Peter j. Boettke is Branch Banking and Trust (BB&T) Professor for the study of capitalism, Director for doctoral studies and Professor of Economics at the Mercatus Center, George Mason University. His specialties are the theory of market Processes, Comparative Politics and Economics methodology of Economic Thought. Peter Boettke is a member of the Academic Council in the 2006 CADI.
IKE Domas: Sir Peter Boettke, please tell us briefly what the current crisis?
Peter j. Boettke: in short, government policies over the past 20 years on the one hand they generated bad investments, and on the other to correct market stumbles. The marketplace is a permanent allocation and reallocation of resources, guided by price signals. But in recent decades, every time the market has tried to redirect capital and workforce through the fluctuation of prices and of the bankruptcy, the State has introduced policies to prevent this. As a result, government policies have transformed a market correction in an economic downturn.
SE: what do you think makes Governors to distort the market mechanism?
P.J.B: if it is not closed by the constitutional rules, democratic governance tends to focus on the benefits and costs of dispersing the economic policy. In the current institutional system, political actors have a natural tendency to concentrate the benefits of well organized groups and well-informed and disperse costs over the neorganizati and ill-informed.
So win elections, politicians and those who focused on the costs and benefits of dispersion are removed. Unfortunately, a good economic policy, one that disperses the benefits comes in conflict with good policy practice, one that focuses the benefits in the hands of those who can give consistent support in return. This means that if you cannot be democratic, are constranse to do otherwise, we will engage in a series of policies involving deficits, debt and a devaluation of the currency to fund the concentration of benefits and dispersion of costs. We can see the results with the naked eye.
Se: I Understand. To be still in the middle and some misconceptions, but honest, in terms of the economy?
P.J.B.: Yes, for example, the idea that the Great Depression was not caused by excessive lending policies of the 1920s, combined with numerous regulations of the market in the 1930s, but fear of deflation appearing along with central banks monetary contraction from the 1930s. And she is responsible for the current situation and is common even among the proponents of the "market".
Yes actually, many of the current policies aiming at inflation inflation were the fight against rhetoric, but in reality demonstrates a fear of deflation, the practice actually being inflationary. A widely accepted approach for the analysis of this problem lies in the book of John Taylor Getting Off Track, in which deviations are discussed recent Taylor's rule in the politics of central banks, in their attempt to "sweeten" market corrections. This did not do but replenish alocarile wrong through excessive lending.
In addition, there is a link between these two elements-the monetary credit expansion and fiscal irresponsibility, his intellectual sources can be identified in the keynesiana doctrine and practice Keynesian institutions. I can't emphasize enough what a huge influence he had upon the economic policy keynesianismul from democratic West after the second world war-the present crisis is the failure of keynesianismului, not a failure of market confidence in the market.
I.s.: Keynesianismul seems to have been revived in the media and in academia by the economic crisis, but did not actually say that we never left, but on the contrary, has always been the thing.
P.J.B.: Theories we have outs left, we've just made the illusion that you've removed. Keynesian ideas have generated what institutions were intended to Keynesian gathering data to formulate and Keynesian test Keynesian policies. There is something very complicated: bad ideas produce bad policies, which in turn give bad results. Keynesianismul must be defeated, and the reason is simple: let free, keynesianismul as a disease destroys entire countries, giving free rein to natural inclinatiilor of the Government. As I said earlier, they place us inevitably into a cycle of deficits, debt and currency devalorizarii.
SE: what would be the way out of the crisis?
P.J.B.: Now? Let insolvent banks crash, let the prices to come down, its bankrupt businesses and workforce to move into unemployment. I'm not saying it's not painful. But the resources will be reallocated through market adjustments quickly. Have a look in the past severe corrections, "neindulcite," market-these were painful, but very fast, for example Depression of 1920. But when the State is trying to hinder the market correction, depressions and recessions can be long and painful, for example the 1930s in United States, Japan in the 1990s and other less known cases.
In the long term, we need to find ways to effectively Governors constraint to break this cycle of policy. I recommend the Tiger by the Tail of his F.A. Hayek or Democracy in Deficit of James Buchanan as compulsory reading for all those who want to understand the fundamental problems caused by inflation and deficit financing. Hayek fought along its entire careers to find policies that tend to brake inflation and credit expansion policy and came to the conclusion that this cannot be achieved than by denationalizarea coin. Equally, and James Buchanan has tried to find ways to control the deficit financing through constitutional contract. He tried, but these methods have not been successful. Fiscal federalism (decentralized governance) or constitutional contract are notable solutions, but I think you should be imagining other ways of funding the development trends of natural constraint by the State of the deficit and inflation. I think that should be taken into consideration more radical ideas, which concerns the enormous power of taxation and the size and scope of activity of the State.
In conclusion-we must restrict state and to leave the market to correct the imbalances caused by the failures of previous policies. Our solution to current problems is not to strengthen the State, but restricting to both in size and in scope. A State to protect, not to restrict private property, freedom of contract and operation.
