The Case of Doing Nothing and Why it will never happen…

This was inspired by an article in Politico:

“Most of Washington has reached quick consensus: Government must do something big to shock the economy, and it should cost between $800 billion and $900 billion.

But dissident economists and investment professionals offer a much different take: Most of Washington is dead wrong.

Instead of fighting over what should go in the economic stimulus bill, pitting infrastructure spending against tax cuts and contractors against contraceptives, they say lawmakers should be fighting against the very idea of any economic stimulus at all. Call them the Do-Nothing Crowd.

“The economy was too big. It was all phantom wealth borrowed from abroad,” says Andrew Schiff, an investment consultant at Euro Pacific Capital and a card-carrying member of the stand-tall-against-the-stimulus lobby. “All this stimulus money is geared toward getting consumers spending and borrowing again. But spending and borrowing were the problem in the first place.”

This is the best course of action, or as I have highlighted before in the post where I explain macroeconomics and the business cycle, there are a few things that the government could do. Why is this considered to be unpopular or that it isn’t pushed more?

One possible explanation is that it is lack of education. People as Rubin point out in “Folk Economics” have a preconceived notion of how an economy works. The problem is their notion is wrong. Many people cannot wrap their heads around the two worlds. One is the micro-family world while the other is the macro-market. These two have very different methods of interaction. When you come down in the morning to get cereal, your mother doesn’t charge you for it. This is completely different when you go to a McDonald’s.

The other education issue is one that Hayek raises: as we seem to make progress in society, people seem to believe that they are not responsible for their actions. The problem is this is how a free society works. So what does this have to do with the stimulus? This is the part of the view on government that they are always the savior, that the problem wasn’t caused by me or by them and now they must protect us. Even Conservatives who are weary of the bailout will say “I do not know what has to be done, but something has to be done.” They are often taken aback when someone says “No, there isn’t.”

Congress, it is not your job to fix business cycles. You do not have all the possible information to fix it. This would require you to be god-like. I will leave you this Hayek quote:

“Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions and will receive praise or blame for them.”


Published in: on February 4, 2009 at 12:42 pm  Leave a Comment  
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