To this day, there are people who believe that the market economy failed when the stock market crashed in 1929 and that the Great Depression of the 1930s that followed required government intervention.
In reality, the stock market crashed by almost exactly the same amount on almost the same day in 1987 - and 20 years of prosperity, low inflation and low unemployment followed.
What was the difference? Politicians - first Pres Hoover and then Pres Roosevelt -- decided that they had to "do something" after the stock market crash of 1929.
In 1987, President Ronald Reagan decided to do nothing - despite bitter criticisms in the media - and the economy recovered on its own and kept on growing.
To people who think the government should "do something" - and this includes most of the media - it would never occur to them to compare the actual track record of what happens when the government does something and what happens when it lets the market adjust by itself.
Back in 1971, President Richard Nixon responded to widespread demands that he "do something" about rising prices by imposing wage and price controls that got him
re-elected in a landslide. Moreover, the later damage to the economy was seldom blamed on those price controls.
Recently, Professor N. Gregory Mankiw of Harvard, a former chairman of the Council of Economic Advisers, noted that people in Congress and the White House were wondering what they should do about the current economic situation. His suggestion: "Absolutely nothing."
It is not just free market economists who think the government can do more harm than good when they intervene in the economy. It was none other than Karl Marx who referred to "crackbrained meddling by the authorities" that can "aggravate an existing crisis."
Ronald Reagan and Karl Marx did not have much in common, except that they had both studied economics.
Tuesday, January 01, 2008
Happy New Year 2008
from Thomas Sowell's column today...a reminder for less government intervention, freer free market management of market volatility...
Posted by Ate Mely at 10:27 AM