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Issue Analysis

    Quoth the Keynesians "Nevermore"

    Bernanke Mask         Many can recall the short story The Masque of the Red Death by Edgar Allen Poe, in which Prince Prospero attempts to avoid the plague that is ravaging the country side by barricading himself and a number of his closest friends in his abbey.  However, despite Prince Prospero’s best efforts he and his friends all fall victim to the plague.  Yet this tale can be viewed as an allegory for Austrian economics.  
              During the financial crisis we saw how the government sprang into action to rescue the economy from the brink of collapse.  With bailouts and stimulus all the Keynesians rejoiced that the country’s economic woes would soon be at an end.  The government jumped in and supposedly saved the day.   Obama in a speech decreed that the recession is over and soon we’ll experience prosperity.  It is true that the economy did experience some small growth, yet we are now starting to see that the recovery was a joke.  With unemployment now at 9.1%, which is an increase from last month’s unemployment rate.  
               Yet the government’s economists are running around completely dumfounded because their Keynesian models had projected payrolls to increase 150,000 and private hiring to increase 175,000 by the end of May.  Just as the frightened friends of Prince Prospero gasped in awe as the Red Death entered the abbey.  Both the economists and the friends of Prince Prospero thought their efforts had worked and yet there they are standing face to face with that gruesome Specter.  The truth of the matter is that Nonfarm payrolls increased by 54,000 last month, while private employment rose only by 83,000.
              Austrians argue that depressions and recessions are part of the business cycle, they are necessary in order to reallocate misplaced resources.  When the government steps in and attempts to “save the day” they are actually making matters worse for as a result of their actions they only misplace more resources, which will inevitably make the downturn even worse.  No matter how much money the government throws at the problem they are only prolonging the inevitable.  The current unemployment number represents the specter in the story and seeks to tell us that eventually we will experience another downturn in the economy in order to fix our politician’s blunders.