In recent discussions about the state of the economy, Federal Reserve Chairman Ben Bernanke described the recovery as “frustratingly slow.” Just a day later, the yield on the 10-Year Treasury Note fell below 3 percent, while stock markets, oil, and gold all faced significant declines. This raises concerns about public sentiment regarding the economy.
The economic recovery has been a sluggish journey, akin to a camel struggling through quicksand. Despite years of effort, jobs remain as elusive as ice cubes in the Sahara. The results of extensive stimulus measures, bailouts, and governmental initiatives have largely led to a staggering national debt that exceeds the economy’s capacity to manage.
Every type of debt carries inherent risks. When approached with caution, debt can facilitate wealth and prosperity. Employing debt for ventures poised to generate future profits can be a wise decision. However, using it for indulgent expenses like lavish dinners or exotic vacations usually leads to financial downfall.
During the financial crisis that hit in late 2008, the Federal Reserve unleashed an unprecedented influx of cash into the economy. The hope was that this infusion would restore prosperity, generate profitable investments, and create jobs to compensate for those lost in the economic downturn.
Irresponsible Spending of Public Funds
The Fed appeared to disregard fundamental economic principles in this effort. Relying heavily on liquidity models and Keynesian economics, they neglected to apply basic reasoning, resulting in reckless spending of taxpayer dollars.
Programs like TARP, CPFF, MMIFF, and TAF were hastily implemented to bail out major banks, cleanse their balance sheets of toxic assets, and revive the credit markets with fabricated money. In a year and a half, Bernanke doubled the Federal Reserve’s balance sheet—an achievement that took previous Fed Chairs and 95 years to accomplish.
The attempt to suppress mortgage rates through quantitative easing was aimed at establishing a stable foundation for the housing market. Yet, when this strategy failed, they resorted to QE2, treating it like a gamble at a casino.
Despite these efforts, the Fed fell short in generating jobs, stimulating economic growth, or facilitating business. What lessons can we learn from this experience?
First and foremost, isn’t it time for the government to disengage from economic management? Given their track record, many would argue so. Yet, a substantial number of voters still believe the government should be responsible for eliminating poverty, redistributing wealth, and ensuring employment for everyone.
People often expect the government to fulfill their responsibilities, a notion that the government occasionally encourages to maintain its popularity. Nevertheless, some members of Congress are beginning to acknowledge the failures of stimulus efforts.
On Stubbornness and Continuous Failure
“I believe that stimulus basically doesn’t work for the most part. We’ve tried that,” stated Senator Richard Shelby on ‘This Week.’ “The market grows the economy. We’ve grown the government, but we haven’t grown the economy.”
While Shelby’s honesty is commendable, he isn’t the first to reach this realization. Back in May 1939, after enduring a decade-long depression, FDR’s Treasury Secretary, Henry Morganthau, addressed Congressional Democrats regarding the failure of stimulus measures:
“We have tried spending money. We are spending more than we have ever spent before, and it does not work … After eight years of this Administration, we have just as much unemployment as when we started … And an enormous debt to boot!”
Seventy-two years later, we find ourselves making the same mistakes. Why does this continue to happen?
As 20th-century philosopher George Santayana explained, “Progress, far from consisting in change, depends on retentiveness… Those who cannot remember the past are condemned to repeat it.” In the realm of government, this seems to result in a cycle of ignorance and perpetual failure.
“Summers: More stimulus needed,” declared a recent headline on CNNMoney.
Sincerely,
MN Gordon
for Economic Prism
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