Saturday, July 25, 2009

Economic Harakiri

I recently was reminded about the term "harakiri" while reading an article about Japanese history. Harakiri is often mistakenly referred to as hari kari.

Wikipedia has this to say about harakiri, which is the spoken equivalent of seppuku, the written term:

"Seppuku was a key part of bushido, the code of the samurai warriors; it was used by warriors to avoid falling into enemy hands, and to attenuate shame and avoid possible torture. Samurai could also be ordered by their daimyo (feudal lords) to commit seppuku. Later, disgraced warriors were sometimes allowed to commit seppuku rather than be executed in the normal manner. The most common form of seppuku for men was composed of the cutting of the abdomen, and when the samurai was finished, he stretched out his neck for an assistant to decapitate him. Since the main point of the act was to restore or protect one's honor as a warrior, those who did not belong to the samurai caste were never ordered or expected to commit seppuku. Samurai generally could only commit the act with permission."

We are currently facing a crucial time in our economic history. Will our free-market economy be allowed to resurrect itself, or will it be further crippled by government intervention?

Conservative thought is to allow the economy to recover by getting out of the way. Lowering taxes and ratcheting down government spending will allow further investment to be deployed into the economy and allow greater revenue growth. This, in turn, promotes job growth. Once revenue and job growth manifest themselves in our economy, government revenue will grow.

There will always be companies that are not affected by specific economic downturns and these recessions allow those companies to emerge as winners. Think of it in terms of "only the strong survive". In the rough and tumble environment of the free-market, inefficient and unprofitable companies MUST fail. The capital driving these failed companies must be allowed to re-deploy to those that are not. Incentives must make this redeployment possible and, in fact, encourage it. The process can be painful and slow, but our country's history proves that it DOES work. This reinvestment cycle is an integral part of our economic history.

Contrast our history with what is happening now. Government is in the process of commandeering those precious investment dollars by virtue of its borrowing. In addition, it is proposing further dilution of investment dollars via Cap and Trade and government-run health care. The stimulus borrowed against future earnings to force investment in politically-motivated projects, not ones that will bolster the economy. The only way to bolster a free-market economy is to let the economy fix itself! It has happened over and over in our history and has created the most prosperous economy this world has ever known.

Why tinker with what has a history of working? I fear that we are committing economic harakiri if we allow our federal government to "experiment" with anything that is not rooted in free-market economics. Needless to say, the present leadership in Washington doesn't have a clue.

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