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Let My Free Market Go: Alternate Recession Strategy

Some economists say free market should be allowed to run its painful course.

ByABC News via logo
January 31, 2009, 9:29 AM

Jan. 31, 2009 — -- The debate on Capitol Hill this week is all about the size of the stimulus: Should it be big? Bigger? A behemoth? But there is another school of thought that's getting less attention.

Call them the do-nothings.

In these free-spending times there's a growing movement among economists who say the best way out of this recession is to do nothing, nothing at all.

"I think there's nothing wrong with doing nothing," David Henderson of the Hoover Institution told "Good Morning America."

Nor do the 250 other economists who signed on this week to an ad in the New York Times and Washington Post.

"Government just doesn't work very well," said Dan Mitchell, a senior fellow at the Cato Institute. "We tried big spending under Bush, it didn't work. We tried big spending under Hoover, it didn't work.

"A lot of bad government policies got us into this mess and we don't have a magic wand to get us out right away," he said.

President Obama and supporters of the $800 billion-plus stimulus bill say it works like this: In a recession, money is scarce. So the government needs to pump money into the economy. That gives consumers money to spend and the economy rises.

The do-nothings, on the other hand, say letting the free markets run their course might cause short-term pain, but long-term success.

For example, Circuit City is shutting its doors and laying off 34,000 workers. The do-nothings say that paves the way for stronger rivals like Best Buy to take over market share.

It's all vinegar and no sugar.

During hard times, the do-nothings argue, Americans would pay down their debt, and cut back on the kind of borrowing and spending that brought the economy to where it is now.

"Some of the discomfort from that is unavoidable. But it makes that transition much quicker and helps us to have a faster recovery," Mitchell said.

The do-nothings point to the banking bailout. Since Uncle Sam invested $165 billion in the nation's eight largest banks, they're worth $418 billion less than they were in October.