Austrian surgery or Keynesian chemotherapy?
No Sir FT should not get away answering “Is your recession really necessary? January 2009 by painting a simplistic picture of some evil Austrian forces wanting to castigate the world by dragging down the economy into the doldrums of a severe and disciplining recession and an enlightened Englishman who understood that “in a crisis, demand would not necessarily fall back to the sustainable level”. What is happening is much too serious for that.
Our current alternatives are more like having to choose between Austrian surgery and Keynesian chemotherapy. Only as an example I would much prefer to cut out all the financial fatty tissue that was created like by magic when the subprime mortgages moved up to the Triple-A world, than use a general chemotherapy that can leave us so weak with masses of public debt and that could have us fall into a final coma.
Having said that, before any type of intervention, the patient needs to recover the will to live and that depends on us being able to explain to him in a credible way the full extent of his illness and its treatment. As an economic doctor I would start telling the patient about the sacrifices he will have to make, for instance the higher taxes he will have to pay, because the whole story of stimulus packages, tax rebates and expecting rational behaviour modification from the same financial regulators that got us into this mess, sounds too much of a tall tale to inspire any sort of confidence.
If I was Obama I would in the first 100 minutes of my presidency use my political capital to announce a one dollar per gallon of gas tax. That would absolutely sting a lot but that would also help the patient to believe that there is a rational way out and that someone is willing to go down that path.
Our current alternatives are more like having to choose between Austrian surgery and Keynesian chemotherapy. Only as an example I would much prefer to cut out all the financial fatty tissue that was created like by magic when the subprime mortgages moved up to the Triple-A world, than use a general chemotherapy that can leave us so weak with masses of public debt and that could have us fall into a final coma.
Having said that, before any type of intervention, the patient needs to recover the will to live and that depends on us being able to explain to him in a credible way the full extent of his illness and its treatment. As an economic doctor I would start telling the patient about the sacrifices he will have to make, for instance the higher taxes he will have to pay, because the whole story of stimulus packages, tax rebates and expecting rational behaviour modification from the same financial regulators that got us into this mess, sounds too much of a tall tale to inspire any sort of confidence.
If I was Obama I would in the first 100 minutes of my presidency use my political capital to announce a one dollar per gallon of gas tax. That would absolutely sting a lot but that would also help the patient to believe that there is a rational way out and that someone is willing to go down that path.
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