Monday, April 28, 2008

Must Government Inflate Home Prices? (William Anderson)

William Anderson on a financial "guru's" ludicrous assertion that inflation is the answer to our economic woes:

Henry Hazlitt once wrote in his famous Economics in One Lesson that "Economics is haunted by more fallacies than any other study known to man." Indeed, I am supposed to teach fallacies in my classroom as part of modern economic orthodoxy.

Along with Hazlitt’s declaration comes the opening line in Carl Menger’s path breaking 1871 edition of Principles of Economics: "All things are subject to the law of cause and effect. This great principle knows no exception, and we would search in vain in the realm of experience for an example to the contrary." The key issue here is understanding the difference between cause and effect.

I write this because we are seeing a lot of supposedly intelligent people confusing cause with effect and declaring that the effect is the cause, and government must act upon that "cause" immediately. That, not surprisingly, is a recipe for disaster.

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