Wednesday, March 18, 2009

We Don't Need to Be "Stimulated" out of the Slump

Economist Don Boudreaux uses the story of the automobile to explain why a government stimulus is not needed to end the recession. Two hundred years ago, no one could have imagined what a huge role cars would play in our lives. If you could travel back in time to 1809 and describe to someone what the America of 2009 is like, your listener might very well wonder how such developments could come about without the guidance of a central decision-maker:

[W]hat I suspect they would find most unbelievable is not the progress of technology that automobiles require. Rather, what would be most difficult to comprehend is the fact that such an amazingly complex development and coordination of economic activities can occur without being consciously arranged. After all, it's not just that people in 2009 can easily afford automobiles, but also that whole industries exist to support automobile driving. . . .

Stupendous coordination of millions of individual plans and talents emerged spontaneously -- and not only in the automobile industry. The entire economy is a testament to such spontaneous coordination.

The single greatest fact about capitalist society is that the great bulk of it appears to be the handiwork of a master designer but, in fact, is unplanned and even unimaginable before it becomes real and familiar.

Remember this lesson whenever you hear alleged "experts" insisting that only conscious effort by government to "stimulate" demand can save the economy from its current downturn.

It's true that no one can know beforehand the precise path by which a free market travels to escape the downturn. No one can foresee that, say, entrepreneurs in Texas and Ohio will be especially creative at finding ways to produce things that consumers will open their wallets wider to buy -- and, hence, that these entrepreneurs will succeed at launching profitable firms that hire more workers. . . .

But economics and history tell us that our inability to foresee and predict -- or even to imagine -- how recovery will come in the absence of conscious government stimulus is no reason to conclude that recovery requires conscious government stimulus.

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