Bernanke, Romney, and Obama Need to Understand This Economic Rule

Bernanke, Romney, and Obama Need to Understand This Economic Rule


If I had one bit of advice to reach the ears of Barack Obama, Mitt Romney, and Ben Bernanke, it would be this: stop the illusion that you have any significant control over the US economy.  Government is designed for justice, and does not do well when trying to promote prosperity.  At most, economically, the government can set ground rules that reduce the probability of fraud.

As it is, at present, the US still has an over-indebted economy, and as a result, will grow slowly, because businesses and individuals in danger of default do not spend freely.

Politicians claim that they can being prosperity, but they rarely do that.  I’m not talking about marginal tax rates, or monetary policy, which offer transitory relief, but changes in regulations.  The economy as a whole would do a lot better if marginal regulation were reduced.  That would be a help, but few politicians in either party want to reduce the power of the government.

Prosperity exists aside from the government.  Yes, in the short-run the government can tweak the economy to grow faster, but at the price of the situation we are now in, where nothing works.  Far better for the government to focus on things it can do well: defense, internal security, public health, etc.  But it does not do well with macroeconomic management, so it should give up on that, run balanced budgets, and replace the Fed with a currency board.

At that point, we would have predictable policy, and businessmen might be willing to take more risk and grow the economy.  Unsustainable policies cause producers and consumers to pull back.

At best, in economics governments set ground rules to reduce fraud.  Beyond that, governments reduce the flexibility of economies, and reduce growth.  Socialistic governments produce dependency cultures that inhibit work, initiative, and growth.

Do not look to the government for prosperity.  Governments are umpires; Umpires allow for good games, but they aren’t the ones playing the games and creating the excitement.  Governments can never make us prosperous; if government action were what made us well off, the Soviet Union would be dictating term s to the world today.

By David Merkel, CFA of Aleph Blog