A climate of uncertainty

The other day I was having a friendly discussion with some people of generally liberal persuasion, concerning the economic situation and economics in general. I was wondering how to get over some basic concepts of free market economics without getting unbearably tedious or argumentative in a social situation.

This is not an unusual situation for me. I don’t think there is a more important subject that people in general know less about. And that’s odd, because it’s not all that complicated.

You’d think they’d teach basic economics in high school. But then again with greater knowledge of economics more people might come to realize you can’t get something for nothing and a great many government policies would cease to make sense to most people.

At any rate, not wanting to argue any specific points of Obama’s economic policies I simply pointed out something F.A. Hayek observed a long time ago. Beyond a certain minimum, it is more important that the law be consistent than it be perfectly just or make perfect sense.

A little thought shows the wisdom of this. We can live with stupid laws and policies. In fact we live with a great many of them.* But we can live with them when we at least know what to expect from the law from day to day.

One important reason for the current recession lingering past the normal time of recovery is the climate of uncertainty. Investors with capital are sitting on it, because they just don’t know what to expect next from the government.

I believe it is now widely, if grudgingly, admitted the Great Depression was actually prolonged by FDR’s constant tinkering with the economy.

That point went over well, as it should because it makes intuitive sense to anyone with responsibilities who has had to plan for the future.

Then while explaining this something further hit me.

It’s not just that a president with little understanding of economics and an open hostility to capitalism is unilaterally making sweeping changes in the economy – it’s the mere fact that he can.

If Barack Obama stopped screwing around with the economy today. If he let it be known he was reading a stack of books by Milton Friedman and Hayek. If he fired his entire staff of economic advisors and appointed Thomas Sowell and Walter Williams – the damage has been done and can’t be undone.

The mere fact that a president has gotten away with such massive meddling in the economy may mean a the climate of uncertainty will remain, even after the economy recovers.

Of course Wilson and FDR meddled on a similar scale. So what happened?

Wilsonian meddling preceded the Great Depression. (And yes, Hoover did play a part in that, but I believe more in his capacity of economic czar during WWI than as president.) The Great Depression was ameliorated by WWII.

What’s going to follow our current president’s policy of economic dirigisme?

Dont know, but I doubt it’ll be anything good.

*I’d add this caveat. I think it was Blackstone that pointed out there are many laws that are so old people have forgotten the original purpose of them. You find out, sometimes disastrously, when you ignore or do away with them.

Then it’s, “Oh that’s what that law was for!”

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