by Ray Keating
I was watching CNBC early one morning this week, and a
prominent Wall Street analyst was assessing the ills of our economy, declaring
that no one saw how bad this was going to be. Really?
Quite frankly, the only way anyone could have misdiagnosed
the poor economy of the past eight-plus years was if the actual causes of these
troubles were ignored. But many so-called experts have done just that. They’ve
ignored that our lengthy economic woes are rooted in public policies that have
increased both costs and uncertainties for entrepreneurs, businesses and
investors.
I’m no genius (as most of my family and friends will
attest), but on this Throwback Thursday consider the following points I made in
columns in late 2008 and early 2009, amidst the height and frenzy of the credit
and economic meltdown.
Consider a September 26, 2008, Long Island Business News column in which I observed:
But
before it gets etched in history that this was a case of government coming to
the rescue of a market gone awry, the government’s role in helping to create
this mess must be noted. Consider, for example, the following points:
•
When the government set up Fannie and Freddie as public-private entities,
problems were inevitable. Stockholders would reap rewards, while taxpayer got
stuck with the losses. And while politicians could deny responsibility for
Fannie and Freddie problems, they also could use the two mortgage giants to
push their affordable housing agendas, and as a source of patronage
opportunities. Not exactly a situation in which politicians have incentives to
keep a close eye on things.
•
The Federal Reserve ran a monetary policy that was far too easy. This kept
interest rates too low, created a bias in favor of debt and fueled
over-leveraging.
•
After the Enron mess, new accounting rules imposed, with approval from the
Securities and Exchange Commission, mark-to-market asset valuation. In the
current housing debacle, financial institutions have been forced to revalue
assets, even when the value of those assets may not be currently known, when
price declines are temporary for assets that could be held to maturity, and/or
when a mortgage, for example, is not in default. The write-downs require larger
reserves, and hence financial firms get sucked down.
So, maybe it’s not just about greedy people
on Wall Street, as so many politicians keep chattering on about these days.
Perhaps it’s also about politicians and their appointees who fail to fully
grasp the consequences of their policies.
Unfortunately, word out of the halls of
Congress is that more government regulation is on its way. That’s typical.
Troubles bubble up in the market, and no matter what the actual causes,
politicians decide that something, anything, must be done – whether it makes
economic sense or not…
Even if some folks on Wall Street have
temporarily given up on sound economics, that doesn’t mean the rest of us have
to go along. Jeez, does anyone honestly think more government will fix things?
In a November 8, 2008, column, I
offered the following outlook (bold added):
What’s ahead? Well, the
current recession only promises to deepen in the current quarter. And given the
many problems on the credit, confidence and public policy fronts, it’s
unfortunately too easy to envision a longer-than-usual recession followed by a
very sluggish recovery.
In fact, the economy is
unlikely to get back on a robust growth path until entrepreneurs and investors
see clearly that higher taxes, trade protectionism, increased regulation and
bigger government in general are off the policy table, replaced by clear
commitments to tax and regulatory relief, free trade and restraint in the size
and reach of government. When the nation might return to that kind of agenda,
however, is anyone’s guess.
And on February 3, 2009, I wrote:
More federal government spending is being
offered as the right tonic for the economy. On top of already staggering levels
of federal government outlays, the plan is for politicians to throw around
another $600-billion-plus to jumpstart the U.S. economy.
The Congressional Budget Office released an
analysis of this “American Recovery and Reinvestment Act” on Jan. 26. It turns
out that only $92 billion of the spending would occur during the current fiscal
year. Another $225 billion would wait for fiscal year 2010, and $159 billion
for 2011. So much for the idea that quick government spending on “shovel ready”
projects is the path to reviving our economy.
But even if most of this government spending
were doled out over the next few months, it would not be a positive for the
economy. Instead, it would be a negative in both the short run and over the
longer haul.
Shifting resources out of the private sector
in order expand the size of government is not the road to economic
revitalization. Instead, it is the path to economic stagnation and relative
decline.
Nailed it! All of it!
Okay, am I guilty of patting myself on the back? Perhaps.
But if you understand free enterprise, markets, and the impact of public
policy, this should have been quite obvious. And yes, we continue to pay the
price today, and will for the foreseeable future without a dramatic change in
policy direction.
______________
Mr. Keating is an
economist and novelist who writes on a wide range of topics. His Pastor Stephen
Grant novels have received considerable acclaim, including The River: A Pastor
Stephen Grant Novel being a finalist for KFUO radio’s Book of the Year 2014,
and Murderer’s Row: A Pastor Stephen Grant Novel nominated for Book of the Year
2015.
The Pastor Stephen
Grant Novels are available at Amazon…
