House of Eratosthenes

One of the strongest factors promoting recovery from our 10 post-World War II recessions was an unshakable conviction that, regardless of the immediate trouble, the American economy is fundamentally strong. Based on this underlying confidence, recessions and recoveries roughly conformed to the principle of the bigger the bust, the bigger the boom, and vice versa.

Thus real growth in the four quarters following postwar recessions averaged 6.6% and 4.3% over the following five years. As the chief economist for Barclays, Dean Maki, said in this newspaper on Aug. 19, “You can’t find a single deep recession that has been followed by a moderate recovery.”

That may no longer hold. Since the current recession has lasted a record seven quarters—and has been marked by a near-record average GDP decline of 1.8% per quarter—we should be witnessing the start of a powerful and sustained recovery. Yet forecasts of a 2% recovery in growth are only one-fourth as strong as postwar experience suggests. Meanwhile, unemployment sits at a generational high of 10.2%.

Why all the pessimism? The source appears to be a growing fear that the federal government is retreating from the free-market economic principles of the last half-century, and in particular the strong growth policies that began under Ronald Reagan. A review of the economic policies instituted by President Barack Obama and the Democratic-controlled Congress lends credibility to this concern.
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Anyone who believes the Democratic Party’s recently expressed concern over the deficit should look at the relentless growth of spending on its watch. Total nondefense spending set an all-time record this year—20.2% of GDP—double federal spending as a percentage of GDP during the height of the New Deal in 1934. Even without this year’s stimulus bill and last year’s bailout of the financial system, nondefense discretionary spending authority still grew by 10.1% in fiscal year 2009 and is projected to rise by another 12% in fiscal year 2010. Forty-three cents of every dollar of this spending is borrowed money.

Given the magnitude of federal borrowing, there is good reason to expect higher interest rates and strong inflationary pressures in the future.

It is hardly surprising that many investors are reaching the conclusion that this administration and Congress favor policies that virtually guarantee the economy will not return to the climate of low interest rates, benign inflation and strong growth that we knew from 1982-2007. These investors understand a simple truth that current Washington policy makers fail to grasp: When you repeal the Reagan economic program, you repeal its results.

How do we solve the problem? First, we have to define it.

The fundamental problem with what we are doing right now is an enduring and often unstated belief that expurgation is the key to our success. The economy is just part of our society, and our society is suffering because it isn’t yet pure enough. People in charge right now are giving lots and lots of speeches about things — it seems to be their answer to every single problem that comes along. And I don’t hear very much about people-making-money-helping-other-people in those speeches. I don’t hear much about liberty or freedom.

What I do hear about is other people being the cause of all our problems. Certain types of people. “Wall Street bankers who caused this mess in the first place” is a more familiar phrase than one would expect any intact phrase to be, in a healthy, thinking environment. People clinging bitterly to their guns and their bibles. Sometimes I hear about sacrifice. We are to become rich by first becoming poor…or, forget the rich part, it is our destiny to simply be poor and we shouldn’t want anything more than that. We already got ours, now we have to sacrifice for whoever is behind us in line. The equal distribution of our misery, is much more worthy of mention than the ending of it.

I don’t recall Reagan saying or doing anything like this. I don’t recall him saying anything about fixing the economy solely for the benefit of people who eat arugula…or those who don’t…or people who cling to their bibles, or people who don’t. He spoke of The People as — investors. Stakeholders. Real people, who had every right and reason in the world to expect their representatives to run the government that belonged to them…non-destructively.

We were waiting for the representatives to roll back a bloated and harmful government. To repair a mistake. The way a man might wait for you to roll your car off his foot.

Our current administration came riding in on a white horse as a champion delivering us from a bad situation, as a remedy to past mistakes. But it doesn’t seem to think the representation is what rolled the car onto the poor guy’s foot; it seems to think he stuck his foot under there. Come-uppins seems to be the prevailing theme binding all these speeches together.

We are to be purified of our past sins through pain. Salvation may lie on the other side…things may get better after they get worse…maybe. But no promises there. The pain is the important thing right now. Sacrifice…apologize…grab-a-mop, and I-inherited-this-mess.

What’s the solution? The message that needs to go to our leaders has to be one of expectations within a certain window of time. Things should improve. It’ what they’re there for. If they can expect re-election while things are not getting better, then it is silly to think there’s any incentive for them to make things better.

FDR’s tarnished-silver legacy is going to have to get a little bit more tarnished here, I’m afraid. And it should. There’s no reason for a recession, even a giant, rancid, history-making recession, to drag on over an entire decade. But when a sour economic climate can be used as a foundation for a re-election campaign, as opposed to just for regime-change campaigns — that is what happens. Countries become saddled with cancerous governments, layers of bureaucracy politically invested in that country’s continued suffering.

And then those countries turn into dictatorships. Their people are told what to think. They’re told to believe things are getting better when they really aren’t.

If this is not to happen in America, we need a better job definition for our leaders. The message needs to be expressed that things should be getting substantially better, and soon. Or else. If we ask for them to tell us sweet little lies every election cycle, then that’s exactly what they’re going to do. This would cost us not only our prosperity, such as it is, but our freedom as well.

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- House of Eratosthenes | 11/20/2009 @ 07:48
What’s the solution? The message that needs to go to our leaders has to be one of expectations within a certain window of time. Things should improve. It’ what they’re there for. If they can expect re-election while things are not getting better, then it is silly to think there’s any incentive for them to make things better.

This is one of the reasons I foresee a major housecleaning in Congress next year. The American people, fairly or not, will hold the ruling party responsible for the condition of the economy. It is probably the single biggest reason that Bush 41 was tossed out back in ’92 (well, that and the ‘no new taxes’ thing)…and that Obama was elected amid Bush 43’s tanking approval ratings.

Gah. To go back to the Reagan years, when the president viewed his role as Economy Manager as having one purpose: to unshackle the American people and get government the hell out of the way. I’ve had my fill of politicians trying to “help,” a la Clinton’s prattle about “government giving people the tools they need to succeed.” The Democrats have so many fundamentally wrong assumptions and ass-backward theories on economics, it’s not even funny.
- cylarz | 11/21/2009 @ 01:16

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Repealing Sound Economic Policies Means Repealing Their ResultsFriday, November 20th, 2009

Repealing Sound Economic Policies Means Repealing Their Results
Friday, November 20th, 2009