The view, which boosts spending on new factories that can hire additional workers, assumes unemployment is the main issue and uses short-run economic stimulus to counter for the lack in private savings. Why not boost employments further, and take the advice of John Maynard Keynes and Paul Krugman and employ as many people in the most tedious work possible. Only, in the long-run you have spent society’s real savings that would have otherwise provided for future employment and there is no market for their final goods and services. Additionally, if central banks blunder in their operations, the government passes on the expense to the consumers, taxpayers, and those with mortgages.
Unemployment
Rather than interfering, in an unhampered economy unemployment is always voluntary, as those job seekers coordinate and make adjustments to their choice of occupation or the amount of wage rate they and their employer are willing to accept. The price system draws people into occupations where factors of production produce goods and services that satisfy consumer needs best. However, the wage structure determined by trade unions distorts these relative wages, and confuse what are good employments and not so good employments. Additionally, having continuous inflation one could not adjust to a lower wage rate as they would struggle to make enough to keep up with the increasing prices.
Inflation
This short-term increase in revenue does not last and these new employments can only be kept as long as there is continued inflation. The more credit expansion is confused for real loanable funds, distorts what is available to support current production and consumption levels. As there is not enough time available to equal the production of goods to the increasing supply of credit. The lower purchasing power and inflated asset prices are the result of the booms squandering malinvestments. While, busts even though are inevitable, should not be prolonged to delay market correction on grounds of devaluing currency and hurting savings. Ultimately, benefiting government’s large debt to repudiate and sell at low rates.
Interest Rates
If governments lower the gross market rate of interest to help unemployment, they distort prices and deviate from the originary rate of interest. That is, in a free market, market price signals communicate and reveal the subjective valuations of all market participants, each time preference toward present goods over future goods. Naturally, preference for future goods, increases savings and lowers interest rates, signalling investors to borrow. Artificial low rates force people to consume now at the expense of saving or investing in the future. Therefore, it is quite hypercritical when interest is said to be exploitation. As, the market provides employments not governments. And, if we didn’t have interest the economies productions would not seek to produce at a loss and provide no incentives to save.
Featured image supplied from Pixabay.
Copyright © 2016 Zoë-Marie Beesley
