August 7, 2007 by Tom Armstrong.

The unintended consequences of easy money (requires WSJ subscription).

Hayek warned the world about these consequences decades ago:

One cause [of economic busts], he said, was increases in the money supply by the central bank. Such increases, he argued in Prices and Production, would drive down interest rates, making credit artificially cheap. Businessmen would then make capital investments that they would not have made had they understood that they were getting a distorted price signal from the credit market. But capital investments, noted Hayek, are not homogeneous. Long-term investments are more sensitive to interest rates than short-term ones, just as long-term bonds are more interest-sensitive than Treasury bills. Therefore, he concluded, artificially low interest rates not only cause investment to be artificially high, but also cause “malinvestment”—too much investment in long-term projects relative to short-term ones. He argued that the boom must turn into a bust. Hayek saw the bust as a healthy and necessary readjustment. The way to avoid the busts, he argued, was to avoid the booms that caused them. Read about Hayek.

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August 7, 2007 by Tom Armstrong.

Thomas Sowell on political incentives.

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August 7, 2007 by Tom Armstrong.

Rich Karlgaard writes about how high taxes are driving some people to low-tax states. You must sign up (takes about 1 minute) at Forbes for access.

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