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Economic Policy: Good, Bad, Ugly (Vol. 77)

Updated: Feb 7, 2023

analyticsbox | Nov 09, 2022


Economic Policy Flow

Just Look at History, and Current Events

Last week I noted that history will tell us all we need to know about what works - It doesn't take a rocket scientist to figure out which current economic policies are Good, or Bad, or Ugly. Consider the real world of the Pilgrims. They started as a communal farm which resulted in starvation, anxiety and left nothing for trade. This disaster turned around when they changed policy and gave each person their own piece of land and they could keep the ‘fruits of their labor’. Prosperity and growth for the people and their community followed. LESSON: Private property and incentives matter and work well for the people. Another American example is the contrast between the Roaring 20’s and the Great Depression. President Warren Harding took over in 1921 in the middle of a depression. He cut taxes, was frugal in spending with a limited government, and balanced the budget. His successor, President Calvin Coolidge, had similar values. RESULTS: The Roaring 20’s, innovation, mass production, rising wages, and overall prosperity. In 1926, unemployment fell to a historic low of 1%. Things changed when President Herbert Hoover took office. He reacted to the stock market crash of 1929 (and subsequent recession) by instituting economic policies that expanded government’s reach into households, businesses, and industry, starting with the ill-advised Smoot Hawley Tariff Act of 1930. President Franklin D. Roosevelt followed, and the government intervened more and more trying to make things better, growing budget deficits, expanding social programs, and extending government reach. RESULT: Disastrous depression. LESSON: Limited government and balanced budgets work. Big government and big budget deficits do not. Modern day examples include Venezuela and Switzerland. In the period from the 1960’s thru 1990’s, Venezuela became wealthy attaining about 80% of the U. S. GDP per capita, growing and improving conditions for the populace. When Hugo Chavez was elected in Venezuela in the late 1990’s, he instituted socialist programs with the claim he wanted to help the poor. The wealth of the country evaporated, foreign investment dried up and the government replaced markets with politics controlling what to produce, when and for how much. As industrialists struggled and were unable to keep up with the costs, the government started taking over companies and controlling production, prices and distribution. RESULT: Shortages, Supply chain problems, high unemployment, and outrageous inflation. Poverty everywhere and a military dictatorship evolved. Switzerland has a different story and institutional setting. It has a small central government, a federal state partnership, controlled budget deficits and sound fiscal policies. It is a market economy. RESULT: Economic freedom and one of the highest standards of living in the world with a very small part of the country living in poverty. LESSON: Economic freedom and sound economic policies work. Socialism does not. Yes, there are many details and nuances in these brief overviews not covered, and there are many, many other examples - AND THEY ALL LEAD TO THE SAME CONCLUSION: Limited government, economic freedom, and sound economic policies provide the foundations for an economy to prosper and grow the most (see Facts, No Spin #16, The Formula for Economic Progress and #44, Good Policy = Good Results). The further a country moves away from these principles, the slower its economy grows and, in some cases, economic disaster. Those countries that have the highest scores on economic freedom are directly correlated with the highest standard of living. It's not magic, it is just common sense. BOTTOM LINE Which U. S. President said, ‘The era of big government is over.’? President Bill Clinton in his second term worked across the aisle. He and Congress instituted sound economic policy. For the only time since 1960, the country balanced the budget and ran a surplus for several years. The interest-bearing debt to GDP fell from 65% to 55% when he left office. (Today it is nearly a whopping 130%.) The economy blossomed with sound economic policy during that period. When will we ever learn? Visit the Main Street Economics website and Contact your Congressional representatives using the link below and send a strong message to fix our economic mess. Do not wait, do it now, before it is too late. Contact Congress Today! LEARN ECONOMICS, THEN VOTE SMART

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