2_great_depressionIt is often said that we don’t know we’re in an economic recession until we’re two years into it. That is because there are many statistics that signal a recession, not all acting in harmony, and the statistics are twisted and debated until finally, no one can deny it.

But when the mass media and the government are finally admitting it, you can be assured that it is upon us. The words depression, recession, slowdown, downturn, etc. have made the headlines recently. It should be noted that all of these words mean the same thing, it’s just that they fall out of favor as time passes. The Bureau of Euphemisms is always hard at work, softening terminology to divert blame from the government and its disastrous manipulation of the market. Lew Rockwell tells the story of Alfred Kahn, an economist in the Carter administration, who was taken to the woodshed by the president for using the word “depression,” so when speaking to the media, he advised that he was forbidden to use that word and would instead use the word “banana.” He then stated that “we are in a banana.”

Despite propaganda to the contrary, depression is not an inherent property of a free market economy. Yes, there is variation in markets – at any given time, some businesses, and to some degree sectors of industry, are doing better and some are doing worse. But on the whole, the system stays relatively stable. Depression is created by government manipulation of the economy.  The fraudulent scheme to print money with no value other than government decree inflates the money supply and devalues the currency.  But more importantly, the power to manipulate interest rates distorts the temporal pattern of savings and investment in the market, causing large-scale entrepreneurial error across the entire economy.  Periods of over-investment (booms) are always followed by liquidation of both bad and good investment (busts.)  In a free market economy, absent central bank manipulation, the pattern of savings, investment, and consumption is a self-regulating system.

With its tools of monetary inflation, regulation, and interest rate manipulation, government can disturb and distort the market, but it cannot repeal economic law.  The market is resilient and adaptive, it can deal with perturbations, but ultimately it will cleanse itself of all the bad investment, and the bust will be inevitable.  It will recover despite government because individuals will change their pattern of behavior.

People will stop spending on things they don’t need.  They’ll reduce consumption and stop taking on new debt, despite government urging to consume, consume, consume.  They’ll cut back on travel, they’ll work harder, picking up second jobs if necessary (or possible) to keep up with expenses.  They’ll save money by doing things themselves;  changing their own oil in their car, mowing their own lawn, starting their own garden to save on groceries.

Murray Rothbard taught us to understand this correctly – when we take all the actions to cut back consumption, we turn back the dial of economic progress.  By doing things ourselves, we begin to roll back the division of labor, the hallmark of the free market economy.

Ultimately, the market will recover.  The duration and depth of the recession are determined by the amount of government intervention – both in the intervention leading to the bust and the intervention during the downturn in a futile effort to stave off its effects.

Please understand:  The boom/bust cycle is not inevitable.  It is not an accident.  It is not the result of mistakes made by well-meaning bureaucrats who miscalculated.  It is the result of intentional action of the government and its central bank.  It is the result of a system designed to produce immense profits for the banking sector, and to promise to cover any losses they have from bad business decisions with taxpayer money.  It fuels the growth of government, and facilitates a redistribution of wealth from the people to Wall Street bankers, who will confiscate real property when the rest of us lose our shirts.

For all of this, we should be angry about depression, and our anger should be directed at those who cause it and profit from it.  Your targets are the US government and its central bank, the Federal Reserve System.  Don’t look to the government to bail us out of a depression, they caused it!  And anything they do to try and reverse it will only make it last longer, and run deeper.  Don’t let them blame the market and businessmen again, they do it every time.  Study, understand, and point the finger where it belongs.  This illegitimate, unconstitutional government and its central bank are the source of all our woes.

For the reader who desires to better understand the boom/bust cycle, I recommend a study of Austrian Business Cycle Theory.  The Mises.org site is a veritable treasure chest of information, and a good introductory article may be found here.