This week, the Federal Reserve had their regular meeting and announced that the economy still faces strong headwinds and so they are going to keep the easy money flowing.  This is a gigantic mistake but an understandable one - given the road that we have chosen to follow in the hope of economic recovery.

The economic theory that we are using states that the government needs to make up the slack in a recession until the private economy takes off again.  That would seem logical at first glance, but it ignores a couple of very important points.  First, it assumes that recessions are bad - when in fact they are good.  From time to time in a free market, inefficiencies build up and a recession is the natural way for those inefficiencies to be eliminated.  Think of it this way.  If you catch the flu the best course of action is to go to bed and get lots of rest until your body fights the disease and you recover.  On the other hand if you treat the symptoms you can function marginally while you are sick and go to work but instead of lasting a week it can stretch into 2 or 3 because you interfered with what your body is clearly telling you. Economies are no different.  If you interfere with a recession you can mask the damage for a while but the actual effect is to prolong the agony.

Second, when the government spends money to fix a recession, that money has to come from somewhere and all the places it is taken from are bad for the long term health of the economy.  So if the government raises taxes - that is money that would have been used by businesses to hire and expand.  Simply, as virtually all so-called "rich" people who the government taxes the heaviest are also always in one way or another employers, taking money from employers does not make more or better paid employees.  The opposite is in fact true.  Use your common sense folks though our leaders never do!

Now when I point all of this out the inevitable argument that I get from those that disagree with me and my free market ways is a long litany of real and imagined abuses by big business or banks or the rich in general that they say the government must regulate and control to protect us all. I will readily concede that some of these abuses, but by no means all of them, are real and bad.  However, the enemy of good is perfect - as perfect is unattainable.  So when we try and right every wrong, we inevitably have consequences which are always worse than the problem we were trying to fix in the first place.  As an example, the Congress is about to heavily regulate banks after the disaster we witnessed last year.  Fair enough, but the predictable  result is going to be less lending, less risk taking, and less growth.  You can count on it.

Let me be clear.  In no way do I believe that a truly free market would not be full of stories of fraud and greed and crooks.  What I am saying is that all of that is going to happen anyway. Humans have been trying to eliminate bad behavior for the entirety of history and so far it is still with us.  It may be reasonable to assume that it is always going to be with us. Therefore, the logical way of looking at things, and the practical way, is to accept that there will always be this kind of thing and instead focus on what kind of system best delivers the  most benefit to the majority of people, put it into action, and accept the pain along with the pleasure.  History is also clear that free markets literally kick the butt of socialist, statist (where the government controls and commands the market), and every hybrid variation of these models.  Since the advent of capitalism 200 years ago, the human race had moved farther, faster, and improved the lives of billions of people unlike any other time in human history which up until capitalism took hold was basically a long story of the poor being trapped in poverty while rich aristocrats robbed, pillaged, and made war.

So let's get back to our roots, shall we?  Less is more and it is as simple as that although at the moment this is a minority point of view.  Sooner or later things will change back to a free market model because anything else is doomed to failure.  In the meanwhile we all just need to relax, improve our own finances, and wait for the inevitable.