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February 21, 2009



I sense a bit of irony in the making: the economy will recover most certainly. When it does, historians will be left with the task of assigning credit and blame, and even though Nathan may be correct that Obama's handling of the situation will be inexpert and awful (I will reserve my own judgement for the moment), he will most likely be credited by many with turning everything around. A similar thing will happen with appraisals of George Bush regarding the handling of Iraq, for the situation in Iraq will most certainly improve in the long-run.

I don't pretend to know what the best course of action is at the moment. In general, I feel the government should speak loudly and wield a tiny stick when it comes to the free market. The most important thing to do is to stop scaring people. Free markets need agents who are confident that they can trust each other, and confident that things are going to get better and better, not worse and worse. What we really need from Obama is not heavy-handed policy but heavy-handed rhetoric that inspires people and calms markets. It's easy to predict doom-and-gloom in the short-term, but that's not a constructive sentiment coming from the President; if the most powerful person in the world is bearish, woudn't you expect investors to be bearish as well?

Nathan Smith

I think the government has got to get its long-term finances in order. In 2005-06 the stockmarket rose to new highs despite the country's long-term insolvency because Republicans were in charge and despite their recent failings they at least have a small-government philosophy which there was hope they would return to. Now all the government expansion of the Bush years is being locked in by the Democrats, and worse, the Democrats presumably, and to judge from their rhetoric, want to move the country further *left.* They may be cutting taxes now, but somebody's going to have to take big tax hits in the future to pay for it. And to invest now is to be a sitting duck for government expropriation when that time comes. So, even as everyone is trying to save, no one dares to invest.

A major rollback of scheduled Social Security and Medicare benefits-- which need only fix them permanently at their current levels, since they are scheduled to go on rising-- would bring the government budget nearer to, or into, long-run balance. Then investors would feel more confident that any successful investments they make won't be taxed at confiscatory levels. Good micro policies, like anti-union measures, a suspension of all tariffs and maybe the minimum wage, immigration amnesty, and a clear message that the economy won't get burdened with any new environmental regulations anytime soon, would help a lot, too. Also, bring the bank mess to some conclusion, doesn't matter so much what just as long as it ends with a private banking system. Do all that and the economy would come back.

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