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Big government is counterproductive
Susan Lee
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TEXT OF COMMENTARY
Kai Ryssdal: This is a time when free market types really have to be sure of themselves to stick to their guns. The biggest bailout, or rescue, in this country's history is unfolding right before our eyes. Just today we had the lender of last resort, as I mentioned, the Federal Reserve, plug itself directly into the corporate finance structure. Throw in Fannie and Freddie, AIG and Bear Stearns and it's fair to ask, Who's next? Because commentator and economist Susan Lee says the era of laissez-faire economics is over.
Susan Lee: For the past 25 years, presidents have promised to reduce the size of government. They've vowed to create a leaner, more productive state. But the result has been more of the same-old bureaucratic giant.
Consider Ronald Reagan who came into office after campaigning vigorously to reduce the size of the government. But eight years later, by most measures, nothing much had happened. Since Reagan, no administration has able to announce: "Hey, honey, I shrank the government."
Even though the political will may be lacking, the economic argument for less government intervention is as powerful as ever.
Government solutions don't work. In fact, they usually generate more and bigger problems.
Just take a look at monetary policy. Back in 1998, when the giant hedge fund Long Term Capital Management went under, the Fed rushed to the rescue. Tons of unnecessary dollars were pumped out. Those dollars generated the dot-com bubble. When that bubble burst in 2001, the Fed again threw dollars at the crisis, generating the housing bubble. And when that bubble burst last year, the Fed once again shoveled out more dollars which will, eventually, create another crisis somewhere else.
The same perverse effects happen on the fiscal side as well. Increases in government loans for college students have ratcheted up tuition. Tax policies designed to help lower-income families has created a nightmare of complicated tax returns -- for everybody.
Advocates of smaller government have bobbled the ball by arguing that big government is wasteful. Or not constitutional. They're right, but the slam-dunk is to point out the obvious: Big government is counterproductive -- it creates unintended consequences right and left.
OK, so you're not going to hear this from McCain or Obama. You're not even going to hear it from the Libertarian candidate. It's the kind of argument economists make and, of course, nobody listens to us.
Ryssdal: Economist Susan Lee lives in New York City.
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To answer the two questions below, asking for socialism-free examples:
Certainly the early US was a "libertarian" (though the term had not been coined) or non-socialist model, as have been some European and Asian city-states. They rise rapidly in prosperity, until the power of such prosperity becomes too alluring for those in political power. They involve first into banking, then big business, then services, then small business, then personal lives as the final coup.
There are also some US States (mostly the intermountain states) that have a culture of mistrust of their Federal gov't, and they feel the boom-bust pains of economic crises - such as current - less than other states that allow themselves more federal involvement.
Whatever the case, we see and have a history of what happens when government and business intermix. Socialism has a history of failures, primarily because it is the pathway to inevitable totalitarianism.
If, ideologically, that is not ugly enough for you, then look at it from this approach: the Austro-Libertarians have been the only reliable source of warnings, predictions and usable economic intelligence. Such is not the case for the Keyensians, not the Chicago schools, none of the Socialist schools, etc. to which mainstream media subscribe and the subsequent faulty information fed to the masses.
As a personal example, my reading of Austro-Libertarian economic information prompted me to put my business, banking, home and investments in proper order over the past 18 months and the past two months have correctly born out the correct nature of that information, on a micro and macro level.
That's the shortest answer I can muster. Given the world's tragic failures at governments, maybe that would be impetus alone to try a libertarian politico-economic model. It can't be worse than the clumsy warfare-welfare-kleptocracy we have now.
Susan Lee was pretty coy indicting "the Fed". Too bad she wasn't able to speak truth to power: Behind the anonymous "Fed" was the hand of the great machiavellian Alan Greenspan, bubble builder extraordinaire. Now could we have a chorus of the Gang of Four's "Capital it Fails Us Now", please?
Susan Lee was pretty coy indicting "the Fed". Too bad she wasn't able to speak truth to power: Behind the anonymous "Fed" was the hand of the great machiavellian Alan Greenspan, bubble builder extraordinaire. Now could we have a chorus of the Gang of Four's "Capital it Fails Us Now", please?
I have a question - is there an example of a country that has (or has had) the type of economy that seems to be advocated in this commentary? I'm not trying to bait anyone or start an argument - it's just that I hear this assertion often, but I don't know enough about markets around the world and throughout history to know whether this has actually been done before. Particularly, has it been done anytime recently? How do we know it works?
Many of the comments here and elsewhere (and several congressmen) say we should avoid government economic intervention because it will lead to "socialism." Can someone clearly, succinctly say what socialism is and why it should be avoided? Would we be trading off wealth for security in a more "socialistic" system?
I guess one shouldn't expect the clumping and mythology-fed masses to react using too much intelligence or logic. Our country is quite full of socialists and economic ignoramuses. I see the State-run public schools are teaching economics to many of the above shrills as well as they do math, language and science.
Or, perhaps Susan Lee's detractors here comprise the venal and increasing number of government dependents who don't like seeing any hint of denigration to their doling regime.
True free markets are unassailable. We've not had a genuine free market for many decades. And, using an anarchical Somalian mess as an example of "libertarian" is patently foolish.
The Fed's creation of artificially easy credit has created a trough at which government and corporate animals feed. Additionally, consider the insanity of government-forced home lending.
There was once a Libertarian island on which those that loved liberty prospered. It was, however, taken over by pride and the lust for control of others.
I should know better than to listen to this show while driving, as I had to fight through the urge to climb through my radio,& throttle Ms. Lee as she spoke. Another free marketeer crying "If you'd only given us 100% of what we wanted instead of 90%, none of this would have happened." What happened is money brokers can no more be trusted to support an economy, than teen-aged boys can be trusted with liquor & car keys.
A true free capitalist environment means that all the buyers and sellers are insignificant with respect to the whole. Republicans and Democrats alike forgot to slice up Fannie Mae, Freddie Mac and the other overwhelmingly big financial institutional investors so that they did not violate a basic free market principle. One could call enforcing this principle regulation. Congress and the presidents fell asleep on their job on managing this fundamental principle of a free capitalist republic.
The housing bubble was not caused by the .com collapse. It was caused by an endless supply of cheap and easy credit. Had people used good sense and just said no, I cannot afford a $400k house on $50k a year, this would have never happened. Of course good regulation would have helped too.
Libertarians are not anti-government. They are not anti-regulation. In all things there must be moderation and a balance. We also are quick to point out human causes and demand personal responsibility and accountability for our actions.
Most people making comments here need to take an economics class, we do not have a free market economy - Fannie Mae and Freddie Mac who are one of the causes of this mess are GSE's and were essentially government monopolies, and no one here is talking about monetary policy and how the Fed gave us artificially low interest rates which just pumped more credit into the economy which causes inflation, so the people here that are for the bailouts are essentially stating we need to pay off bad credit with more credit, these are the same people who probably take a cash advance out on their visa to pay for their American Express Bill. Susan is right less government is better - more government just creates socialism. We need to cut spending and you can't cut spending unless you cut the size of the government. Higher taxes are just counter productive.
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