Recessions Necessary?
9 October 2007
News Editor, Morning Edition
National Public Radio
Interviewed this morning by Steve Inskeep, David Wessel asserts that economists working in the Austrian tradition want there to be regular recessions in order to rid the economy of bad investments. Not so. F.A. Hayek and many other Austrian economists argue that excess money creation makes certain investment opportunities appear to be more attractive than they really are. In this theory (whether or not it is correct), recessions are the unfortunate but inevitable result of entrepreneurs eventually learning that artificially low interest rates misled them into starting projects that are economically unsustainable.
Put differently, recessions are no more necessary or desirable than are hangovers: someone who never drinks to excess will never, and ought never, suffer a hangover.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
News Editor, Morning Edition
National Public Radio
Interviewed this morning by Steve Inskeep, David Wessel asserts that economists working in the Austrian tradition want there to be regular recessions in order to rid the economy of bad investments. Not so. F.A. Hayek and many other Austrian economists argue that excess money creation makes certain investment opportunities appear to be more attractive than they really are. In this theory (whether or not it is correct), recessions are the unfortunate but inevitable result of entrepreneurs eventually learning that artificially low interest rates misled them into starting projects that are economically unsustainable.
Put differently, recessions are no more necessary or desirable than are hangovers: someone who never drinks to excess will never, and ought never, suffer a hangover.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Wednesday April 9, 2008 at 3:33pm