Monday, September 10, 2012

The Three Strikes Democrats

What is wrong with the economy?  Why won't it rebound from the depths of the 2006-2009 recession?

Simple.  The Obama administration has got the three basic things wrong.  Three strikes, and you are out!

Strike one: Government Spending.  There is one simple thing to understand about government spending.  It is a weight on the economy.  Yes, there is a grain of truth in the Keynesian idea of stimulus, but not much.  Look, it stands to reason.  Government does stuff that people won't do on their own without the spur of government compulsion.  Obviously, businessmen and consumers will have already sniffed out the best profit opportunities and price bargains before the government steps in.  So it stands to reason that government will be doing the Solyndra stuff, paying for things that do not pay.  Education and health care, of course, are just Solyndra writ large.  But if you want to grow the economy, you need to reduce government spending.

Strike two: Money and Credit.  Juergen Habermas calls money a "steering medium."  Its purpose is to help people figure out what to make and what to buy.  Sounds simple, but of course the credit system is much more than that, and the clue is in the word itself: "credit" which comes from the Latin credere, to believe.  The whole money and credit system runs on the faith in the "soundness" of the other guy, that he or she will honor his obligations, even when the going gets tough: especially when the going gets tough.  But governments have always been mucking around with the system.  In the first place they need to borrow money, so they are big players in the money market.  In the second place they are always using their market and their sovereign powers to influence the money market, usually by pushing for cheap credit, or inflation.  Government manipulations of the credit system can help in the short run, and are needed to win wars.  But in the long term, the credit system needs to be allowed to do its job, to get money from where it is to where it is wanted.  If you mess with the credit system you will end up with bubbles and crashes.  If you want to grow the economy you need to stop messing with the credit system.

Strike three: Regulation.  Everyone agrees that the economy cannot run without laws and regulations.    Everyone agrees, in principle, that the laws should prevent people from "externalizing" their costs.  But that's easier said than done, because people disagree about the future.  Is burning fossil fuel a benign act, or does it compromise our future with resource depletion and global warming?  But regulation is also a temptation for powerful interests to implement their agenda using their political power.  Dense administrative regulations benefit existing large players against new small players.  So whenever you implement new regulations you are probably helping the big interests and harming the little guy.  Think Sarbanes-Oxley that has introduced huge regulatory burdens on corporations and Dodd-Frank that has increased regulatory burdens on banks.

You can see why it's Three Strikes against the Democrats.  In the first place, they believe in more government spending.  Years ago, they used to justify it on the basis of justice.  But now that government is so big and so intrusive they have started to justify government spending as "investment."   But government spending is still waste.

Democrats also believe in manipulating the credit system.  That's why they blamed the Crash of 2008 on "greedy bankers" instead of their own crazed mortgage credit subsidies.  The whole game of central banking, whatever it once was, has now completely subjugated the money and credit system to the needs of government.  The whole business of subsidy and credit manipulation is poison to the health of the economy and the prosperity of ordinary Americans.

Then there is regulation.  In the old days, the socialists believed in the nationalization of the means of production.  That was a complete bust.  But now the socialists and their heirs, the "progressives" realize that they can occupy the commanding heights of the economy much better by regulation and administrative control of private industry than by outright nationalization.  For one thing, under nationalization, the losses of the nationalized companies had to be covered by borrowing and taxes, but under regulation, private business has to find some way or other of staying in business.  Under socialism, the monkey is on the government's back; under administrative regulation the monkey is on the corporation's back.  But the result is the same.  You create distortions and waste in the economy that eventually, like a building in Havana, crashes to the ground because nobody was taking care of it.  Regulation hurts the little guy.

Fix any one of these, and the economy will improve.  Fix any two of them, and the economy will really improve.  Fix all three, and it's Katy bar the door.

How come this is so hard for people to understand?

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