Saturday, June 27, 2015

Bad Economic Policies Weaken a Nation's Foundation

I have to laugh when liberals blame the 2008 economic collapse on the Bush administration.  They would have us believe a systemic collapse could be caused by one man’s policies within his tenure as president.  Hell, formulating an economic policy takes about half a term and implementing it the remainder.  The consequences of that policy don’t show up until years later.

I blame President George W. Bush for many things, but the housing bubble isn’t one of them.  He, like many others, tried to warn the American people, but Democrats dismissed critics as racist.  Look what happened.

No, it takes years for an economic collapse of that magnitude to transpire.  Carolina Journal discusses ‘emergency room economics’ with Dr. Peter Boettke, university professor of economics and philosophy at George Mason University.  Here is an excerpt:

Kokai: You mentioned Dodd-Frank, which would give people some example of some of these unintended consequences. I imagine that just as difficult, or even more, though, are these policies that have long-run, negative economic consequences that you really can’t point to.

Boettke: Yeah.

Kokai: I mean, we’re dealing now with bad policies that were made 30 or 40 years ago that are stunting our economy, but how can you point to them? Because it’s hard to say what caused the economic doldrums we’ve had now. 

Boettke: Well … that’s right. I mean, Frank Knight, the great Chicago economist, once said the problem with economics is we don’t have the equivalent of a wrecking ball, right? So if I wanted to demonstrate the negative consequences of smashing a wrecking ball into a building, all you have to do is watch it, and it happens right away. The problem in economics is that the policy — the wrecking ball — hits the building and then the building crumbles 10 years later. What happens is the wrecking ball weakens this foundation and weakens that, and then the consequences are fully seen 10 years [later], but there’s a lot of things in between.

So how do I know that it was the wrecking ball that caused it? Minimum wages are a classic example of that. Rent controls — another classic example, where push a rent control and then 20 years later, you have a decline in the quality of the housing that’s there because people haven’t made the investments and whatnot.

I think in our current situation, what we have to look at, for example, one shining thing is the changing role of the Fed [Federal Reserve]. So the Fed has deviated considerably from its original intent and, as well, from the rule of law, over this period of time. What are the long-run consequences for the quality of the Fed to be able to do sound money? Can we actually get a sound monetary policy? It’s unclear that we can, so maybe actually something like an auditing of the Fed is called for right now because we actually don’t know all of the things that are on the Fed and, let alone, on the Fed’s balance sheets. And we should actually have that. 

Normally, I might be against completely an idea of an auditing of the Fed because that would really politicize monetary policy, which in theory, it’s not supposed to do. But we’ve politicized monetary policy, and so now, calling for a public auditing of the Fed actually might be a very valuable policy for us.


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