On the subject of public intervention stimulating economic growth. How does one explain the West German post-war Wirtschaftswunder, without the Marshall Plan?

By 1985 Germany was one of the most successful economies in the world.

How would the Austrian economists account for that one, Richard?

The financial disruption was not some sort of calibrated signal about the ideal levels of investment in the economy. It was a blind panic throwing the good out with the bad, the solvent with the feckless, businesses with sound plans with those (minority) punting on asset markets. This is not an adjustment process like MiniDisc players falling because of iPods. This is money being stripped from every enterprise because in a world of assymmetric risks, zero rates and insufficient information, every long term investment project looked bad.

Somehow, the UK economy grew faster in the years since the War than it did in 100 years of Industrial Revolution. Some ‘long term damage’

Well, according to some libertarian wishful thinkers, business would have gleefully rushed in to fill the void, gladdened by government no longer laying its dead hand upon the economy. Investment would have flourished. Public sector drones would have transmuted into private sector risk takers. In their view (read Norberg ‘Financial Fiasco’), the Depression was CAUSED by the government intervening in wages. Yes, all those ragged unemployed were just asking too much.

Of course, its nonsense. Bleak expectations would have become bleaker. Finance scarcer, growth slower, deflation worse.

This is the first time that I have really heard an argument for letting industries go bust during this recession be made; though many have gone under. There were very few, if any, voices advocating this approach at the height of the credit crunch in autumn 2008.

Should a Free Market think tank like IEA not strongly have advocated and continue to argue that RBS, HBOS, Bradford & Bingley, Freddie Mac, Fannie Mae, AIG etc should all have been allowed to go to the wall?

Should the IEA not also be arguing that the US Treasury made the correct decision in letting Lehman Brothers go bust and criticising the other government bale outs? How would the fiscal position look? Unemployment?

There seems to be a neat division into three:

- People who think aggregate demand need boosting by Keynesian methods
- People who think AD need boosting by monetary methods
- Austrians who think AD was too high and should not be boosted, it just suckers us into more wrong economic behaviour

I am a mix of the first two.

Agreed, for some stupid reason I got the paradox of thrift mixed up with the liquidity trap (which Keynes thought was nonsense). Apologies.

Page 11 of the Bank of England’s November Inflation Report shows over 25 years that growth in Broad Money (M4) lags nominal GDP into contraction or recession, but may lead it towards the peak of an expansion. The largest gaps in growth rates between the two, with M4 accelerating faster, point to impending recessions.

The graph shows that broad money’s decline in 2009 has halted well short of the nadir of GDP contraction. M4 has usually followed GDP into a deeper low point in previous recessions. How do you account for this descrepancy?

The governments’ recovery packages; the car scrappage schemes have almost doubled new UK private car registrations this year,(p19).