A lot of ruin in a nation

Submitted by Bill St. Clair on Tue, 23 Sep 2008 12:59:47 GMT  <== Politics ==> 

Russ Nelson - really good explanation of how not following good Austrian economics causes booms and busts. [gsc]

Free markets respond to their version of planning: prices. For this to work, prices need to be accurate. The supply of money needs to be constant (no, Mr. Bernanke, not inflating at whatever you guess to be the growth of the economy; constant). Government needs to not frick with things. No policy-based taxation, quotas or tariffs. No minimum or maximum prices. No bailouts of companies "too big to fail." No rules against monopolization.

If these rules are observed, then companies that make their customers happy will succeed, and those that do not will fail. When no company makes their customers happy, customers will not spend money. They will save their money, instead. This will drive down the cost of money. Companies will have more money available to them to create new products that make customers happy. Alternatively, when all companies are making their customers happy, the cost of money will go up, and only those customers making their customers happiest will be able to afford new investment.

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Every time the central bank creates a boom, it MUST be followed by a bust. The boom creates incorrect investments, and the bust consists of revaluing those investments to their new, lower value. Companies go bankrupt and their assets are sold off. Homeowners cannot pay their mortgage and lose their house (which isn't such a bad deal for them since they had no money down, were renters before and will be renters again).

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Prices are speech.

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