by Jonathan Huie

Created on: February 12, 2009

America's economy needs a shot-in-the-arm - right now. I'm all for free enterprise. For all its flaws, it is far superior to any alternative. Free enterprise has and will continue to make America the wealthiest nation in the history of the world.

One of the biggest flaws of free enterprise is its tendency to create boom-and-bust cycles. When times are good, optimism reigns supreme. Everyone is sure that things can only get better. Consumers consume, investors invest, businesses hire additional workers and increase production. This is what happened in the late 1990's. In Silicon Valley, as an extreme example, companies speculated on an exponential growth in demand for computers, internet bandwidth, and electronic gadgets of all kinds. No one was without a job, and the salaries of even entry-level engineers were bid up to astronomical levels.

Then bust hits. Goods have been over produced, and begin to pile up in warehouses. Companies stop hiring, then they start laying off. Investors stop investing, and then attempt to convert their investments into cash. Laid-off workers stop consuming. The news media screams "Depression." Pessimism - fear actually - takes hold of the nation's emotions. That's America's situation today - fear rules, and few see good times returning quickly.

The solution to the boom-and-bust nature of the free enterprise system is for government to cool the economy when economic enthusiasm surpasses reality - such as in the late 1990's, and to stimulate the economy when pessimism strikes and American's become afraid to produce, hire workers, invest, and consume. Now is a time for our government to stimulate America's economy.

Critics raise the cry of creating inflation, "counterfeiting" money, and socialism. These arguments are badly timed. 1998 would have been a great time to argue for increased taxes to dampen an over-stimulated economy and build a war chest for hard times - such as today's recession. There will again be times when unrealistic optimism reigns in America, and an unsustainable boom needs to be moderated. That will again be a time to raise taxes to dampen the boom and rebuild the reserves.

It is always difficult to imagine times being different than they are today. Even though the cycles of boom and bust are fully predictable - if with irregular timing, people's emotions get caught up in the feeling that times will always remain good - or will always remain bad, whichever they are today.

America's government needs to spend more than it receives in bad times, and tax more than it spends in good times.

Learn more about this author, Jonathan Huie.
Click here to send this author comments or questions.