The Surprising Answer for How to Handle The Next Recession

When economic troubles strike, policymakers are eager to do something to try to help the citizenry. But Prof. Lawrence H. White argues that government doesn’t necessarily know how to relieve economic woes, and in fact, often wastes and mismanages resources. Individuals in the market know better what they need in their circumstances, as economist Friedrich Hayek argued during the Great Depression. Relying on government to fix our economic woes instead of allowing individuals to make decisions for themselves means putting all of our eggs in one basket. Individual decisions in the market won’t  be mistake-free, but each individual mistake will be smaller and will correct more quickly. The unusually slow and painful recovery that we have seen in this recession point to problems with the “government should do something” view. What do you think might be the best way to handle economic difficulties? Why?

11 Comments

  1. Andrei-Claudiu Roibu

    The answer on how to resolve the economical crisis came to us almost half a century ago, from a chap called Friedrich Hayek. Some say, he knew a thing or two about economy. He said that the best way to resolve an economical crisis is to keep government implication at a minimum, because the state isn’t all knowing, and it’s role is just to create the context in which private workers, entrepreneurs and buyers can do what they do best: make and spend money. Being their money, they know better than any government what to do with it, and, thus, they can create plus value much faster than the state. 

  2. libertyiowa

    It appears that the philosophy of this generation of policy makers  is that no one can fail. It think this is driven my many things, not the least being that no member of congress wants a major employer in his congressional district to fail. I appreciate the comments in the video that in a decentralized decision making process, there will be failures, but the failures and wrong decisions will not be felt as much as a decision at the centralized planning spot. 

  3. Grady Flanagan

    The entire goal of a politician is to get re elected. Economic security means nothing. If there is no crisis, create one.

  4. jclarkeb

    Not only does gov’t not know what to do in an economic crisis, it doesn’t care to do anything, either.  In fact, the gov’t is more about creating the crisis, as Grady Flanagan points out.  But there is a more sinister agenda in government-created crises other than individual politicians getting themselves reelected or even lining their pockets.  The gov’t wants to control the mind, body and soul of their populace. 

  5. Lukas Koube

    most people dont like the idea of “doing nothing” in a recession….what they dont get is that when the government starts throwing money around and messing with prices most entrepreneurs dont know what to do. a lot of them end up hunkering down and waiting for the dust to settle. this is why the recession has lasted so long.

  6. Matt Wavle

    Government artificially removing the normal market signals is similar to having a completely numb limb.  Unknown damage or a complete lack of natural incentive to guard against that damage, i.e. pain, will eventually result in an infection from wounds that with threaten the whole body.

    Government intervention is a disease, not a cure.

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