Saturday, 21 February 2009

Unusual times implies unusual economics?

At the MonkeyWithTypewriter blog I came across this quote from John Key
"What we are trying painstakingly to point out is that our preferred option is commercial solutions for commercial problems. Government doesn't see itself as a banker. That said, these are highly unusual times and I believe we would be derelict in our duties if we didn't at least look to see whether there is some assistance we could practically give. Now, it may not always be financial assistance. It could be a change in laws or regulations. That's a possibility. In the case of Fisher & Paykel, I never said it couldn't fail. I simply said it was an important New Zealand company and certainly my preference would be to see it succeed and continue in New Zealand. We will look at whether it is practical for us to offer support to do that if that is what is required. At this point it hasn't been requested of the Government." (Emphasis added.)
while at The Austrian Economists I came across Peter Boettke making the point that Extraordinary Times Requires ... Well Ordinary Economics. I take Key's argument to be that these are unusual times and thus we can take measures we would not take in normal times. That is, we can override the economics that tell us, in normal times, that a given action is bad because these are extraordinary times, new economics somehow apply now. Well Boettke is right and Key is wrong.

Ordinary economics still holds, even in bad times, no matter what Key seems to think. Corporate welfarism is bad economics in good times and is still bad economics in bad times. Governments picking winners is bad economics in good times and is still bad economics in bad times. Removing market discipline is bad economics in good times and is still bad economics in bad times. Key should note that a bailout by the government gives businesses a reprieve that the market wouldn't give them, within free markets a firm has to be able to pay the ultimate price for bad decisions, whether it be in good times or bad, but when the government interferes, that discipline is removed. Over at Kiwblog we have David Farrar quoting Colin Espiner as writing
And after Fisher and Paykel Appliances saw its share price plummet 40 percent in a single day yesterday, Key again reached for the telephone and called up chief executive John Bongard.
All this shows that Key has an all too powerful interventionist streak, he is looking more like Muldoon everyday, and that is very bad no matter what the times!

Boettke quotes from Ludwig von Mises, Human Action (Henry Regnery, 1966), p. 885:
"The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race."
Key should take these words to heart. Key should, as Boettke puts it,
Realize the inefficiency of government control with the crowding out of wealth creating investment, the systemic errors produced by knowledge problems, the unleashing of vested interests in the race for privileges, and the governmental habit of deficits, debts and debasement.
Key cannot eliminate or overturn the teachings of economics, but he can help, and seems to want to, make its worst predictions come true.

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