Uncertainty and Recession

I’ve just posted an article by my dad and me explaining some of the important causes of the Great Depression. George Will points to another problem both then and now: the uncertainty that results from seat-of-the-pants interventions.

The $700 Billion bailout was passed with no specific plan for how the money would be spent. Much of it was frittered away on special-interest corporate welfare. Through the bailout, the government forced various firms to take the money, or else, and interfered with private contracts. That bailout, and the various others that have been passed and proposed, reward failure and punish success, and they do so after the fact. Meanwhile, laws such as antitrust put business mergers under the arbitrary thumb of federal agencies. The net result is that people don’t know what they should do as economic actors, because the rules of the game are arbitrary and always changing.

Will quotes Russell Roberts of George Mason University:

By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and, as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.

If federal politicians want to help end the recession, they should quit rewarding failure with other people’s money, restore rights of property and contract, move toward monetary stability, and generally quit overriding individual rights with political controls.