by James E. Miller
During an economic boom, exuberance finds itself lodged in all types of industries. When profits soar, so does the public’s disregard for prudence. And as tax revenues rise, politicians can’t help but give in to their bread and butter of buying votes. Periods of accelerated economic growth typically come in two different forms. If capital is drawn from a pool of real savings to finance investment in more efficient forms of production, the boost in wages and income will be sustainable as long as consumers remain willing to purchase whatever is being produced in greater amounts. In the case of a credit-expansion boom fueled primarily by fractional reserve banking and interest rate manipulation through a central bank, the boom conditions are destined toward bust. Liquidation then becomes necessary as the bust gets underway and malinvestments come to light.
For private industry it means slashing costs, laying off workers, and possible bankruptcy to discharge debt. For government, it typically means shoring up the lost revenue due to unemployment by raising taxes and promising to cut spending by some significant amount. Usually those promised cuts never come to fruition. Political reelection hinges too much upon filling the pockets of voter blocs. When private enterprise tightens its belt, the state hardly bats an eye since its revenue is dependent on how much it decides to fleece from taxpayers in any given year.
