Back in July, I argued that because most contemporary economists lack an adequate theory of capital – that is, of the structure of relative prices and how they change through time – their policy advice is bound to cause worse problems later.
Quantitative Easing and further credit expansion through artificially low interest rates were our policy choices but, as Hayek explained in his Nobel lecture, injecting new money creates patterns of economic activity which last only as long as the supply of new money. Prosperity created through that mechanism is an illusion and we should not be surprised by these GDP figures.
Policy makers now have three choices – denial, despair and deregulation.
Read the rest of my article at ConservativeHome.