One of the biggest problems with government intervention in the economy is that politicians usually have neither the knowledge nor the incentives to intervene at the right time.
Bruce Bartlett has pointed out that most government intervention in an economic downturn comes too late. That is, the problem it is trying to solve has already worked itself out and the government intervention can create new problems.
More fundamentally, markets readjust themselves for a reason. That reason is that people pay a price for their misjudgments and mistakes.
Government interventions are usually based on trying to stop them from having to pay that price.
People who went way out on a limb to buy a house that they could not afford are now being pictured as victims of a heartless market or deceptive lenders.
Just a few years ago, people who went out on that limb made money big-time in a skyrocketing housing market. But now that they have been caught in the ups and downs that markets have gone through for centuries, the government is supposed to bail them out.
Solving short-run problems, especially in an election year, often means creating long-run problems. Pumping money into the economy can help many problems. but do not be surprised if it also leads to inflationary pressures and financial repercussions around the world.
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