Politicians Play While the Second Shoe Begins to Drop

Let me begin this blog post with a confession:  I’m not an economist.  I don’t play one on TV and I didn’t even stay in a Holiday Inn last night.  I do recognize, however, that the better grasp you have on human behavior the better understanding you’ll have for the economy–the real economy that is the lifeblood of our national success.  I also profess to be a student of economics.  I began learning from my father, a banker, as a small child and I spent some time in banking myself during a break from seminary training in the 1980s.

Something important I learned from my father is not only that people are social animals, we’re also a bit like cattle.  We move together unthinkingly at times, even though we’re headed as a group toward a difficult situation.  In my mind’s eye I can see a bunch of talking cattle moving together toward a cliff.  One or two begin to complain that there is danger ahead, but habit and intransigence hold the herd together.  The pressure of the majority, and the ridicule of others have the effect of convincing the prophets to hush and then the inevitable occurs.  The entire herd goes off the cliff.

It’s an effective metaphor for what I think is one of our greatest national problems:  an ineffective and out-of-touch elite class of “super citizens” that feeds on political inbreeding, is paralyzed against genuine change that would be good for our nation, produces little or no imaginative thinking other than regulating (telling us what we can’t do) and taxing (seizing what we have earned by our labors), being herded by its own lack of vision toward inevitable destruction and taking us all with them.  Its myopia and lack of creativity is supported by a childish cast of media personalities more interested in being stars and supporting “their guy or gal”  than doing the difficult work of honest investigative reporting.  Human history is littered with examples of failed nations:  Assyria, Babylonia, Persia, Greece, Rome, the Ottoman Empire.  Must we join them?  Even worse, as we go the way of the dinosaur, must we do it so gladly?

What began as classical liberalism was a great boon to humanity.  Inspired by the Enlightenment and humanity’s discovery of its own power and ability, it was intended to liberate us from the limited thinking that held us back as a species and mired us in poverty and tyranny.  Once established upon the foundation of equal opportunity and equal status before the law, liberalism today has become a sad caricature of what it once was.  Ridiculously it attempts to enforce equal outcomes, a fool’s quest if ever there was one.  It is bankrupting us, preventing creativity and effort, increasing government at the expense of the economic power of citizens, and encouraging irresponsible monetary policy.

Our politicians are having a great time in Washington.  As they play, the economic news gets worse and worse.  Remember Nero?  They say he fiddled as Rome burned.  There’s a whole lot of fiddling going on in Washington these days, and because most of the press is convinced that Democrats care more about the average American than Republicans, they give far too little attention to the dangerous cliff toward which we’re sadly progressing.  (By the way, more than one study has confirmed the left-leaning bias of the media, including a 1997 survey by the American Society of Newspaper Editors and a 2002 study by Dartmouth College.)  Warning bells are sounding and too few among the political and media class are making note of it.

A few days ago the president of the World Bank warned that Europe is heading into a financial “danger zone.”  British markets suffered their most disastrous drop in three years.  Job growth in the US was reported on Friday as stagnant, the official unemployment figure remains above 8% (it’s actually much higher), and more and more economists are talking about a new economic downturn of global proportions.  As I have been predicting for some time now, Round Two of economic deprivation is headed our way.  I now believe that this past week can accurately be described as the early phase of the “second shoe” of economic pain as it begins to drop.  The problem will worsen and we’ll hear cries from DC for more spending, and a third round of “quantitative easing” (so-called “QE3,” an expression that means the government will probably create more money and pump it into the economy).  These rounds of “easing” have the same effect as giving heroine to an addict.  The addict feels better for a while but the underlying problem remains and will eventually kill him unless he makes a major change in lifestyle.

Will the politicians in their playground agree to the major changes needed?  No, most of them won’t–at least not until the pain is unbearable.  (There are some voices calling for fiscal responsibility but they are few in DC.)  The economic darling of the Left, economist Paul Krugman has gone on record saying that a new round of economic failure will be caused by the fact that we didn’t spend enough when the original problem started!  He has become so influential with the present regime in Washington that I no longer refer to the dominant (failing) economic model as a Keynesian one (Keynes argued for government spending as a model for solving economic woes) but as Krugman-Keynesianism.  I hope it catches on.

Here’s why Krugman’s call for “more of the same” is so ridiculous.  First, it comes at a cost.  Yes, government spending can have a positive effect on the economy.  But it has a backside cost that is foisted upon the earners and producers who make that economy work.  When government spending is out of control its counter-effect is disastrous upon the economy.  Second, the Krugman-Keynesian model was predicted to fail by many economists who prefer models other than the big-spending model of Keynes (economists such as those from the Austrian School inspired by Ludwig von Mises).

So let’s make this choice as simple and obvious as possible.  We can avoid the cure and spend more even though it was predicted to fail and has now demonstrated its failure, or we can begin to get serious about debt and serious about encouraging people to start businesses, expand businesses, and hire personnel.  To do the latter of these two options we’ll have to demonstrate that well-paid government elites see the problem.  And let’s be honest.  That won’t happen as long as big-spending Democrats control the White House and the Senate.

I suspect we’re looking at a full sweep in DC come November.  If the Republicans have the White House and both chambers of Congress, they’ll have to begin some very unpopular measures quickly.  And even that may not be enough.  Once the economic shoe begins to drop, economic gravity does the rest.  And, unfortunately, there are plenty of big-spending politicians in the GOP.


7 thoughts on “Politicians Play While the Second Shoe Begins to Drop

  1. A crash, a Katrina or any other disaster may be the spark that sets off the doomsday John, many people will follow the herd over the cliff, even with “Paul Reveres” like you and me sounding the alarm. In fact, many of my friends AND family members, despite their respect and faith in me in general, believe that I’m an alarmist and kook when it comes to the economy. Therefore, even though I’m absolutely sold that we are facing a doomsday scenario, in order to convince them that we must change course, I give them an alternative reason why. I remind them that, since the dollar is the world’s reserve currency, our insistence on a policy of government borrowing, printing of money and keeping interest rates artificially low actually steals money from people who can least afford it.

    1. Our veracious appetite for borrowed money actually encourages capital that would otherwise be invested in industry and business to be instead used to buy government bonds. This drain on capital is one of the reasons we are not seeing a recovery in our economic malaise and high unemployment, particularly among the least educated and skilled. Except during the WWII years, we are now borrowing more (as a percentage of GDP) than at any other time in history. It is simply unsustainable.

    2. In order to hide some of of the borrowing and pump more dollars into the economy, the Federal Reserve has a program called Quantitative Easing. This simply means that the Fed electronically creates more dollars (recently QE2 created over $700 billion) out of thin air! Then, the Fed uses this money to buy U.S. government bonds to finance more and more debt. Unfortunately, this policy is robbing you and me via inflation. Simply put, by injecting new money into an economy where no new wealth or productivity has been created, you simply make the dollars (and investments and savings) of the people effected by that economy WORTH LESS, in essence robbing us all. Not only can you see it in America with high food and gas prices, it is particularly painful to watch food prices increase in developing countries around the world. You see, Americans only spend 12 – 15% of our income on food. Folks in many countries like Egypt spend 50% or more of their incomes on food. By causing inflation, we are robbing them too!

    3. Having the Federal Reserve keep interest rates artificially low severely hurts retirees who traditionally keep their savings in bank CDs and other low-risk instruments that rely on interest rates to to provide them with an income. With CD rates around 1%, our senior citizens are having to spend the principal portion of their savings at a higher rate than planned.

    In my opinion, it is absolutely criminal what our government is doing! Like you, I’m hoping and praying for a monumental change this November. However, my fear is that it already may be too late. We have done so much damage that is similar to Europe.

  2. Did anyone else catch these two events.

    1. Congress rushes an anti-gender based abortion bill, to floor, under rules that would require a two thirds majority to pass. Even though the Republicans Knew the bill would be defeated, they spent thousands of your tax dollars, so they could “create” an issue for the upcoming elections.

    2. Congress ( Reps and Dems ) spent hundreds of thousands of dollars prosecuting Roger Clements for perjury. What’s insulting to taxpayers is that while spending ( wasting ) all that money, the Congressmen involved ( the eyewitnesses to the perjury ) didn’t even show up to testify.
    What really happened was that a bunch of Beltway lawyers, who were hired to help prosecute the case, made money.

    These are just two examples of the complete disregard, by both the Reps. and Dems, for our country’s financial situation.

    I, like so many other Americans, work hard for the taxdollars they take from me. I am tired of them wasting my efforts.

    If you live in the Fourth Mississippi congressional district, I would appreciate you visiting my website, ronwilliamsuscongress.com , and see if you agree with me.

    Ron Williams

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