So let me pick up where I left off – it’s all about the money, or as James Carville famously opined, “It’s the economy, stupid!” And before you go off about him being a democratic hack, remember that he also said, “The reason I became a Democratic operative instead of a Republican was because there were more Democrats that didn’t have a clue than there were Republicans.” You got to love a guy with that level of political egalitarianism.
So anyway, in our present crisis, we must first decide how we feel about the government spending gobs of money to encourage economic growth. For the record, this concept of spending our way out of a recession is by no means a new idea, but rather a very old one. It goes back to the British economist, J. M. Keynes, who’s ideas were implemented by Franklin Roosevelt and the New Deal. It is an article of liberal faith, devoutly believed in and fervently preached by our new president, that government spending by an alphabet soup of newly created federal agencies (WPA, CCC, etc) dug us out of the Great Depression in the 1930’s, and that this same process will save us again today. This is an entirely predictable tax and spend solution from a community organizer from Chicago. The problem with this approach, however, is that it attempts to address a fundamentally new problem, with an old and still much-debated economic answer.
Remember that our new president has pledged that his stimulus plan will add 3-4 million new jobs to the economy. When Roosevelt created the New Deal in 1932, core unemployment in this country stood at 25%. Seven years later, in 1939, on the eve of WWII, it was still 19%! A strong case can be made that military enlistments and spending associated with the war did far more to finally end the Depression than the New Deal did. There is simply no evidence to suggest the remotest likelihood that government spending can meaningfully impact employment over the long term. So soak in the hot tub and digest that idea for a minute or two.
The other big problem with the Keynesian government spending solution is that when the government borrows and/or prints money to spend, the twin devils of inflation and currency devaluation inevitably follow. Following the Great Depression, and faced with the shared peril of world war, we allowed our government to impose broad rationing and nearly absolute wage and price controls to hold down inflationary pressures.
Our new president has mercifully declined to speculate about what his new administration’s answer will be when rising interest rates and inflation begin to consume our deficit-spending-driven recovery, as they surely will. Even Dr. “Change-You-Can-Believe-In” Obama will fail in getting the American public to swallow the medicine of wage and price controls, and when his approval ratings plummet as he tries, you can say you read it here first!
So now that I have scourged the Democrats for trotting out their 70-year-old prom queen in some tarty new makeup, do I have a better answer? Only this – let’s be uncommonly cautious about heeding the siren song of “show me the money.” Let’s demand, again and again, that we have accountability for a level of debt that will dog our way of life for decades to come. Let us focus patiently on the creativity of our free-enterprise system to find the answers we need, and the operative word here is “patiently.” I will agree with the president only in this – we have the capacity to rebuild our economy, and we will, but it will take time. Now let’s talk about dislocation and new beginnings – what American workers need to hear as we go forward, but that’s a rant for another day.
(Editor's note: You can find part one of this series here).