A Lack of Understanding

Earlier this week, the Congressional Budget Office projected that if Congress fails to act [on tax policy], the U.S. economy will enter a recession next year, with a 1.3% annual rate of contraction in the first half of 2013.  It also said that if Congress extended current policy without “comparable restraint in future years,” federal debt levels would balloon, leading to negative consequences [that] include higher interest payments and less ability to use tax and spending policies to respond to economic challenges. [The CBO’s report is here.]

This is a fundamental lack of understanding—by the CBO, yet—of the role of government.

The Federal government has no business using “tax and spending policies to respond to economic challenges.”  This is nothing less than the government’s attempt to centrally manage the economy.  The Federal Reserve Bank has the goal—the responsibility—to seek price stability in our economy.  The Federal government has a responsibility to maintain a stable environment within which a free market can operate without Federal interference.  The optimal way—the only real way—for the government to achieve this is through low, and stable, tax rates that have no loopholes for special interests, and through low, and stable, spending rates that have no exceptions for special interests.  Indeed, that is the only economic challenge to which the Federal government must respond.  Moreover, answering this challenge enables the free market economy to achieve the full employment that is another claimed goal of the Fed.

And that, thereby, answers the question of what the government must do about the looming Obama tax increase.

2 thoughts on “A Lack of Understanding

  1. We must be socially responsibly to ourselves and all pitch in. The bottom part of society must rise to the occasion and get to work and stop waiting on the government to take care of them. There must be drastic reform in health care and social care programs for the government to work as a business. We must be creative
    and stop giving all our money to the oil companies. OUR Family spent 5000.00 on gas last year. Working hard is not working . Working smart is better. Jobs and no more bail out programs for foreign countries. Clean up our politicians. No tolerance for taking money from lobbyists or corporations. God Bless America

  2. The bottom part of society must rise to the occasion and get to work and stop waiting on the government….

    The best way to encourage this is to stop extending unemployment insurance payments ad infinitum. When we pay folks not to work, we get more people not working. It also would help if government got out of the way (and thereby stopped trying to manipulate our economy) and let our economy recover–the resulting job explosion would make it easier for these folks to go back to work.

    Government won’t budge, though, without a change of administrations. As a man said a while ago, “That’s what elections are for.”

    Eric Hines

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