What can the government do for the economy? Really, nothing. PDF Print E-mail
Written by Daniel Shin   
Monday, 25 January 2010 16:26

Reuters is reporting that the, “Strengthening the U.S. economy and improving the job situation are the top domestic political priorities of Americans, according to a poll released on Monday.”

The data makes sense. Unemployment has been on the rise, and many middle class Americans have yet to see the benefit from the slowly recovering financial sector. But there is a more serious question at stake here: What can the government do for the economy?

I pose this as a challenge to all the current leaders in Washington, because I doubt that the government has enough resources in terms of economic and political that can muster up a sound policy, which would hopefully impact the economy in a positive way. There are easy ways in which the current administration could damage the economy, but bringing positive change to the economy is much tougher.

Why? The U.S. economy is too big for the U.S. government to stimulate it successfully. Sure, the Federal Reserve could lower interest rates to increase the money flow and bring us back to an improved economic condition, and that could answer my concerns. Unfortunately, the interest rate is too low for the Federal Reserve to stimulate the economy in such traditional way, and there are some critical damages left by the sub-prime housing bubble that have not been recovered. With the current partisan political landscape, I highly doubt that the government has any real options in terms of bringing the economy back together.

I have begun to develop this critical view of every politician in Washington. All talk about the economy seems to be the means to accomplishing their election-driven-life ends. I do not doubt that they care about the economy, but only because it is a critical issue that they can drive it with the voters.

Democrats do not have the guts to provide a real sized stimulus package while the Republicans’ focus on tax-cuts (which would also deepen the deficit due to lack of government revenues) will get us nowhere. Even the sound, most principled politician in Washington will bend to certain legislation if his or her state gets extra benefits in the expense of the entire nation.

I think the failure in Washington is greater than the failure of the financial sector.

 

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