More Australian school thoughts on the failure of stimulus spending

Steve Horwitz, one of the leading fellow travellers with the Australian school who blog at Coordination Problem, has reminded everyone that Hayek was ahead of the game.

So why not another round? The most powerful argument against more stimulus comes from Friedrich Hayek and the Austrian school. The key to their view is their understanding that economic resources, whether capital or labour, are not fungible. That is, capital goods and human beings have a multiple, though not infinite, number of ways they can contribute productively to the value creation process.

The productive structure of an economy is like a jigsaw puzzle where the pieces of capital and labour must fit together in particular combinations. Only specific pieces can be linked with others. However, unlike real jigsaw puzzles, we don’t have a picture of the pattern we are creating. Instead, we have prices, profits, and losses to inform us when pieces do or do not fit together appropriately. If those signals are working well, we will have success at fitting pieces together in ways that are orderly. The interesting thing about that orderly use of the jigsaw puzzle pieces is that we might not need to use all the pieces at any one time to generate a recognisable and desirable pattern.

For more good stuff at Coordination Problem, and also the honourary Australians at Organizations and Markets.

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9 Responses to More Australian school thoughts on the failure of stimulus spending

  1. I think it is tactically wrong to speak of the “success” or “failure” of this or that stimulus activity. Given enough instances surely some will succeed. They will succeed thanks to a complex combination of reasons quite beyond the perception or understanding of those who will rush to tout it as vindication.
    Stimulus spending is fundamentally wrong and misguided, regardless of the outcome.
    In entails taking property by force from a majority, to satisfy the desires or beliefs of a minority.
    As Hayek pointed out it is physically, arithmetically, impossible for decisions made centrally about the allocation of resources to be better than those made by those with the cash, knowledge and risk.
    No matter how apparently successful any stimulus spending is, those things never change, and are sufficient grounds for opposition.

  2. whalehunt fun

    So Juliar stealing my money to give a smaller amount to my wife was not a good idea? Who’d have thunk it?

  3. whalehunt fun

    Might add she promptly ordered cases of French wine thereby stimulating the French economy and doing bugger all for ours

  4. Entropy

    More precisely, whf, stealing yours and your children’s money.

  5. TerjeP

    I don’t see the point of referring to an “Australian school” of economics. Is this just a Rafe invention or does anybody else actually use this term?

  6. Poor Old Rafe

    Feel free to focus on the substantive points and ignore my playful references to the Australian school.

  7. whalehunt fun

    So Arnie is nor Australian?

  8. TerjeP

    Rafe – the substantive point I agree with entirely. The playful reference just seems weird.

  9. Nuke Gray

    Maybe Arnie can be made an honorary Australian? As a promoter of the Shire faction of the Australian School (the People’s Popular Front), we are all against this ‘substantive’ position. TerjeP will not be getting an Honours from us!

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