Thursday, November 20, 2008

Nobody knows what it takes to move the economy forward right now

The title of this post is a quote from this Forbes article by GMU economist Russell Roberts. While politicians run around promising to do “whatever it takes” to get the economy going again, the sad fact is that nobody knows how to do that. Many know what things need to happen to fire up the economy, but no single person can provide the tactical steps for accomplishing those things.

Roberts asks:
“What if markets are spooked by the specter of government spending without any constraints? What if doing whatever it takes means doing less, rather than more?”
He goes on to argue that an additional $100 billion ‘stimulus package’ won’t help any more than did last spring’s $165 billion stimulus package. Roberts asks:
“What's the argument for spending $100 billion to revive a $14 trillion economy? A $14 trillion economy where the government has just spent a few hundred billion and counting on financial bailouts and capital injections. To no avail. Does anyone really think that we haven't spent enough?”
Apparently many Americans think we have spent enough, otherwise the auto company bailout would have succeeded this week. Besides, argues Roberts, “many of [Treasury Secretary Henry] Paulson's relentless efforts to move markets forward have made the situation worse.” He goes on to opine:
“Somehow, I don't think an extra $100 billion or even $300 billion is going to get the job done, even if it goes toward infrastructure as some are suggesting.”
We now know some things we shouldn’t do to revive the economy, but knowing what not to do isn’t enough to get the job done. If we want investor and consumer confidence to rebound, one of the things we shouldn’t do is insert more uncertainty into the system, yet that is precisely what government has been doing — all in the name of ‘doing something about the crisis,’ of course.

Perhaps Roberts is right. Maybe, just maybe, government should focus on stable principles instead of running around like chickens with their heads cut off. People aren’t going to start taking risks until there is more stability. Increasing liquidity, as the Fed has been doing and is threatening to do more of, isn’t going to inspire the kind of confidence that will encourage healthy risk taking.

Frankly, this current approach just isn’t right. Americans should not be looking to some appointed bureaucrat to get the economy going. They should be looking to each other — to the real producers. Under most conditions, very few people even know who the Secretary of the Treasury is. That’s the way it should be. Now, team Obama knows that this will probably be the most important appointment it will make during this next term.

Maybe, just maybe, the free thinkers are right on this point: that the markets must heal themselves and that the more quickly government quits creating additional uncertainty, the more rapidly healing will happen. Would this mean pain? Absolutely. But likely much less pain than prolonged agony caused by politicians trying to play hero.


JM Bell said...

I know! I know! BUT - it'll cost several hundred billion dollars for me to tell Congress... AND, they can't ask me what I'm doing with the money.

That'll fix the economy. Right?

Scott Hinrichs said...

For sure!

Anonymous said...

It seems to me that the answer is obvious. We all saw how the economy started humming after that $700 Billion infusion. I don't see why we even need to ask the question anymore. Since Paulson is going to disappear with the Bush administration we should give JM his billions to continue the successful policies of the outgoing administration.