Where is the US economy headed?

There are reports Obama will propose the creation of a public/private Infrastructure Bank, modelled after the ill fated Fammie Mae & Freddie Mac, to loan money to States, local governments and public/private developers for the financing of new infrastructure projects.

hawk, I agree; another dumb idea from Obama. There's way too many ideas coming out of the white house that only identifies spending money without knowing how effective they will be. There's only one conclusion: stupid.

I disagree with all 5 questions. It's insulting as well as nonproductive for our country.

1) Does the U.S. spend too much, too little or about the right amount on welfare and other programs to help those in need?

2) A proposal made calls on the federal government to spend $46Bn a year to hire people on a temporary basis. Do you favor or oppose this proposal?

3) Suppose the federal government created 1 million temporary government jobs in child care, elder care, education, public health, construction and maintenance, and recreation and the arts. How likely would most of these jobs be wasteful, make-work projects?

4) Another proposal would be for the federal government to provide everyone with a basic income grant. The idea would be that everyone would receive a modest amount regardless of whether they choose to work or not. Do you favor or oppose this proposal?

5) Suppose someone has lost a job and has been looking for work for a year or more. Should state governments offer such a worker a minimum wage job?

.... Although many banks did perform poorly, government behavior also contributed to and prolongued the crisis. The Federal reserve kept interest rates artifically low in the years leading up to the crisis . Fannie Mae and Freddy Mac, two quasi-government institutions, used strong backing from influential members of Congress to encourage irresponsible mortgages that required little down payment, as well as low interest rates for households with poor credit and low and erratic incomes. Regulators who could have reined in banks instead became cheerleaders for the banks.

This recession might have been a deep one even with good government policies , but "government failure" added greatly to its length and severity, including its continuation to the present. In the U.S. these government actions include an almost $1 trillion in Federal spending that was supposed to stimulate the economy. Leading government economists, backed up by essentially no evidence argued that the spending would stimulate the the economy by enough to reduce unemployment rates to under 8%.

Such predictions have been so far off the mark as to be embarrassing. Although definitive studies are not yet available about the stimulus package's overall effects, most everyone agrees that it was badly designed and executed. What the stimulus did produce is a sizeable expansion of the federal deficit and debt.

The misdiagnosis of widespread market failure led congressional leaders , after the 2008 election, to propose radical changes in financial institutions and, more generally, much wider regulation and government control of companies and consumer behavior. They proposed higher taxes on upper-income families and businesses, and extensive control over executive pay, as they bashed "billionaire" businessmen with private planes and expensive lifestyles. These political leaders wanted to reformulate antitrust policies away from efficiency, slow the movement by the U.S. toward freer trade, add many additional regulations in the medical-care sector, levy big taxes on energy emissions and cut opportunities to drill for oil and other fossil fuels.

Congress did manage to pass badly designed laws concerning financial markets, consumer protection and medical care. Although regulatory discretion failed leading up to the crisis, Congress nevertheless added to the number and diversity of federal regulations as well as to the discretion of the regulators. These laws and the continuing calls for additional regulations and taxes have broadened the uncertainty about the economic environment facing businesses and consumers. This uncertainty decreased the incentives to invest in long-lived producer and consumer goods. Particularly discourages was the creation of small businesses, which are a major source of new hires.

The expansion of government resulting from the stimulus and other government programs contributed to rising deficits and growing public debt just when when the U.S. faced the prospect of big increases in future debt due to built-in commitments to raise government spending on entitlements. Social Security, Medicaid, and Medicare already account for about 40% of total federal government spending, and this share will grow rapidly during the next couple of decades unless major reforms are adopted.

A reasonably well-functioning government would try to sharply curtail the expected growth of entitlements, but such reform is not part of budget deal between between Congress and president Obama that led to a higher debt ceiling. Nor, given the looming 2012 elections, is such reform likely to be addressed seriously by the congressional panel set up to produce further reductions in federal spending.
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The lesson is that it is crucial to consider whether government regulations and laws are likely to improve rather than worsen the performance of private markets. In an article "Competition and Democracy" published more than 50 years ago, I said "monopoly and other imperfections are at least as important, and perhaps substantially more so, in the political sector as in the marketplace.... Does the existence of market imperfections justify government intervention? The answer would be no,if the imperfections in government behavior were greater than those in the market."

The widespread demand after the financial crisis for radical modifications to capitalism typically paid little attention to whether in fact proposed government substitutes would do better, rather than worse, than markets.

Government regulations and laws are obviously essential to any well-functioning economy. Still, when the performance of markets is is compared systematically to government alternatives, markets usually come out looking pretty darn good.

Thomas, Did you happen to read the Opinion Piece in the Friday WSJ by Gary Becker? The title is "The Great Recession and Government Failure"