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The Government’s Policies And Our Economic Crisis

09 Aug

Engineers review past evidence and build from there; they try not to reinvent the wheel. As mentioned previously, there is ample historical evidence that indicates recessions/depressions — although they can be severe — typically last no longer than about a year, provided the government does not implement anti-business legislation and regulations.

Image: Dali’s “The Average Bureaucrat”

This last statement above is considered by some to be controversial, but to the best of my knowledge it really isn’t: the data are there for everyone to review. The doubters point to the Great Depression (the last one, not this one) and claim that President Roosevelt helped guide the country through the extraordinarily long 10-year downturn. The evidence, however, says that President Roosevelt’s “New Deal” was actually the villain in the story, because his anti-business policies helped extend what would have been a typical downturn of a year or so into ten long years of economic agony.

For an example of this thesis, see “FDR’s policies prolonged Depression by 7 years, UCLA economists calculate,” by Meg Sullivan, 10 Aug 2004. Excerpt: “The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

So what’s the prognosis? Based on the historical record — and also on analysis that strongly indicates that governmental attempts to manage the economy are destined to be highly ineffective or even counterproductive — we can expect a lousy economy (high unemployment, sluggish or no growth, an erratic stock market) until the Obama administration reverses its anti-business policies, or until we have a new pro-business administration in 2012, whichever comes first.

The good news is that, once new policies are in place, the economy can recover quickly. If we persist with the present policies, however, be prepared for many more years of economic turmoil.

-Ed Walker

 

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