Shortly after the 2008 economic meltdown, the US government and Federal Reserve (Fed) justified radical economic policies by claiming such actions would improve the overall economy. Through the use of massive deficit spending, these interventions included artificially low interest rates, bailouts, and huge spending programs. There is evidence that the interventions have not been productive in the long term.
CNN Money reported in early 2014 that the number of American millionaires has been soaring. Prior to 2008 there were about 9.2 million household millionaires in the US. Immediately following the downturn that number dropped to less than seven million, but now exceeds the 2007 bubble economy with 9.6 household millionaires.
Wealth creation is positive for the overall economy when it comes from productive capitalism such as new products and services. However, significant household wealth created since 2008 has been the result of governmental policies that created new bubbles to the benefit of wealthier Americans. One bubble is the equity’s market that is currently are at record levels. This has benefited mainly wealthier Americans who own a high percentage of publicly traded stocks.
The growing wealth disparity has become a drag on economic growth. The marginal propensity to consume, i.e. the percent of family income consumed, is greatest among the lower income groups. As wealth accumulates within the higher income brackets, spending drops as a percentage of total wealth, slowing economic growth.
In addition, when the government and/or Fed intervene in the economy in an effort to stop or reverse a downturn, it thwarts the economy’s inherent ability to rebalance supply and demand. Such dislocations inevitably lead to bubbles, such as the housing bubble that led to the economic calamity of 2008. Instead of learning from the failures of these interventions, after the 2008 meltdown the government and Fed flooded markets with liquidity and used historically low interest rates to artificially stimulate growth. While these efforts may have kept the downturn from initially becoming more significant, there have been consequences including the increasing wealth disparity and anemic economic recovery that has been the slowest since the Great Depression.
Six years after the historic interventions have not brought about the promised prosperity, their proponents suggest seek still more of the same, not only in an effort to again promote economic growth, but also to correct imbalances caused by the initial interventions. The results will be still more economic imbalances and likely slower growth.
The political elitists can only promote expensive governmental interventions through the use of debt. This trickery masks the real cost of the interventions. However, there is a huge IOU being created that in essence is a deferred tax on future taxpayers. That bill will likely start becoming due in the not-too-distant future.