Why worship failed economic policies? Let market forces do the work

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Depressing as it may be, it is important to draw attention to the unfortunate three-year failure to resolve the current economic crisis. The fiscal experiment consisted of a zealous application of standard Keynesian folklore -- stimulus packages, earmarks, and executive spending decrees -- leading to shocking deficits.

This is a misguided notion. Based on what we know of incentives that drive a free-market economy, the emphasis on stimulus spending (of all sizes, shapes, and colors) to diminish private unemployment wrongfully puts the cart before the horse. The horse is private investment spending, and the cart is the goal of increases in private jobs and national income.

WELL-KNOWN TO virtually everybody is the fact that increasing private investment directly enhances private job creation. However, many entrepreneurs currently view new investments in enterprises with grave trepidations as being too risky to warrant the investment outlay, despite the efforts of stimulus-minded politicians and journalists and a virtually zero-percent federal funds rate.

Stimulus programs, while making modest contributions to social welfare spending, have failed to create a significant number of permanent private-sector jobs. Whatever benefits they might provide, however, are overwhelmingly negated in the minds of risk-taking entrepreneurs through threats of future tax increases, government fee increases, added repressive government mandates and regulations, and coercive suggestions of even more stifling actions -- not to mention the inflationary threat of an unprecedented ability to expand federal reserve credit, including the money supply.

This, coupled with a constant stream of invective by White House spokespeople and politicians directed at entrepreneurs, savers, the wealthy and risk-takers, frightens and weakens -- if not destroys -- risk-taking incentives.

UNFORTUNATELY, THESE negative factors spill over to the lending side. Because of uncertain future taxes and costly regulations that will bear upon the prospective borrower, bankers of all stripes -- commercial, investment, mortgage -- as well as other fund providers, are l ead to take a dim view of the borrower's ability to repay the loan, and thus are more than normally inclined to refuse the proposal.

We are not in danger of a liquidity trap. If we were, prices of government bonds would be skyrocketing. The system contains abundant liquidity, thanks to an aggressive monetary policy. Instead, we face a risk trap: Because of this vast, frightening, uncertainty, both those who would demand resources, and those who normally supply them, cannot reach an equilibrating rate of interest, even one of nearly zero percent. The competitive, free-market system is virtually frozen.

If not persuaded of the inadequacies of these policies, surely one must be convinced of the need to adopt a more logically compelling process. Reversing stimulus spending and oppressive tax and regulatory policies would be moving towards a sensible, confidence-restoring path. By dampening these government inspired disincentives, free-spirited entrepreneurs, and fund providers will be encouraged to invest resources for risky ventures. Business leaders will again provide leadership and training for workers, who contribute immensely to making the world go around.

BY UNLEASHING this vast store of energy, expansionary drive and innovations, the propulsion of normal market forces will allow authorities to see the fruits of a real stimulus -- because, inherently, increasing private investment means enhanced private employment.

(The writer is a professor emeritus of financial economics at the University of Georgia. He lives in Aiken, S.C.)

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soldout
1283
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soldout 08/14/10 - 09:36 pm
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0
We have become Japan; a go

We have become Japan; a go no where stock market and a go no where ecnomy. Unfortunately folks haven't saved enough to get through these times as most in Japan did. The only way to make money in the market in short term timing systems and that isn't easy. For personal financial success the "give God 10% and save 10%" still works. Market timing is critical for your 401K and having a profession works much better than having a job. The odds of a double dip recession are now pretty strong.

Insider Information
4009
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Insider Information 08/14/10 - 10:01 pm
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Our economy is like a bucket

Our economy is like a bucket with a hole in it...
Democrats see the empty bucket and pour more water in it.
Republicans see the empty bucket and patch the hole.

Chillen
17
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Chillen 08/14/10 - 10:15 pm
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This is a well written, easy

This is a well written, easy to understand column. Mr. Beranek is exactly right. Until the current administration reverses course and stops scaring the pants off the entrepreneurs and the successful, expect thing to worsen.

I own a business and I haven't hired anyone in 2 years. I haven't expanded in 2 years. On a personal note I have saved about 40% of what I have earned over the last 2 years (money that is not churning around in the economy). I will continue on this current path until I know that my taxes won't go up and that the government is under control with it spending. It's just reality.

Taylor B
5
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Taylor B 08/14/10 - 10:24 pm
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But gold. Buy silver. Hang

But gold. Buy silver. Hang on!

HTN007
19
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HTN007 08/15/10 - 01:55 am
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2 things to remember in all

2 things to remember in all of this....an election coming up this November and another one in 2012.

gijoe7898
0
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gijoe7898 08/15/10 - 02:25 am
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grouse, stay in your corner

grouse, stay in your corner drinking your kool aid while the rest of us vocalize, vote and weather this mess. you, unlike the LTE writer, offer no solutions to the problem. it's folk like you that need to step aside. no ideas, nothing to bring to the table but snide comments and worthless liberal talking points.

DanK
784
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DanK 08/15/10 - 03:31 am
0
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The economic theories and

The economic theories and social structures of the early industrial era have no relevance in today's world. The blind confidence in "free" markets and "trickle down" economics is blatantly misguided. The rich in America do not invest in factories and tangibles, creating jobs, they invest in financial institutions, manipulate markets, and stash their wealth in non-taxable accounts outside the U.S. Regurgitating the old adages of Adam Smith and the fantasies of Ayn Rand, and pining for the "self-sufficiency" of the agrarian era, is the ticket to the poorhouse for 90% of our citizens. Like it or not, the economy of the U.S. and the world revolves around the commingled corporate-political sectors -- the synergy of big corporations and big government. The bailouts saved companies and saved jobs. The stimulus funds softened the blow of an economy devastated by Republican economics and hugely expensive, meaningless wars. The only real solution is for the federal government to get out of Iraq and Afganistan ASAP, downsize military spending to a tiny fraction of its current budget, spend some of that money at home, but mostly concentrate on eliminating the national debt. Because just as in personal finance, debt is the ball & chain.

johnston.cliff
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johnston.cliff 08/15/10 - 06:22 am
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grouse, your post of 12:44

grouse, your post of 12:44 shows little understanding of economics and DanK, your post of 4:31 shows a passionate misunderstanding of how economics work, based on left wing propaganda.
Mr Beranek's column is well stated without political agenda.
I'm certain that the reason economics and history are in the shape they are, in today's high schools, is so these subjects can be obfuscated and voters can be confused and easily manipulated.
These exact same "government control" actions were taken during the FDR administrations and the slight recovery the national economy had made by '32 was driven to another great depression by '36. The government handled some big and important projects with their stimulus projects of the '30's, dams and roads, but the economy continued to stagger until the war effort of WWII put money in the hands of manufacturers and their employees. Then, and only then, did the economy recover. FDR was finally removed from office and Eisenhower reduced federal spending and cut taxes and the economy grew wings and flew, until LBJ's "fair deal" put the country into another recession.
Numerous examples across Europe and Asia show that government control of spending and investment just doesn't work for the economy.
The obama must go in 2012 and his supporters must go this year.

Voters, don't prove your party loyalty by supporting your economic slavery.

jiclemens
0
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jiclemens 08/15/10 - 06:23 am
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DanK, exactly!

DanK, exactly!

dashiel
176
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dashiel 08/15/10 - 06:54 am
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Now that everybody with an

Now that everybody with an index finger or a tongue blade is a professional economist, that woozy science enjoys about the same credibility as astrology. Venus rules Taurus, I am told, and Taurus is the natural ruler of values, like money. This too is a scientific theory.

johnston.cliff
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johnston.cliff 08/15/10 - 08:14 am
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You're right dashiel, the

You're right dashiel, the difference is the economic fact that Mr Beranek proports is proven by being initiated by countries throughout history. The historic fact is proven from both sides in our own country in recent history alone. See the action of FDR, LBJ, Carter,Bush sr., Clinton and obama and then look at the reaction of the economy. See the action of Eisenhower, Kennedy, Reagan, and W and see the reaction of the economy.
Using only fact, not party propaganda, Mr Beranek is proven obviously correct.

I blame the current education system of this country for the blind worshiping by the obama supporters.

dashiel
176
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dashiel 08/15/10 - 07:37 am
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"The capitalist system of

"The capitalist system of world economy harbors elements of general crises and armed conflicts (and)...proceeds not in the form of smooth and even progress but through crises and military catastrophes."

It wasn't an economist who foresaw this but a communist. And it wasn't Obama who sustained his gameplan.

When Israel drops the big one on Iran the meaning of Stalin's prognostication will become clearer to you, Cliff. You and the rest of the pack are barking up the wrong tree. The coon y'all are after has a "book" coming out.

apex24
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apex24 08/15/10 - 07:46 am
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Grouse, as James Brown would

Grouse, as James Brown would say please, please, please. You need help and what's crazy is you're allowed to vote. God help us!!! Please tell us you were drunk at 12.44am.

Techfan
6462
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Techfan 08/15/10 - 07:52 am
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"the economy continued to

"the economy continued to stagger until the war effort of WWII put money in the hands of manufacturers and their employees." I've heard this tired argument again and again. And who was buying the planes, tanks, , battleships, carriers, vehicles, etc. It sure wasn't wall street banks or private investors, it was the government. Unemployment fell 2/3 under the New Deal, though stagnated prior to the war. During the war there were over 13 million Americans in uniform, again paid for by the government. During the war, industries were paid on a cost plus basis and wages were subsidized by, you guessed it, the government. I'm not sure how this strange notion started that somehow industry flourished on its own and pulled us out of the depression. The fact is that the country came out of the depression during the war due to a MASSIVE influx of government spending.

johnston.cliff
2
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johnston.cliff 08/15/10 - 07:55 am
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dashiel, the effort to bring

dashiel, the effort to bring ones wishes to fruition is the effort we all make. Some at bigger levels then others. The communist manifesto makes many predictions that the hard left is making come true in this country. These actions can't stand the light and it's up to conservatives to not only shine the light on these actions, but to operate within the brilliant parameters laid down by the founding fathers. If, as has happened in recent history, both major parties continue to act only in their own interests, the country will continue to crumble. The fact that obama adheres to the manifesto in most ways isn't helping America, unless you consider bringing it to it's knees helping.

johnston.cliff
2
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johnston.cliff 08/15/10 - 08:11 am
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Techfan, first, ALL

Techfan, first, ALL government money is taken from the general population in the form of taxes. When the government can control all monies and the spending of all monies, no growth takes place since no one profits but the government. In the war effort of WWII, the government, as the agent for the people, invested borrowed monies in the manufacture of planes, tanks, vessels of all kinds. What the government DIDN'T AND COULDN'T do during this period is decide where and how all of these monies were to be spent and invested, beyond the specific purchases. THAT is where the growth came from.

As I stated before, ad nauseum, I blame the state of our schools history and economic courses for the lack of knowledge so many of our voters have. This lack of knowledge or, in some cases, lack of understanding, makes for a populace that's easy to manipulate and influence.

Tigger_The_Tiger
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Tigger_The_Tiger 08/15/10 - 09:07 am
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grouse...the free market WAS

grouse...the free market WAS working well until the Feds stuck their fingers in and messed it up. Ever heard of Fanny Mae and Freddie Mack? Ever heard of the Community Reinvestment act? Ever heard of the new deal. THESE are the socialist redistribution programs that caused us to "have" to bail out the banks and auto industry.....which didn't need to be bailed out in the first place. You took the brainwashing of "too big to fail" just like the socialists in Washington hoped you would.

Techfan
6462
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Techfan 08/15/10 - 09:27 am
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And the government today

And the government today doesn't tell people where and how to invest their money. The growth came from having a military in the millions and a civilian work force employed in the war industry, therefore most had paychecks and spending power. After the war, we had factories and industry that could cater to the post war world. Since much of the world was still essentially third world and Europe's industry was destroyed by the war, we were the only major industrialized nation that was left. Interesting that from the onset of the war to the 1970's, the top tax rates ranged from 70% to 94%. Yep, that sure stagnated America's economy since we had the largest growth in the American middle class in history. Since Reagan we have shifted to where all but the top wage class are declining in earning power and they complain about taxes that are around half of what they were during one of America's largest periods of growth. I'm sure Mt Beranek would love to go back to the days of little gov regulation, after all, it costs more not to dump untreated sewage or industrial waste into rivers than treating them. It cost more to not have smokestacks pour pollution and make the air unbreathable. Poor industrialists, they have to take a hit in their earnings to keep the environment where we live from being toxic and poisonous. Those darn government regulations. Who cares if we can't breathe the air or drink fish or swim in the water, as long as they make more profits.

Tigger_The_Tiger
0
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Tigger_The_Tiger 08/15/10 - 09:42 am
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Since the top 2% of earners

Since the top 2% of earners still pay 40% of the taxes, I'd say they have every reason in the world to complain. Where's equal protection under the law? Just because it may make your economy grow doesn't make it ethical, just as exploiting the wealthy with progressive taxes isn't ethical, but easy to rationalize when you suffer from wealth envy and hatred.......Slavery sure was a good way to have cheap labor, but it wasn't the right thing to do.

carcraft
28588
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carcraft 08/15/10 - 10:36 am
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The left still bashes trickle

The left still bashes trickle down economics even thought it fueled a large economic expansion in American that lasted from Regan to Bush 2. Trickle up hasn't worked out quite as well. Stimulus (and Biden's summer of recovery) cash for clunkers etc are all failures..Keep dreaming on the left, it is easier than actually having to work..LOL

Driver8
0
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Driver8 08/15/10 - 11:23 am
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Carcraft, from Reagan to Bush

Carcraft, from Reagan to Bush II also includes 8 years of the Super-Liberal, Clinton! Why did you leave his name out? If the Repubs get credit for that time of easy money, easy credit, etc., then Clinton does too. Which just seems to indicate it doesn't matter which side is in office. The truth is, the long expansion up to Bush II was built on a lot of fraud (complex loan instruments that disguised bad loans), worthless mortgages handed out like candy, and mostly BORROW and SPEND, which all of those presidents above indulged greatly in. So, Carcraft, I guess your solution to bring us back to the good ol days is more BORROW and SPEND. I bet you have an IQ of almost a 100.

Chillen
17
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Chillen 08/15/10 - 11:23 am
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Most people in the govt have

Most people in the govt have no private market experience, yet they are the ones who are passing laws & regulations to control the private market.

Do you really think they have your best interest at heart? If you do then you are being fooled or you are a fool. They are driven by votes (from their own district), by lobbyists and by political philosophy (i.e. what Pelosi or Obama tells them what to do)

Are there bad people in the private market? Sure, that is human nature. But my money says that as a percentage, there are way more crooks and bad apples in politics.

Fortunately with private industry you can choose not to do business with the ones who you don't agree with - i.e. big banks. With the govt, you are stuck with your own Rep who is in office until re-election or you are stuck with some bozo that New Jersey or California voted in.

My money's on the private market. Every time the govt sticks their nose in private affairs we have problems. Just look at the current housing crisis - caused, pushed and enabled by the govt to provide home ownership for minorities & those who couldn't afford it. Look at the most recent Fed move this week. NEVER, EVER in history has that worked. It has always resulted in virtually unrecoverable economic catastrophe. Yet our govt officials thought it would be a good idea. Fools.

Chillen
17
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Chillen 08/15/10 - 11:26 am
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driver8. Clinton was not

driver8. Clinton was not super liberal. He watched the polls and changed his philosophy to adjust to what the masses wanted (that's why he was so popular). He also had republicans in control of congress & the senate who tempered the liberalism that was left in him.

Driver8
0
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Driver8 08/15/10 - 11:35 am
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Folks, this has all happened

Folks, this has all happened before. The 1920s were called the Roaring Twenties for good reason-- everyone was making money on the stock market, which only seemed to go higher, the banks were engaged in questionable practices, it was easy to get a loan, business was going up, up, up! And then the correction came in 1929. It only took about 17 or 18 years and a major world war for the economy to be corrected, and the Depression ended. So, buckle up, it'll be a long ride. The past 20 years of prosperity were mostly us spending more than we make (the government and us personally-- 'fess up, didn't you spend more than you make in those years? Figure house prices. would always go up, up, up?). We borrowed and spent our children's money, shipped all the jobs they might have liked overseas. I'm not real proud of that. Like I said, it's happened before, we're not the first ones to get caught at the end of a mad 20-year spending spree.

Driver8
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Driver8 08/15/10 - 11:36 am
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But Clinton was a Democrat,

But Clinton was a Democrat, correct, Chillen? You seem to be saying some Democrats make good Presidents.

Tigger_The_Tiger
0
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Tigger_The_Tiger 08/15/10 - 11:46 am
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Well grouse....your

Well grouse....your implication that we NEEDED a bailout of the banks and auto industry is not true...and your implication that it was caused by the free market was not true.

Driver8
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Driver8 08/15/10 - 11:47 am
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I agree with you Chillen

I agree with you Chillen about the way the govt. pushed home ownership on people. The NY Times ran a front page photo of Bush II doing exactly that in Atlanta, in front of a sign saying "Home Ownership for Everyone" or some similar nonsense. So I don't think it matters which side is in power. As far a regulation goes, Glass-Steagall was passed to prevent a second great depression. Clinton repealed it, because, as you indicate, he did what the polls told him to do, and that's what business wanted him to do. So here we are, in almost a replay of the Great Depression. No, I don't trust business. BP comes to mind, offhand.

Driver8
0
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Driver8 08/15/10 - 11:53 am
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Let's keep in mind who wrote

Let's keep in mind who wrote this letter. A professor of economics! His entire profession failed to see the Crash of 2008 coming. That's like NASA not really noticing a comet heading our way. What a bunch of useless twits.

TheFederalist
1
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TheFederalist 08/15/10 - 12:30 pm
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Kudos, Mr. Beranek, as this

Kudos, Mr. Beranek, as this letter is spot on and I heartily agree with your findings. If all it took to create economic growth was to throw trillions of dollars at this very complex problem, and if that doesn't work, then have the Federal Reserve print even more trillions of dollars, economic growth would be a "no brainer." We would always do exactly what the Obama Administration has done and all would be well. The fact of the matter is economic growth requires more than just spending money and printing money. You simply cannot spend your way out of a economic recession, regardless of the benefits from socialist experimentation put forth by the big brains in the White House.

TheFederalist
1
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TheFederalist 08/15/10 - 12:57 pm
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Oh? Useless twit? Let's

Oh? Useless twit? Let's see...Christina Romer, the biggest twit of all, the POTUS's economic big brain, the architect of his deluded, "Summer of recovery", she never saw it coming either. She was the one who predicted that the stimulus was going to keep unemployment from surpassing 8 percent. (It passed 10 percent last fall and now stands at 9.5 percent.) Let's not forget to mention the fact that Freddie Mac and Fannie Mae were mostly to blame for the crash, and the Dems still refuse to deal with this thousand pound gorilla, sitting in America's living room. Guess the POTUS is now just surrounded with lesser useless twits then, IMHO, as she finally saw the light and bailed, or was asked to leave.

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