Thursday, January 22, 2009

Hair of the Dog

I believe that government does not have much of an impact on the economic cycle in the short term although some things like low interest rates can help. Even tax cuts are more of a long term benefit to the economy then a short term benefit. More important are the long term policies.

Things like encouraging savings and investments. Most people do not understand this and want the government to do something anything to end an "economic crisis". P oliticians generally get more blame and more credit then they are entitled to when it comes to the economy. So the government does something whether it actually has an effect nobody really knows. Does the recession end because of government programs or does the bad cycle just end because the economy has readjusted? All FDR's spending didn't seem to end the depression.

The current economic downturn is a massive hangover caused by too much debt. Everybody has too much debt consumers , businesses and government.

The government (both the one that just left and the one that just arrived) felt the need to do something. Their remedy for the hangover is hair of the dog that bit us. More Debt.

Now as many of you know hair of the dog is one of the few hangover remedies that actually works. The only problem is that you have to keep it up or the hangover will come back. If you run out of booze it will come back with a vengeance. In the long run you are worse off. The best thing to do for a hangover is too tough it out and you will gradually feel better. Then try to remember how bad you felt the next time you want to over-indulge.

Investing in infrastructure is a good thing. I agree with Obama on that. But we are not going to spend our way out of this economic downturn (which by the way is not the worse since the depression, anyone who lived through the 70's can attest to that). What is really required is a readjustment of spending priority's, a leaner government, getting control of entitlement programs. What is not needed is more debt.
This hangover may go away faster then we all think. The next one, when the money runs out and we can not borrow anymore, that will be one hell of a hangover.

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