The Beginning of the End?
Are we through the worst of this economic downturn?


Now that the stock market is beginning to rally and profits are once again being reported, we called and asked them what they make of this good news. Did TARP work, or at least help? Should President Obama get credit? Will he?

Was last fall’s financial crisis as bad as it then seemed? Yes, and were it not for TARP and other associated measures, it would have been dramatically worse. The financial system was sick, getting sicker — and on the edge of a panic on a scale that would likely have brought down many, many more banks than “deserved” to fail. The result would have been economic destruction that would have been anything but creative. The steps that were taken were very far from perfect, but, by making clear that the government printing presses were there, they eventually put a stop to the panic, something that simply had to be done at that time, however uncomfortable it made those of us who tend to be suspicious of government intervention in the marketplace.

For the most part, the “recovery” we have seen so far is little more than the ebbing of panic (very welcome though that is). To the extent that the remarkably poorly designed stimulus package has contributed to this essentially psychological phenomenon (and I suspect it did), it will indeed have produced a multiplier effect that counted. Looking ahead, it will be a while before we see anything that looks like a sustainable return to good times (particularly so far as unemployment is concerned). This return will be delayed still further if the Obama administration gives the impression that neither its willingness to borrow nor its willingness to tax know much in the way of limits.

Andrew Stuttaford is a contributing editor of National Review Online.

The stock market may have rallied last week, but this does not mean that the American economy is out of the woods. Indeed, there are strong reasons to believe that much of what the government has been doing will push a real and solid recovery further away than any of us would like.

Five years of misguided Federal Reserve monetary policy kept interest rates artificially low — for part of the time in the negative range when adjusted for inflation — and supplied the new money that created the housing, investment, and consumer-credit bubbles that have now burst.

Rather than allowing the market to adjust to the post-bubble reality, the federal government has done everything in its power to prevent the market from telling the truth in terms of what mortgages and investments are really worth. TARP and related government gimmicks, therefore, have hindered a return to sound and sustainable growth.

In addition, the Obama administration’s illusionary “stimulus program” is pushing the national debt to heights that threaten to impose future tax burdens that will cripple private-sector investment and job creation for years to come. And the Federal Reserve’s $2-trillion monetary expansion over the last year signals dangerously high inflation just over the horizon.

Economic recovery can come only through allowing the free market to balance supply and demand, and creating the proper incentives for private entrepreneurial innovation. Government intervention, monetary expansion, and expanding budget deficits promise a sluggish recovery and the worst features of increasing political paternalism.

– Richard Ebeling is a professor of economics at Northwood University in Midland, Mich.



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