Today’s Wall Street Journal highlighted a new $300 political stimulus campaign. Keynesian demand-management has re-conquered economics as surely as Fall 2008 has cemented Alexander Hamilton’s dreams for centrally managed governed finance.
Today’s global consensus: free markets cannot clear without government intervention.
This year’s dual stimulus “packages” foster political ends unrelated to actual economic recovery. Innumerable special interests benefit from an interventionist, mixed economy—and when things go bad, fundamental free-market reforms fly further off the table.
As George Mason University’s Richard Wagner points out, unconstrained democracy has a built-in bias toward deficit finance, so demand-side, Keynesian policy prescriptions have permanent survival value. Since modern legislatures are at root wealth transfer institutions, it is suicidal for them to acknowledge the limitations of their actual contributions to the real economy. So they “stimulate.”
Indeed, the political price is too high for election-bound lawmakers to entertain non-governmental recession recovery. As Friedrich Hayek pointed out, the politicians blamed during a bumpy transition to something closer to laissez-faire will be the ones who stop interest-group benefits or stop the inflation, not the ones who started those costly processes decades earlier. Thus the market’s prospects are very gloomy.
Any sincere economic stimulus would reduce the “tariff” on wealth creation. It would liberalize the world’s largest economy from excessive regulations, interventions, high spending, and from the undisciplined political money and credit creation at the core of the financial crisis. For starters, rapid and retroactive marginal tax rate cuts could facilitate economic activity via increased supply.
But such real stimulus requires unpalatable changes in what people expect from government, and more importantly, in what representatives in government are constitutionally able to do in the name of public service.
So political reality prevents halting the compounded economic damage that artificial stimulation and financial “bailouts to nowhere” promise to deliver.
“Stimulating” demand for the burgeoning supply of government programs, services, and wealth transfers never seems to be difficult, and it becomes ever-easier as earlier interventions fail but escape blame. So we get no sustained, wealth-enhancing campaigns to reduce regulatory interventions in the economy; and we establish no institutions to keep future such interventions minimal. That’s depressing, not stimulating.