This article is a summary of the views expressed by Robert Higgs in his article Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy. And how the article compares to the approach taken by Gregory Mankiw in his well known textbooks along with Keynes theories as their arguments can contradict themselves for the following reasons.
Besides interests regulatory uses, such as borrowing for consumption, it is now found necessary to find additional policy stimulus through cutting the gross market interest rate lower to delay market correction. However, it is inefficient to suggest high investment or prolonging the boom helps society to prosper, as if this were true this doctrine should also follow (where it would otherwise contradict itself to deny) that taxes decrease investment and uninvest toward helping society to prosper. Even though, it is tempting to resort to this view, and inflate away debt, raise seigniorage revenues, and to stop falling prices through credit expansion, lower rates then confuse for more real loanable funds. Ultimately, causing malinvestments from misguided policy decisions that will inevitably have to be liquidated.
Prices and wages that struggle to adjust to rapid inflation or refuse to sell lower than the inflated price, are fixed by textbook ceilings/floors, however, creating unsold surpluses and ultimately benefit labour unions job security from pushing up real wage rates. Limited to an aggregate production function with only one input – aggregate labour and Keynesian thinking assumes only one price, that is, ‘the price level’ a weighted average of all money prices average out relative prices and changes in such prices. There is no concern over long-run capital stocks and counted as given in GDP whether they are profitable or misdirect resources. Representing assets where only exchange has occurred and no new employment has been added. Nor do aggregates count for unsold inventories, underground business, or personal production for direct consumption.
Robert Higgs coined the concept regime uncertainty to explain economic risk amid investors and administrations lack of confidence to foresee the extent future government policies and laws would have on their private-property rights and long-term investments. Concerning such things as monetary or fiscal matters, price fixing, tax, or electoral outcomes. Uncertainty stems from the expected changes in government actions, of which can deter investment even if it ultimately leads to better private-property rights.
Further Readings
Higgs, R. (2009). Recession and recovery: Six fundamental errors of the current orthodoxy. The Independent Review. Retrieved [24/04/16] from <http://www.independent.org/pdf/tir/tir_14_03_10_higgs.pdf>.
Cochran, P. J. (2013). Recessions: the don’t do list. Alabama, United States: Ludwig von Mises Institute. Retrieved [24/04/16] from <https://mises.org/library/recessions-dont-do-list>.
Hazlitt, H. (1959). The failure of the new economics. Alabama, United States: Ludwig von Mises Institute. Chapter XXVII. Retrieved [24/04/16] from <https://mises.org/library/failure-new-economics-0>.
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Copyright © 2016 Zoë-Marie Beesley
