Sunday, December 28, 2008

Fear of Gravity

If part of the normal business cycle is that of expansion and contraction then what we are attempting to do now with bailouts and partial nationalization of the banking industry is akin to reversing the laws of physics.

In contraction, inefficient and/or reckless businesses and business plans are naturally wrung-out of the system and talent and labor in the same is allowed to naturally flow to those more productive businesses that survived the contraction cycle.

…any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.


Its become apparent that despite the heady rhetoric we have heard for the past year or so, we are indeed being governed out of fear as the free market has been forced to take a back seat to political expediency and the avoidance of pain.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.


H/T: Carpe Diem

1 comment:

K T Cat said...

The more we try to avoid the pain of changes in our industries, the more pain we build up for the future.