Thursday, March 3, 2016



Recently, I received a piece written by an economist (I believe) in which he lists the many steps we’ve taken, both here and in Europe, to fix our economies. Our Federal Reserve, and European central banks, have bought assets, dropped interest rates (some below zero). All without the desired effect of stimulating economic growth. His suggestion, give citizens money, which they will surely spend, making lots of work for all.

You can make what you like of this suggestion. But, to my mind it doesn’t seem to really fix anything.

It’s always easier to see fundamental problems in other countries—we’re not concerned with ideology or political loyalties. So let’s look at European nations. They’ve been trying every manipulation of their financial systems possible and still have massive unemployment and no growth. By now, you’d think they would have examined their antiquated labor laws, welfare systems, protectionism, excessive regulations, low productivity, and other sources of non-competitiveness. But no—they still have to try negative interest rates. As one European official put it: ‘It’s not that we don’t know what to do; it’s just that we don’t know how to do it and get reelected.’

And what about here? Do you see any similarities? 

When I look at our low growth problem, I see a number of roadblocks that our leaders are unwilling to address. 

We have huge, and growing, debts at the federal, state, and local levels. Leaving aside how we’ll pay for them, there is the little matter of interest payments, and a damper on thoughts of spending more on even the most growth-worthy investments. I notice that we’re going to raise taxes for a pork-loaded infrastructure program. Will it improve our productivity? Who cares?

The actions of the Federal Reserve have been anything but stimulating. The Fed has fostered an enormous misallocation of resources. Billions have been borrowed by corporations, at near zero interest, to buy back stock, pay dividends, and make acquisitions, making CEOs rich. Why compete in the marketplace for customers when it’s so easy to get rich by moving other people’s money around?

Our government and our economy are caught up in a massive system of rent seeking (aka crony capitalism). Very few people understand the corrosive effect of this system on our government and personal lives. Please read the following; you’ll be glad you did.

Joe Bakewell

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