What is going to happen with the stimulus, that injection of almost $800 billion into the economy?
It’s not going to work. That huge mass of dollars will generate inflation. The United States economy is becoming Latin-Americanized.
But is that going to create jobs or not?
It will create jobs artificially. Many decades ago, the great economist Henry Hazlitt came up with a wonderful example: Why don’t we break every glass window? Suddenly, millions of people will be needed to manufacture new window panes and install them. The economy grows in a healthy manner when businesses discover and satisfy a real need in the market, when they generate benefits and invest part of their earnings.
So, are there good and bad jobs?
Sure. Here’s another anecdote, attributed to Milton Friedman. During a visit to China, he was shown a huge dam and saw thousands of workers digging with shovels. Friedman asked why didn’t they use mechanical excavators that would do the job better and faster. He was told there was a need to give jobs to a lot of people. Friedman smiled ironically and replied: “In that case, why don’t you use spoons instead of shovels? That way, you’ll need a lot more workers.” The rational objective of any healthy economic activity is to do as much as possible with the least amount of resources possible and in the shortest time possible.
But didn’t Roosevelt’s New Deal increase public spending?
Yes, and it was a disaster. In 1941, when the United States entered World War II, the economy still hadn’t emerged from the 1929 Depression.
So, was the war the event that saved the U.S. economy?
No, it didn’t. That’s a widespread superstition. The European countries that did not participate in the war, such as Sweden and Switzerland, grew more than the United States in those years. What happened, beginning in 1941, was that the U.S. economy had touched bottom and was starting to grow. By the time the war ended and the First World was half-destroyed, the United States was generating half of whatever was produced worldwide. Wars ruin countries, as was shown in Korea, Vietnam andtodayin Afghanistan and Iraq.
What originated the current crisis?
What originates all crises, including those at a personal level: the United States was spending more than it produced. Specifically, it was spending 106 percent of its production.
But, doesn’t the government tell society to keep on spending?
It does, but, because people are more prudent than the government, they calibrate their expenses well and begin to save, to prepare for a period of recession.
How long will this crisis last?
According to Steven Pearlstein, who won a Pulitzer for accurately predicting the oncoming disaster, the financial crisis will last through 2009; the economic crisis, in general, once credit lines are restored, will last two more years, but nobody knows for sure.
Are the banks and financial institutions most to blame for granting absurd credit terms?
To a great degree. The government is blameworthy, too; it forced those institutions to grant credit because it seemed a good thing for everyone to own a house, even if many had no resources to pay for it.
Should the banks be punished?
Of course. Businesses and people must pay for their mistakes. We must let the market punish those who did their jobs poorly. That’s the way the system purges and perfects itself. It is not a function of the State to save an enterprise that has lost the favor of consumers.
So, do you believe in the nationalization of banking?
Yes, bankrupt banks must be temporarily absorbed by the State, even if the shareholders lose their investments; once they are refloated, they should be privatized again, with new shareholders. That was done in Sweden in the 1990s, during a similar crisis.
Can the crisis worsen?
Of course it can. As happened in the 1930s, another suicidal wave of protectionism can arise. When Vice President Joe Biden says “Buy American” and encourages economic nationalism, he’s predicating nonsense. Societies become wealthy by broadening their free trade, not by restricting it. Besides, protectionism is an act contrary to the consumer’s freedom.
|Carlos Alberto Montaner is a Member of the Board of Advisors for the Center on Global Prosperity at the Independent Institute and President of Firmas Press.|