How effective is the government at regulating the economy?

November 9, 2008 9:44 PM

With the assumption that the government is ineffective at influencing the economy through monetary/fiscal policy and also economic bailouts and packages, what evidence exists?

What are some specific examples of how monetary/fiscal policy and economic bailouts/packages are ineffective at influencing the U.S. economy?

posted by meta.mark to law & government (4 comments total)

This is a tough factual because the counter-factual of what would have happened without intervention is unavailable.

Except for a couple of years at the end of Clinton's admin, the US economy has been "bailed out" by Federal deficit spending since Nixon's "We are all Keynsians" quip in 1971. But here is the Time Magazine article from 1965 that originated that. It looks to be profitable reading that addresses this question.
posted by troy at 9:57 PM on November 9, 2008

I would say that one of the biggest pieces of the problem is that many times our government is focused on short term solutions, or solutions that look good to the general public.

Here is an article from the New York Times looking at long term vs. short term of George Bush's tax cuts.

I just think it's quite interesting to look where we are at now, and read this article.
posted by hazyspring at 5:23 AM on November 10, 2008

I agree with troy, and I'd add that likely the best and clearest information you'll get on this is unfortunately going to be the most annoying to get, because it will take time. However, if you're up for it... Follow the money. Find out who got money in bailouts and see how their performance was thereafter. A good place to start would likely be with airline companies that have been bailed out quite a bit in recent years, but not so recent that performance results would not be clear.

The other way to go about this would be to see how much more effective an alternative solution might have been. For instance, if even just one more of the airline companies had not been bailed out, what might have happened? Well, a possible scenario is that the free market would have functioned as it usually does, and one or more of the companies would have died out. However, it would have been to the extent of dying out and getting bought up or dying out and being replaced. (I assure everyone reading that we would not have gone through a time without air travel; someone with a lot of money, and a desire to make even more, would have seen the profitability in getting into the air transportation business, likely with a few other investors.)

Bailouts give the illusion of a free market, which is a bit sad, because then many people think they're living in one when they're not. The concept of "free market economics" gets a bad rap for a lot of stuff that is far from being free market economics. (e.g., Housing issue and mortgaging issue blamed on deregulation and the free market, when in all actuality it was caused by the Clinton administration's interference in the market to create subprime loans--a concept of which goes against every reasonable idea of good business.)

My recommendation to you is to make a chart of sorts, plotting when bailouts occurred, who they were given to, and what resulted later. Sometimes the dots are not the easiest to connect, so document what you can to the best of your ability.

Another good place to look would be at the way we, well, print money as we need it (i.e., bailing out the government, more often than not). This causes all sorts of issues soon after and down the road, in the way of inflation.
posted by metalheart at 6:53 AM on November 10, 2008

The Glass-Steagall Act of 1933 is an interesting case. The repeal of one of its provisions in the Clinton Era, and the subsequent merging of the commercial and investment banking industries, has been identified as one of the causes of the current depression.

What's so strange about it is that, in hindsight, it actually was an effective piece of legislation. It just didn't last much longer than the people who legislated it.
posted by Laugh_track at 12:40 PM on November 10, 2008