Rarely have I read something I agree with more than this post by David Azerrad at the Heritage Foundation’s The Foundy blog, in which Azerrad ”distills the key Hayekian insights on what to do—and not do—during a recession” from economist F.A. Hayek. They are, in my view, spot on. A sample:
2. A stimulus will only stimulate the deficit: Past experience with trying to fine-tune the economy shows that counter-cyclical fiscal and monetary policy can sometimes make matters much worse (as in the 1970s). Wise politicians would therefore be advised not to meddle, however much their instincts tell them to show voters they’re doing something.
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4. Central planning and excessive regulation sure as hell don’t work: The desire to plan and to subject the economy to the rule of experts endangers liberty. As Hayek succinctly noted: “the more the ‘state’ plans, the more difficult planning becomes for the individual.”
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6. Remember the rule of unintended consequences: History shows that when trying to realize certain ends—particularly when their achievement involves interfering with the workings of the price mechanism—all sorts of pernicious effects will occur that were not part of the original plan.
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9. Nothing beats the free market: Hayek admitted that if we had more knowledge we could do a lot more to improve the world through planning and regulation. But we don’t, and in the world of dispersed knowledge we live in, much of the knowledge we actually do possess is due to the workings of the market mechanism.
10. As a rule of thumb, government cures are not only worse than the disease, but lead to further disease: When you consider that bureaucrats have an incentive to maximize bureaucracy, that politicians who seek reelection—and which ones don’t?—have an incentive to increase spending and decrease taxes, and that corporations have an incentive to squeeze out the competition through government conferred advantages, you’ll conclude that the free market remains our best option (see #9).
I really wanted to post all ten points, they are so good. Hit the link to see them all.
These are not just do’s and don’ts for a recession. They are general principles that should guide economic and regulatory thinking in good times as well. The list should be posted on the front doors of every public building, university, and school house.