The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later. Hindsight is always 20-20, but in this instance, good old-fashioned common sense would have provided all the foresight needed to avoid the mess we’re in
Introduction
The theme of “The House that Uncle Sam Built: The Untold Story of the Great Recession of
2008” is that government policy, not a failure of free markets, caused the economic trauma we
have been experiencing. We do not live in a free market. We live in a mixed economy. The mixture
varies by industry. Technology is primarily free. Financial Services is primarily government. It is
not surprising that the most government regulated and controlled segment of the economy,
financial services, experienced the biggest problems. These problems were created by actions
by the Federal Reserve combined with government housing policy (especially the governmentsponsored
enterprises - Freddie Mac and Fannie Mae). Misguided government interference in
the market is the real culprit in laying the foundation for the Great Recession.
This paper provides a “common sense” and understandable outline of fundamental causes and
cures. The analysis is based on long proven economic laws. Despite the wishes and hopes of
politicians, economic laws are just as immutable as the laws of physics. If you jump off a ten story
building, hitting the ground will not be pleasant. If the Federal Reserve holds interest rates below
the natural market rate by rapidly expanding the money supply (“printing” money) as Alan Greenspan
did, individuals and businesses will make bad investment decisions and there will be negative
consequences to our long term economic well-being. There are no free lunches.
When a doctor misdiagnoses a disease, his treatment will likely make the patient sicker. If we
misdiagnose the causes of the Great Recession, our treatment will reduce our long term standard
of living. While the U.S. economic system is highly resilient, and we will likely have some form of
economic recovery, almost every significant government policy action taken in response to the Great
Recession will reduce the quality of life in the long term. Understanding that failed government
policies, not market failure, caused our economic challenges is critical to defining the appropriate
cures. Since government created the problem, i.e. caused the disaster, it is irrational to believe that
more government is the cure. We owe it to ourselves and to our children and grandchildren to
take these issues very seriously.
John Allison, Chairman, BB&T
You can download a Pdf of the ebook here.
BOSTON -- The co-chairmen of President Obama's debt and deficit commission offered an ominous assessment of the nation's fiscal future here Sunday, calling current budgetary trends a cancer "that will destroy the country from within" unless checked by tough action in Washington.
The two leaders -- former Republican senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton -- sought to build support for the work of the commission, whose recommendations due later this year are likely to spark a fierce debate in Congress.
"There are many who hope we fail," Simpson said at the closing session of the National Governors Association annual meeting. He called the 18-member commission "good people with deep, deep differences" who know the odds of success "are rather harrowing."
Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. "This one is as clear as a bell," he said. "This debt is like a cancer."
The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries," Simpson said.
AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.
We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.
We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.
With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.
When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."
On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."
Read more: The Gods of the Copybook Headings by Rudyard Kipling
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