Illiberal Thinking

Believing the government can actually be a dirigiste of the economy is an illiberal belief. But we can't really grasp that which we cannot see. 

Indeed, with so many factors at play, it is difficult to predict whether or not the unemployment rate will peak early next year, as many are hoping. And regardless of when things really do turn around, Obama's defenders will doubtless say that it would have been even worse without the stimulus, just as we free market folks will say that the adjustment would have been quicker with less interference. Such is the difficulty with counterfactuals, which plague economics and all of the social sciences in which actual laboratory experiments cannot easily be carried out.

All the more important, then, to get the theory right, to make sure that it is internally coherent and externally helpful in explaining real world events. Austrian business cycle theory does a better job than other models of explaining booms and busts. The booms of malinvestment are caused by loose money, and the painful busts that sometimes drag on so long are caused by interference with the adjustment process, of which spurious job "creation" efforts are one example. This was the real story behind the Great Depression, and it is the real story now. If more members of Congress understood this, they would have had a better chance of saving their own jobs come next November's midterm elections.

As for 'Bama's "economic summit" coming up, expect more nonsense. Caroline Baum from Bloomberg.com captures the mindset of the administration:

Here’s the executive summary in case you missed it:
The crisis: “Inherited.”
The economy: “In terrible shape” (the inherited one).
The shocks to the system: “Larger than those that precipitated the Great Depression.”
The policy response: “Strong and timely.”
The efficacy of the policy response: a 2 to 3 percentage point addition to second-quarter growth; 3 to 4 percentage points in the third; and 160,000 to 1.5 million “jobs saved or created,” a made-up metric if there ever was one. (More on that later.)