School children learn that there are three branches of government. In actual practice, there is a fourth branch, the permanent bureaucracy which includes legions of civilian and military agents, officers, and administrators committed to protecting their own interests.
The fact that central bank policies become ineffective in reviving the economy is not due to the liquidity trap, but because of the decline in the pool of real savings. This decline emerges due to loose monetary and fiscal policies.
Many advocates claim government intervention is necessary because markets are too unstable. The real instability, however, comes from the immense uncertainty over what government will do next with its vast and arbitrary power.
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