Free Markets, Free People


Why Government Intervention In Recession Won’t Work

Well, the “stimulus” monstrosity has been signed and all the words of praise it doesn’t deserve have been said.  Now, here’s why it won’t work all in a succinct four paragraphs:

Most economists agree that America has enjoyed unprecedented prosperity, based primarily on excessive debt. Thus, any healthy correction would necessarily involve serious deleveraging and a severe recession. After a lot of pain, the economy would rebuild with healthier fundamentals. Infrastructure improvement would aid, but not cause, the eventual recovery.

Recession is the natural cure for the politically inspired profligacy that America has enjoyed for almost 40 years. Unfortunately, the side effects of this medicine, namely the rapid reallocation of labor resources and deflationary damage to debtors, are still unpalatable to pandering politicians.

The Washington regime, particularly members of the Democrat persuasion, leans towards a socialist solution of avoiding recession at any cost. After all, the bills are paid by others, such as taxpayers and holders of US dollars. This results in an increasing amount of other people’s money being spent on “public” works that would in other times carry the label “pork barrel”.

Washington is choosing to pursue the policy of continued and ever-increasing false prosperity, financed eventually by hyper-taxation, hyper-debt and hyper-inflation accompanied by a gradually eroded standard of living. The jobs created by the bill are by and large non-productive and will divert resources from the private sector and rob consumers of their power to make free choices in the marketplace.

Pain avoidance drove the call for stimulus.  Politicians are naturally for that because it ensures their future.  But in reality it isn’t pain avoidance at all, but simply a form of pain management.  And since that management will be spread over many years, those who will lose under it will be less likely to notice that loss over the years than they would if that loss happened all at once.  But there’s a price for that, and it will become apparent eventually.  That gradual loss won’t allow the recovery to the previous standard of living because government will have supplanted much of the private sector and many of those options (and resources) for regaining that level are no longer available.

Of course, the good news for the present crop of politicians is that realization of loss won’t happen on their watch.  And as far as the political class is concerned, that’s all that matters.

Let the good times roll!

~McQ

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19 Responses to Why Government Intervention In Recession Won’t Work

  • “Pain” avoidance drove the debt spending to begin with.  Avoiding the pain of having to deal with social security, medicare, et al.  The spendathon is just the latest eruption of the canker.

    The “pain” of having to save money and actually wait for something you want.  The “pain” of having to live a frugal life while saving, or bettering your situation.

  • Why should I get stuck with the bill you old coots racked up, just because you suddenly discovered ‘fiscal responsibility’?  Tell it to the next generation, maybe they’ll buy it.
    PS: Your new site is still horribly slow and broken in IE.

    • Upgrade to at least IE7. Works fine.

    • That, as usual, made no sense.  You JUST got saddled with exactly what you’re talking about because of fiscal irresponsibility.  Rather than acknowledge that it needs to stop, you happily signed on to continuing the farce.  It’s YOU and YOUR kids who will have to pay this bill.    But your party is in charge Tom!  That’s all that matters!

      • So the argument is “Bush did it, so that justifies Obama doing it by an order of magnitude?”  Let me know how that works out for you.

        At any rate, it doesn’t cut water with this crowd.  Most of us have been bellyaching about Bush’s spending since … help me out here.  No Child Left Behind?  That had a price tag of $33 billion.  So you can imagine how one might feel about $787 billion worth of pork.

  • A big problem fiscal conservatives have to overcome is education… or lack thereof.

    Many people seem to think that ordinary economics – budgets, revenues, expenditures, debt – doesn’t apply to the government.  It does: the only difference between Uncle Sugar and your Uncle Bob is that Uncle Bob can’t (legally) print his own money and can’t (legally) force other people to give him money to pay for his profligacy.  Uncle Sugar, just like Uncle Bob, eventually gets in over his head in debt and has to make – or SHOULD have to make – hard choices about how he’s going to spend the money he’s got left until he can get out of debt.  Unfortunately, hard choices are politically unpopular, and we’ve got a real surplus of spineless fools in Washington who are more than willing to kick the can down the road no matter how bad it eventually is when the can can’t be kicked any more.

    How does one explain this to people without immediately being labeled some sort of greedy, bitter rightwing kook who merely wants to throw poor people out in the streets and force old people to eat cat food?

    Going back to an earlier threat, Erb actually had a point, one that is made in the article cited here:

    Recession is the natural cure for the politically inspired profligacy that America has enjoyed for almost 40 years.

    So, when Erb writes that we’re paying the penalty for years of bad policies, he’s actually correct (though for the wrong reasons).

    Question: I think we would all agree that %15 interest on a home mortgage is high.  At any rate, my parents certainly thought so during the ’70s and ’80s when that was the best they could get.  Lots of people rail against “high” credit card interest rates of 20%, as if banks are greedy if not downright criminal for charging such “excessive” interest.  (Let me hasten to say here that I wouldn’t be too happy if I had to pay interest rates like that; I wish I could get rates like Chris Dodd!)

    But what if banks and other lenders DID charge rates like that?  Or, at the very least, weren’t pilloried and threatened with Congressional investigations and (more) regulations if they did?  Wouldn’t high interest rates dissuade people from attempting to live on credit, as so many of us have done for years?  Wouldn’t it force people to be more responsible with their money?  Would it not act to prevent a housing bubble simply because it would keep housing costs low?

    I don’t advocate artificially high interest rates, but I do say that the rates should be set by the market and not be artificially changed by politicians with an interest in making the economy look good under their watch even while its foundations grow increasingly shaky.

  • In a free market, interest rates ought to reflect the risk to the loan maker of the borrower defaulting on the loan/credit.  Higher risk, higher rate.  Good credit rating = lower interest.  Of course, that means people with poor credit ratings get higher ratings.  And generally poor people have lower credit ratings, so that is termed discriminatory lending.

    That’s part of what got us into the credit mess, lending to people who had high default rate.  Loosening banking regulations, and encouraging risky loan writing, is a poor way to engineer social policy.

  • Whatever the Righties say about fiscal responsibility, the Lefties will counter with, “Well, we have to do something!” Implied in that counter is that we are in a “liquidity trap” and the only (or best) way out of the liquidity trap is more government spending. Thus, (as I see it) in order to effectively counter the Lefty reply is to articulately explain either (a) that we are not in a liquidity trap or (b) government spending is not going to get us out of it.  If the Righties can answer that convincingly, then the Righties have a chance to make some real noise. Any takers?

  • Nuclear,

    Yes, that is the way to do it, but I doubt it will work until Dem policies fail.

    Also, I think one could argue that pain management is acceptable – pay out more unemployement benefits, whatever – but that should be coupled with restructuring and reform. Sort of a consumer pain management but investors get no drugs set up.  A simple “stimulus” bill that did this sort of thing, just increase and extend benefits along with payroll tax cut, would go a long ways. Maybe also have a permanent corp. tax rate cut, too – to spur investment and remind people that its okay to have bad companies fail while good companies can keep more of their profits.

  • Word to the wise, kids: get out of dollar-denominated assets now. All your dollar-based stocks, 401Ks, IRAs, savings, checking are going to become WORTHLESS in the near-term. No one can say exactly when this will happen, just that economically it MUST happen eventually.

    This is NOT an Obama slam, and this situation is largely NOT his fault, but by signing the stimulus package he has demonstrated emphatically that he is in lock-step with the fiscal policies of every Republican & Democratic administration since the 60s. It’s irrelevant what they spend it on; the fundamental fact is that the policy of both parties is to spend borrowed money. We’re near the limit of our ability to borrow, and that’s when the house of cards called the U.S. economy comes down.

    Protect yourselves NOW so you can continue to feed your babies & keep a roof over their heads. (all caps alert) GET OUT OF THE DOLLAR TODAY. It is toxic & soon to be worth little more than the paper you currently wipe your behind with.

    Think gold & silver are too expensive today? You ain’t seen NOTHING yet. It’s a frigging bargain, baby. Sure, I wish I started buying metals in 2001, too, but I didn’t. Shame on me. I was asleep & not paying attention like the rest of America. But I’m awake now & see what’s coming. In truth, gold & silver are going nowhere: the dollar is just simply being debased & therefore losing its purchasing power: precious metals are a wealth preservation strategy, not an investment. There’s a difference.

    Having said that, gold & silver are going to the moon. (Personally, I buy silver, because gold has such incredibly dense value that it’s difficult to make individual purchases with it. With silver, an ounce is worth about 15$, so you will be able to fill up your tank with a one-ounce coin, or buy clothes, groceries, medicine, etc.

  • This is all a very nuanced view of fiscal responsibility etc.  That will all be irrelevant soon, this economy is going to blow up soon.

    First there will be the appearance of a mild recovery then there will be the beginnings of inflation, another huge jack up in oil and commodity prices, and we will be back to 1979 all over again, IF we are lucky!

    Then economic conservatism will be vindicated, but it won’t matter because by then Democrats will have an unbreakable stranglehold on politics with huge vote buying, forced unionization and amnesty for millions of ignorant new voters they can bribe with your dollars.

    • kyle8, I’m just glad this crapulus belongs to the dems lock, stock & barrel.  Once it collapses they’ll the standard “it’s Bush’s fault” BS as usual, but that’s not going to stick.

      This disaster belongs to Barak Obama.

  • It’s really too bad President Obama couldn’t figure out a way to jettison these two [Reid & Pelosi] who are poster children for everything that is wrong in Washington.

    Has Jack Cafferty lost his mind or is this just a contrarian view of the world?
    How long can he last at CNN writing stuff like this ?

  • I’m still trying to figure out how this is a win for Obama.  It’s not his plan, right?  Wasn’t he basically force-fed this deal by Pelosi & Reid?

    • Yes. Yes he was. The 98 lb Speaker shot her eyeballs at Obama while Reid whispered sweet nothings in his ear, forcing him to sign porculus with 17 different pens.

    • He really didn’t do anything publicly to reign in spending, or move it a certain way.  But, he’s certainly taking all the credit for it passing.

    • Ronnie GipperWasn’t he basically force-fed this deal by Pelosi & Reid?

      My understanding is a bit less charitable: TAO did what he does best and effectively voted “present” by asking SanFran Nan and Dingy Harry to write the bill.  Perhaps he did so because his admin is still understaffed and nobody had the time or expertise to do it, or perhaps it was because he thought that he could set it up so that he could shift the blame if things went south (“I didn’t write the bill!”), or maybe he’s just too damned lazy.  At any rate, I don’t think TAO – or any other piece of democrat filth – has to be “force fed” more social spending and expanded government powers.
      Keith_Indy is right, though: he’s certainly happy to take credit that it passed.