The science of economics is ushering in a new age of prosperity. Scientific breakthroughs in the way we manage our economy are fundamentally changing how the markets work, and this is making it simpler than ever before for businesses and consumers to navigate our economic environment. This article covers some of the cutting edge advancements in economic management that are making our markets friendlier to investors, consumers and businesses alike.
Engineering Risk Out of the Market
Since the financial crisis of 2007-08, our economic officials have made a concerted effort to reduce market risk, and create a safe investment environment for both institutional and retail investors. As part of this effort, our Federal Reserve bank has introduced a range of monetary stimulus programs, most notably a series of rounds of Quantitative Easing, a process in which central banks buy up financial assets from a struggling financial sector. Quantitative Easing stimulates the economy by relieving the financial sector of toxic assets, lowering interest rates, and injecting money into the economy. The effects of this monetary easing have been nothing short of outstanding. Since the implementation of these policies, our stock market risen to over 2000 with very little volatility, and has been supported by a resilient trend line. This investor-friendly stock market rally has made both retail and institutional investors rich, helping many to recuperate their losses from the recent crash.
In addition, interest rates have continued to fall, making capital available to businesses and our government, and fueling economic growth.
And despite this continued economic growth and lowering of interest rates, inflation has remained historically low.
Fostering Economic Growth
After capitalism self-destructed in 2007-08, economists realized that the economy had to be more carefully managed in order to sustain long term economic growth. In accordance with the advice of top economists such as Dr Alan Blinder and Dr Paul Krugman, our government introduced a series of fiscal stimulus programs such as TARP, Cash For Clunkers, and a Jobs Bill. These programs injected much needed capital into a dying economy, helping to jump start economic growth and get the money flowing again. In combination with our Federal Reserve’s Quantitative Easing programs, these measures have done wonders for our economy, with non-farm payrolls rising consistently month on month for the last five years. By any measure, these programs have been a stunning success.
What Does the Future Hold?
In order to continue to enjoy the fruits of scientific economic management, we need to further delegate policy making decisions to the economists who best understand the theory and practice of economics. I worry that populist legislation such as Ron Paul’s controversial “Audit the Fed” bill could one day compromise our independent monetary policy by bringing it under the control of politicians rather than economic experts. Any economist will tell you that the division of labor is essential to economic growth, and this principle applies just as strongly to the field of economic planning. Policy decisions need to be made by experts only, so that we can continue to enjoy the growth and prosperity that we have become accustomed to.