Monday, August 2, 2010

Stop Gunning the Economy

Over the years one thing is sure. Government has interfered too much with the economy.

In the old days it was an just absolute monarch debasing the coinage to pay for his wars. In the 18th and 19th centuries it was proto-democratic governments learning how to leverage the magic of central banking and the national debt into paying for empire or for civil war.

Now we have massive fiscal distortions to shore up the mirage of the unfundable welfare state, its pensions and health care.

Always, of course, there have been inflationists urging governments to make credit cheap--for small business, for farmers, for crony capitalists.

It's time to rise up and say: Stop "helping" the economy, government. Your helping mostly destabilizes the economy. And problems in the economy mostly hurt the poor.

If the economy is in the depths of a depression then the cry goes out to stimulate the economy with cheap credit backed by big new spending projects. Or alternatively, tax cuts and spending cuts.

If the economy is emerging from a recession then the cry goes out to keep the economy growing with cheap credit and tax cuts, thus avoiding a "double-dip" recession.

If the economy is going gangbusters then politicians and special interests propose ambitious projects funded by debt backed by the ample revenues flowing into government coffers.

Of course, all this stimulus creates an inflationary boom and, eventually, the government's central bank starts fighting inflation instead of fighting recession. That leads to a credit crisis and bank failures and bailouts.

Then the cycle begins again with the demand for cheap credit to stimulate the economy.

We need a practical political agenda to get us out of this vicious circle.

In my view, we have to get government out of the credit business, except when spending money to get out of a crisis. This might be war, or it could be national disaster.

Heck, why stop there? Let's get the government out of education. Parents will naturally seek out education for their children.

Let's get the government out of health care. Women are obsessed with health care and will find a way to get it.

Let's get the government out of pensions. Middle-aged people naturally start saving so that they can stop working. Why interfere?

The great need in this generation is to develop a practical political philosophy, supported by the broad middle class, that would keep the government out of the economy.

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