'The companies that remain have become "healthy" and the increase in saving permits the financing of new investment projects that are actually sustainable in the long term.'<blockquote>'..With great difficulty, the market, which is very dynamically efficient, ends up rectifying investment errors: companies and households put their balances on a sound footing by reducing costs (particularly labor costs) and repaying loans. The companies that remain have become "healthy" and the increase in saving permits the financing of new investment projects that are actually sustainable in the long term. Climbing unemployment reaches its peak when the reorganization has concluded, and at that point the top priority is to liberalize the labor market as much as possible (hiring, wages, dismissal, and collective bargaining) so that the unemployed can again enter the (now healthy) production chain to work on viable projects. Furthermore, maximum budget austerity is necessary in the public sector; it is important to avoid tax increases and to reduce bureaucracy and government intervention in the economy.
..
Society is confused and bewildered by the crisis. The gulf between people and politicians is nearly unbridgeable. Moreover, the ignorance and confusion of the latter is also spectacular. However, the worst part of the situation is that most economic theorists themselves are drawing a blank in terms of theory, and they are not managing to grasp what is happening, why it has happened, and what could happen in the future.
The loss of prestige suffered by neoclassical economics (the hypothesis of market efficiency, the theory of rational expectations, faith in "self-regulation," the principle of agent rationality, etc.) is complete and is mistakenly interpreted as a market failure that justifies more state intervention. (Keynesians attribute the crisis to the sudden financial "panic" and to a lack of aggregate demand for which the state must compensate.) Theorists of different camps fail in their understanding of the market, and thus in their analyses and prescriptions. Well into the 21st century, the theoretical void is enormous. Fortunately, the Austrian theory of the cycle, in general, and my book
Money, Bank Credit, and Economic Cycles in particular, are there to fill this void and clear up the present confusion.'
- Jesús Huerta de Soto (..professor of economics at King Juan Carlos University, is Spain's leading Austrian economist.),
Some Additional Reflections on the Economic Crisis and the Theory of the Cycle, December 29, 2011</blockquote>
Context<blockquote>
Ethics - '..tough times, a partnership planet.'‘…there must be prior savings and investment…’</blockquote>