Robert Higgs on Why Government Is Prolonging the Economic Crisis

In a new article for the Gannett newspapers, “Is this any way to run a government?”, Chuck Raasch interviews Robert Higgs, Senior Fellow at the Independent Institute and author of the book, Depression, War, and Cold War. With Congress debating a possible shutdown of the federal government, Dr. Higgs discusses why:

“The government can constantly squander resources in a way that corresponds to a business taking losses every year,” said Robert Higgs, a senior fellow in political economy at the Independent Institute, a nonpartisan Oakland, Calif., research group that seeks solutions to social and economic problems.

Such a trend would drive a company out of business, Higgs said, “and yet (government) can keep going anyway because government has the power to compel people to support it. If it did not have the power to tax it could not borrow.”

As Congress approves yet another stopgap agreement to keep the government running, this time for three weeks, some economists say the uncertainty over both short- and long-term budgeting is impeding recovery from the worst economic downturn since the Great Depression. The federal government has been operating on a series of continuing resolutions—qqqlegislative maneuvers to keep funding the government at current levels—qqqsince the beginning of the fiscal year October 1.

Meanwhile, neither Republicans nor Democrats have been willing to take the lead on cutting entitlement programs, raising taxes, and trimming other spending to reduce the nation’s growing debt.

Higgs has labeled this condition “regime uncertainty,” and says it has been hanging over the economy since the financial crisis of 2008.

Higgs said the country is in a great debate over the “overriding role of government in economic life,” similar to one that impeded recovery from the Great Depression. It is unlikely to be solved, he said, until bond buyers stop financing the U.S. debt, or Congress refuses to raise the nation’s $14 trillion debt limit.

“I see no possibility of a political solution,” Higgs said. “I see only credit markets restraining the government.”

The nation’s deficit this year will be roughly 9 percent of all goods and services produced by the total economy, the highest since World War II. But so far, Congress and the White House have been fighting over miniscule amounts—qqq$4 billion in cuts in a two-week resolution passed two weeks ago and $6 billion in a three-week resolution that will expire April 8—qqqand kicking down the road much tougher questions about what to do about entitlements.

Higgs, the political economist, said government grows exponentially to meet crises (as it did in two world wars and the Depression), creating new lobbies, constituencies and beneficiaries that are catered to by politicians that hold the purse strings.

“No matter how sincere government officials are in their attempts to meet the crisis, they also act opportunistically,” Higgs said.

Higgs noted that former Obama chief of staff Rahm Emanuel, the mayor-elect of Chicago, told The Wall Street Journal shortly after Obama was elected in 2008: “You never want a serious crisis to go to waste.

“This crisis provides the opportunity for us . . . to do things that you could not do before,” Emanuel said, referring to regulatory reform, infrastructure spending, and other Obama objectives. The “silver lining,” he said, was that “the problems are big enough they lend themselves to ideas from both parties for a solution.”

More than two years later, that bipartisan blueprint seems more elusive than ever.