In the world of economic debate, there are generally two voices:
- The first declares “This is the result of too much government intervention and government spending – what we need is a period of adjustment to get back to a stable norm. If we treat this problem by throwing money at it, we’re only delaying the inevitable, and exacerbating the extent of the future comeuppance. Live within your means, as freely as possible. Is that so hard?”
- The second: “This is the result of market forces operating irrationally and exuberantly, then despairingly, and now we’re stuck in a zero-sum game: where one man’s spending is another man’s income, and without the spending there is no income, and without the income, there is even less likelihood of spending, and so on ad depression. What we need is stimulus to pull the general sentiment back on track. No one cares how – we just need to lift the mood.”
The first is Austrian/Libertairan, and the second, Keynesian. Frankly, I think there’s truth in both those world views, which I guess makes me a heretic. But I found this infographic, which I think is beautifully succinct and worth reading through:
I’ve been flipping between these two voices for years now, and settled on neither. Here’s an analogy for how I have come to see these ideas:
- Sometimes I get ill.
- There are times when I’m stressed out and run down, which makes me vulnerable to colds and the like.
- But there are also times when I catch a cold because I was on the subway and surrounded by sick people – and then being sick stresses me out and runs me down.
- In order to recover fully, I’ll need symptomatic relief from the physical cold regardless. So hot toddies, bed rest, etc.
- But even when the symptoms start to abate, I’ll only have recovered fully if the illness was just something that happened #life.
- But if stress caused the weakness in my immune system – then I’ll have to make some hard lifestyle choices.
- And it’s almost impossible to know which is which.
For me, the economic debate revolves around something similar: there are demand problems (colds) and credit problems (stress). For Austrians, too much credit weakens the system and inevitably causes demand problems; for Keynesians, demand problems cause a crisis of credit.
So perhaps both can be true at different times?