‘A Liberation Package’

Recently I criticized Bush’s “stimulus” package, which essentially consists of deficit spending. On February 14, Forbes published an article by Yaron Brook of the Ayn Rand Institute titled, “To Stimulate The Economy, Liberate It.”

Brook begins by explaining that the key to economic growth is production, not “consumer spending.” And “a productive, dynamic economy requires of a government is that it restrict itself to protecting property rights from force and fraud, and refrain from interfering in free production and trade.” Brook then goes on to explain how existing political intrusions in the economy have created today’s troubles. He summarizes the main causes of the “subprime meltdown:”

There is the Federal Reserve, which wrought havoc with the markets by manipulating interest rates, first setting them below the rate of inflation and then quintupling them.

The Fed’s initial policy convinced subprime borrowers that if they took out mortgages tied to Fed rates, they could afford homes that they ordinarily couldn’t. The Fed’s artificially low rates fueled a borrowing spree and housing bubble that were instrumental in the subprime meltdown. Then there is the network of entities backed by the government, like Fannie Mae and Freddie Mac, which were big champions of subprime lending and big propagandists for the idea that everyone needs to own a home to live the American Dream. Finally, there is the government’s long-standing policy of assuring large financial institutions that they are “too big to fail,” which encourages short-range, high-risk investments.

Brook briefly describes how various other restrictions and taxes harm economic productivity. He concludes: “What our economy needs is not a stimulation package, but a liberation package.”

Unfortunately, it is a package in which few of today’s politicians are interested.