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According to Hayek's Eurozone of Recession, policymakers are still in the dark on how to use energy effectively. Instead, they choose the most common forms of public spending in elections (Bjrnskov 165). However, as they decide to waste money, different sectors of the economy suffer, and they are heading in the wrong direction. In such cases, the government should refrain from intervening. This suggests that private businesses should be able to make their own choices on whether or not to use unused money (Cachanosky and Salter 180). Moreover, any barriers to businesses and competition such as taxes, cut regulation, and state intervention should be removed. In a free market, the prices will always signal that there is a loss or a profit; hence, the prices will enable full employment and market equilibrium.
When the government is allocating resources, the free market has always been superior to the government in the manufacture of goods and services that are demanded. According to Hayek, the government should provide little basic guidelines which will enable functioning of the economy. For instance, the government should provide a legal system of property rights and allow the free market to care for education, defense, and security (Horwitz 106). To overcome the challenges related to inflation such as the rise in the interest rates and increased number of unemployment, the government should eliminate unnecessary spending, such as money used in campaigning, as this affects the economy of the country by reducing the circulation of money (Schmiegelow and Michèle 102). However, the government should also reduce tax rates to improve the incentives for investment, savings, job creation, and starting businesses. These can be done by pursuing of anti-inflationary monetary policies that will maintain a stable dollar. Also, deregulation should be performed which will reduce the cost for businesses as well as consumers and, therefore, increase efficiency (Bjørnskov 11).
Bjørnskov, Christian. “Do Economic Reforms Alleviate Subjective Well-Being Losses of Economic Crises?” Journal of Happiness Studies, vol. 15, no. 1, 2014, pp. 163-182.
Bjørnskov, Christian. “Economic Freedom and Economic Crises.” European Journal of Political Economy, vol. 45, 2016, pp. 11-23.
Cachanosky, Nicolas, and Alexander W. Salter. “The View from Vienna: An Analysis of the Renewed Interest in the Mises-Hayek Theory of the Business Cycle.” The Review of Austrian Economics, vol. 30, no. 2, 2017, pp. 169-192.
Horwitz, Steven. “The Problems with Keynesianism: A View from Austrian Capital Theory.” What’s Wrong with Keynesian Economic Theory? edited by Steven Kates, Edward Elgar Publishing, 2016, pp. 106-122.
Schmiegelow, Henrik, and Michèle Schmiegelow. “Contract Modification as a Rebus Sic Stantibus Solution to the Subprime Crisis.” Institutional Competition between Common Law and Civil Law. Springer Berlin Heidelberg, 2014, pp. 83-117.
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