Yesterday I noted that today’s financial situation is a failure of government, not markets. Yet few policymakers seem to understand this. Even President George W. Bush, who recently said, “I’ve abandoned free-market principles to save the free-market system,” doesn’t realize that it is the abandonment of free-market principles that has brought to where we are today.
It is the lack of understanding of basic economic principles that has brought to this point of confusion and chaos. If more people had read our Thinking Economically series by Dr. Arthur Laffer, we’d have a lot more clear thinking going on around this issue. If you haven’t seen this, I highly recommend you take a look.
The 10 papers in the series are designed to go behind the policy and look at the underlying rules of economic that guide everyday living. “Just like with the laws of physics, economic laws are simply descriptions of reality,” Dr. Laffer writes. “Scarcity can no more be ignored than gravity. Policymakers who think they can determine the proper price of a good better than the market will create no less a disaster than the captain of an ocean liner who believes his engines will allow him to pay no heed to momentum.”
Our ocean-liner economy is heading straight for disaster, and the momentum won’t change unless the economic thinking of policymakers changes first. Tomorrow we’ll look at how a similar situation played out in Japan in the 1990s.
– Bill Peacock