Kurt Bouwhuis, Mackinac Center Intern
“What we’re seeing — even before Obama is sworn in — is a changing of the guard, so the new folks are ready to take charge on Day One.
Some Republicans have predictably begun to grumble about the size of the stimulus package, but here’s a question: What would you in the GOP do differently? Would you continue the deregulation that got us into this mess? And didn’t you folks break the bank over the last couple of years? Aren’t even some of the most conservative economists now advising spending as a way to get ourselves out of this hole?” – Gloria Borger
Placing political labels to the side, I have two main issues with this short excerpt from an article titled Obama Takes Ownership of the Economy by Gloria Borger. First off, did deregulation cause this “crisis”? Second, you are not an economist at all if you believe more spending will get us out of this mess.
When blaming deregulation and the free market, it makes me think of a recent post from Cafe Hayek: “By “free market”, they must mean politically driven lending practices, price fixing in labor markets, price supports in agriculture, tariffs in steel trade, illegals relegated to permanent underclass, artificially low interest rates, government enforced monopolies, and fake money.” – Seanooski
Market regulation will never work effectively. Why? Because there is a relatively small number of regulators trying to control a relatively large group of individuals. This leaves a small body of knowledge trying to outsmart a large body of knowledge. Additionally, there are some individuals that understand the framework of regulation far better than the regulators. What is the result? Individuals will “break” the system.
Think of it this way: Suppose I have to design a security system to protect the world’s largest diamond. I hire the best security design team to constantly design and update the security system. Will I ever complete a system that is 100% safe? Absolutely not! Why? Because there are individuals (who are most likely smarter than my top notch design team) working on a way to break the system and obtain the diamond. Regulation in the market works in the same fashion.
“Economists” think spending will get us out of this mess… What got us into this mess? Among over regulation and a failing monetary policy, I would have to say borrowing money from foreigners and spending it all on consumption. In the past, the United States would borrow money to save and invest. We would then invest our savings in capital to increase our future production. Recently, the United States borrows money to consume things like buying a new car, remodeling the kitchen, etc… If we want the economy to be productive in the long run, we must allow the market to fall into a recession where we begin to save and invest rather than consume.
Additionally, CONSUMPTION DOES NOT CREATE ECONOMIC GROWTH. How do businesses expand? They borrow money from investors to build capital. INVESTMENT CREATES ECONOMIC GROWTH. The economy will not benefit from the government borrowing or printing money to offer consumers another stimulus package. All this does is encourages the same consumption that got us into this mess. We cannot expect foreigners to keep producing goods and services for free. Although it’s a tough job to consume all these wonderful goods, perhaps we should try producing them.