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Only Government? Part 2
As mentioned previously, President Obama has spoken about how "only government" can provide the action required to get the economy moving forward again. Over the past 13 months, the government has certainly done a lot. The results are worth examination.
In the face of what was considered at the time a potential economic slowdown, Congress passed and then-President Bush signed the Economic Stimulus Act of 2008 in February of last year. The centerpiece of the act was a "rebate check" for millions of Americans who fell below a certain income threshold; those who the government determined made too much money didn't receive the "rebate". The package also contained some tax breaks for businesses. The total projected cost of the "stimulus" plan was $152 billion.
At the time of the passage of the Economic Stimulus Act of 2008, the Dow Jones Industrial Average stood at 12,348, the unemployment rate was 4.8%, and the Gross Domestic Product was at approximately $14.2 trillion.
Although considered expensive at the time, the first stimulus bill seems a bargain when compared to the government intervention that followed. As 2008 marched forward, trillion became the new billion, as the Federal Reserve began opening its funds to investment banks for the first time, and the government bailouts began. The government oversaw the destruction of Bear Stearns, the failure of Lehman Brothers, and other mergers, buyouts, and cash infusions. Insurance giant American International Group (AIG) was deemed "too big to fail", and began receiving its own infusions of billions in cash (while famously refusing to give up spa excursions and performance bonuses). American automakers when hat-in-hand to the government for their own bailout billions, and of course there was the passage of the $700 billion (and possibly more) "Troubled Asset Relief Program" (TARP) , ostensibly passed to help remove the "toxic assets" from the financial markets that were based on bad mortgages, derivatives, credit default swaps, etc.
At this point, one would be excused for thinking that the government was done throwing money at the problem and taking stock of whether its actions were helping or hurting the prospects for economic recovery. One would, of course, be wrong. Following the inauguration of President Obama, the European-style government intervention continued at an even greater rate, with another stimulus package passing Congress and being signed into law by the new President, this one with a price tag of another $800 billion. More billions followed for AIG, GM, and Chrysler.
So in the past 13 months, literally trillions of dollars have been injected by the government into stimulating the economy to produce a recovery. Surely after all that government action things are improving?
The results are sobering. The unemployment rate has gone from 4.8% to 8.1%, with over 4 million jobs lost. The Dow Jones has gone from 12,348 to a close of 7,216 as of March 16. The Gross Domestic Product has shrunk to approximately $13.6 trillion — approximately a $600 billion loss, with another $400 billion or so projected for 1st Quarter 2009.
The results show that the massive expansion of government intervention is not stemming the tide, stimulating growth, or creating jobs. Now consider this: if, rather than massive government spending and regulation, in February 2008 the government had injected a dose of free market capitalism — reducing taxes and tariffs on businesses and individuals, simplifying the tax code, and streamlining cumbersome regulations. If those same results had come to pass, is it not a certainty that the prevailing conclusion would be in the media that free market capitalism had failed, and it was time for a new approach? Yet failure of government intervention yields only calls for more government intervention, more massive spending, and higher taxes.
It has been said that insanity is attempting the same thing over and over, expecting different results. The last year has shown that government intrusion is not the solution. Throwing more money is not the solution.
In the face of what was considered at the time a potential economic slowdown, Congress passed and then-President Bush signed the Economic Stimulus Act of 2008 in February of last year. The centerpiece of the act was a "rebate check" for millions of Americans who fell below a certain income threshold; those who the government determined made too much money didn't receive the "rebate". The package also contained some tax breaks for businesses. The total projected cost of the "stimulus" plan was $152 billion.
At the time of the passage of the Economic Stimulus Act of 2008, the Dow Jones Industrial Average stood at 12,348, the unemployment rate was 4.8%, and the Gross Domestic Product was at approximately $14.2 trillion.
Although considered expensive at the time, the first stimulus bill seems a bargain when compared to the government intervention that followed. As 2008 marched forward, trillion became the new billion, as the Federal Reserve began opening its funds to investment banks for the first time, and the government bailouts began. The government oversaw the destruction of Bear Stearns, the failure of Lehman Brothers, and other mergers, buyouts, and cash infusions. Insurance giant American International Group (AIG) was deemed "too big to fail", and began receiving its own infusions of billions in cash (while famously refusing to give up spa excursions and performance bonuses). American automakers when hat-in-hand to the government for their own bailout billions, and of course there was the passage of the $700 billion (and possibly more) "Troubled Asset Relief Program" (TARP) , ostensibly passed to help remove the "toxic assets" from the financial markets that were based on bad mortgages, derivatives, credit default swaps, etc.
At this point, one would be excused for thinking that the government was done throwing money at the problem and taking stock of whether its actions were helping or hurting the prospects for economic recovery. One would, of course, be wrong. Following the inauguration of President Obama, the European-style government intervention continued at an even greater rate, with another stimulus package passing Congress and being signed into law by the new President, this one with a price tag of another $800 billion. More billions followed for AIG, GM, and Chrysler.
So in the past 13 months, literally trillions of dollars have been injected by the government into stimulating the economy to produce a recovery. Surely after all that government action things are improving?
The results are sobering. The unemployment rate has gone from 4.8% to 8.1%, with over 4 million jobs lost. The Dow Jones has gone from 12,348 to a close of 7,216 as of March 16. The Gross Domestic Product has shrunk to approximately $13.6 trillion — approximately a $600 billion loss, with another $400 billion or so projected for 1st Quarter 2009.
The results show that the massive expansion of government intervention is not stemming the tide, stimulating growth, or creating jobs. Now consider this: if, rather than massive government spending and regulation, in February 2008 the government had injected a dose of free market capitalism — reducing taxes and tariffs on businesses and individuals, simplifying the tax code, and streamlining cumbersome regulations. If those same results had come to pass, is it not a certainty that the prevailing conclusion would be in the media that free market capitalism had failed, and it was time for a new approach? Yet failure of government intervention yields only calls for more government intervention, more massive spending, and higher taxes.
It has been said that insanity is attempting the same thing over and over, expecting different results. The last year has shown that government intrusion is not the solution. Throwing more money is not the solution.
Dave,
I'm not completely sure that it's irrational, it may be a rational plan to get the desired outcome. I often think that this is intentional. Government creates an atmosphere where private capital investment is not rewarded, so that when the economy is crashing the government says that they have to replace the destroyed private investment. We may not have growth, but they can direct investment into "good" things like windmills, hybrid cars, and healthcare for the poor, instead of the "nasty" things like oil wells, SUVs, and plastic surgery, that capitalists spend money on.
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