By John Carney
It’s no accident that Austrian economics is newly popular. It provides the best explanation for the business cycle we just lived through.
But the resurgent popularity of Austrian economics may actually be hampering the ability of the Federal Reserve to reflate the economy with low interest rate policies. Businesses, now aware of the dangers of a low inflation- sparked economic bubble, may simply be refusing to fall for the age-old boom-bust trap.
October 29th, 2010, Fairfax, VA—Americans for Limited Government (ALG) President Bill Wilson today issued the following statement in response to the latest 2 percent GDP growth estimate by the Bureau of Economic Analysis:
“If the trillion-dollar stimulus plan passed, the Obama Administration promised there would be 3 percent growth in 2010, and unemployment would not rise above 8 percent. Instead, growth is only an anemic 2 percent and joblessness remains persistently high at 9.6 percent, marking the worst period of high sustained unemployment since the Great Depression. Now, the Administration’s only apparent plan is to print another $2 trillion in 2011 to finance unsustainable government spending and help roll over the $13.67 trillion national debt which nobody wants to buy. This, too, they call ‘stimulus,’ but really, it’s the destruction of the U.S. dollar.
“The fact is, if spending is not reined in now, and we continue running trillion-dollar deficits as far as the eye can see, the Treasury will have to sell $2.93 trillion of treasuries every year for the next three years, more than it has ever had to sell. That represents $2.93 trillion that could be invested in the economy, but is instead going to finance government spending and debt service. Government largesse is crowding out potential private sector investment in a useless paper trade that misallocates resources away from the real economy.
“Meanwhile, the 2001 and 2003 tax cuts are set to expire at year’s end, which will mean a $300 billion automatic, annual tax increase on all Americans, particularly job creators, who are desperately needed at this critical juncture. Moreover, there is over a $1 trillion in private capital sitting overseas that will not be repatriated because the Obama Administration all but eliminated the foreign income tax credit this year. Instead, there should be no tax on profits earned overseas; we should be encouraging businesses to reinvest here.
“Right now, the Obama Administration through its fiscal and monetary policies is doing everything in its power to discourage private sector investment. Coupled with the vast tax increases and regulatory regimes imposed by ObamaCare and the Dodd-Frank financial takeover bill, is it any wonder the economy is still stuck in the mud? Government needs to get out of the way.”
By Robert Samuelson
It is widely, though not universally, assumed that the Federal Reserve will soon move to bolster the economy by trying to nudge down long-term interest rates on Treasury bonds, home mortgages and corporate bonds. Just how much rates would decline and how much production and employment would increase are uncertain. What’s clearer is that the move would be something of an act of desperation, reflecting a poverty of good ideas to resuscitate the economy.
The Fed is suffering an identity crisis.
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