by Ben Cohen
Talk to any mildly intelligent Republican, and they will automatically tell you that government intervention into the economy causes stagflation (where the economy doesn’t grow, and prices go up regardless). The proof of this apparently comes from the Ford/Carter years when the U.S economy went through a period of low growth and inflation while comparatively speaking, taxes where high and the Government regulated financial markets.
To Conservatives, this period of time justified a massive shift in monetary policy where taxes on the highest earners were slashed, financial markets deregulated, and welfare stripped to minimum.
The problem is, the stagflation in the 1970’s had nothing to do with government intervention into the economy. As Paul Krugman points out, there were external factors that caused economic problems, like the massive oil shocks, and inadequate action by the Fed to stem the consequences (so that would be lack of government intervention rather than an excess). Also, another factor conveniently forgotten by Republicans was the massive debt the Vietnam War was incurring, a conflict started in the 1950’s and escalated by both Democrats and Republicans.
While economic growth wasn’t great in the 1970’s, it was preceded by an unprecedented economic boom that basically started from World War Two. The reasons? Direct government intervention in the market, investment into key sectors of the economy, price controls and a centrally planned drive towards full employment. And guess what – it worked.
Mixed economies, or Keynesian economies (a balance between private enterprise and state planning) have provided more economic growth than any other system in history, despite what Republicans will tell you about the free market.
The truth is, deregulation hasn’t worked out so well. It has caused two of the biggest crashes in our economic history, and only serves the needs of the rich and powerful. In each circumstance, the government was forced to intervene to save capitalism and the free market from itself, rendering them meaningless terms in the first place.
We’ve never had a true free market, and every time we get close, it goes horribly, horribly wrong. So let’s stop pretending it’s great, and go back to proven methods of sustainable economic growth. And as much as Republicans hate it, that means government.
Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.