Sunday, August 14, 2011

Governments can't manage economies

I had an interesting conversation a few nights ago with a Canadian waiter who is an economist on the side.  He tried to tell me what's wrong with the economy.  I felt sure he was missing something important: he thinks governments can manage their economies.  There is no evidence to support this position.

The greatest selling point for free-market economics is that government does such a poor job at managing the economy.  It does such a poor job that it's fair to say that they simply don't manage it, and since the economy is so important (everyone tells us) the fact they don't manage it must mean that they can't.  The free market is left as the only plausible alternative.

The current economic mess is nothing more than an excellent example of what happens when you let demagogues hold the reins of power: they run the system into the ground.  The United States is simply one facet on a multifaceted jewel.  In Europe, the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are on the verge of toppling because their economies are so flimsy.  France's economy is so-so.  Germany is the 'last man standing' and is unwilling to auto-da-fe in order to keep the others afloat.

How did we get here?  Especially, if you think governments actually can manage economies, you have a lot of explaining to do.

Now, there is the possibility that the free market might do a poorer job than government, although how it might be worse than this, economies world-wide on the verge of cataclysmic depression, is hard to imagine.

In the United States, the Federal Reserve was originally touted as the cure for the instability of the business cycle.  Fourteen years after its creation, we had the Crash of '29 followed briskly by a depression that reached around the world.  By that time, the 'free market' was a fading memory.

No, there is no credible evidence that governments can manage economies.

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