Sunday, December 21, 2008

The role of the government in an economic recovery

I've mentioned that I take my cue from Peter Schiff when it comes to forecasting the economy. It turns out that he was not the only one who many years ago forecasted the economic problems we're experiencing now. Martin Weiss also saw the housing bust coming back in 2005.

So last week, Esquire magazine asked Weiss what he forecast for the housing market over the next few years. In his response, Weiss had some insights regarding the role the government should play in the economy. I agree with him that "the debt problem is far too big for the government to be able to address with its limited resources, so they should back off and let the marketplace resolve the two big problems our economy faces -- too much debt, and prices that are too high." As we all know, the government has instead chosen to do the opposite by trying to fix the economic decline through increasing the debt load on our nation. Weiss said:
I believe we should give up the war we can't win, which is the war against the economic decline. Instead we should fight the battle we must not lose, and that's the battle to protect the health and well-being of the citizens of the country. Right now, for example, hospitals are going broke and the states are running out of money to pay unemployment benefits -- we have already 19 states that are in the red with respect to their unemployment benefit funds, and it could grow to 30 or 40 states very quickly. That's where the government's role has always traditionally been since the New Deal, and that's where our resources need to go.
This viewpoint is not far off from president-elect Obama's position on the right way to recover the economy.

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