If I haven’t already made my point strongly enough, let me use a medical analogy. Right now we’re neither treating the symptoms of unemployment nor are we trying to deal with the pathogens that are causing the disease. We’re burning incense trying to propitiate the animal spirits.
I actually think that appeasing the “animal spirits” is probably one of the most helpful things we could do right now – if only we knew how. It’s pretty clear the stimulus, healthcare reform, & now financial reform all impacted consumer confidence modestly, if at all. Perhaps we’ll get a chance now to see if austerity can pull the trick.
Thought about this while playing with knife and gun club last night. I don’t think we have identified the correct pathogen. Govt is part of the problem. Financiers gone wild made things a lot worse, but we are facing broader structural problems. When we were governed by a pro-business government with lowered taxes and, if not less regulations, surely regulations being written by industry itself, we still created few jobs compared with past recoveries. What gains in income and wealth we saw went to a very tiny part of the population.
I think that the problem is a global issue, and a change in the way businesses function is also central to the problem. We are also not creating new products/ideas as well as we need to do. Those are more important issues than a 3% tax increase.
Steve
steve,
How about this. A capitalist economy is one with a great deal of competition. Competition leads to innovation, and lower costs and a dynamic and vibrant economy.
When you let industry write the regulations, as you suggest, you don’t have capitalism, but corporatism. Corporations don’t like competition since it means lower economic profits (in the extreme economic profits are zero, although accounting profits are not). Reducing competition reduces output, reduces demand for inputs (i.e. fewer jobs) and raises prices and introduces a deadweight loss to the extent that reduced competition deviates from the ideal of marginal cost pricing.
Corporatism is possible, IMO, only with a government that has accumulated significant discretionary power.
What is the solution? None, IMO. You can’t put this genie back in its bottle I’m afraid. The people who have that power and/or can tap into it like corporations will expend considerable resources to keep it. If you believe guys like Grodon Tullock a recipient of economic rents will be willing to spend upto 100% of the value of those economic rents to keep it.
Have a nice day.