January 31, 2009
Government's Knee-Jerk Responses in an Economic SlowDown
Reading the country's economic history one cannot help but be struck by the pattern in government responses to any economic slowdown. In order the government will: 1) Attack market players (short sellers,speculators, and those who use leverage), 2) Attack the markets themselves (bank holidays, stock market closings, wage and price controls, industry cartels, foreclosure moratorium, import restrictions, buy American clauses), 3) Set interest charges below market rates (attacking the valve of its currency), 4) Provide government funds (first in loan then in grant), in order, to banks, companies, states, and unemployed workers, 5) Start large government works projects, and 6) Nationalize private industry (very similar to 5)). 4)5) and 6) are done with deficit spending (borrowed money). One could also argue that step 7) is Engage in a major war. I hope not. The answer to critics of FDR's New Deal (which did not pull us out of the depression) is that the government did not spend enough; perhaps the answer to critics of Bush is that the war in the Middle East was not big enough. An alternative 7) which we have not tried but dictators in many countries have is 7) Inflate (devalue) your currency once the government debt builds up to intolerable levels.
January 31, 2009 | Permalink
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