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The Folly in Believing the Government Can Fix the Economy with Quick and Thoughtful Action

By: Steve Johnson

5/28/2009 - 74 Comments

Obama and economic team are convinced that the US is a nation of abundant wealth and is only battling a temporary economic problem. 

As long as you start with this assumption, they are open to options.  All of their economic and monetary policies are built on this assumption.  The problem is of course, what if this assumption is wrong?

All economists that do not agree with this assumption cannot be taken seriously, like Ron Paul or Peter Schiff. 

Quick and Thoughtful Policies

If this assumption were true, then the obvious solution is that the government needs to quickly and decisively create new regulations and policies to control the bankers and mortgage lenders that caused the problem with the housing bubble which has now spread to the entire economy.

The idea that the only thing we need is a government willing to make the correct policies is absurd when you consider that the government has been creating new thoughtful regulations for decades – which have led us to this recession.

Unintended Results

The only thing that quick and thoughtful polices is going to produce is much more unintended results. If the Obama economic team would only look in the mirror, they would realize that the recession is a result of the last several decades of economic teams making thoughtful regulation changes.

Economic goals cannot be achieved by government polices because it is impossible for the government to understand the economy.  Let me say that again in case you missed it.  The economy is far too complex for the government to understand and therefore impossible for the government to control it.  History shows that the best any government can do is to stay out of the way of the economy because every attempt at central planning leads to more unintended results.

Here is how D.W. MacKenzie teacher of economics at the Coast Guard Academy describes this.

“What this means is that supposedly carefully designed and thoughtfully conceived regulations will produce unanticipated reactions, which in turn produce unintended consequences. Unintended consequences of policies typically require further intervention to achieve the goals set by state officials.”

Subprime Was An Unintended Result

If the Obama economic team understood this, they would understand that the subprime boom was itself an unintended result of well-intentioned and thoughtful policies to promote home ownership and boost GDP.

The current direction of the government to create more polices to correct for the unintended results of the last round of government polices is only making it harder and riskier for new businesses start up and create real jobs.

The big crash is still to come when the unintended results of the trillions of dollars of new debt from our ‘abundant’ nation results in rising interest rates and a sinking dollar.

The second leg of this recession will likely be much more devastating.  To believe that the government can fix the economy with quick and thoughtful actions is to believe in the boogeyman. 

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