Johan Norberg says, we have gone on too long confusing the symptoms with the pathology. Actually, he uses the metaphor of the alcohol abuser, so let’s stick to that. Because if he’s right, that means politicians and central banks are keeping us in perpetual party mode.
So what do politicians do about it? Their incentives are for the central banks to line up the shots, obscuring the underlying poor health of the economy. Currently interest rates are around zero. That’s just monetary stimulus — a form that obscures what should be the “natural” price of credit. Politicians have to have it that way. Voters don’t understand what the economy needs. They just want the unememployment rate to be at 5 percent and to have their 401ks padded again. But the only way for us to get back to that state in any sustainable way is to take the pain. DTs. Withdrawal symptoms. (Unemployment, foreclosures, failing banks and failing businesses). This is the market’s way of purging itself of overcapacity. And that’s a good thing. It doesn’t feel good, but neither does a hangover.
Watch more from Norberg in the video below.