We Need To Do Nothing About The Economy
Over the last few weeks, Congressional Democrats and Republicans have been fighting to be the first to propose an economic stimulus package. The idea really picked up some steam a couple of weeks ago when highly regarded economist and former Treasury Secretary Lawrence Summers wrote an op-ed calling for a $50bn-$75bn package to be implemented over two to three quarters. At that time I posted on the subject, writing that while I did not think that a fiscal stimulus would really help the overall economy very much, it probably would not hurt it either. Since writing that post twelve days ago, new economic data has caused me to change my mind.
Things would be so much better if Congress and the President did not always have the desire to “do something”. I realize constant meddling in the economy is one of the drawbacks of representative democracy, where legislators are more eager to please constituents than to think long term. Doing the right and smart thing is especially unlikely in an election year. But if there was ever a time for a “do nothing” approach to fiscal policy, not to mention monetary policy, the time is now.
I don’t really fault the President and Congress though as much as I fault Fed Chairman Bernanke. You should expect politicians to think like they do, but you should not expect the Chairman of the Federal Reserve to cosign their nonsense. But not only has Bernanke signed off on a fiscal stimulus, he appears to be all to willing to continue lowering the Federal Funds Rate.
Does anybody worry about inflation anymore? Does anybody care about the value of our currency? Steve Forbes believes the President is to blame for the weak dollar, and he is partly right. But I believe monetary policy has been much more destructive, in regards to the weak dollar and rising inflation, than fiscal policy. I love growth as much as anybody, but sometimes it is better to let the cycle run its course.
Because of inflation, I believe it is time for the Fed to stop raising the Federal Funds Rate and for Congress and the President to do absolutely nothing as far as a stimulus package is concerned. I wrote a similar post back in November sharing these same concerns. At that time, inflation still wasn’t an issue, but since that time, guess what has happened.
It’s a shame we don’t have a Fed Chairman like Paul Volcker, who in spite of ridicule and even threats, was willing to send our economy into a deep recession in order to slay the inflation dragon. Volcker knew what was right and he did it, in spite of widespread opposition. Bernanke seems to be more interested in building consensus than leading.
What a huge mistake it was to create the Federal Reserve. Rather than trusting the markets, we created a situation where it was vitally important that we have the right man in the position. I am not sure Bernanke is that “right man”. Hopefully I’m wrong.
[…] continue with the discussion about a fiscal stimulus plan started here, read this post from Preston Taylor […]
Bernanke would drop money from a helicopter to stop a recession.
I agree.
If the federales really want to help the economy by giving up something to help consumers, then I suggest a reduction in the federal tax on gasoline.
At least for the short term.
I know liberals want to increase the taxes on everything, especially fuel (because of the ‘global carbonization’) but in the case of gasoline, the tax is regressive on the poor. Everyone has to pay for fuel, and high fuel costs hurt the working poor much more so than the well-to-do.
in the case of gasoline, the tax is regressive on the poor. Everyone has to pay for fuel, and high fuel costs hurt the working poor much more so than the well-to-do.
Very true, very true.
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Exactly true Serr8D, and yet another reason why the enviro-wackos who oppose us drilling in that chunk of ice in Alaska and support raising the gas tax, don’t give a rat’s ass about the poor. They really don’t care about the environment, only government.
[…] cut in the Federal Funds Rate, an emergency cut that is. I hope they are right and what I wrote in this post was wrong. If I am, I will proudly go back and admit it. I hope Sadcox is wrong too, but I […]
Yep.
I’d go so far as to say that we need a recession. It will keep us out of depression.
You might be right. Economic downturns are just part of economic cycles. The Fed should do less micromanaging.
Sadcox is not the only one that thinks that:
http://articles.moneycentral.msn.com/Investing/SuperModels/WhyWeNeedARecessionSoon.aspx