"To announce that there must be no criticism of the president, or that we are to stand by the president, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public." -- Theodore Roosevelt


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Wednesday, January 28, 2009

Emergency Stimulus? Part One

It is astonishing to me that this "stimulus" bill is even being discussed. Despite muted objections, it will pass in one form or another, most likely largely retaining the shape of Obama's desires. In these urgent times, urgent action is needed, seems to be the mantra of the bill pushers. I suppose one must ask, are times indeed so urgent?

In recent memory, the economy was far worse. After Carter left office, unemployment was significantly higher than it is now, inflation was rampant (into double digits), unemployment was at a record high, major American-made products, such as cars, were shoddily produced. Does this honestly describe conditions today when interest rates are at a records low? The misery index (a figure arrived at taking the unemployment rate and adding it to the rate of inflation) at the end of Carter's tenure was at 21.9 while in July of 2008 it was 10.5, less than half, per The Boston Globe.

When conditions were much worse, the American economy recovered without the need of a tremendous "stimulus" bill. Free market economies are prone to downturns and correction. Market adjustments are part of the unimpeded course of a free market and, while painful, are simply a fact of economic life. While one could argue for the government to take measures to soften the correction by providing various economic cushions for consumers, homeowners, etc., the idea of rescuing the economy itself is both unrealistic and ineffective. A market must (and will-- even in a command economy) correct itself. There is no other solution. The real question is what sort of damages will be inflicted and how to best deal with these damages.

But hard reality is unpopular. And politics can be (and often is) more about popularity than reality. While it is historically correct to say that the American economy is robust and has weathered far greater crises than our current recession, to say so is to be labelled as "ridiculous" and "out of touch." When Gramm famously said we were turning into a generation of whiners (what else would you bluntly call it when people are running about screaming that we're facing the worst crisis since the Great Depression), he was chastised by McCain and his crew. Political popularity has nothing to do with reality.

The popular answer is to say that the government will kiss it and make it all better. The popular answer is to say green technology will rescue us. The popular answer is to say that greed is what drove us to this "desperate" and "dangerous" situation and government largess will rescue us all and stabilize the economy.

This is nonsense. It is an option that has been tried again and again both in command economies and in relatively free ones. The Japanese in the 1990s, the Soviets, the British, the Chinese, the Koreans (north and south), have repeatedly tried to save the economy during times of readjustment. The simple answer is it doesn't work. Such efforts simply make things worse.

How many times do we have to make the same mistakes to learn this?

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