Wednesday, August 10, 2011

What Has Keynesian Policy Wrought?

Nothing but debt, says Caroline Baum at Bloomberg. In a very revealing blog post, Mish Shedlock reprints Baum's piece and asks,
Is there any kind of stimulus the US did not try in the last 10 years?

  1. We had 1% interest rates from Greenspan fueling housing.
  2. We had wars from Bush and Obama fueling defense industry employment.
  3. We had two rounds of Quantitative easing from the Fed.
  4. We had cash-for-clunkers.
  5. We had two housing tax credit packages.
  6. We had an $800 billion stimulus package from Congress for "shovel-ready" projects.
  7. We had stimulus kickbacks to states.
  8. We had HAMP (Home Affordable Mortgage Program).
  9. We had bank bailouts out the wazoo to stimulate lending.
  10. We had Small Business lending programs.
  11. We had central bank liquidity swaps.
  12. We had Maiden Lane, Maiden Lane II, and Maiden Lane III
  13. We had Single Tranche Repurchase agreements
  14. We had the Citi Asset Guarantee
  16. We had so many programs the Fed must have run out of letters because they were not given an acronym.
That is a partial list. Other than bailing out bondholders what exactly do we have to show for any of it? The one-word answer is "debt".
Because debt funded by monetary inflation cannot buy us prosperity, but only make things worse, it is, as Mish says, time to do something different. As painful as it may seem, the government needs to stop inflating (or better yet--End the Fed), reduce spending, reduce business regulation, and remove labor market constraints. In other words, we need to press for a truly free market that will finally allow for liquidation of malinvestment and for a reallocation of factors of production toward their most productive uses (HT: Tom Woods).

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