In the 1930s, Roosevelt ordered the destruction of food in order to keep prices high at the farm, in the mistaken belief that low prices were the cause of the depression. In fact, low prices were the result of the depression, and were a silver lining in a way. During a depression, low prices allow people to buy stuff.
During the 1990s, Bill Clinton and housing secretary Andrew Cuomo directed Fannie Mae and Freddie Mac to lower their lending standards to increase homeownership among people who could not afford homes. (See and hear Andrew Cuomo say, at a press conference, "There will be a higher default rate on these loans.")
Now Obama has combined the two errors in his cash for clunkers program. 700,000 working automobiles were destroyed to keep the prices of cars high, and people were encouraged to buy new cars instead of keeping the old ones going, and go into debt doing so. Look for a rash of repossessions in six months, and a lot of crying about how the prices of cars are falling as the repossessions appear on the market.
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In all eras, in good economy and bad, working, saving, and taking measures to develop a personal skill base can help individuals isolate themselves from the vagaries of the market and society's fluctuations. Because this is a long term solution which is less flashy than a government program and requires individual responsibility, it is rarely emphasized.
ReplyDeleteYes this is what Bastiat called the 'broken window' fallacy. breaking a perfectly good window creates a job for the glazier. just like destroying cars creates jobs for Government Motors. it is the same silly logic that the textbooks use to say that World War II got us out the depression.
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