Tuesday, March 26, 2002

Brief Essay on the Post Sept 11 Recession:

(this was written for my IHS application)

If government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt? The first and clearest injunction is: don’t interfere with the market’s adjustment process. The more the government intervenes to delay the market’s adjustment, the longer and more grueling the depression will be, and the more difficult will be the road to complete recovery.
--Murray N. Rothbard

The basic and only guiding principle for politicians should be the protection of the citizen’s life, liberty, and property.  However, having failed at protecting the lives of innocent Americans on September 11^th, many politicians actively enacted and promoted policies that only worsened the recession and demonstrated the negative consequences that result from government meddling in the economy, even when done with the best intentions during an economics “crisis.”

Take airline subsidies for example.  Congress reallocated billions of dollars from already struggling sectors of the economy and gave it to a shrinking airline industry.  Money that could have been used by businesses and individuals to fund alternative methods of transportation and get through the downturn was instead diverted to keep empty planes on the ground and inefficient airlines in business.  Investors know that the airline industry is a risky investment and expect high returns for their risk, but Congress decided to transfer that risk to the taxpayers.

Airlines however, were just the start of the run for taxpayer’s money. 

The farming interests received an unprecedented $74 billion “emergency” increase of farm subsidies over the next ten years, even though the farming industry only faces a 3 percent yearly bankruptcy rate, whereas the average non-farm business faces a 13 percent yearly rate.  Most of this money ends up in less than 10 percent of influential corporate farms and only for a few “core” crops.  The great majority of farmers meanwhile must compete to stay in business with their politically nimble neighbors.

The steel industry is another example of government protectionism run amok.  It is hard to find a reason why the steel prices need to be artificially inflated by higher tariffs in a time when companies need all the support they can get to purchase raw materials for production, but that didn’t stop Congress from renewing it’s dedication to an overly large and inefficient industry.  Meanwhile, steel-using industries such as airplane and auto makers hire over 50 times the number of employees employed in the steel industry and would benefit significantly from lower input prices. 

One would hope the that military budget would be immune from such a run for funds, but while politicians are seeking to spend as much of the $48 billion dollar defense spending increase in their districts, the military spends many billions of dollars on Cold-War era projects and an over-stretched military that would be better used to fight terrorism.  Even harder to justify are the 100,000 troops stationed in Europe as part of the Warsaw pact – eliminating the troops and resources employed there could easily cover the additional costs of fighting terrorism at home and abroad. 

The combined effect of all this increased spending has a chilling effect on the economy and prevents a natural recovery that would happen much more rapidly if the government were not involved.

To sum, perhaps the best response to the economic recession such as the one following September 11^th is for government to stop meddling with the economy and focus on defending the nation.