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<font color="#002864" size="1" face="Verdana">http://www.mises.org/fullstory.asp?control=1274</font>
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<font face="Verdana" size="2"><font color="#002864" size="5"><strong>Lessons of a Slow-Going Recovery</strong></font>
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<font size="4">By Christopher Westley</font>




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<font size="2">[Posted July 23, 2003]</font>




<font size="2"> Such
legislation has the effect of increasing the cost of labor relative to capital,
thus penalizing firms for choosing labor over capital. Part of the full costs
of Bush I- and Clinton-era regulations, much of which did not exist during the
last recession, is the continued rise in unemployment after two years of
languishing economic growth.</font>




<font size="2">The second is that efforts by a deflation-obsessed Fed to
thwart the economy's market clearing mechanisms amount to dangerous nonsense
that must be stopped now. These efforts not only have the effect of
prolonging the economy's misery, they throw sand in the face of unemployed and
unskilled workers whose families would benefit the most from falling prices.
The irony is that many of these workers will be forced to become dependent on
the State, robbed of the autonomy that would be encouraged by falling prices
and other normal market-clearing processes.</font>




<font size="2">Besides, falling prices are essential for the malinvestments
that resulted during from the boom to become liquidated, thus creating the
conditions necessary for a pattern of sustainable growth to commence.
Intervening in this process may be good politics, but it (i) is never
effective and (ii) always unnecessarily prolongs the market-correcting process.
Indeed, it was a normal market correction beginning in the fourth quarter of
1929 that devolved into a full-blown depression because of the State's
intervention in the labor and goods markets. Wages and prices were not allowed
to fall as they had in the past, a situation that persisted until the brunt of
the New Deal programs were dismantled following World War II. It was no
mistake that the only decade to rival the 1930s in terms of prolonged market
malaise was the 1970s, another era defined by interventionist wage and price
policies.</font>




<font size="2">And finally, so-called"free trade agreements"
have particularly pernicious effects when they are struck with countries that
offer tax and wage environments that are vastly superior than those in the
United States. What good are such agreements if U.S. authorities do not
accordingly reduce workplace interventions to levels that make capital at
least equally at risk at home and abroad? Capital tends to flow where it is
safer and more likely to maintain its long-term value.</font>




<font size="2">Seen in this light, existence of NAFTA may go far to explain
why this recovery seems so weak. Robert Reich may well be right that firms are
now more likely to choose foreign over domestic expansion than during previous
recoveries. He might also wonder whether policies he pursued as Clinton's
labor secretary helped create incentives that encourage firms to do so.</font>


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Christopher Westley, adjunct scholar of the Mises Institute, teaches
economics at Jacksonville State University.  Visit his </font><font color="#0000ff" size="2">Webpage</font><font size="2"> or
send him </font><font color="#0000ff" size="2">mail</font><font size="2">. 
See his </font><font color="#0000ff" size="2">Daily
Article Archive</font><font size="2">. See also the </font><font color="#0000ff" size="2">Austrian
Study Guide on Labor and Wages</font><font size="2">.


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