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The cause of, and cure for economic woes

By Henry Lamb
web posted July 5, 2010

The Washington leadership never misses an opportunity to blame the last eight years of Bush policies for the economic problems that have befallen the nation.  CNN news touts a poll that says 53% of the people blame Republican policies for the mess.  Both are wrong.  Republicans certainly contributed over the years, but the cause of the economic problems must be laid squarely at the doorstep of the Democrats.

The root cause of the economic problem is government interference with the free market.

The root cause of the near-collapse that occurred in the last year of the Bush administration can be traced to the Democratic Socialist idea that everyone has a right to adequate housing. 

Before President Carter, private lenders in a free market often refused to fund mortgages in certain parts of cities where the neighborhoods were so bad that lenders considered the investment to be unsafe.   Democrats and socialists called this practice "redlining."  Carter, and his Democratic colleagues, enacted the Community Reinvestment Act, which effectively outlawed redlining.

This was an enormous intrusion by the government into the marketplace, but it was not enough to satisfy Democrats and socialists.  Organizations such as ACORN systematically invaded financial institutions with highly visible public protests, demanding that private lenders fund mortgages for unqualified people in depressed areas.   Democrat President Clinton, and his Democratic colleagues, expanded the Community Reinvestment Act, requiring Fannie Mae and Freddie Mac to provide guarantees for these mortgages.  Private lenders in a free market would never have made these loans without the intimidation and extortion from ACORN-type organizations and the interference of the federal government.          

Intimidation and extortion continued well into the Bush years.  When Republicans tried to rein in the loose lending practices at Fannie Mae and Freddie Mac, their efforts were blocked by Democrats, particularly by Rep. Barney Frank and Senator Charles Schumer.

In their effort to meet the socialist goal of providing adequate housing to all people, whether qualified or not, Democratic interference with the free market caused an enormous artificial bubble in the housing market.  This housing bubble produced secondary markets in derivatives (packages of government-guaranteed mortgages) and Credit Default Swaps (insurance against default of derivatives). When unqualified borrowers began to default in staggering numbers, the government had to make good on the mortgages it guaranteed, and the insurance companies –  like AIG – had to make good on the insurance policies they had issued.

In 2008, under the reign of George W. Bush, the Treasury Department suddenly realized that neither the mortgage companies nor the insurance companies could make good on their commitments, and that unless the federal government came to the rescue, much of the financial marketplace would collapse.

Obama, and his democratic colleagues, immediately blamed Bush and his policies, when it was the Democrats who bore the ultimate responsibility.  Obama, and his democratic colleagues, are still riding the "blame Bush" train, and apparently, are fooling the majority of Americans.  The facts, however, may be misrepresented, but they cannot be altered.  The same democratic socialist philosophy that caused the economic meltdown is guiding the Obama administration as it constructs what it is calling a cure.

Obama's plans for the future offer no cure to the economic doldrums; they most assuredly promise even greater economic disaster.

Obama's view and his every action so far, reflect the socialist vision of government control and management of the market, and of every individual. 

 The cure for economic problems is freedom from government interference and management in the marketplace. Get government out of the way.  The free market will find its way to profit and prosperity if government will simply get out of the way.

Democrats are quick to say that the absence of government regulation is what caused the economic meltdown.  This diagnosis is incorrect, and the medicine they are prescribing will only worsen the malady.

The Constitutional requirement that the Congress "regulate" interstate and foreign commerce is a source of continuing tension among lawmakers: what, exactly, is the right balance between government regulation and market freedom? Government's regulatory goal should maximize competition; assure equal access to markets; prohibit punitive taxation – and little else.

Problems that occur in a free market, such as faulty products, inappropriate pricing, false advertising – are all self-correcting.  Informed consumers penalize unscrupulous merchants far more effectively than  government can.  Democrats and socialists, on the other hand, believe that government should decide which GM dealers must go out of business and which may continue; that government must force lenders to fund mortgages for unqualified borrowers; that there should be a punitive tax on carbon dioxide to force people to use alternative fuels.  This is the kind of government interference that kills a free market economy.

The cure for the current economic condition is to get government out of the marketplace, and out of the lives of individual citizens.  Government's correct role in society is to assist – not hinder - free people in their pursuit of life, liberty, and happiness.  Democrats and socialists believe that government's role is to create an egalitarian society by managing markets, redistributing wealth, and forcing people to live where and how government dictates.   

We should never forget: "That government is best that governs least." ESR

Henry Lamb is the author of "The Rise of Global Governance,"  Chairman of Sovereignty International , and founder of the Environmental Conservation Organization (ECO) and Freedom21, Inc.






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