Tuesday, September 30, 2008

A few things to keep in mind during the coming days (amv)

by Peter Boettke

(1) While there may be macroeconomic problems, there are only microeconomic solutions;

(2) Microeconomics is about the structure of incentives and the quality, accuracy of the information (and its interpretation) that economic actors face and utilize in their context of action; The institutions of property, prices and profit/loss provide incentives and information to market participants;

(3) Economic life is a process of constant adaptations and adjustments to changing circumstances, and these adjustments primarily are guided by relative price shifts, the lure of profit, and the penalty of loss;

(4) Inflation is damaging, deflation is damaging --- as Mises once put it, trying to cure the problems created by one by following the other is analogous to someone after driving over a bystander with their car in an effort to try to fix things by backing up over them to undo the damage;

(5) Wealth creation results from realizing the gains from trade and the gains from innovation, not government investment.If there is no bailout, then the stock market will go down, more financial institutions will fail, and unemployment will rise. But resources will not go into a black-hole, they will be reallocated and utilized in alternative uses. To leave with some words of wisdom from Adam Smith:

"The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security."

Source: Austrian Economist