Yes, the title is intentionally provocative. Last night I decided I would read President Obama’s nomination acceptance speech from the DNC. Truth be told, when taken out of context, the President said some things that resonate with the Austrian School of economics. The President rightly evaluated that there is no easy, quick and painless way for the U.S. to escape the economic quagmire its stuck in. While his diagnosis was partly correct, his prescribed treatment of government activism will only make the problem worse.
The President spoke truth when he admitted, “I won’t pretend the path I’m offering is quick or easy… the truth is, it will take more than a few years for us to solve challenges that have built up over decades.” This is exactly right and worth stressing. In a world that’s become increasingly dominated by unfounded reactionary indignation, it should be emphasized that there are no easy, quick solutions to our economic issues. There’s no one person to blame for how we’ve gotten to the place we are in. It is wildly naïve to think that simply replacing elected officials will lead to improved standards of living. Elected officials no doubt have influence over a nation’s economy. Yet we have reached a point where no elected official can prevent reduced standards of living nor should we want him to.
Let me explain further. There are natural laws that apply to our economy. Politicians, republicans and democrats alike, often disrupt the natural functioning of the economy. This brings consequences in the form of lower standards of living. More government intervention can temporarily prevent standards of living from dropping, but not indefinitely. Additional intervention brings short term relief while amplifying the negative consequences that will eventually come to pass. The intervention leads to swings in economic prosperity, oftentimes called “booms” and “busts”, which do not naturally arise in the absence of intervention. We now face a “bust” in economic activity. There is no way to avoid the bust. Features of the bust include unemployment, bankruptcies, deflation and a general reduction in standards of living.
Fortunately, this is not the end of the story. There is a calm after the storm of economic hardship that comes with the bust. Sound economic analysis reveals that when the bust is allowed to occur, after a time, resources are reallocated more efficiently than they were before. This leads to less unemployment and sounder businesses than we had even before the bust. Our standards of living will be the best they have been in years. But the bust must be allowed to occur to reach new heights of prosperity.
Getting back to the President’s remarks, he immediately followed his correct assessment of the inevitable difficulty ahead by stating, “It’ll require common effort, shared responsibility, and the kind of bold, persistent experimentation that Franklin Roosevelt pursued during the only crisis worse than this one.” In reality, he is advocating to amplify the problems we face. To read up on how FDR made the Great Depression worse, I refer you to Hans Sennholz article here. The measures advocated by the President will further hamper the functioning of our economy. He cannot usurp the natural laws which govern economic activity.
In summary, though I disagree with the President’s prescription for our problems, I agree wholeheartedly with his admission that there is no easy, quick solution to what we confront. I urge any Romney supporters out there to receive this. I’ve heard many a Romney fan (if anyone is actually enthusiastic enough about him to qualify as a “fan”) say essentially, “once we get Obama out of there, things will be back on track.” Regardless of who takes office come November, it is beyond the power of any human or group of humans to “fix the economy”. If you anticipate Romney doing so, prepare to be let down whether he gets elected or not. No one can “fix” the economy. What Romney could do is adopt policies which let economic laws govern economic activity and allow the bust to naturally occur rather than amplify it by intervention. This will lead to improved standards of living for the future, but most likely not until his term in office is expired.
Obama or Romney, the near future will be characterized by economic hardship. The road ahead is difficult and it will take time to correct the issues that have resulted from government intervention no matter which route is taken. Either we can compound the issues with more intervention or allow the market correction to take its course and solve them. I’m not confident that either men have the will to choose market correction over intervention in the face of a public which will undoubtedly crucify their president for not “fixing the economy” in a timely manner. Regardless of your political affiliation, my hope is that you consider the economic reality we face, seriously reflect on the possibility that there are laws of cause and effect which are at work, and set your hopes and expectations accordingly.