No Mises Institute

Do you feel the crisis is being properly dealt with?
The authorities invariably react to recessions by increasing regulation. They attack merely the symptoms, not the causes. If credit expansion continues, companies cannot be prevented from investing in rasher projects. Central banks are responsible for the bubble of the last decade: they inject credit into the economy at extremely low interest rates, and entrepreneurs rush to invest in nonviable projects.

How must the economy be adjusted if we are to move ahead?
The market is highly efficient at correcting errors. In fact, in Spain 150,000 companies have already folded, and another 150,000 may yet disappear. To expedite this process, the economy must be flexible, particularly the labor market. Millions of workers who were involved in nonviable investment projects must be moved to other, sustainable areas. When unemployment peaks, at around five million unemployed, the economy will have recovered. The companies that have survived will be the healthy ones. The problem is that hiring a worker is almost like marrying him — or worse, since express divorce makes it easier to separate from your spouse than to fire an employee. This situation makes re-entry into the labor market much slower.