Rothbard identified the ways in which government can hobble the adjustment process:
1. Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further.
Inflate further. Further inflation blocks the necessary fall in prices,
thus delaying adjustment and prolonging depression. Further credit
expansion creates more malinvestments which, in their turn, will have to
be liquidated in some later depression. A government’s “easy money”
policy prevents the market’s return to the necessary high interest
3. Keep wage rates up.
4. Keep prices up.
Stimulate consumption and discourage saving. More saving and less
consumption would speed recovery; more consumption and less saving
aggravate the shortage of saved capital even further.
6. Subsidize unemployment. Any subsidization of unemployment (via unemployment “insurance”, relief, etc.) will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are available.
An iatrogenic illness is one caused by the doctor himself. The economies of the west now face policy measures of the sort highlighted by Rothbard that are stated to be in our interests, but which are more likely to do harm to the patient and prolong the recession.