Further intervention is more than harmful

Belief that government intervention, as advocated by Keynesian economists, can improve an economy should have ended in the early 1980s. Yet it has not because government power and control is dependent upon perpetuating the myth that government needs to manage the economy.

Continuing intervention eventually cripples an economy by distorting price signals and creating the  mis-allocation and waste of resources. Additionally, the general loss of flexibility to businesses reduces their willingness to respond to opportunities. Slowly, capital is destroyed via mal-investment. Entrepreneurs faced with increasing uncertainty are unable to find projects with expected returns that compensate for risk.  They refuse to deploy capital, hire workers or expand their businesses. At some point, the system shuts down.

At that point, further intervention is more than harmful; it becomes downright destructive. Mishbelieves we have reached that point. He describes the desperation of government in attempting to perpetuate a failed system and economics. The failure is certain, the timing is not:

It’s time to face the facts Fed monetary stimulus is now useless at best. It’s also time to face the facts the rally in gold has little if anything to do with inflation.

Gold is clearly reacting to further stimulus efforts by the Fed, Eurozone bank stress, or US bank stress. It is always difficult to say “why” something is happening but in this case, bank stress in both the Eurozone and the US is the likely reason for the renewed push higher.

Gold may become even more volatile as the ECB and IMF attempt more futile efforts to “save the Euro”. These foolish efforts to “save Greece” (in reality save stupid European banks that made foolish loans to Greece) has tripled or quadrupled the pain those banks are going to feel.

What may initially have been a 40 billion Euro boondoggle now likely approaches a 150 billion Euro boondoggle and the EU wants to throw yet another 100 billion Euros at it. In the meantime, Italy looks prepared to blow again.

How much more of this will citizens of Germany, Finland, and Austria put up with? How much austerity can citizens of Greece, Spain, Portugal, and Italy take?

This can easily come to a crisis head as soon as next month, or even next week.

The inability of the US economy to create jobs or to “restart” itself is not puzzling when viewed in terms of overbearing government. To repair the economy, it is only necessary to unleash the creative forces of the entrepreneurial class. That cannot occur via more government intervention. That requires downsizing government’s involvment in the economy and society in general.  Spending levels, rules and regulations must be dramatically rolled back if there is to be a recovery. If not, there will be a complete economic collapse.

As pointed out, government downsizing cannot happen via the political process.  Thus there will be an economic collapse which will result in great pain, disruption and danger. Politicians refuse to renounce the fallacious economics they practice. It would be an admission that the myth of government — that government can manage an economy — was false all along. Thus they will knowingly or not destroy the economy and in the process probably government itself.