What We Need Is A Fresh Round of STIMULUS and QE

Posted: Jun 04, 2012 12:01 AM

Jobs report really negative today. I was paging through the Wall Street Journal and looked at all the headlines. I didn’t see one positive one on any economic front from anywhere in the world. The only person in any photo smiling was John Edwards.

How’s that stimulus working now? QE? Hey, I know, it’s the Federal Reserve’s “twist” that will save us.

Back in the 1930's, the federal response to the poor economic situation was to create a huge federal bureaucracy that we are stuck with today. It was the first attempt at Keynesian policies. It didn’t work then, and it is not working today.

The stock market began to fall out of bed in 1937. The evidence was that the stock market was only good as long as the government was going to buy it. Then, World War Two started and factories that were idle were pushed into production.

This leads people to think that wars are good for economic outcomes, and further leads them down the logical path that lots of defense spending is good for economic output. That logic is terribly flawed.

Even the great Paul Krugman penned an article wishing that aliens would invade Earth so we could come together and fight something. Amazingly dense.

The broken window theory of economics never works. We are always better off without wars or huge cataclysmic events.

So, what is the real answer in this case? It’s not stimulus or more quantitative ease. It’s not twisting. The answer is counter intuitive.

The American government needs to stop spending so much money. It needs to drastically shrink in size. That’s good “austerity”. Then, it needs to tax less. The private sector will fill the voids.

Instead, we get Luddite’s like Tom Harkin proposing a 220% increase in minimum wages for workers that get tips.

Can’t anyone think out of the box anymore? I know a gazillion entrepreneurs that can. Please turn over the reins of the economy to them. Then, get out of the way.