Can Government Manage the Economy?

By Payne, James L. | Freeman, May 2011 | Go to article overview

Can Government Manage the Economy?


Payne, James L., Freeman


A doctor says he can cure illness by waving birch wands over the patient. We are skeptical, but being open-minded we agree to give him a chance with ailing Uncle George. He waves a red wand and chants something. The patient shows no improvement.

"Let me try a green one," he says. We're still tolerant. The new wand is waved. Afterwards dear George is decidedly worse.

"Let me think," the healer says. "Maybe it should be a purple wand and a different chant."

For 98 years the federal government has been attempting to prevent asset bubbles, recessions, and spasms of unemployment. In 1913 Congress and Woodrow Wilson created the Federal Reserve System, the President telling the country this new institution would be "a safeguard against business depressions." In 1929, after 15 years of Fed operations, the United States plunged into a deep depression.

Okay, so maybe red wands don't work, and we should try green. Politicians of the 1930s created more bodies designed to stabilize the economy and build investor confidence: the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, the Securities and Exchange Commission, and the National Credit Union Administration. The Depression deepened, becoming by far the longest and deepest economic downturn in the history of the United States.

This is the national pattern in economic policy: In the face of failure, we keep looking to government. Since the Great Depression, we've added more units designed to curb inappropriate behavior and ward off recession, including the Commodity Futures Trading Commission (1974), the Federal Financial Institutions Examination Council (1979), the Working Group on Financial Markets (1988), and the Office of Thrift Supervision (1989). Yet in 2008 we fell into another economic downturn.

The 2008 recession was triggered by the boom and bust in the housing market. Was housing an unregulated market where government had failed to intervene? Sorry: There were seven agencies supposedly nurturing this industry:

1. Federal Housing Administration (1934)

2. Federal National Mortgage Association (Fannie Mae) (1938)

3. Government National Mortgage Association (Ginnie Mae) (1968)

4. Federal Home Loan Mortgage Corporation (Freddie Mac) (1970)

5. Neighborhoo d Reinvestment Corporation (1978)

6. Federal Housing Finance Board (1989)

7. Office of Federal Housing Enterprise Oversight (1992)

In sum, at the onset of the 2008 recession there "were 16 units of the federal government that were supposed to manage economic life and keep us from harm, yet harm befell us. No wand-waving faith healer has ever failed so conspicuously.

Alas, economic policy is not a drug trial; it is politics, and politics is ruled by illusions. In June 2009 we found President Barack Obama urging the creation of yet more government units to manage the economy, promising that his reforms would "make sure that these problems are dealt with so that we're preventing crises in the future."

We can't be too critical of Obama, because many others share this confidence in government regulation. "Without intervention by the government," say economists George Akerlof and Robert Shiller in their 2009 book Animal Spirits, "the economy will suffer massive swings in employment. And financial markets will, from time to time, fall into chaos." It's astounding to assert that government can prevent crises, recessions, and "swings in unemployment" while being fully aware that for 98 years it has been trying and failing.

Not Learning From Experience

A powerful subconscious bias is obviously at work here, a mental distortion that prevents normal, intelligent people from being able to learn from experience. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Can Government Manage the Economy?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.