Calamity and Consequence

It doesn’t take much to go from "bad" to "really bad" when government gets involved.  This is especially true when those in power have the philosophy that, "If it’s broken, government can fix it."

Unfortunately, far too often government tries to force itself into problem situations with good intentions that have disastrous consequences.  Because many times these consequences aren’t immediate, government officials and the voters who elect them to office don’t learn from these mistakes.

At one of my favorite blogs for economics, Greg Mankiw, an economics professor at Harvard, has posted this graph of government revenue as a percent of GDP:

Mankiw makes note of the exponential growth of government from 1929 to 1945.

"It is easy to understand why the size of government grew so much during this period: It was responding to the crises of the Great Depression and, especially, World War II," says Mankiw. "But what is noteworthy is that while these crises were transitory, the increase in the scope of government was permanent."

The problem Mankiw highlights is that while our economic problems come and go, government "fixes" have a nasty habit of hanging around:

"This historical episode is one reason why advocates of limited government are rightly worried about the fiscal stimulus package that the incoming administration is going to propose. Rahm Emanuel, the new White House chief of staff, is reported to have said, ‘You don’t ever want to let a crisis go to waste: It’s an opportunity to do important things that you would otherwise avoid.’ It is not entirely clear what he meant by this. But one interpretation is that he is going to use a temporary crisis as an excuse to engineer a permanent increase in the size of government."

Government programs are like your crazy uncle who always overstays his holiday visit.  Except, imagine this uncle is constantly drunk, acts without much thought, and wrecks everything he touches.

Yet, we keep inviting him back, year after year.

In his concluding remarks, Mankiw asks: "Five or ten years from now, when the economy is presumably at some normal level of employment and growth, what will the federal budget look like, as evaluated by deficit and tax revenue as a share of GDP?"

I hate to find out the answer to that.

The problem is not one of being pragmatic, but one of philosophy.  The relationship between government intervention and the ensuing disastrous consquences is about as predictable as the Law of Gravity.  You drop a rock, and it falls.  Government intervenes, and the economy suffers.

But as far as philosophy, Democrats have never had any problem to getting involved in economic affairs, and Republicans appear to be heading full-steam in that direction.

During his 2008 presidential campaign, Sen. John McCain never once expressed a genuine opposition to keeping the government out of the economy.  He only opposed it when it was obvious that it wasn’t going to work.  When it looked like government had a chance to fix the financial industry, he called off his campaign to run to Washington to help ensure government acted hastily.

Sarah Palin still hasn’t figured out if the bailouts are a good idea.

The problem we face when we try to look at each individual situation from a pragmatic point-of-view is that it is easy to become persuaded by the propaganda or swept up in the hysteria surrounding these crises.  After all, if there is one thing government is good at, it’s making a mountain out of a molehill.  However, a philosophical opposition will at least throw the brakes on any government plan to get involved in the economy. 

If we really have any desire for economic prosperity in the future, it is crucial that we not only become pragmatically opposed to government intervention in the market, but also philosophically opposed to such practices.

To read Mankiw’s blog, please visit it here.
For a list of other great economic blogs, click here.