Government is the problem, not the answer

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I don’t have time to go into much detail at this point, but I wanted to make a quick note anyways.

There is a lot of talk about the recession being over or hitting bottom or whatever.  This may or may not be true in a technical sense.  But I think it is important to remember that what is at the heart of a lot of our problems is a lack of clarity about how to allocate resources; about what is likely to be productive investment.

A lot of resources were badly allocated during the “boom” (I would argue this is due to bad monetary policy combined with bad housing and banking policy but that is for another post).  Individuals and organizations wisely pulled back once this was clear and moved their remaining resources in.  The recovery will not happen until the economy stabilizes and starts to allocate resources in a sound way.  Then investment and production of goods and services can start to function in a healthy manner which will mean growth.

And a critical point to make at this juncture is that as long as government is threatening to intervene in vast sections of the economy (energy, health care, consumer regulation, etc.) it is highly unlikely that investors (not Wall Street per se but those allocating resources) are going to put money into new ventures.

Now some large forces are seeking to make peace with government in order to get a known quantity of intervention (energy firms on cap and trade for example) but the uncertainty remains because it seems that there is no area where the Obama administration is not willing to intervene and the rules are far from clear across the economic landscape.

And this uncertainty and lack of clear rules are going to stifle investment and keep people wary.  No amount of government spending or stimulus is going to alter this fundamental fact.  And in reality most of what government has done and is considering will hinder this growth because it distorts the market and the allocation of resources.

Government played a critical role in exacerbating the economic crisis yet it insists that more intervention will somehow get us out of it.  Don’t buy it.

If we take the road to a European style welfare state we will get what they had for decades: double digit unemployment and slow growth.  If we want to get out we need to do what they are doing even now: lower corporate tax rates, deregulate markets, and control spending.