Tuesday, April 27, 2010

Government Policy Matters

Politics matters. What governments do or don't will determine the future course of economic growth.

Expanding government led to the economic stagnation of the 1970s (and, interestingly, the decline of the US as a world power). The rollback of government (and tax rates) ushered in by the Reagan administration in the early 1980s began the greatest peacetime boom in American history (and a return of America's pre-eminence in world affairs ultimately resulting in the collapse of the Soviet Union).

Inevitably, the economy stumbled. Booms always come to an end. That doesn't mean that a bunch of bad guys did it. It just means that long period of prosperity eventually hit speed bumps. The normal and natural reaction is to let those who have overextended themselves pay the price. When that policy is followed, the economy bounces back, usually rather quickly, and within a short time, the recession is over and the economy is humming once again.

The Bush-Obama administrations decided they could control the economy and they proceeded to do that with bailouts, expanded government, and, curiously in the case of Obama, new restrictions on business hiring and consumer lending. (This was a repeat of the mistakes made by FDR that prolonged the economic crisis of the 1930s into a decade of economic misery).

This means that the next generation's economy will be characterized by stagnation (perhaps stagflation, meaning a depressing economy with skyrocketing inflation rates). Folks like Obama think they are creating a "fairer" America. In a certain sense, they are. All Americans will be poorer as a result of their policies. Ultimately, we could force the country into a general destitution like the 1930s, which, I suppose, meets the "fairness" criteria of Barrack Obama. If no one has a job, then, in some sense, we are all being treated fairly, according to the Obama doctrine.

There is no "compromise" or "commission" way to curb the national debt. It can't be done. Sooner or later there will be an "effective" default of the debt and a breaking of the promises of social security, medicare and medicaid. That process began with Obamacare stripping $ 600 billion our of medicare reimbursements, which means old folks, promised care under medicare, will not get it thanks to Obama.

So, governments matter and the current regime will lead the US into stagnation and ultimately decline as a nation and as a national power. Sometimes, not always, one gets the impression from the President that this is an outcome that he prefers.

If there is a sweeping national reaction to the nationalization of much of America's private sector that has taken place under Bush and Obama, then perhaps another Reagan revolution will be possible and the US can, once again, be the "shining city on the hill," to borrow a phrase from Ronald Reagan. But, it will be tougher this time because the footprint of government is much, much bigger than it was when Reagan took office.

1 comment:

A. Barrow said...

I think a decline in national power is exactly what he wants to make us "more equal" with other nations. That is his mindset in all things. His constant criticism of this country and apologies to the international community makes this obvious.