The Failure of Government-Provided Prosperity

If I had one bit of advice to reach the ears of Barack Obama, Mitt Romney, and Ben Bernanke, it would be this: stop the illusion that you have any significant control over the US economy.  Government is designed for justice, and does not do well when trying to promote prosperity.  At most, economically, the government can set ground rules that reduce the probability of fraud.

As it is, at present, the US still has an over-indebted economy, and as a result, will grow slowly, because businesses and individuals in danger of default do not spend freely.

Politicians claim that they can being prosperity, but they rarely do that.  I’m not talking about marginal tax rates, or monetary policy, which offer transitory relief, but changes in regulations.  The economy as a whole would do a lot better if marginal regulation were reduced.  That would be a help, but few politicians in either party want to reduce the power of the government.

Prosperity exists aside from the government.  Yes, in the short-run the government can tweak the economy to grow faster, but at the price of the situation we are now in, where nothing works.  Far better for the government to focus on things it can do well: defense, internal security, public health, etc.  But it does not do well with macroeconomic management, so it should give up on that, run balanced budgets, and replace the Fed with a currency board.

At that point, we would have predictable policy, and businessmen might be willing to take more risk and grow the economy.  Unsustainable policies cause producers and consumers to pull back.

At best, in economics governments set ground rules to reduce fraud.  Beyond that, governments reduce the flexibility of economies, and reduce growth.  Socialistic governments produce dependency cultures that inhibit work, initiative, and growth.

Do not look to the government for prosperity.  Governments are umpires; Umpires allow for good games, but they aren’t the ones playing the games and creating the excitement.  Governments can never make us prosperous; if government action were what made us well off, the Soviet Union would be dictating term s to the world today.



  • Todd_NYC says:

    David, through your blog you have taught me more about investing in companies than I learned from 15 years on Wall Street, but I have to say that I find your pronouncements on macroeconomics jingoistic and simplistic. Its just not the case that government fiscal policy has no role in creating prosperity and you do yourself and your dedicated readers an injustice by saying so.

  • Conscience of a Conservative says:

    Those that think government investment can solve all ills needs to read Michael Pettis on China. The key take away should be that for investment to make sense it needs to make labor more productive, which removes the argument that moving rocks from point a to point b back to point a is investment. When government engages in Mal-investment it hurts the constituents of the economy who must subsidize it.