Thursday, January 20, 2011

The wisdom of central banking

"Cheap money is not a long-term growth strategy."

That is the sage warning from Bank of Canada governor Mark Carney, and he's absolutely correct. Which begs the question, why is this an economic strategy that is deemed legitimate in the first place?

Carney's wise words restated, cheap money is a short-term growth strategy. Although that is not necessarily true by inductive reason, it must be so. Surely, cheap money would not be a viable tactic if it was not conducive to growth in either the short- or long-term.

By the BoC governor's own logic then, economic growth fueled by cheap money is unsustainable. That the national economic policy, as set by the Bank of Canada, is unsustainable should frighten and confuse us all! What is a bubble, afterall, but unsustainable, short-term economic growth?

Some people, hellbent on rationalizing the insanity of the ruling elites, would claim that a rollercoaster of ups and downs can still produce long-term overall growth trends. I fully concur with this assessment, however I find that it is indicative of the shortcomings of Keynesian thinking. This type of analysis subjects the components of the economy into aggregates that need not be considered to any substantive degree, and instead observes the statistical outcomes of the composition. But inside these aggregates of long-term winners are many, many losers, all the people who were guided by central planners into unsustainable, doomed-to-fail investments by the conditions that spurred short-term growth. To these people, economic conditions that guide investors into prudent, sustainable activities are paramount to their welfare. These conditions, unfortunately, are brushed aside in favour of politically expedient government action. When will we learn?

No comments:

Post a Comment