Cures for Our Economic Disease

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have recently had several opportunities on various news programs
to discuss the economy and what is wrong with the so-called economic
stimulus package. I have said over and over what we shouldn’t
be doing, and now I’d like to explain what we should be doing.

But to improve
the situation, you must first have a solid grasp of how we got here.
Government policies and central planning created the housing bubble,
now going bust. About a decade ago the government made expanded
homeownership and affordable housing a public goal. Through Fannie
Mae, Freddie Mac and the secondary mortgage market the government
incentivized creative, low down-payment, more widely available mortgage
products, and discouraged the market-proven lending standards of
the past. The Federal Reserve kept interest rates artificially low,
which added more fuel to this fire. Many related sectors temporarily
flourished because of this, and many people got into homes they
otherwise could not have afforded. The increased demand for housing
sent prices soaring until in many markets housing became even more
unaffordable, necessitating even more creative mortgages, and impossibly
leveraging homeowners. Many risky investment vehicles such as mortgage-backed
securities, derivatives, credit default swaps grew out of this unsustainable
situation. As the foreclosures began, the house of cards started
to tumble. Too many people have confused the symptoms and the pain
of the bust with the problematic policies that caused the bubble,
which is really what needs to be treated.

First of all,
just as the best cure for a hangover is not to drink so much, the
best cure for a recession is a recession. It is time to sober up
and return to free market sanity, risk and reward, supply and demand,
without political intervention. Politicians are good at catering
to the needs of special interests, but very bad at determining what
needs to take place in the market. Government should stick to punishing
fraud and enforcing contracts. When they use the tax code, bureaucratic
departments and their manipulative rules and regulations to dictate
social and economic behavior, we end up with distortions and malinvestments.
Bailing out banks, continuing failed Fed policies and strapping
the taxpayer with toxic debt will worsen the pain, and punish the

If Congress
really wanted to do something helpful, it would cut taxes. Ideally,
we would repeal the income tax altogether and get the IRS off the
economy’s back, which would be a huge boon. We should also
cut spending. Cut every unconstitutional department and program,
every wasteful governmental encroachment on the people’s liberty
and money, starting with our massive overseas empire. The cost of
our empire is bringing us to our knees, just as the Soviets’
empire did to them. Congress should also abolish the Federal Reserve
and take back its responsibilities to ensure sound money, safe from
the manipulations of powerful banking interests.

These things
would constitute real change, real economic stimulus. The plans
being bandied about Washington are just more of the same. As long
as no one seriously considers the cure, we are unfortunately destined
to prolong the disease.

the Ron Paul File

3, 2009

Dr. Ron
Paul is a Republican member of Congress from Texas.

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