Lack of Economic Controls

I always enjoy reading Chris Dillow because he often draws focus on economic matters few others even pretend to see. This time he has set his Sights on New Labour policy impact on the British economy. Chris immediately zeroed in on the basic object from the starting paragraph: economic policies have become so diffuse and random, that Few can determine what type of impact any policy is producing. I contemplate the American economic policies and their impact on the American economy, and the commentary seems to parallel the British experience.

What do We really know about the Economy?

The first thing I notice about the American economy is that Government at all levels are overspending their ability to tax. Conservatives and Economists would assert that economic performance remains dependent on shipping Government Costs forward, as Government Contracts must be maintained while keeping Tax rates low. Liberals assert that Keynesian Spending actually boosts the economy, and mounting Public Debt pursues optimum economic performance. I assert We are spending Ourselves into a grave. I know economic performance can withstand a much higher rate of real taxation. I also know that We and the Economy could still perform with much less Government expenditures. I once asserted, and was consistently ignored, that optimum economic performance was best attained with Government Expenditures no higher than 14% of GDP; Government Expenditures including all Federal, State, and Local Spending, but excluding domestic Self-Insurance plans (think Social Security etc.). I still think I am basically right in that assessment; but a real Tax rate of 14% is still frowned upon by Conservatives, and lack of Government patronage seems outrageous to Liberals.

The second thing I notice in the American economy is the fact that all fiscal and monetary policies have led to economic bubbles, which burst with greater loss than the estimated real Gains previously realized. Interest rates should be low, and consistent; it is too late to lower Interest rates after a bubble has burst, and too late to raise Interest rates after a bubble has developed. That such policies produce Bubbles are beyond doubt; consider the ridiculous mortgage tax credits, and the resulting subprime debacle. Passage of a tough Bankruptcy law will not save the situation, after Consumer Debt has become astronomical. The next bubble to burst will be Bankruptcies of the Private Equity Borrowers. Lack of legislation is itself an economic policy, and the Bush administration has surpassed all other administrations in allowing semi-fraudulent Business practices through restriction of administrative controls. Conservative concentration on economic incentives has denuded the economy of resiliency, Liberal concentration on patronage practices have only hidden the real losses in the Economy. lgl