When you don’t know what to do, the thing to do is nothing.
Well, maybe.
Economist Thomas Sowell, in a recent column, notes that we recovered from downturns in the economy more quickly before the federal government took it upon itself to fix things. The first major fix was with the Great Depression. Which dragged on and on.
Today, our leaders have spent trillions of borrowed money to fix the economy, with poor results.
Sowell’s column is great, right up until near the end, when his plea for politicians to “do nothing” ignores a lot of … something.
After the huge 1987 stock-market crash, he explains, President Reagan did nothing. But then “the economy rebounded, and there were 20 years of sustained economic growth with low inflation and low unemployment.”
But were those 20 years really so benign? Activity by presidents, by Congress and most of all by the Federal Reserve set up the systemic problems that led to the Crash of 2008. Consumer price inflation was low during Sowell’s Reagan-blessed period, but all the while the Fed was feeding first a dot-com bubble and then a housing bubble. And it engaged in a series of bailouts of financial institutions.
Maybe Reagan and later politicians didn’t do enough in the “do nothing” department. They should have reined in (or abolished) the Fed. They should have abandoned “too big to fail.” They should have stopped subsidizing creditors in busts and home-owners in booms.
This is Common Sense. I’m Paul Jacob.