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Posted by on Mar 22, 2013 in At TMV | 8 comments

How Much Power Does The Government Really Have Over The Economy ?

In this posting I wanted to discuss how I think that really no President has the chance to have much impact on the economy no matter how long they serve. It’s simply too complex and variable for one person or even one administration to have much effect.

For example right now we are dealing with the housing market and the many programs in place to try and improve the situtation. The programs to improve the credit markets and to lower interest rates are helpful and will make it easier for people to purchase homes.

But that is only helpful when there are people to buy homes and the central part of the problem with the market is that those people are not there, at least not in sufficient numbers. A big part of the problem we are dealing with is that the construction industry simply built too many houses.

In the past when we had housing market slumps it was largely due to economic issues and thus could be resolved by programs like we have today. People only owned one house, or perhaps two at the most and thus there was no glut on the market. But now we have people with three, four or five homes and when they abandon them there are not people to move in to them.

This problem will only be solved with time and thus nothing the government does will really solve things, though it certainly will help some people get into homes. On the other hand I do think the government can do things to hurt the economy (for example if the government were to raise interest rates that would hurt the housing market even more)

This is just one example but I think it applies to much of the rest of the economy. Some things are just too big and other things simply require solutions that cannot be provided by anything other than time. Obviously this does not mean the government should not do anything, it is important for it to remain involved. But it seems to me that the impact it can have tends to be on the smaller level and more in terms of helping people through a problem time while it works itself out rather than solving that problem.

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  • slamfu

    You want the highlights of how much power the govt has over the economy, all you have to do is look at the years FDR was in charge, and the years Bush II was in charge. Both economies were influenced massively by govt policy.

  • Jim Satterfield

    You make the assumption, Patrick, that all problems can work themselves out. Look at the numbers of long term unemployed. Consider how many finally gave up on finding a job and retired early or managed to get themselves on disability. I think we are entering a phase where unemployment and underemployment will remain unacceptably high if left to the private sector. The private sector is about business profit. Jobs are a side effect.

  • KP

    In San Diego, one of the very first places to have massive home depreciation; there are a scarcity of homes on the market. When they do show up, there are 20-25 potential buyers; and they have loads of cash for down payments or will pay cash for the home; and the result is a bidding war. Prices are up 10-15% in less than a year. That’s fact.

    As far as the President not having an impact; this President has had a significant impact. The lack of certainty for business has been a constraint on growth. That is not a partisan observation; just an observation.

    As well, we are three years into Obamacare and still learning what is in the bill. It’s increasingly expensive for those of us buying healthcare (we were told otherwise) or those in business asked to provide healthcare. That is fact.

    Companies are flush with cash but are unsure. The result? They poor money into the stock market. So we see records highs there while there is a disconnect with value. When the Fed backs out in a year or two we will see inflation. Major corrections in markets are in order. I see some tough times ahead. That is my opinion.

  • KP

    Jim, you make a great point when it comes to unemployment and underemployment; I think we are seeing a new normal for some time in the future.

    With life expectancy rising rapidly (one in three of our kids will live to be over 100) our country has a massive problem on it’s hands. Change is coming.

  • dduck

    I would agree with a blend of JS and KP. And, the president CAN greatly effect the economy, for example Obamacare, or even if we ha gotten true Universal Health Care. Obviously not going to war, as happened under BC, and going to war(s) under GB II, creates big swings in the dollars available for goods and services. Creation or expansion of social programs and taxes aren’t neutral either.
    BTW: please don’t think I am against some programs, I just point out they can greatly effect the economy.

  • Government can indeed screw up the economy. They can influence markets, cause inflation in certain ones (college tuition for one). It had a direct role in the housing crisis. Tax rates influence spending, a big deal in a consumerist economy. Regulations can influence hiring.

    I’m not a conservative, but I’m in the camp that the best fix the government can do at this point is extricate themselves from the economy. At this point they are more of a hindrance than a help. It should be there to prevent people from getting screwed by unethical/dubious practices, but it should stop trying to directly influence it one way or another.

  • dduck

    An example that effects most drivers and the economy is the mandated ethanol requirement mess.

  • KP

    You nailed it, Barky.

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