Politicians and their Illusion of Power? Take a look a give your opinion:?
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Now, the Bush administration has thought otherwise and imposed a huge range of protections to benefit its supporters and people who the administration hoped would become its supporters. The result has been to skew the world economy, hobble markets, delay inevitable transitions, and impose massive social costs.
What this example shows is that governments are not omnipotent. Many try to be, and no government is liberal by nature. But there are limits. Governments bump up against human valuations time and again. Even in the highly rarified event of a despotic government that rules a population unanimously in support of despotism, government still bumps up against the structure of the world, which resists control.
Let us consider another example. Let us say that government desires a strong dollar. But it still wants to print dollars and ship them around the world. In this case, there is nothing that government can do to insure the dollar鈥檚 strength against depreciation. Nothing. This is due to the laws of economics. All else equal, the value of a currency in terms of goods falls as its quantity increases. Governments that desire otherwise can only shake their fist in anger.
The same is true domestically. The government wants economic recovery before a recession has fully run its course. It thereby drops interest rates, spends vast amounts of money to gin up demand, and otherwise encourages as much consumption as possible. These tactics can result in some short-term gains but it doesn't work in the long run. These tactics deplete savings and capital and weaken the foundation for solid future growth.
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