Nothing Doing

When you don’t know what to do, the thing to do is nothing.

Well, maybe.

Economist Thomas Sowell, in a recent column, notes that we recovered from downturns in the economy more quickly before the federal government took it upon itself to fix things. The first major fix was with the Great Depression. Which dragged on and on.

Today, our leaders have spent trillions of borrowed money to fix the economy, with poor results.

Sowell’s column is great, right up until near the end, when his plea for politicians to “do nothing” ignores a lot of . . . something.

After the huge 1987 stock-market crash, he explains, President Reagan did nothing. But then “the economy rebounded, and there were 20 years of sustained economic growth with low inflation and low unemployment.”

But were those 20 years really so benign? Activity by presidents, by Congress and most of all by the Federal Reserve set up the systemic problems that led to the Crash of 2008. Consumer price inflation was low during Sowell’s Reagan-blessed period, but all the while the Fed was feeding first a dot-com bubble and then a housing bubble. And it engaged in a series of bailouts of financial institutions.

Maybe Reagan and later politicians didn’t do enough in the “do nothing” department. They should have reined in (or abolished) the Fed. They should have abandoned “too big to fail.” They should have stopped subsidizing creditors in busts and home-owners in booms.

This is Common Sense. I’m Paul Jacob.

3 Comments so far ↓

  1. Sep
    8
    10:50
    AM
    Drik

    Never happen.
    Results don’t get politicians re-elected.
    Only activity and stated intent does.
    Like a useless $50 billion infrastructure spending bill, almost identical to last years $48 billion infrastructure spending bill that did zippo to help the economy.
    Politicans confuse cause and effect and preach that confusion to the voters. Infrastructure happens because the economy is booming. It does not cause the economy to boom.
    Building stuff to try to make it work is based on the same logic that the South Sea islanders used during World War II, carving crude runways out of palm jungles, setting up bamboo radio towers and desks over which confused islanders labored intensely trying to replicate the perceived activities of the khaki-clad strangers to call forth the shiny silver birds from the sky filled with trading gifts for the populace.
    It’s the effect, not the cause.

    Have to wonder, at some level, if this supposed excruciatingly brilliant stimulator-in-chief doesn’t actually know that. At some point, have to wonder if he really doesn’t have a clue, being so brilliant and all, or if this is not happening all along, right in tune with George Soros’s desires that will eventually allow Soros to short the dollar and pocket a few more billions to play with.(just like Soros already did with the british pound)

  2. Sep
    8
    1:57
    PM
    Jim Dixon

    Hi Paul:

    I think Sowell’s argument is the most accurate. During the Clinton years, the Fedgov (under the direction of HUD ) lowered the standards for home ownership, thus setting the stage for the sub-prime loan debacle that was to follow. This was continued into the Bush years, during which time the Congressional oversight committee in charge of FNMA and FMAC did ACT by preventing any accounting of the two mortgage giants.

    Remember, Paul, that failing to act is, itself an action.

    Best wishes.

    JDD

  3. Sep
    10
    9:11
    PM
    S Rubicon

    I think Sowell’s position is reasonably accurate. However, he does not take into account or elaborate on federal actions taken between events that end up causing all sorts of consequences. The Community Reinvestment Act (CRA) surely enabled, if not caused, the housing bubble. Of course one could say it would not have happened had Fannie & Freddie not bought up those toxic mortgages & then repackaged them as AAA rated investment grade credit derivative instruments. W/o those pieces of crap, perhaps the housing bubble would never have been inflated in the first place?
    The truth is, Coolidge gave us the ultimate do nothing policy. When Wilson exited office we were in a recession leading to possible depression. But Cal took all sorts of pro business, pro low taxes, pro free market actions, and the economy not only recovered, we went through the “Roaring Twenties” to boot!
    So its not do nothing. Its do the stuff that actually allows our free market to flourish.

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