http://mises.org/daily/5904/Will-Currency-Devaluation-Fix-the-Eurozone
Penguin, give this a shot. Doesn't answer the question but a great essay with a few observations to consider. I lean Austrian, mostly due to the strong sense of restraint and humility to accept no one can know everything. If you get bored FA Hayek's, "The Road to Serfdom." Schumpter has a great book on 'Capitalism, Socialism and Democracy.'
Boo
I guessed that you were with Friedman due to the focus on inflation, but now that look at your post again, I can see Hayek's influence. Doubtless, the market is central to a successful economy; my point was to use the government to prevent financial accelerators from creating depression or speculative bubbles, and then spur (or deflate) both sides of supply and demand if and when they do happen. For example, if you've got a huge demand-side orange bubble, then raising taxes on oranges will help protect entrepreneurs from staking their fortunes erroneously. On the other hand, if it isn't a bubble at all, then all you'll end up doing is creating a dead-weight loss that could strangle growth. This is where Hayek would come in, stating that predicting this is impossible because the market is too vast to regulate effectively. On the other hand, can it really be said that we cannot make any collective economic decisions? The labor reform laws of the late 19th and early 20th centuries certainly helped to end exploitation. So it's not so much a question of kind, but degree.
On the issue of the Euro, the more powerful evidence is less the typical of Keynesian expansionary policy, but the mention that half the proposed expansion has already occurred without a subsequent increase in activity. However, this devaluation is not the result of an increase in supply (loose monetary policy) but a decrease in demand due to a slowing European economy. In that sense, the article confuses a decrease in demand with an increase in supply. However, expanding the money supply is just too broad a fix for too narrow a problem. The key is not to attempt to influence aggregate demand for European goods by expanding the money supply, but identifying which industries can be abandoned (e.g., complex lending), and which will create new growth (perhaps green energy). There is also the issue of a supply-side crisis having toasted the European economy, not a downturn in demand, so boosting aggregate demand via expansionary policy would
really mess things up because it would be a misapplication of Keynes' normative theory. On the other hand, performing a revamp of roads, canals, and other means of infrastructure could spur the lagging industrial development that the article mentioned via improved efficiency, and help to revive the flagging supply-side.
While Hayek had a point about the inefficiencies of long-term command or socialist economies, there is also the fact that we can become aware of things that will influence economic growth by performing careful experiments and examinations. For instance, taxing anything that moves really doesn't help much due to dead-weight loss, but not taxing enough starves the government of the funds that it needs to do the things that no-one can profit from directly (roads, highways, the military, education, welfare, unemployment, care for the poor) without really fracking up the system. While some inequality is unavoidable, it is well-known that continued under-regulation and under-taxation will create unimaginable horror for the imperfect competitors that compose the majority of the economy for the benefit of a very narrow few that often squirrel their money away or spend it on charity (which, while noble, isn't as effective as creating new small business to employ the destitute) or extravagant luxuries.
On the other hand, no-one could have predicted Apple or Microsoft in anything but the most general terms. Steve Jobs have a 2.6 (+-.1) GPA and dropped out of college, by all measures he was bound for poverty. However, his entrepreneurship saved his hide and we all got nicer things to boot. So attempting to manipulate the economy like a marionette will not generate good results, either. It is vital, however, to avoid the expression of self-interest in ways that hurt us, like exploitative labor or predatory lending. There's no profit in that, but it's all-important in order to prevent general suffering; therefore, the government must take action to prevent such practices. A good example would be Ben Bernanke saying that anti-fraud regulation wasn't needed due to market forces; however, not everyone spends much time worrying if their lender is actively trying to screw them, and those that do don't have the resources to effectively detect it.
The real goal, then is to use regulation to create an economy where self-interest and rational choice can only be expressed via competition among companies and entrepreneurs, and not malicious practices or massive swings in economic output (e.g., the Great Depression). Thereby, consumers and the notion that competition creates more for everyone are protected, and the economy is protected from damage. To accomplish such goals, it is important to keep inspectors rotating through and give them incentives of prestige to report malicious actions, and prevent the 1% (a necessary part of the economy) from stopping the flow of wealth back to small businesses and entrepreneurs (where it is needed to maintain competition-based growth). I actually drew up a diagram of that last idea, if you'd like to see it.
-Penguin
