There are three rules often missing in economic analysis.
- What works in one quantity does not necessarily work in another quantity.
- What worked in one time period may not work in another time period.
- What works in the short term may not work in the long term. The reverse is also true.
Economic models only work to the extent that they must exclude variables that inhabit the real world. That is why economics, unlike physics and math, is not a science.
There is a distinct connection between a free economy and growing economy, but freedom is not enough. There must be a moral center, security of property, and a reasonably educated population. But without individual liberty these other factors will not create the growth that other countries with liberty can.
Looking back on the economic collapse, it is hard to reconcile the intellect and credentials of the people in the public and private sector who participated in this fiasco. Yet at the end of the day this collapse was no different than hundreds of other financial disasters. Too much debt, too much money, and too many well educated elites who think that this time is different. Yes there was also greed, but we have had greed since the dawn of man and we still have greed today. Blaming the collapse on greed is like blaming a plane crash on gravity.
Yet we are still enamored with well credentialed ignorance. We listen to Keynesian economists tell us that every dollar spent by the government creates economic output of $1.50. It makes me wonder why private business owners work so damn hard to make a buck when all we have to do is play golf and wait for the government to just spend our way to prosperity.
It is only a slight corollary to hear ex-speaker Nancy Pelosi state how unemployment benefits are the most productive way for the government to spend money, because these poor slobs need the money so bad that they will spend it quickly giving the economy a big boost. In fact it is such a great idea, I wonder why we do not double or triple the unemployment benefits to give us a bigger faster boost. I realize the left thinks Sarah Palin is a moron, but this statement along with her famous “we have to pass the health care bill to see what is in it” makes Ms. Palin look like a Rhodes scholar.
As I hear Senate Majority leader Harry Reid justify funding of the Cowboy Poetry festival while we have a record deficit it is hard to escape just how removed from reality our leaders are. Every business who saw huge cuts in their volume in the last year knows how to solve this problem.
To believe that we can spend and tax our way out of this pending catastrophe is the equivalent of believing in the tooth fairy.