Friday, February 22, 2008

An Almost Universal Dogma

This article in Forbes on 1/30 deserves to be reprinted almost as wrtten. The article, "Pernicious Pretension" asks, "Why is there an almost universal dogma that government can play significant positive roles in economic activity, that they can fine tune economic activity and prevent excesses and cushion downturns?

It's a colossal conceit, and one that does immeasurable harm. Economics are not like engines that can be mechanically manipulated to run better. (Sure, tax rebates, like a couple of martini's might give you a temporary attitude adjustment, but rarely do much for your pocketbook in the long run.)

In fact, it's usually government actions that CAUSE destructive troubles and excesses. The GREAT DEPRESSION, (yes, I very well remember, Dad and Mom with nine kids and mortage payments never went broke, and niether have I or anyone in our family) for instance, is always cited as prima facie proof as to why we need active government involvement. To the contrary, government blundering brought on the diaster, starting with the Smoot-Hawley Tariff of 1929-30, which began a devastating trade war that, in turn, dried up internationl trade and flows of government capital. That horrible error was compounded in the U.S. by Herbert Hoover's massive tax increase to balance the budget in 1932. Hoover thought a balanced budget would revive confidence. Instead, the deficit ballooned, as the high taxes deepened the the slump. Compunding Hoover's errors, FDR retarded recovery through major tax increases and destructve regulatory meddling. For the first and only time in history a recovery didn't surpass the peak of the previous economic expansion.

The horrific inflation that racked the U.S. and most of the world in the 1970s and 1980s was clearly the result of excess money created by the Federal Reserve, abetted by other central banks. Preident Nixon cut the U.S. dollar from gold in 1971,and central banks floundered.

Today, the weak dollar is roiling financial markets and hurting our economy.

As for the cures for economic contractions, government spending isn't one of them. If government spending, like the new stimulus package would be one of them, then the Soviet Union would have won the Cold War.

What governments can do is create environments in which entrepreneurial activity can flourish--a sane legal system with property rights, low taxes, sound money and minimal barriers to doing business. But rebates and "emergency" spending measures or the Fed playing with interest rates to encourage or discourage economic activity? Bah, humbug."

As a Peoria County board member, one of 18, I try to make Peoria as economically friendly as one individual can without giving away the key to the County bank. This article pretty well sums up my beliefs on how to avoid depressions; economic slowdowns and activity troughs are part of life. So are banruptcies and belt tightening. Unfortuantely, there are those that believe in handouts (the stimulus package) are the way to be compassionate, stay in office or get elected or reelected.)

Too bad.

No comments: