Dysfunctional Fiscal Policies

Three of the world’s largest economies are suffering from self-induced economic problems: The United States, the European Union, and China. In China, economists are not certain what is happening, because Chinese fiscal and monetary policies are not transparent. The official word is that economic growth is slowing, but is still very high compared to the rest of the world. That may not be true. Chinese consumption of commodities seems to be slowing in absolute terms, hinting that China may be in a recession. In any case, because China’s government policy is not transparent, it’s difficult to know what has gone wrong there.

 In Europe, 19 countries use the common currency, the euro. Unfortunately for the health of the Eurozone, each of these countries has its own government with its own fiscal policies. Given the lack of a unified fiscal policy, the European Central Bank (ECB) has seen itself obligated to ease monetary policy far beyond what may be sensible. It is buying bonds in order to increase the money supply in the hope that the increased amount of money floating around will stimulate economic growth.

In the United States, we are fortunate to have one central government with one fiscal policy. However, the majority in Congress, especially in the House of Representatives, seems dedicated to preserving government dysfunction. If our government worked, Barack Obama might get some credit, and no Republican wants that to happen. So, the goal of the majority in the House of Representatives in particular and Congress in general seems to be to keep government from serving us, its citizens. We suffer so that Barack Obama gets no credit.

As in Europe, our central bank, the Federal Reserve, has been forced to pick up the slack. Interest rates are much lower than they should be, but until and unless Congress takes some responsibility, the Federal Reserve’s easy money policy is the only thing that stands between us, the country’s citizens, and recession.

Thanks to the Federal Reserve’s having introduced easy money policies much sooner than the European Central Bank, our economy is doing much better than Europe’s. However, the Federal Reserve wants to end the easy money policy but is being kept from doing so by the danger of interrupting our economic recovery, which has grown addicted to easy money.

Who deserves the blame? We do, the voters. We elect those irresponsible people in Congress, and there is some possibility that we may soon elect an irresponsible president. We, the voters, are the only people who can turn things around by voting for politicians with real plans and who have the good of the country at heart and who are willing to work together with members of the other party.

You may enjoy a video by an economist who turned comedian who sings about economic woes under the name Merle Hazard. To see his latest music video, done in the style of the defunct TV program Hee Haw, click here.

By the way, my new book, Running for President goes on sale as a Kindle ebook on Amazon today. Click on the book’s cover image in the left sidebar for more information.