The most recent economic numbers show the U.S. economy is not recovering. Economic growth in the second quarter of 2010 is estimated to be a weak 1.6%. Experts estimate that in order to keep unemployment where it is, we need at least 3% growth. The summer of recovery touted by President Obama is really just more of the same – weak profits and high unemployment levels. Millions of Americans are demanding answers and want solutions from the government. However, government does not control the economy. The most it can do is maintain conditions that encourage investment, innovation, and other economic activities that create growth and most importantly, create new jobs. When the economy finally recovers it will not be because of any government action, but more likely the absence of government action.
When it comes to the economy, politicians believe they should be credited with its success or their opponents should be blamed for its failure. In reality, most of what goes on in the economy has little to do with government policy. For example, it is likely the 2008 recession would have occurred regardless of who was in charge. Many experts warned of the housing bubble bursting and the horrible impact it could have on the economy. Sadly, neither Republicans nor Democrats in Congress were interested in addressing these problems.
It is disturbing that the federal government is now expanding its responsibilities in the economy when it failed to fulfill the responsibilities it already has.
On the other end, the federal government also cannot bring about recovery. President Obama’s direct government intervention in the economy and government stimulus has failed to foster economic growth or lower unemployment. Despite spending over $ 1 trillion on stimulus, many experts argue the economy is exactly where it would’ve been anyway.
The last three years have taught us that the government is ineffective when it comes to preventing recessions or “jump-starting” the economy out of recession. So why can’t the government seem to make the economy do what it wants it to do? The answer is simple: The federal government is not the master of the economy, it is merely its steward. The federal government can only create the conditions necessary for success. It is the private sector that actually achieves the success.
The United States is a free market economy, which means that it is dominated by a vibrant private sector with only a minor government presence. A free market system allows individuals to (1) easily start, operate, and close a business; (2) easily buy and sell goods abroad; (3) operate a business with minimal taxation; (4) move capital into and out of specific activities both domestically and internationally; and (5) conduct business under a fair and properly administered legal system.
It is no coincidence that the most economically free nations on Earth are among the wealthiest. Here are the 10 freest economies in the world:
CountryGDP Per Capita (2009 est.)World Rank (out of 226)
Hong Kong$ 42,80015th
New Zealand$ 27,40051st
United States$ 46,00011th
World Average$ 10,400
It is economic freedom that allows private enterprise to lead the economy into recovery. In every economic recovery it has been the innovation and efficiency of the private sector that has produced economic growth and new wealth – pulling us out of recession. It is the private sector that creates jobs, develops new technologies, and improves the quality of life for millions of Americans. The government did not develop the personal computer, the cellular phone, the iPod, the internet, laptops, hybrid cars, artificial hearts, and the countless new drugs and medical treatments that have saved or extended millions of lives.
However, according to the Heritage Foundation, economic freedom in the U.S. has noticeably declined. Under President Obama tax rates are increasing, the government has begun taking over private companies and intruded into the management of financial firms in unprecedented ways.
No matter how well-intentioned government programs and policies may be they will never produce the same results as the private sector. Anyone who has dealt with government bureaucracy is well aware of its inefficiencies, redundancies, bizarre rules, and general incompetence.
President Obama and the Democratic Congress argue an unrestrained private sector is responsible for the most recent recession due to their risk-taking, unscrupulous practices, and greed. Although it is true that a number of private financial firms played a role in the housing bubble, the responsibility does not rest solely on them. The government certainly played a role, in particular the incompetent management of Fannie Mae/Freddie Mac.
It is important to realize that the private sector is not perfect and will make mistakes, but that is hardly a justification for a government takeover. In fact, the government has a horrible record of mismanagement and waste. Mistakes will be made and businesses will fail, but this is essential to a free market economy. Part of freedom is the right to fail and make mistakes. Disasters provide opportunities for Americans to learn about structural flaws in the economy that might otherwise be ignored (like the sub-prime mortgage bubble). It is then the responsibility of the federal government to address the causes and ensure that a similar crisis does not occur again.
Sadly, this is yet another area the federal government appears to be accomplishing very little. The Democratic solution is to give greater authority to the same regulators that failed to foresee or prevent the last financial crisis. There are practical solutions to the flaws in our financial system but they do not involve greater government authority.
For example, one solution would be to end government sponsorship of Fannie Mae/Freddie Mac – effectively privatizing them. That’s right: many experts have concluded that less government is part of the solution.
A bigger federal government is not the solution. The best the federal government can do is provide the right conditions for the economy to flourish. In many ways, the federal government needs to simply get out of the way. This may not lead to instant results but it gives American businesses the opportunity to do what they have always done: endure and emerge stronger than before. All they need is that opportunity. One thing is clear: President Obama is not giving them that opportunity.
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