Picture 2

Picture 2

Sep 12, 2016

Arbitrary Regulation Results in Poor Productivity Gains by Suppressing Investment

Liberals are the slave of some dead economist, in this case John Maynard Keynes.  The problem of declining productivity is positively correlated with the rise of arbitrary federal regulation.  Nobody wants to make long term investments if they can't be sure what the rules are going to be a year from now.  This regulatory uncertainty favors innovations that have low capital intensity, like Uber and Fin-tech.  Using existing assets more efficiently improves productivity by definition.  Federal spending increases put more assets into the hands of inefficient government, which only stimulates patronage political machines, not real economic growth.  If massive government spending lead to prosperity, Greece would be on easy street.  Instead, it's broke.  We need to stop growing government spending, reduce regulation and cut tax rates.  Reagan did it and it worked.  Obama did the opposite in every respect and it made a mess.

Ever increasing arbitrary federal regulation of everything lowers the velocity of money.  Since any rule might drastically change, especially including the cost of labor under Obamacare, doing nothing is the least risky alternative for both firms and individuals.  Nobody knows if they will have a job next week.  Nobody knows if they will have adequate access to healthcare, which is different than having insurance.  Since many of the administration's executive orders and regulatory actions are of questionable legality, some court could stay them or invalidate them at any time.  Then some other court could reinstate them.   The Federal Reserve is holding interest rates at zero right now, so saving for retirement is almost impossible.  However, at any given Board of Governors meeting, the Fed could decide to raise rates for reasons known only to them.  All of this chaos encourages everyone to hold cash as a hedge, not spend it.  Low interest rates lower the cost of a cash hedge.

Reagan's policies created 5.32 million jobs net in his 1st term. Our Dear Leader's policies created 1.2 million. Reagan restrained government spending, cut regulation, worked with the Federal Reserve to curb inflation, and cut tax rates across the board. The Smartest President Ever did the opposite in every respect. He increased government "stimulus" spending, increased regulation, worked with the Federal Reserve to have lots of "quantitative easing" to expand the money supply, and raised tax rates on the rich. In Reagan's second term, 10.78 million net new jobs were created. Reagan inherited a much more troubled economy that the Community Organizer in Chief, with 13.5% inflation and increasing unemployment. Based on the results, Reagan's policies worked, and Obama's policies did not. As for increasing the debt, Reagan took the debt from 32% of GDP in 1980 to 50% of GDP in 1989.  Obama took the debt from 61% of GDP in 2008 to 101% in 2015, the latest year available.

While everyone is wondering why easy monetary policy is not leading to growth, they are ignoring the unstable regulatory climate enforced by Democrats.  Reagan showed what works.  It should not be a mystery that when you do the opposite of what worked for Reagan in every respect, it doesn’t work.

"Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.  Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back” - John Maynard Keynes 

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