The economic trends of our time have fundamentally challenged our nation’s commitment to free markets. In hard times, people are more willing to turn to the state to regulate economic life. But these steps have long-term costs in terms of human liberty and the blessings of prosperity.
There are many things that the government can do to alleviate the suffering that comes with recession. It can cut taxes and regulations on business to make hiring easier. It can reduce regulations in the medical marketplace to reduce costs, and it can provide incentives for charitable giving. Government spending should be reduced, not increased, in order to free up resources for the private sector to adjust and grow.
Beyond that, there is not much government can do. A recession is a response to an overinflated bubble economy. The government response should permit liquidation where it needs to take place, so that the foundations of viable prosperity can be built. Government has no magic button it can push to make a recession go away. To believe that it does is a fallacy.
I find it interesting to watch how the recession has coincided with downward pressure on prices. This is a real blessing, and it probably will not last. Prices are being pushed downward by slower growth and the reticence on the part of lenders and borrowers to effect new credit arrangements. Falling prices mean that the economically disadvantaged can afford food, a car to replace the one falling apart, clothing, and gasoline to get to work or to visit families. Falling house prices mean that, perhaps for the first time, the poor can actually afford a nice home. This is only one example among many of the dangers associated with attempting to reverse a recession by force. History provides many examples of recessions that play themselves out and then fold back into recovery. We need to have the confidence to let economic freedom do its job.