The left’s big government intervention is to blame for economic failures

The American Enterprise Institute, whom President Obama has falsely cited talking about Mitt Romney’s tax plan, had an interesting headline today, “A reminder that free market policies don’t cause Great Recessions or Great Depression.”

Author of the post, James Pethokoukis, tweeted the article with the addition that it was a message to President Obama.

Quoting from a paper by economist Robert Henzel:

In 1928, the Fed started raising interest rates in order to bring down the value of the stock market. Even after recession appeared, the Fed kept market rates at a level high enough to prevent a reemergence of the speculation presumed to have initiated a boom-bust credit cycle. It maintained positive discount window-borrowing, which together with a positive discount rate meant keeping interest rates elevated. The resulting monetary contraction that led to the initial recession turned that recession into a depression as a result of a self-reinforcing cycle of monetary contraction, deflation, expected deflation, the transformation of positive nominal rates into high real rates, and then reinforced monetary contraction and so on.

Monetary policy is one of those issues which the average person simply doesn’t understand. But when it comes to market manipulation, the government has a history of frankly, screwing things up.

As this early 20th century example shows, the market isn’t what caused the Great Depression, not the sybaratic excess of big business as the industrial revolution boomed.

You can blame the banks for reckless business practices, but it was a government who had essentially bated the banks into making bad deals with interest rates and subsidies.

Now, you see with bailouts and quantitative easing, the government is falsely propping up the market. But the market corrects itself. If you look throughout history, no matter what government does, the market will find its equilibrium.

One U.S. Treasury official told me that billions of dollars were paid to Fanny and Freddy that we’ll never see again. Billions were spent to bail out money markets that had gone bust, except that’s not the government’s roll. Truly there was disagreement at the Treasury level as to the potential good these policies would do. Quantitative easing has been equally controversial among the internal (not to mention external) analysts.

It’s clear that President Obama has no idea how to deal with the economy moving the way it has. Furthermore, he can’t understand that his tax policy is an even more direct way to hinder the free market.

The CEO of a swing state corporate wrote an e-mail to his 1,400 manufacturing employees telling them just how devastating Barack Obama’s policies would be to their company. He told them, “The tax rate we pay is not 17%, as Warren Buffett would have you believe; with state taxes it is roughly 45%. President Obama has announced that our planned tax rate would increase to roughly 65%, reducing our after tax income by 36%.”

When this business owner says “our” after tax income, he means the company’s. In other words, it’s 36% fewer dollars that company has to pay salaries, benefits, and re-invest in the company so that it can grow.

This is what President Obama and the left don’t understand about free markets: government doesn’t create jobs, but they damn sure can kill them.

Its much easier for governments to tank the stock market than rocket it forward. The roll of government in times of economic peril is simple: get out of the way.

Protecting consumers is important, but not hindering businesses, the backbone of our economy and the lifeline for nearly every American, is even more important.

Advertisements
Tagged , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: