Wednesday, June 15, 2011


Although I have made these comparisons before, the parallel between drug addiction and the reliance on economic stimulus is just too strong to ignore. And as with drug addiction, an economy builds up a tolerance. Each time the government successively stimulates with printed money or deficit spending, ever larger doses are needed to achieve the same result.
Lest we forget, coming into the Crash of 2008, the economy had been on the receiving end of years of overstimulus. President Bush and Alan Greenspan never fully weaned the economy off their shock treatments that followed the crash and the horrors of September 11th.
Great point. For the past ten years efforts to stimulate the economy have revolved almost exclusively around placing more money in people's pockets. We've had a lowering of interest rates, expansion of the money supply, tax rebates, new and expanded tax credits/deductions and tax cuts that were financed by increased borrowing rather than a wealth transfer from the public sector to the private sector.

While not a perfect analogy, this is a bit like attempting to fix a wheezing, smoking engine by simply adding more gas. What is needed is not more fuel, but an overhaul so that the engine can actually make use of the gas. To translate this into policy, the government should pursue measures such as deregulation and the elimination of idiotic laws, entitlement program reform, tax reform which combines the elimination of breaks and deductions with lowered rates (including a major cut in the corporate rate), an end to subsidy programs and passage of free trade agreements. 

Such steps would help revive an economy whose ability to allocate resources efficiently is increasingly choked by the dead hand of government. Small wonder one-third of businesses cite taxes and "government requirements" as the most important problem they face.

Doing so, however, is difficult. Plenty of entrenched interests benefit from the status quo while politicians are mostly loathe to surrender any of their power. Just yesterday the Senate couldn't even bring itself to abolish $6 billion in tax subsidies for ethanol.

Do not bother looking to the White House for leadership, which is apparently promoting -- in classic Keynesian style -- the extension of a temporary payroll tax to address our economic ills. Pathetic.

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