Friday 626

 


Recessions Are Good – Government Should Not Fight Them

Mostly summarized from article Without Recessions, Americans Would Know Very Little Prosperity by John Tamny.
When governments fight recessions, they end up stagnating the economy.
The federal government’s constant experimenting with bad ideas for fixing the market economy is one strong argument for limiting size and power of the federal government.
To fight recessions increased government spending including grand infrastructure building programs is extraction of limited resources from the market economy, meaning reduced product innovation and supply.
…
Unlike business speculations in the marketplace, government spending isn’t market disciplined at all.
Bad ideas die a quick death in the free market.
Government-funded initiatives can be bad from the beginning and last many lifetimes.
Recessions, although painful in the short term, are needed and healthy.
They are a necessary cure so economies can expand.
They lead to economic booms whereby bad ideas and old products are abandoned and new ideas and products are developed.
…
The many who desire an always-growing economy embrace the mistaken idea of empowering government to fight recessions.
Per Figure 1 line B, to try to pull out of recession government increases
spending, for example initiating a huge infrastructure building program.
But this deprives the economy of a market-driven optimum correction and rebound.
Over time, because of government short-run focused recession-fighting spending interventions we have smaller economy end point B rather than recession-not-fought larger economy A.
…
The only role government should play during recessions is to maintain stable value money, in other words avoid inflation-causing actions such as huge government spending programs and increase of money supply.
Without the natural market economy’s “out-with-the-old” creative destruction curative powers of recessions we’d have slow economic progress, and the more government intervention the slower.
…
From reason.com article FDR policies doubled the length of the Great Depression, by Samuel Staley:
“Many saw Franklin Roosevelt’s presidency and the New Deal as the salvation of the American economy.
In fact, recent empirical evidence by UCLA economists Harold Cole and Lee Ohanian suggests FDR’s economic policy added seven years to the Great Depression.”
… …
Why do politicians fight recessions? ChatGPT:
Politicians fight recessions because recessions hurt voters quickly and visibly: people lose jobs, businesses close, wages stagnate, retirement accounts fall, and government tax revenue drops.
Even if a recession can “clean out” bad investments, during the slowed economy people spend less, companies cut workers, banks lend less, and overall economic confidence drops.
Politicians also have a strong election incentive: voters usually blame current government leaders when a recession causes a large increase of unemployment and expect them to act.
So, governments use stimulus spending, tax cuts, lower interest rates, unemployment benefits, and business aid to soften the short-run pain and shorten the time period of the recession

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