Ludwig von Mises, the great Austrian economist, said this about recessions:
"Government must never try to prop up unsound business situations; it must never bail out or lend to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of consumer goods; doing so will prolong and delay infinitely the the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital goods industries. *The government must not try to inflate again, in order to try to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase it's expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom."
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From me:
In 1936 Keynes became popular in the United states. Keynes said the the business cycle ends because, for what ever reason, consumers stop spending. His prescription is that government must spend for them, even if results in a deficit. If Keynes was right, then why are factories producing consumer goods (final goods that consumers buy) the last to fall, and capital goods factories (like steel mills) and raw materials the first to fall?
Mises fully expained that the business cycle begins much earlier when banks cause monetary expansion. This would be, in our case, when the federal reserve artificially decreases interest rates and expands money supply. This leads to capital expansion and investment that would not be profitable under normal interest rates. This invariably leads to inflation which later forces interest rates higher, showing up such misalloccations as unprofitable. The ensuing resession is a necessary process of reallocation of misallocated and malinvested resources. Keynes didn't understand this. He did not have available Mises previous work, as it was written in German at the time; Mises was a professor in Vienna, Austria. From there, Mises predicted the American Great Depression, he later wrote of the government interventions that caused it to last so long.
Why is Keynesian economics popular with government? because it tells them to spend and government loves to spend, as long as it is not their money.
If you look at what Mises said above where I put the * , you can easily see that this is exactly what happened in the dot.com recession and what we are having now is that which Mises projected.
There was only one candidate in this past election that understood this, but the American people, being Keynesian indoctrinated by the media, were not ready for him.
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If our national economy is of any interest to you, then you might want to watch this:
http://www.iousathemovie.com/
