Monday, August 30, 2010

"It [Really] Ain't Rocket Science"

Peter Boettke via Jeffrey Ellis:

I have adopted many of my father’s sayings as I have grown older, and this particular phrase “ain’t rocket science” I tend to use all the time about economics. Yesterday the report came out that housing sales were down, and the stock market fell. I woke up this morning to emails from a very good friend in the investment business with dire predictions from Morgan Stanley and even Goldman Sachs that the US economy is going to tailspin into a deeper recession.

I don’t possess a crystal ball, so I cannot forecast the economic future. But I do know that it is not good to expand the monetary base 140% or to run deficits the size we have, or accumulate public debt as we have.See Laurence Kotlikoff in The Economist. This “ain’t rocket science”! There will be a day of reckoning due to the monetary mischief and fiscal irresponsibility.

I also know that the problems we are facing are not “market problems” — it is not that actors are all of a sudden ‘irrational’, and it is not that markets are inherently ‘unstable’. Everything we are seeing in market behavior is a rational response to the environment created by public policy. This is not a psychological problem we are dealing with, it is a public policy problem. Bad public policy produce bad incentives which in turn produce bad results. Ultimately, this is a problem of bad ideas which result in bad public policies. Again, this ain’t rocket science.

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