Wednesday, November 26, 2008

The Economy

Thomas Sowell talks about Obama's plan to "jolt" the economy.
Amid all the political and media hysteria, national output has declined by less than one-half of one percent. In fact, it may not have declined even that much-- or at all-- when the statistics are revised later, as they very often are.

We are not talking about the Great Depression, when output dropped by one-third and unemployment soared to 25 percent.

What we are talking about is a golden political opportunity for politicians to use the current financial crisis to fundamentally change an economy that has been successful for more than two centuries, so that politicians can henceforth micro-manage all sorts of businesses and play Robin Hood, taking from those who are not likely to vote for them and transferring part of their earnings to those who will vote for them.
The fundamentals of our economy are still strong. Yes, there are market corrections taking place in the housing market and the credit market. But those corrections are based not on irrational exhuberance, but rather they are corrections based on returning to common sense credit.

But the hubris of all this bothers, i.e. that politicians can even macro-manage, let alone micro-manage the economy. The response thus far has been to authorize trillions of dollars for give-aways without an real accountability. Sowell describes it even more perjoratively that I do:
Whatever the merits of trying to shore up some financial institutions, in order to prevent a major disruption of the credit flows that keep the whole economy going, what has in fact been done has been to create a huge pot of money-- hundreds of billions of dollars-- that politicians can use to give out goodies hither and yon, to whomever they please for whatever reason they please.

No doubt we could all use a few billion dollars every now and then. But the question of who actually gets it will be strictly in the hands of Barack Obama, Nancy Pelosi and Harry Reid. It is one of the few parts of the legacy of the Bush administration that the Democrats are not likely to criticize.
Therein lies the problem.

Government's solution to most problems is not to determine whether or even if something can be done, but to simply throw money at the problem. Case in point, look at education over the past several decades.

Now in the face of economic uncertainty, formulated and fostered to a large extent by Obama and the hyperventilating media, we are throwing more money at a problem that won't be solved by more money, but only by time and common sense. Regulations will be enacted that will make credit harder to get, which will grind the gears of the economy because the people with the really good ideas, the entrepeneurs who required credit at a risk, won't be able to get it and won't be able to revive the economy.

So, how should we proceed? Well first, stop throwing money at failing industries. Shoring up credit has a valid purpose, albeit not to the tune of trillions of dollars in giveaways. But we should not, under any circumstances, be helping any industry or business that has failed to produce a good or service that consumers want. If that means that some union bosses get screwed or lose power, so be it. That is the nature of our economy, it is, at least in theory, the best determinant of what people want and will tolerate, and that means it won't tolerate union contracts where the unskilled guy sweeping the floor at a factory makes $30 per hour and has guaranteed health benefits for life.

Success drives the economy and failures should be left on the road as lessons for the future.

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