Can someone explain briefly to a non-economist what caused the financial crisis, or link to a brief article?
The Austrian Business Cycle Theory
I also highly recommend Tom Woods’ new book Meltdown which applies the austrian theory of the trade cycle to the current economic fiasco.
Simple answer for your question… “INFLATION”
For the average person who’s been brainwashed for a lifetime Max Keiser’s videos (available for free on Youtube [;)]) are an excellent way to kick off.
As I’ve said a thousand times you cannot take a normal person and immediately expose him/her to more advanced theories: start simple.
This collection of articles was compiled specifically for you!
Do you like weed? I do. So does Bill Maher. Suppose the government wants to get the economy going, it gives me and Bill some money to buy weed. And we do. It increases the money supply say by 3%, however that’s not spread out over everyone, that 3% is first given to me and Bill, and we use it at the current buying power of money which is based on a lower supply to buy tons of weed. Over time prices of weed and surrounding markets start to go up. Workers quit picking lettuce and fruit and go pick weed. Fields are given over to weed instead of corn, wheat, etc. Factories start churning out weed harvesters rather than corn harvesters. Repair services start to favor weed harvesters, spare parts and all. Store fronts start selling weed instead of tobacco or corn or liquor or apples, etc. Business is a’ boomin’.
Then eventually Bill and I realize we have more weed than God could smoke, or the government sees that our spending is starting to leak into other areas so it can’t be hidden as broader inflation measures start to rise. So blamo, the money stops flowing. Me and Bill ain’t buying no more weed. Now what do all the workers do? All the factories geared around producing weed harvesters? All the fields, they need to be replanted. The workers in the fields were used to getting weed-boom wages, now they have to settle for old, corn picking wages. Once corn is available to pick. And all the corn and wheat harvesters are starting to break down because no one was producing new ones or spare parts, everyone was into weed. The economy has been distorted, and now it’s in a recession.
The government line is that any and all spending is good, which heavily implies than any and all supply is good. And it ain’t. There is no profit to be made in simply flooding the market with ‘stuff’. There is profit to be made in delivering certain goods in certain amounts at certain times and at prices people are willing to pay under conditions of competition and choice. Recession is the rediscovering of just what those amounts, time frames, and prices are after the government has whiplashed the economy in another direction by giving a select group of people artifically high buying power to the point where they can literally stop economizing and just spend on whatever the hell they happen to want.