Why The Economy Is Not Recovering

That this economy is not recovering in a normal fashion is not in dispute. Why it is not, is.

Some believe that government hasn’t done enough in the way of stimulus. These “Krugmanites” have an obsession with the belief that the economy must be managed and that some central planning agency must do the managing. Despite the largest interventions in the history of the world, the economy has not responded. The lack of response is blamed on not doing enough. When that is your response to failure, you can never be wrong. Your prescription was correct, the pharmacist merely delivered it in too small a dose.

But what if government were the problem instead of the answer? There are an increasing number of observers who believe that may be the case. History favors this latter position. The belief is not new, held by the Austrian School of Economics for about a century and their predecessors, the Spanish Scholastics, of the 15th Century.

The Keynesian myth of central planning dominates modern economies. There is not one Western democracy that has not fallen under its sway. Nor is there one Western democracy that will not be destroyed by its medication. All are declining and approaching the autumn of their economic life.

History is not and never was on the side of central planning and intervention. Yet that is what we have because politicians override economists. In order to work for government as an economist, you must parrot the big government line. Unfortunately the same cancer kills employees in other fields like the environment, global warming, etc.

We have reached a point where even the dullest of the political class understands it cannot improve matters. Torn between the desire for increased power and a dying economy, politicians are helpless. Even those who see the need to abandon the Keynesian paradigm are unable to do so and remain in office.

Voters have been brainwashed into believing that government was responsible for their economic success. Politicians always take credit for good things. Now they are cornered. Having convinced people that government is responsible for the economy, it must be government’s fault that the economy has faltered. In a very real sense, that is true — just not in the sense that politicians have convinced voters. As a result, no politician can advocate the proper economic policy — leave the economy alone . Given the brainwashing of voters over the years, anyone who advocated such a position would be voted out of office.

Quite simply, government is not the answer. Government is the problem. Thomas Sowell provides his answer:

The Obama party line is that all the bad things are due to what he inherited from Bush, and the few signs of recovery are due to Obama’s policies beginning to pay off. But, if the economy has been rebounding on its own for more than 150 years, the question is why it has been so slow to recover under the Obama administration.

The endless proliferation of anti-business interventions by government, and the sight of more of the same coming over the horizon from Barack Obama’s appointees in the federal bureaucracies, creates the one thing that has long stifled economic activity in countries around the world — uncertainty about what the rules of the game are, and the unpredictability of how specifically those rules will continue to change in a hostile political environment.

Economies are self-correcting when left alone. Government attempts to remedy an economy always make matters worse, by delaying the correction and by embedding price and allocation distortions into an economy. These distortions are responsible for the next downturn.

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