The Aleph Blog » Blog Archive » The Failure of Government-Provided Prosperity

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.

 






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Fed Policy, Macroeconomics, public policy | RSS 2.0 |

3 Responses to The Failure of Government-Provided Prosperity

  1. 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.

  2. 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.

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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