Alec Gourley: The Austrian Guide To Saving Ireland's Economy

Written by  on Mar, 21 2012

Ireland could be a very different place today if we didn't follow the policies of Traditional political thinking, Keynesian economic thought, and the inflationary solutions of the ECB.

 

 

There is always another way out of this and this way is by following the Austrian School of thought.



The Austrian School, founded by Menger, expanded by Von Mises and brought to the worlds' attention by the Nobel winning Hayek, unfortunately lost the battle for thought space with Keynes' error ridden and fallacious General Theory.



Although he flirted with Fascism and other outlandish theories of national self-sufficiency and central planning during the 30's, Lord Keynes policies still hold sway with the Central Banks of Western society.



The Keynesian school of thought teaches to pump government money into the economy when things are bad, through lower interest rates and credit expansion, and take it out when things are going well.

 

This "Counter Cyclical" policy has been adopted by the Fed and ECB as THE solution to the crisis.



The Austrian School basically stems from the following truth;  that government intervention in free markets causes the business cycle, including its inevitable booms and busts.



So here are the four golden rules for getting out of a recession in 2008, rather than still being in one in 2012:

 

1.  Stop inflating the money supply and expanding credit

This is what caused the crisis in the first place as credit placed the economy beyond the Production Possibilities Frontier.  Unfortunately, the ECB, not the Irish Central Bank controls the money supply, so granted the government's hands are tied here.

People should remember, however, that if you cannot control your money supply, you cannot fully control your economy.  No more than Arkansas can influence the money supply in the USA, ditto Ireland in the EU.



2.  Don't prevent or delay the liquidation of malinvestments

These are investments which entrepreneurs, generally good forecasters, were misled by government-created artificially-low interest rates.

For Ireland, one need not look further than the Construction Industry and Nama.  Nama has essentially frozen these bad investments in time, preventing the free market from dealing with them - by liquidating them and putting these currently redundant resources to good use.

The government is now the largest property owner in the state.



3.  Don't keep prices and wages high

The government, unlike the USA in the 1930's should not prop up prices and wages.  Remember, wages are also a price.  They are the cost of labour and adds to inflation in it's own way.  Price floors and wage controls should be avoided at all costs.

The minimum wage puts an artificial price floor for labour and discriminates against the weakest in society, whose unique advantage is being able to work for less than everyone else.  This does nothing to alleviate unemployment.  Therefore, the minimum wage should be abolished entirely.

This includes the Croke Park agreement with Public Sector Workers too.

 

4.  Don't stimulate Consumption, stimulate Savings

Savings create investment.  Even if Keynes disagrees, savings are the engine for economic growth.  The reason the government has to artificially lower interest rates in the first place, is a lack of savings.

This would mean, incentivising savings, by allowing domestic banks to increase interest rates.

Unfortunately, with the ECB throwing free money like confetti at our banks this will not happen anytime soon.

 

To summarise; Nama should be shut down and it's assets liquidated immediately.  The national minimum wage should be abolished.  The Croke Park agreement should be torn up and domestic banks should be allowed to raise interest rates to the market level.

Alec Gourley

Alec Gourley is a devout follower of the Austrian School of Economics and Libertarianism.

See his blog at www.fractionallyreserved.com

Comments  

 
# Sean 2012-10-23 21:05
Keep up the good work, Alec!
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