Wednesday, February 04, 2009

The Way Out, pt VI

What he said. I like especially how Kling focuses on profits. A lot of the current economic commentary is about credit, and financial institutions. And we do need credit to have profits. But to a large extent we shouldn't be worrying about (or spending money on) financial institutions with the hope that they will provide the credit to the broader economy.

One thing that's largely been missing in most of the recent economic commentary is that we are likely to be in the middle of a substantial sector shift. People have obviously rethought their expenditure patterns with new budgets and ordering of wants. Capital allocation will reflect that, and we know from Hayek that government cannot pull that off. Ie, now more than most times, there is no "aggregate" demand.

If the government can enter the market as a consumer, it can legitimately try to goose growth a little bit by cheating the process toward more expenditure. But the most important thing on the government side is to be relatively conservative of its debt levels.

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