From:
Subject: Less than Nothing
Date: Monday, February 23, 2009,
*Less than Nothing
*By Sheldon Richman
20 February 2009
Sheldon Richman is the editor of The Freeman and "In brief." He is a
contributor to *The Concise Encyclopedia of Economics* ("
Fascism<http://www.econlib.org/library/Enc/Fascism.html>").
The story is told that Ludwig von Mises was once asked, “Do you mean to say
that the government should have done nothing during the Great Depression?”
Mises responded, “I mean to say it should have started doing nothing long
before that.”
I hope the story is not apocryphal, because it perfectly sums up the
government’s proper role in managing the economy: none. The misnamed
stimulus law is now on the books. While nearly everyone believes the
government has to do something to get the economy out of the recession,
those who understand markets insist that we’d be better off if the
government did nothing at all. Of course, politicians are incapable of doing
nothing when there is harm to be done, but the “stimulus” critics intrepidly
insist that anything the government does will be worse than doing nothing at
all.
This is certainly true. Unquestionably, doing nothing is better than
borrowing nearly $800 billion from the credit markets (to be repaid through
inflation and taxation) and spending it on pet political projects, from food
stamps to bridge repairs to subsidies for favored energy forms.
(Remember *opportunity
cost* <http://www.thefreemanonline.org/columns/opportunities-and-costs/>!)
Doing nothing is indeed is an attractive option. For example, it would avoid
re-stimulating parts of the economy shouldn’t have been stimulated in the
first place, such as housing and autos. As economist Mario Rizzo said
recently, “Trying to prop up housing prices or injecting capital into areas
of misallocation is a bad idea. It prevents the market’s corrective
mechanisms from working. Wealth should not continually be destroyed after
the errors of the bubble have been revealed. This is the proverbial practice
of throwing good money after bad.” (Watch Rizzo’s presentation
here<http://www.myheritage.org/archive/articles/2009/economic-recovery-free-markets-big-government.html>.
The written remarks are downloadable here <http://tinyurl.com/abg3me>.)
But, frankly, doing nothing is only the second-best option. We can do
better. We need the government to do less than nothing. It should
*undo*many things.
*Government-Inflated Bubble
*Let’s remember that government created the housing bubble through a
constellation of policies that made borrowing for home mortgages prime and
subprime artificially attractive. Because of the securitization of
mortgages (in itself a good risk-spreading device), the consequences of
government housing policies spread far beyond the housing and banking
industries. When home prices seemed to be perpetually rising, people were
encouraged to refinance their homes and withdraw equity so they could spend
the money on cars, trips, and other big-ticket items. Government-stimulat ed
demand touched everything. When the bubble popped when interest rates rose
and the housing glut became apparent things turned around. People now had
costly mortgages they couldn’t refinance; homes bought on the expectation
of early profitable resale were now money losers. The party was over.
It was a party that couldn’t have been thrown without politicians eager to
do things for us and, not coincidentally, to boost their reelection
prospects as well.
The upshot is that if the economy is to thrive again, the reigning
philosophy of government as a social service center will have to change.
Many things will have to be undone.
These things will strike most people as politically impossible, but if no
one ever talks about them, that’s what they will remain. We have to start
somewhere. The first thing we need is a monetary system that is beyond the
reach of manipulative politicians and political appointees. Whatever the Fed
Reserve’s role in the housing bubble even if it was only the Alan
Greenspan’s promise to provide liquidity to overextended lenders the
central bank has again proven itself hazardous to our economic well-being.
When will we cease to tolerate this continuing threat in our midst? When
will we realize that the mortals who run it cannot know how much money the
economy needs or what interest rates should be? Market-rooted money most
likely gold and free banking are long overdue. How can we afford to wait
any longer?
*No More Housing Policy
*Also on the list of things to go is every manifestation of housing policy.
In a free society there would be no such thing. The alphabet soup of
agencies from HUD to FHA to FHLB, and the rest should be abolished at
once.
The same goes for those privileged cartoon characters Fannie Mae, Freddie
Mac, Ginnie Mae, and any I may have overlooked. They exist to circumvent the
market in order to carry out the agendas of politicians, who must dispense
goodies to favored constituencies in order to keep their hold on power.
Because the agencies are backed by captive taxpayers, they are can do things
no free-market institution can do, such as obtain special low-interest loans
and guarantees. These bureaucracies have no place in a free market. If we
haven’t learned that by now, what will it take? (We haven’t learned it. The
Obama administration wants to give them more billions.)
While we’re at it, let’s get rid of the income tax if for no other reason
than because it would end the mortgage deduction. We must stop thinking of
home-ownership as something worthy of government privilege. There’s nothing
magic about housing. It’s one more thing we need. Yet it gets special
treatment in the law, and economy-watchers give it special attention. Why do
news agencies report housing
starts<http://www.marketwatch.com/news/story/housing-starts-plunge-17-record/story.aspx?guid=%7B387BF9B6-8258-4516-9351-310ADCFB3B65%7D&dist=msr_53>faithfully
each month as though the fate of the planet hangs in the balance?
They never tell us how many computers, Coca-Colas, or boxes of Cheerios were
produced.
Other taxes should be cut or abolished too, including the payroll tax, which
is a tax on hiring. But this is often overlooked tax cuts without
spending cuts require more borrowing and more inflation. It’s a bad bargain
in the tradition of Keynes. We must cut government spending along with
taxes.
If government really wants to make it easier for people to own homes, let it
give up control of money and banking, divest itself of the land it holds off
the market, and generally relieve society of its endless burdens.
The biggest favor the state can do for us is to *stop doing us favors!
http://fee.org/ articles/ in-brief/ goal-freedom-
nothiing/<http://fee.org/articles/in-brief/goal-freedom-nothiing/>
*
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