Big government is counterproductive

Marketplace Staff Oct 7, 2008
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Big government is counterproductive

Marketplace Staff Oct 7, 2008
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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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