Sunday, February 28, 2010

Keynesian vs Hayek: 2010

I remember hearing something along the lines that the federal government's $8,000 first time home credit was suppose to have stabilized and healed the housing market. When I first heard this idea pitched by the wizards of smart in Washington last year, I knew it was going to fail. Only the natural order of supply and demand can fix the housing market. Also, what good is the government giving money it doesn't have to people to buy houses when the banks are reluctant to lend money in the first place? Once again, the wizards of smart in Washington didn't think that far ahead obviously. Some news came out last week about the housing market that people should take away from it as a "teachable moment" as Obama once said. When the government interferes by trying to put a bandage on an open wound in the economy, the economy tends to go from bad to worse. I don't think anyone with common sense would ever try to catch a falling knife. The logical though would be to let the knife hit the ground and then pick it up. Don't tell that to Obama and company. The Japanese government tried for over twenty years to jump start their economy and still haven't figured it out. People who subscribe to the Keynesian Theory are only fooling themselves. Liberals actually believe that it was George Bush who was responsible for the end of the dot come era back in April of 2000. The dot com bubble bursted, because the market corrected itself and realized that the valuations of the dot com bubble companies were built on illusion and fluff. The same self correcting mechanism happened with the housing market in 2006. There is a reason why they called the housing market of the 2000's the "House Of Cards". It was just that. The housing valuations got way out of control and ultimately the market corrected itself. Keynesian's can't understand that. They truly believe that the government could have prevented the natural correction in the housing market. I came across this funny but really informative video explaining the two economic theories of John Maynard Keynes and F. A. Hayek, enjoy.


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