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Monday, October 3, 2011

United States in a Voluntary Recession

That's right. I said it. We're in an unnecessary, voluntary recession. Why? We elected a socialist to fix a capitalist economy. Allow me to explain a few basic facts about how market capitalism works.

1. Recessions happen periodically and are good for a free market. Recessions allow the business world to trim the fat and force business to become more efficient. Inefficient companies are trimmed much like dead limbs on a tree, making room for newer, more innovative firms. By propping up the dying limbs, we extended the death cycle and delayed the growth cycle. Bailing out private companies (or having the government buy them out) was a terrible idea. You can't bounce back if you never hit bottom.

2. Businesses hire when making profits and fire when profits are low. When we propose punitive taxes on "big business," what we are really doing is taking away the capital that businesses would otherwise spend on expansion. If a business is making lots of money, it makes sense to expand its activities to make even more money. Production requires more workers, so jobs are created. When we decide to take away profits, we prevent expansion and kill jobs.

3. The housing bubble was the direct result of legislation requiring lending institutions to make low-income loans. Low-income loans are inherently risky. Thus, banks had to find ways to profit from them. It turns out that bundling such loans and selling them as investments was highly profitable. Such a pyramid scheme was bound to burst, and it did. However, it would never have started without government interference in the mortgage business.

I could go on for several pages, but I believe you get the hint. The recession will go on until the government stops creating economic disincentives.

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