The Debacle of Economic Stabilization Policies

Antony P. Mueller, an internationally renowned associate scholar of the Ludwig von Mises Institute, launches a devastating attack against the prevailing conception of economic policy according to which the government and the monetary authorities have to stabilize the economy. This claim implies the assumption that the market economy is unstable. Yet what if when it is not the market economy but politics which produces instability? What if when the policy managers fabricate the opposite of their claim? What if when they do not smooth the business cycle but make it more extreme? What if when monetary policy does not cure inflation but instigates the erosion of the purchasing power of money? The great economic eruptions happen when the government and the central bank do not allow the small economic fluctuations to play out. The authorities hinder the return to a balance when false incentives and distorted market signals persist. When capital becomes scarcer, the interest rate should rise to signal this change. If, however, the central bank attempts to pump more money into the systems and to lower the interest rate, this policy will cover up the capital shortage. Cheap credit insinuates a profusion of funds that do not exist. Economic policy claims to stabilize the economy and keep it on its growth path. For that purpose, economic policy is said to pursue the aims to fight inflation and deflation, to prevent recessions and depressions and to promote economic growth. Yet, often, these policies themselves produce what the policymakers claim to prevent and to cure. This booklet, based on the comprehensive monograph "Beyond the State and Politics. Capitalism for the New Millennium" explains that the monetary authorities and the government do not improve economic performance but are the main culprits for a weak growth and the extreme swings of the economic activity. The author Antony Mueller is a German professor of economics who currently teaches in Brazil. He is an associate scholar of the Ludwig von Mises Institute and a senior fellow of the American Institute for Economic Research (AIER). Antony Mueller holds a doctorate in economics from the University of Erlangen-Nuremberg, Germany, and has taught and done research in Europe, the United States (where he also was a Fulbright Scholar), and in various parts of Latin America. He gained professional experience as a sovereign risk analyst.