The causes of the economic and financial crisis of 2008 have been made worse by governmental economic policies. In order to escape the consequences, government applied more of the same poison that led to the crisis. Their actions provided temporary relief at the cost of an inevitably more serious illness in the not-too-distant future. Financial markets and the economy were not healed, they were made worse.

 Gordon T. Long and John Rubino, in the video below, discuss the consequences of easy money, moral hazard and the reasons why and how we reached this point. Theirs is an excellent discussion of how the economy has been corrupted by government interventions and improper incentives. The economic crisis was covered over and deferred. It was not solved. A fever was reduced, but only by enabling the underlying disease to strengthen.  An analogy for the 2008 crisis would be that of a drug addict. To avoid the pain of drying out, the addict injected more poison into his system. All that was accomplished was temporary relief and a more severe crisis in the future.

Free markets produce self-equilibrating conditions and what Hayek described as “spontaneous order.” Government interventions create disincentives and distortions that lead to dis-equilibriums. These disequilibriums are then addressed by more interventions in an attempt to make the system function.

In the early stages of this process, the interventions are small and directed at only a few markets. Interventions cannot succeed because they represent attempts to suppress what willing buyers and sellers want to do. Economic actors find ways around the interventions, making further interventions necessary. The subsequent intervention is always needed to remedy the adverse outcomes produced by the prior intervention. Each intervention produces adverse outcomes requiring even more and larger interventions.

The free market disappears in such a process, displaced by central planning. Each intervention makes the economy less efficient. After decades, economies are unable to function properly. This video explains why: