Why an Economic Turn for the Better? It's Government, Stupid.

This week's economic news is better than it's been in a long time. Jobs losses are not so bad. The stock market's rising. Some say credit is flowing a bit again.

Are we out of hot water? No. But to the extent we are, thank government. And it's important to get this lesson clear.

I heard a former Reagan economist expand the other day on how the credit crisis isn't all that bad compared to historical precedents. See. Don't get too aggressive with all this intervention. Markets adjust well on their own.

As I say, let's be sure to get this right. Early on, Congressional Democrats initiated and got President Bush to sign on to a serious fiscal stimulus. One presidential candidate thought he was bold by making case for a $25 billion stimulus. The package was about $170 billion and is going out now.

Then there is Ben Bernanke. The new man at the Federal Reserve helm stepped on the gas. A lot of new credit was issued. He cut short rates sharply. And they encouraged a further decline in the dollar, which is one important reason there is still demand for U.S. goods--not from aboad.

There were countless Monday morning quarterbacks. The Wall Street Journal editorial writers screamed it was inflationary. Many Wall Street pros said the Fed was acting too slowly.

In fact, the Fed moved circumspectly but fairly aggressively. We would be far deeper in the muck if it hadn't. Any analysis that understates the severity of the problem had better take into account the quick guns in Washington who did what government officials should, act when appropriate.

It doesn't mean the nation is out of the woods, however. The nation is essentially in recession. House prices are continuing to fall rapidly. Defaults are still rising. Inflation is scaring the mainstreamers about too much stimulus.

The one important step needed is a plan to stanch the flow of blood in the housing market. The Democrats have a reasonable plan. The Bush treasury wants none of it. All seems to be ok, they say.

All is not ok. Too much could go wrong in a severely over-indebted nation. Inflation is the secondary risk. Job growth was worse under George Bush than under any modern president and now wages will fall.

But the big lesson is this: government made the difference so far. It must go further. As I have said before, it is the end of the age of Milton Friedman.

Comments

[Chavez08]

" It is the end of the age of Milton Friedman"

This article is dead on but it should have been written 20 years ago.

Neoliberalism (aka Friedmanomics, Reaganomics) has been tried multiple times in U.S. history and proved to had done nothing more than consolidate the wealth and create *Hell on Earth* for 90% of the population:

Slavery
Mass poverty
Disease
Robber-barons
Predatory Lending
Child exploitation
Organized crime

19th Century, 20th Century, 21st Century, Americans have to keep learning their lesson all over again about predatory Capitalism. The Corporate Oligarchy keeps trying to push this fascism on us and Americans keep buying it because 90% of them don't know dick about history and they believe any bum wearing a tie talking through a TV set.

Reagan did this to you - with the help of Leo Strauss and a gleefully complicite media (CNN, NBC, CBS, FOX) - not the Muslims, not the Chinese, not the oil-supply - this was an orchestrated plan to consolidate all wealth to a few silver-spoon elitists, create a Global Serfdom of Gold Palaces (1%) and disease-ridden Tent Cities (99%)

Wake up and revolt.

[americaforme]

This articule is confusion,quit playing middle of the road guy...One foot stuck in both camps doesn't get it. Hey buddy we're out here in reality, the scene dosen't look good..We borrowed our asses off last year to pay for the marvelous boom bubble, this year because of oil prices we are deeply entrenched in unpayable 32% interest from credit cards. You haven't felt nothing yet....I haven't paid winters oil yet. My renters cant pay, they try, a little here and there...Pretty soon they will pay with chickens,if the bird flu dosen't get them. The house of cards is falling, and will continue at $120.00 oil..Gas taxes wont get it,get these interest rates off our backs, and we might see daylight.

[FreedomCorpse]

Milton was an economic quack and always was. He must have been created by the fascist forces that got defeated in WWII to take down the US. I expect my barbarous relic investments in precious metals will be doing fine for some time since I don't see any manufacturing really picking up in the US, until then...its a fiat economy.

[kymera]

It all goes in cycles. Friedman and his minions from the Chicago school of economics have transformed the world with their unbridled promotion of free market capitalism, starting with the misguided Reaganomics, and culminating in their exploitation of 9/11. But mercifully, all bad things must come to an end. Let's bring back some order in the market, let's not ignore social justice and the rights of poor nations to play in a level field, and let's have a little fun exposing those remaining pseudo-experts /corporate-hacks that still populate business and talk shows on TV.

[fourex]

"As I have said before, it is the end of the age of Milton Friedman."

It has to be the end. There is nothing left for the Friedmanist to steal.

[racom]

Let's all hope that this disaster will drive a stake through the privatized, free market heart. Oops, it doesn't have a heart.

[avraamjack]

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Effectively correct but mistaken about housing.
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The bigger the housing drop the better.
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Excessive house prices are a huge drag on economic competitiveness and quality of life.
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Policies that promote homeownership are good but policies which promote excessive house valuations are bad.
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The housing market needs to regain its fear of God and remember it for a long time.
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[KillTheMessenger]

To make a long story short: just because Friedman was wrong, does not make this article right. Except, of course, about the notion that Friedman was wrong.

[FreedomCorpse]

Milton Freidman was a quack for the git go. Its not 'floating exchange rates', it is sinking exchange rates and has been since 1971. As more and more manufacturing capability continues to leave the US, the trade deficit gets bigger and bigger in spite of the debasing of the currency by Bernanke. Every fiat currency in the world manipulates its currency to try to get favorable conditions for themselves therefore 'free markets' cannot possibly exist (i.e. yuan pegged to the dollar, some float there..NOT). The only question remains is how long and how bad will the situation become before the freidmanite true believers realize they've been had, big time.

[dadw5boys]

THE FEDERAL RESERVE HAS IT'S FOOT ON THE THROAT OF AMERICANS WITH THE INTEREST THEY CHARGE.

WAKE UP AND PUT THEM OUT OF BUSINESS!!!!

[zaneblue]

It's the end of the age of Milton Friedman? Thank God for that! And let's hope America doesn't get amnesia again seventy years from now and forgets these painful lessons.

[WindFeather]

zane...we'll do it again...but..maybe..just maybe...not for 30 years...

I'll be happy "if" the Lehman...Goldman...Wharton MBA's..have to give back the tens of millions of dollars they got for selling "nothing"..creating a modern day snake oil..pricing it..wherever they wanted..selling it to Us..to the governments of the EU....getting that upper East Side 3 floor condo...

It won't be okay..unless and until..many people give back the money...and..yup..go to prison..for fraud..

You are I bailed out Goldman Sachs..JPMorgan..in essence got a gov't guaranteed "loan" to buy them..save them...yes..it was the necessary step..but doesn't mean I have to like it..or want retribution..

[richardmcnoggin]

Government is NOTHING but a parasite on freedom! Once it becomes to large of a drag on the free market the body starts to die. We are witnessing the destruction of the USA. Had the tax rates been what they are today in the 1770's The founding fathers would have long ago gone to war with this current democratic and republican spenders in this government (both state and federal). We have nothing left but a bunch of parasite losers that want government to give them free shit all day ; provide government UNION jobs while they complain about how hard they have it while complaining it is the people that support the free markets are fault. Bullshit I say!! Get a job; go to a church to get handouts; quit asking the taxpayer tyo pay for your hangnail operation.. Get real this is the USA founded on freedom in 1776.........

[djthedj]

Nice rant. Let me guess, you voted for Bush, twice and Reagan twice. Thanks for bankrupting America, fool.

[Nofoolhere]

If you don't like what the government is doing, NEVER BLAME THE GOVERNMENT.

Why?

Because "the government" is only a puppet. If you don't like what the puppet is doing, blame the puppet masters. The puppet masters controlling government today are the corporations. Their strings are the lobbyists and bought and paid for members of Congress. If you don"t like what the government is doing, remove the puppet masters" means of control.

And I strongly recommend Naomi Klein's incredible and thoroughly researched and documented book, The Shock Doctrine: The Rise of Disaster Capitalism. Once you understand its implications, you could not likely write the comment you just wrote.

[jsarets]

I'm sorry, but I disagree with this piece almost as much as I disagree with market fundamentalism.

Rebate stimulus doesn't work. Supply-side stimulus causes income to fall faster than prices. Demand-side stimulus causes prices to rise faster than income. Both reflect a loss of consumer purchasing power due to producers taking profit on the stimulus.

Additionally, by deficit spending on stimulus, we're placing a bet that the next 50 years will be substantially more prosperous for Americans than the boom times of the past 50 years. The only way we make this bet pay off is if the United States leads a global movement back toward protectionism.

The only effective way for government to keep the economy humming along is through long-term infrastructure investments in education, healthcare, transportation, communications, and energy. These investments make private enterprise vastly more prosperous.

The Federal Reserve is NOT government. It is a consortium of private banking entities vastly more beholden to Wall Street than to Congress. If Congress didn't revoke the Fed's charter during the Great Depression, then it extremely unlikely that they're ever going to take back their Constitutional power to regulate the money supply.

Furthermore, market liberalization by so-called "conservative" politicians has substantially limited the Fed's ability to enforce monetary policy. Their Treasury-backed capital pool is now in direct competition with hedge funds, investment banks, sovereign funds, and other private capital pools for control of the macroeconomic climate, and they're losing.

[Bladernr1001]

Take a course in econ 101. If you increase the money supply and the supply of goods and services does not increase or does not keep pace then this hocus pocus economic stimulus is inflationary. We shall see. i will grant that government action has made some kind of an impact....whether it was good or bad reminas to be seen. The money we are getting in the stimulus package was simply printed. it did not in and of itself produce any additional wealth.

And by the way until Milton Freidman shared his ideas about money supply as it related to the total supply of goods and services, the Fed had no idea what it was doing. Hell, the Fed still does not seem like it has a good handle on things to this day....weren't they supposed to have averted the various crisis' of the last couple of years?

[Hoelder]

I don't know where you come from? Really, you must be living in a different time or place. If you tell that a guy on the street he is going to laugh his head off. Food prices are rising amidst fuel speculation, but salaries have not. But top dog CEO or VP or just plain rich people are doing just fine. The top real estate market is growing and while Mr Rich is looking for the right wall paper for his 10 bed room and 5 car garage the little guy looses his house, but homeless people for you are just genetically out dated. The CEO of country side caches in and the lower middle class Joe can't get food stamps because he just makes a little bit to much money. The government released that a person in the US bought $1,900 of food annually, so they said. What? He is living of rice and tomato ketchup and when he has some money left over, a little veggie and poor quality meat? Loftily, you write about "Oh, it is not so bad". But people have been squeezing their budgets for a long time. Some have reached their breaking point, some are close and the rest of us reject the insult of our intelligence that just has to open the fridge and count all the foods we liked to see.

[MourningDude]

"The one important step needed is a plan to stanch the flow of blood in the housing market. The Democrats have a reasonable plan."

Is this anything like the "common sense plan" to reduce gas prices that Pelosi and the Democrats campaigned on in 2006? Still waiting for that one...

[KillTheMessenger]

A statistical fluctuation is enough to convince you to predict an upturn? Wow... what happened to good old economic analysis? Out the window because it is so easy to write a blog entry and nobody will remember it anyway when the blip is gone and the fundamentals show trough the three month, six month and twelve month average? That's just a guess of mine, of course. But I see proof of it in virtually every article on economics I look into. Got to write quick, got to be fast, time is money and no need to look back and count how often we were wrong.

[uhappytoo]

This is an amazing article. Amazing for it's straw man arguments. Seven paragraphs telling us how favorably the economy has shifted. And then four concluding paragraphs telling us how little has changed. The two-week stock market show is hardly the evidence we need to show how resilient the economy is to all those serious issues looming over us. The stock market's short-term fluctuations are more anecdotal than genuine evidence that something has changed, or that the economy has turned the corner. I see nothing that is truly indicative of that as of now.

[Henry]

Even Uncle Miltey understood that a baseball game cannot be played unless there is a set of rules that applies to the home team as well as the visitors. He further understood that there needed to be an umpire for the game. He also understood that there needed to be someone to prevent the use of steroids by players for the enhancement of value for the Steinbrenner. The excess of subprime secruities has been a perversion. This perversion broke the rules of the game at every step of the game. This does not refute Milton Friedman's arguments. It does refute the republican voo-doo brand of baseball with no rules and baseball with not umpires and baseball on steroids. Republicans somehow fail to recognize that boys left to themselves will come up with the things that boys usually come up with. Take 10 martini Tom Delay, Bill phone-sex O'Reilley, and Rush "the fix" Limbo. You know the good old boys of the right.
You should embrace Milton Friedman for his contributions. (One that comes to mind is floating exchange rates...it's stellar compared to government fixed rates.... know of any cheating going on in this area???)

[wolfgangmo]

Oh crap, more BS.

Uncle Milton's ideas have been shown to be mostly BS. He said that they needed proof in an untainted market and so they went out and got Chile and Pinochet. And then they said that Chile didn't count because Pinochet didn't let the market decide.

Here is the problem with Uncle Milti's ideas, they do not exist in nature. If we all lived in a laboratory then his ideas might {?} work, but we don't and things get messy. In his case they don't help and they actively hurt a majority of citizens. That ain't right and neither is Milton {war criminal} Friedman.