Fed Reserve Nominee Loves Government Intervention in Economy

0penniesThere are so many examples of the economy going bust after the government intervenes that I am shocked many still advocate a Keynesian economic approach, including Janet Yellen who was just nominated to head the Federal Reserve System. Just recently government encouraged subprime lending on home loans caused the housing crisis of 2008, billions in energy loans created no results, after being bailed out GM is poised to suffer a subprime car lending bubble burst, and government intervention in health insurance has already increased the premiums of many, caused employers to drop coverage, and cut many employee hours to part-time. It boggles my mind that people who believe government intervention in the economy is bad need to be on the defensive, with all these examples of intervention causing economic problems. But there are also many examples of when the government has not intervened, and the economy improved dramatically and quickly.

Thomas Sowell discusses some of these cases in his article “A Return to Keynes?” in which he warns of the negative consequences to having a pro-government-interventionist heading up the Federal Reserve, which has so much influence over our economic situation. Many people incorrectly believe that the Great Depression was caused by the 1929 stock market crash, but through unemployment data it is easy to see that the market was recovering quite well on its own, until Herbert Hoover started intervening.

Unemployment peaked at 9 percent in December 1929 and was back down to 6.3 percent by June 1930, when the first major federal intervention took place under Herbert Hoover. The unemployment decline then reversed, rising to hit double digits six months later. As Hoover and then FDR continued to intervene, double-digit unemployment persisted throughout the remainder of the 1930s.

Conversely, when President Warren G. Harding faced an annual unemployment rate of 11.7 percent in 1921, he did absolutely nothing, except for cutting government spending.

Keynesian economists would say that this was exactly the wrong thing to do. History, however, says that unemployment the following year went down to 6.7 percent — and, in the year after that, 2.4 percent.

Under Calvin Coolidge, the ultimate in non-interventionist government, the annual unemployment rate got down to 1.8 percent. How does the track record of Keynesian intervention compare to that?

Despite such concrete data making a clear case for why the government should not intervene in the economy, Janet Yellen apparently thinks that government bureaucrats are somehow smart enough and posses the right expertise to tweak the economy in order to provide full employment.

She asks: “Will capitalist economies operate at full employment in the absence of routine intervention?” And she answers: “Certainly not.”…

Ms. Yellen asks: “Do policy-makers have the knowledge and ability to improve macroeconomic outcomes rather than making matters worse?” And she answers: “Yes.”

The former economics professor is certainly asking the right questions — and giving the wrong answers.

You would hope that someone in Yellen’s position would care about facts and data, but that does not appear to be the case. It is clear from the unemployment rate which reached a low of 1.8% under non-interventionist Calvin Coolidge, that a hands off approach by government is better for the economy. This is because government does not have the same incentives as individuals do when spending money, because the government did not earn that money, and has no negative consequences to losing it on bad investments, or bad products. Individuals spending their own money will organize the economy better, which is why the lower taxes went, and the less the government spent, the lower the unemployment rate fell. Today we would have better cars on the market, and a more stable car company if GM had not been bailed out. Likewise, billions would have stayed in the private sector to create jobs, had it not been spent through energy loans which were given to companies that went bankrupt.

Once a myth takes hold it is difficult to eliminate, but it is in the best interest of our economy, and therefore every American to stop believing the lies of Keynesian economics, and realize that government intervention does not improve the economy. Lower taxes, lower government expenditures, and fewer regulations will lead to a better economy, and maybe we can finally reclaim the low unemployment rate that we only enjoy with non-interventionists in government.

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