Tuesday, June 16, 2009

The Heavy Hand of Government Already Distorts US Economy

Monday's Wall Street Journal features a piece on how recent government interventions into the economy have already skewed terms of competition. The article reports,

"The effects are rippling into nooks of the economy far beyond Wall Street and Detroit's troubled car industry. The massive intervention has shifted the way companies do business in a host of ways -- not all of them intended by the government. Increasingly, companies big and small are competing on the basis of their ability to tap government money. A divide is opening between gets and get-nots.

Thanks to federal loans, Cabela's Inc. didn't have to slash credit to its customers. But Genworth Financial Inc., a big insurer, failed to get bailout money, and has raised capital in other ways, such as cutting its dividend. Still other firms hope to gain an edge by steering clear of the government. UMB Financial Corp., a bank in Kansas City, Mo., is going after new customers by boasting that it hasn't taken any bailout money.

Government spending as a share of the economy has climbed to levels not seen since World War II. The geyser of money has turned Washington into an essential destination for more and more businesses. Spending on lobbying is up, as are luxury hotel bookings in the capital."

These last two sentences should send a chill through every reader. Competition is officially becoming a matter of who can curry more favor with Congress and the administration, as both wade ever more deeply into the private sectors of the economy.

It doesn't take a genius to realize that efficiency will now be taking a back seat to politics on a growing basis. Which reinforces Art Laffer's contention that prospects for the US economy going forward are likely to be very bleak.

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