Fisher Investments Editorial Staff
US Economy

Numeric Follies

By, 07/06/2009

Story Highlights:

  • Lately, in this economic environment, Americans have been a little more acquiescent with the government playing a larger role.
  • The government's justified every move with economic projections, but these projections are often off-the-mark.
  • This is why government meddling is often accompanied by unintended, negative consequences, or failure.

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America's no stranger to government meddling. After all, the Fourth of July holiday reminds us our independence rose from outrage over British governance. Lately, in this economic environment, Americans have been a little more acquiescent with the government playing a larger role. And the government's justified every move with economic projections boasting of jobs "created and saved," clunkers junked, homeowners and consumers helped. All noble goals, to be sure.

But the government's own eager estimates may come back to haunt. The Obama administration recently announced it will expand its housing-rescue program to include homeowners with mortgages worth up to 125% of their home's value, up from the previous 105% limit. In our view, this change will be dubiously helpful, and highlights the difficulties with government projections. The government previously said the program would help four to five million borrowers, but a mere 20,000 had refinanced under the program since March (i.e., 0.4% of what they projected). Now the government is raising the program's limits in hopes of coming closer to the goal. We wish them Godspeed.

The government's not shy about making other lofty economic projections—for example, the stimulus package's estimated 3.5 million jobs created or (ambiguously) saved and the cash for clunkers' predictions of 600,000 to 1,000,000 cars traded in. These often off-the-mark assumptions come at a price, however, and not just the government's embarrassment at falling short. If the assumptions are faulty, then how good can the government programs that try to meet them be? The answer isn't pretty. This is why government meddling is often accompanied by unintended, negative consequences—or outright failure.

Fact is, it's better to let people sort out their own affairs—in pursuit of their own happiness—rather than have the government create programs that don't do what they attempt to do. Let the government engage in its own numeric follies, but remember the spirit of our forefathers.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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