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.