Or do you just want to see the world burn?
(This post builds on ad absurdum arguments, if you are not able think “theoretically”, this one is not for you)
Imagine the mother of all crisis!
This is not the Great Recession! This is not the Japan Crash! Not even the Great Depression!!!
All people stop consuming in large scale, all companies start investing! Unemployment reach maximum peaks! Why? Oh..forget why.. Let’s call it…the animal spirits, a decrease in confidence, whatever…that’s not the point.
At least we have a Central Bank, some will shout!
At least we have a Fiscal Authority, others will scream!
Let’s start with the first ones: What would the Central Bank do? It would start buying Short Term Treasury Securities (or define a short term interest rate), but then suddenly the interest rate reaches the Zero Lower Bound (or another bound..) and they decide to buy longer term bonds, until the interest rate reaches zero too! Then it will go to corporate bonds! Stocks! Houses? What else??
The Central Bank just bought everything…and still no resurgence in private spending to acceptable levels.
Did the Central just buy everything? And the Central Bank is part of the Government, right? So if the Government owns all the assets in an Economy…
Those who shouted for Monetary Policy ended up as Communists! (Friedman would not be happy about this – neither would Sumner)
What about the ones who called for the Fiscal Authority?
Well…Let’s say, first of all, the Ministry of Finance cuts taxes all the way to zero… Still..no resurgence in private spending to acceptable levels.
What else? Well..Government Spending it is!
The Government will just Deficit Spending all the way to prosperity, choosing the sector in which to spend/invest as it would seem fit. It would choose the direction of the economy!!
What? Those who shout for Fiscal Policy ended up as Socialists! (I guess both Keynes and Krugman wouldn’t mind…)
So..in the end, are we all just Socialists or Communists?
No..You could just shout (as Mises): “YOU’RE ALL A BUNCH OF SOCIALISTS” and watch the world burn.
P.S: I know, I know.. I maybe distorted a little the meaning of socialism and communism, but if the great Nick Rowe can (but much better), so can I, right? (Wrong)