Faith in free markets has been eclipsed by fear and calls for a quick fix. Those of us who still hold to free-market solutions have either been shut out of public debate completely or marginalized by having our arguments deemed no longer relevant.
Those who offer remedy to our current economic problems are all Keynesian in their philosophy and would have us believe that economic laws at the personal level cannot be applied to us collectively as a national household. At the personal level, we must tighten our belts, pay down debt and certainly refrain from taking on more debt. Policymakers today believe that our federal government can sustain and even grow the economy by an infusion of freshly-printed money.
We are told that we do not understand because economics is a complicated science. This is a totally fallacious argument. None of us would seek to remedy our own financial misfortune by taking on more debt when we cannot pay our existing bills. Keynesians promise happy, pain-free solutions, a secret formula or a silver bullet.
None exist.
Market forces apply to our national government just as they apply to us personally. The federal government cannot create wealth. It can only confiscate and redirect wealth.
If the federal government decides to spend more money and lacks a surplus, the new spending must be supported by higher taxes. If taxes do not go up, then the federal government must increase its borrowing.
If lenders won't lend or the capital market cannot respond to the government's need for cash, then it must come from printing money. This is exactly where these bailouts are taking us. Public works projects promised in the future will make matters worse.
Each dollar printed reduces the value of money already being held by individuals.
There is no free lunch.
Increased borrowing and printing to create jobs in the public sector will create job loss in the private sector. If the federal government attempts to save jobs in inefficient and mismanaged sectors of the economy, it will cause a loss of job opportunities in the sectors that are efficient and well managed.
This will result in a loss in productivity and make us less competitive with the rest of the world.
The present course of action by Washington will result in higher inflation as an increased number of dollars will be chasing the fewer goods resulting from diminished productivity.
There is a better solution already in existence; it is known as a recession. It hurts. If we are brave and selfless enough to endure it, we will be better off later. We will again witness the miracle of real economic growth and the blessings of free markets.
The federal government contributed to this downturn and it cannot fix it. If they continue to try higher inflation, lost productivity and diminished competitiveness will result. It's true that good economics is bad politics.
Don't expect Washington to be brave.
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