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Do No Harm

Looking over the potential agenda for the G-20 summit the Washington Post editors conclude with these words of warning:

The assembled leaders can also help by not making things worse. A pledge to keep trade free or even to expand it by reviving the Doha round of liberalization talks would go a long way toward that goal. At times like this, political leaders tend to focus on the disasters of the moment rather than on the less spectacular but much more substantial growth of the past. The temptation is strong to heed those who say today’s crisis proves capitalism’s fatal flaws — rather than its need for modernization and reform. In fact, over time, maximum economic freedom, responsibly regulated, delivers maximum economic welfare. The summiteers should carve out some time today to rededicate themselves to that basic principle.

This is sage advice during a week in which American officials and politicians have lurched from one idea to the next. Buying toxic assets is out –bank equity is in. Car bailouts? Oh definitely yes — but not until more Democrats come on board. Now let’s work on consumer debt. Or maybe a stimulus package. Or all of the above. It is obvious that those in positions of authority really don’t have a clue what will work and what to do. As one CNBC commentator put it, economic officials these days resemble ten-year olds sketching football plays in the dirt at a neighborhood pick up game. Sure –let’s try this!

In such circumstances it might be best to stop. Stop stirring the pot, stop raising expectations that another bailout is around the corner. And for goodness sakes, stop racking up more debt. (Sooner or later the American people will find out the money in their pockets is being devalued.) Less is more. Deliver a tax cut, avoid protectionism, and allow businesses and individuals to resume making decisions based on something other than “Will the government help me out?”

It is not a recipe for a painless or quick recovery. But the other options entail greater longterm risks to the health of the economy. Now there’s a politically attractive slogan: “Do nothing!” Which is why politicians are unlikely to follow this course of (in)action — and which is why things are likely to get much worse before they get better.


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