Land of Confusion
I thought that I would offer a run-through of what the government and the Fed have done to help us out during our troubled economic times. It is, of course, not a complete list, but it may be interesting to think about when you ask yourself why the latest recession went so badly.
1) Both Bush and Obama launched large stimulus packages, and continuously hint that there may be more, leaving everyone in a state of uncertainty about how successful they were, how much the deficit expanded, and whether there would be another round and what criteria there would be for getting this money.
2) Not only has the Fed used its usual monetary policy tools, but it also picked up some new ones, including buying bad debts. The question, of course, is whether having the core of your banking sector take on the bad debt for itself, lessons or makes greater the chances of more system wide problems? Add this to the continued hints of continued quantitative easing (monetizing the debt).
3) The current administration pushed through a broad financial regulation without much detail as to what the new rules and regulations would actually entail. Even now, after its passing and businesses are becoming subject to its constraints, the bill is being revised and fine tuned. The rules are in flux to a high degree.
4) Broad, sweeping healthcare reforms have been passed, leading to uncertainty in that market. Not only does it affect the healthcare market, it also affects the hiring of new employees and startup costs of businesses as the business sector attempts to learn exactly how this large change will impact the bottom line.
5) There was a disastrous BP oil spill. And while I agree that it was disastrous, the government response was to strong-arm BP into paying an amount of money well above that which was in its contracted liabilities. The reason for the company’s presence in deepwater drilling was due to the incentives of the government regulated limited liability contract. However, after the spill, government changed the rules of the game in response to a public outcry. This situation makes it very difficult for businesses across the spectrum to be confident in their liabilities, discouraging new investments and projects.
To sum up, there is a current climate of uncertainty in the business world. The government has shown itself to be willing to make large, sweeping changes that affect nearly every level of the market, and it is willing to punish businesses above and beyond their liability. I would say that this creates a fairly hostile environment for investing and growth.
Tom Duncan
Sound Money Fellow
Atlas Economic Research Foundation
Image by jscreationzs / FreeDigitalPhotos.net.
