Government Will Only Make Matters Worse
By: Craig Chamberlain
Many have proclaimed the current financial crisis as the death knell of free market capitalism. It’s a normal reaction. Every time the economy hiccups anti- capitalists, big brother types proclaim the end of capitalism and pontificate that the only way to guarantee future prosperity is to embrace socialism in one form or another. So Nicolas Sarkozy, and Ms. Huffington must be thrilled with the actions of the Bush administration.
President Bush, urged on by Secretary Paulson, has taken unprecedented measures to ward off financial panic. They’ve nationalized many of the nations banks, such as AIG, they took over Fannie Mae and Freddie Mac(when the right response would have been to take the people running those institutions and throw them in prison) they’ve taken measures that even FDR never tried to take. President Bush has crippled capitalism in his attempt to save it.
Panicky Paulson, rather than let the market work itself out, decided that it would be better if he took it over. He couldn’t resist the Washington urge to “do something” in the face of crisis even when the best action might be no action at all. And that something was to give 700 billion dollars of taxpayer money to businesses that made stupid business decisions. Home loans were awarded to people who never should have gotten them in the first place, banks(who should have known better) took on many toxic assets, and when the bubble burst they demanded that the taxpayer bail them out and cover their stupidity.
The AP blames President Bush’s support for what they term “unfettered capitalism” as the causes for the current problems. For the life of me, I can’t see where President Bush is an “unfettered capitalist” if there ever has been such a thing. Despite cutting taxes President Bush has taken many uncapitalist moves during his time in office. He imposed tariffs on steel imports during his first term, and intervening and taking over the economy are hardly the work of a Gordon Gekko. President Bush pushed for stricter regulations for Fannie and Freddie, again not the work of an unfettered capitalist, only to be rebuffed by a Democratic congress who accused him of racism, and trying to hurt the poor.
President Bush might have taken the wrong approach, but he was hardly asleep at the switch. The problems, however, was the solutions he has sought. Not only were the bailouts of the banks poorly thought out, and very likely a serious overreaction, there was no constitutional right for the government to do what they did. But who are we kidding? When has the federal government ever let a little thing like the constitution get in their way?
As good as the Bush administration has been in fighting Islamic terrorists, they have been that bad in their response to the recession. History is not on the side of government intervention. As has been pointed out by many others, government makes economic hard times worse. During the Great Depression the Hoover administration raised taxes by passing the Smoot-Hartley tariff. It was passed in the name of protecting American jobs. Instead it raised prices for the consumer, at a time when money was short, and restricted trade which helped push the unemployment rate to 25%.
The administration of FDR, despite massive amounts of federal spending, and new taxes(despite running on a pledge to cut taxes and spending) did nothing to alleviate the situation. There was an even bigger stock market crash in 1936 than there was in 1929. Unemployment was never below 14%. That’s hardly a success story.
Then we have Japan during the 1990′s. They tried to spend their way out of a recession. They spend a decade building, and paved over everything that they could pave over, and their economy lagged until the private sector got going. The truth is that government is not competent to run an economy, just look at the USSR and their five year plans, or look at the economic power houses that North Korea, and Cuba are. It can’t create as many jobs as the private sector can, it can’t be as innovative as the private sector, and it can’t be as productive as the private sector.
President Bush doesn’t seem to realize that simple fact, and when President elect Obama takes over he is likely to take these measures even further. The economic problems with this are obvious, but the real problems are political. President Bush and Secretary Paulson have set a precedent that would have made FDR green with envy. The Republicans will have no legitimate grounds to fight an expansion President Obama might undertake one day. The Democrats will be able to point out, correctly, that they went along with it before when there was a Republican in office who started to nationalize the economy.
This path will only lead to prolonged recession, stagflation, increased unemployment, and the withering of the U.S. economy on the world stage. Washington needs to learn, and learn quickly, that nothing they can dream up will work as effectively as getting out of the way and letting the market work.
Getting out of the way- there’s a novel idea for the government.