it because there's too much at stake. Letting the banks crash and fold would put us in an economic upheavel so severe, there'd be no chance of recovery. However, i think instead of bailing out the banks directly, the gov't should've negotiated with the financial companies that didn't take a serious hit and start selling off pieces of the more damaged companies. It would've been cheaper and easier.

Good ideas. Would that have worked quickly enough to slow down the decline as appears to be happening at least somewhat.... though far from adequately given the job numbers.

I'm also not sure about how one reconciles the absolute need for companies like GM to be leaner and meaner while at the same time, not putting more workers on the street.

I actually think we're not putting enough into infrastructure. I really don't think there should have been any compromise on the tax cut issue. The infrastructure needs to be repaired and people need work.

sounds like a natural combination.

 

[Kevin_Kennedy]

One might counter with, isn't it risky to spend trillions of dollars you don't have in an attempt restore prosperity to businesses there isn't a real demand for? I don't want people to be unemployed, but they have to get out of an area that is wasting resources and into a more productive avenue. If a business cannot succeed without the help of the federal government then it needs to go out of business because it is a drain on our economy.

Thanks for your response.

And my response would be that we already KNOW that economic stimulus works, not withstanding the revisionist history that the Roosevelt haters like to proffer.

How is it a drain on the economy if it keeps people working who in return pay taxes to the government and in turn keeps the economy growing.

That's the thing... you let everyone go out of business? Where's the economy going to recover to? With most of your country living in poverty? A world that looks like Upton Sinclair's The Jungle??

And, frankly, the way the banks handled themselves, it's pretty clear that when you leave business alone and de-regulated, they don't act in the interst of the marketplace... they act in their own short term interests. And that's why the Austrian School is so counter-intuitive to me.

Well as to whether economic stimulus works, I don't think you and I are going to come to any agreement on that issue. Hoover and Roosevelt prolonged the agony of the Great Depression with their interventionist policies, and you don't agree with that assessment.

For one, paying taxes to the government does not keep the economy growing, paying taxes is actually destructive. All government spending, whether you agree with it or not, is destructive to the economy. It takes capital from where it was supposed to go, and puts it somewhere else. That leads to distortions in the market.

Secondly, keeping people employed in failing businesses doesn't help the economy, it's a drain on the economy because those resources could be used in a more productive field. By resources I mean capital, employees, natural resources, time, and anything else that's wasted by a failing business.

Not everyone would go out of business, that's simply people yelling that the sky is falling. What you need to understand is that these companies that are failing were never viable to begin with. They popped up during a period of false prosperity, or what we might call the boom period which was created by the Federal Reserve. Now that we're in the bust period, which is the economy trying to correct itself to what it's supposed to be, all these non-viable companies are going to have to go out of business. What the government is trying to do with these stimulus packages and bailouts is return us to the boom period, but we shouldn't want to return to the boom period. The boom is false and inevitably leads to the bust.

Again, I think we're simply going to have to disagree about deregulation. There is so much regulation and central planning of our economy that anyone can seriously suggest deregulation is somehow to blame is beyond my understanding.