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Johan Norberg and Johnny Munkhammar get all economically Austrian on us, that is. In trying to dig us out from the dotcom crash everyone lowered interest rates which then inflated the asset price bubble in housing. Sure, that this coincided with invention in securitisation didn’t help, but that’s the basic reading. Plus, of course, a small seed of doubt about homeopathic economics, that troubles from an overdose of cheap debt are best dealt with by more cheap debt.

A recession is a time when we should sort out bad investments and transfer capital and labour from failed sectors into more competitive industries.

I’m not sure about that “we” there: agreed that the misallocation of resources needs to be sorted out but “we” implies an agency which isn’t really there. They, everyone else, by interacting in markets, need to change that misallocation.

It’s also not necessary to agree with their thoughts on the causes to see that their solution has merit. However it happened, we had a huge over-allocation of resources to construction and finance (as well, possibly, as to industries like cars). We need some method of moving that over-allocation to, well, that’s the bit we’re not quite sure of. To somewhere, to sectors that will produce more value, any value even, it’s just that we don’t really know what those are. The only real method we have of finding out is to allow those resources to go fallow, to become unused, and then watch and see what entrepreneurs find to do with them that does indeed create value that people are willing to pay for.

And that’s one of the major problems with shoring up the current industrial and productive structure by various stimulus measures: if the resources don’t become unused, then we’ll never find out their best alternative uses and thus never make the necessary adjustments in the structure of the economy.

Which, while it is possibly depressing, is all very Austrian. Recessions are what happen while we figure out what we did wrong and try to work out how to do better.