We hear it all the time, how unemployment is rising, bankruptcies are rising, companies are scaling back and selling off assets, foreclosures are rising, and so on. Of course, the message that follows is that such signs mean that we should start throwing government money around in order to "fix" the economy. However, I would argue instead that all these "negative" indicators are actually positive.

 Life offers a number of analogies, incidents which appear negative but are actually beneficial. Vomiting following poison ingestion, draining an infected wound, the illness which accompanies pregnancy, all appear to be bad but actually indicate that one is improving (or in the case of pregnancy undergoing a perfectly natural process). And the same with all of these "negative" signs.

I wrote before how bankruptcies are artificially suppressed by inflation and our rising numbers may be indicating a return to  a more normal bankruptcy rate, more consistent with a vibrant, healthy economy, rather than a fevered, inflationary one. And that is still true, however, it is also possible that all these signs are also, in part, a sign that our economy is clearing the negative effects of inflation and returning to a more healthy state.

After the German hyperinflation of the 1920's it was discovered that many factories and goods built during the inflation were so shoddy manufacturers dismissed them as "junk". The inflation had so skewed the economic indicators that companies were manufacturing goods, and building factories, which met no discernible need, or which satisfied needs were much less keenly felt than others which went unsatisfied. Inflation tends to push the economy into the wrong channels, to cause us to incorrectly allocate resources, and these signs are all likely not negative, but indicators we are on the mend.

Let us look at four of them, foreclosures, unemployment, companies shedding assets and finally bankruptcies.

Foreclosures are the symptom of our healing most likely to be used to argue for government intervention, as they create sob stories. But the truth behind most foreclosures, especially early on, is that individuals, because of low interest rates, were buying houses well beyond their ability to afford, or else they were either gambling on ARMs continuing to remain low or were extracting paper equity out of rapidly rising home values. In any event, they were engaged in something which was economically untenable. Yes, it is sad when people lose their homes, but on the other hand had they behaved responsibly instead of overextending or trying to cash in on a market rise or low rates, they would not be in this mess. Many, many people bought houses at the height of the boom and yet are not facing foreclosure. Foreclosure is a sign the economy is forcing those who made bad decisions to correct them.

Yes, it si sad to see people lose their house, but that is what happens when you make bad decisions or get too greedy and take the wrong risk. It is not the purpose of the government to essentially indemnify gamblers against any risk. And what would be the cure? Would people be allowed to stay in houses they couldn't afford? Pay only part? Pay nothing? Would we keep some individuals' interest rates below market? How is that fair to those of us who did the responsible thing and did not overextend ourselves or gamble on interest rates? And if we indemnify those who engaged in risky behavior, doesn't that just encourage risky behavior in the future?

Similarly, unemployment is a good bet for demagogues pushing for intervention,as it is easy to write sad stories about the unemployed, and it is unfortunate when someone loses a job, but it is also necessary. As I wrote, inflation creates distortions in the market, which emans also labor becomes poorly allocated. If we tried to preserve those jobs, we would be forced to maintain inefficient or even unnecessary companies or industries. Difficult as it may be, allowing companies to close down unneeded plants, or even shut down entirely. Unpleasant as it is, unemployment is a sign that the economy is recovering.

Nor are the proposed solutions helpful. Makework programs from the government serve only to divert free labor into other worthless pursuits, depriving the recovering economy of needed labor. And extending unemployment only serves to create more unemployment, as knowledge that he possess unemployment insurance tends to make a worker more picky and leaves him unemployed longer. Uncomfortable as unemployment may be, any attempt to remedy it will only make things worse and slow the eventual recovery and decline in unemployment.

Companies shedding various assets is similar to the unemployment case. During inflation companies may buy up other companies or create divisions within their corporation which are not economically viable. This may seem a good idea because of the distortions of inflation, but when the economy begins to shed its inflationary dead weight, the worthlessness of these investments become obvious. At that point, he shedding of these worthless assets and useless divisions makes sense and is a sign of health, not illness. It means the economy and more importantly, that corporation, are returning tot heir senses and viewing the economy realistically once again, rather than through the distorted lens of inflation.

Finally, we come to bankruptcies, as topic I covered before. And just as shedding divisions is a sign of health, so too may be bankruptcies. We seem to assume any number of bankruptcies is a bad thing, but is that true? People are not perfect, so inevitably individuals will start unneeded companies. Similarly existing companies will sometimes fail to adapt. And then tastes and needs will change, sometimes making even the best run companies obsolete. When any of those things happen, a bankruptcy allows the economy to get rid of an unneeded industry and free the assets and labor for more keenly felt needs. Thus, a higher rate of bankruptcies may not be a sign of economic turmoil, but of a vibrant economy where strong competition means that only the best will prosper. So, perhaps we should view a high rate of bankruptcies not a as a sign of economic troubles but of economic activity, either good or bad.

Sometimes, obviously, a hugely unsound economy can cause bankruptcies as well, but I do not see that in our present economy. Instead I see us returning to a more realistic level after an artificial depression of bankruptcy rates.

I doubt this perspective will be adopted any time soon, the press and the public, as well as the government, are too used to seeing all these things a problems in need of a government solution. And even though the press is not talking down the economy to harm Obama as they did with Bush, now Obama is talking down the economy to justify his massive intervention in the economy, so I doubt anyone is likely to point out what I just described, as to do so would be to point out that the economy is fixing itself without any massive spending by the state. And no one in the press or government wants to point that out.