Dear Friends,
It seems to me that the US economy is as “stimulated” as it can be, any more and we will start hearing martini bar music. Trillions of dollars have been printed and circulated during Quantitative easing 1 and 2 with 2 not finished yet, trillions have been borrowed and spent by the US government, interest rates have been kept at artificially low levels, by the Fed, and yet we have 2.6% annual growth in the GDP, according to the latest figures. All this stimulus and more to come in the form of additional quantitative easing if it is deemed necessary by the Fed Chief, Bernanke.
According to John Maynard Keynes theory of economics the economy should be spinning out of control.. but it’s not? Either Keynesian economic theory, the theory that formed the basis for the twentieth century economists is wrong or there iss something else at work. I have questioned the theory myself many times and find his demand side economics to be wanting, as I find Say’s Law to be wanting in it’s own respect, but I don’t claim or think Keynesian economics has nothing to teach us. But the present day stands as confounding evidence for Keynesian economics.
My last blog about how the Healthcare law is holding back the economy in a dangerous way made salient points about why the economy is so lagging with so much stimulus in place. Another reason not mentioned is the Banking regulation passed by the last Congress. It drives up costs, increases paperwork, makes the market less nimble, applies more layers of bureaucracy, and does nothing to protect us from another economic disaster.
No matter your political leanings you have to admit that more regulation of an industry makes it more expensive to do business in that industry. The cost of starting a new business, to compete with established business, becomes more expensive as well. The more regulation the higher the cost of running a business and starting a competing company in that industry.
When you drive up the expense of starting a business, less will be started. Less new business means less demand for workers, less innovation, less entrepreneurial activity and more entrenched monopolistic companies, that can, and are urged to, grow too big to fail. These businesses that grow to be too big to fail are necessarily less innovative, have higher prices for the consumer of their products, and skew the wages in a nation.
All these things that hold back the economy are a direct result of the legislation passed by the last Congress. The pernicious incentives and direct headwinds to the economy will have their effect. The thing is, these are not the first bad laws passed in the USA that negatively effect the economy. For years laws that drive up the cost of startups and protected entrenched companies have filled tome upon tome. More and more regulation that lowers the efficiency of American workers and drive up the imbedded cost of doing business didn’t materialize overnight.
It’s just that the last Congress went too far and passed legislation, they allowed socialists to write, into law. Legislation, that when added to the pile of already bad laws, snaps the back of our proverbial camel like a twig. Even the ship of the desert has only so much capacity to handle a load as does the American economy.
Nothing is unbreakable; if you set your mind to it…
