Back to Basics

People avoid silence because they’re afraid of what they might hear. Although we value our freedom of speech, polite conversation in America is subject to one crushing rule, “Don’t talk about religion or politics!” Most of us were raised with this stifling warning in our ears. The purpose was to avoid arguments at the dinner table but the result is a population unconcerned in the two subjects affecting life the most. I can only talk about the weather for so long which displays the wisdom of memorizing sports stats and watching American Idol. With the two biggest topics off the table we’re faced with either trivial pursuit or silence. Bored with the weather and having neglected my memorization and viewing options I propose a topic to stimulate vigorous conversation without causing any bickering: economics.

Barry, Harry, and Nancy knew they had to take us through-the-looking-glass in four short years. With no effective break on their power for the first two years, Congress moved so fast their yesterday became our tomorrow. That tomorrow is now today. The ruling party rammed their agenda through without one opposition vote. Every revolution needs an emergency to justify radical surgery and the economy is the emergency available. Consequently, these descendants of FDR and LBJ shoved a raw deal down the throat of a great society.

Almost everyone is in agreement that the first stimulus failed. According to MSNBC, “In January, Obama’s economic team predicted unemployment would rise no higher than 8 percent with the help of $787 billion in new government spending.” However, according to the LA Times the unemployment rate in May reached a 25-year high of 9.4 percent. The President may see glimmers of hope but Say-it Ain’t-So Joe said he couldn’t rule out a second stimulus telling us the administration which ran on the slogan, “The worst economy since the Great Depression” misread how bad the economy was. How bad is it? What’s worse than the Great Depression? What’s their answer to this baddest of bad economies? What’s their Plan B? Try Plan A again, and again, and again? I think what our leaders need as they drive the largest economy the world has ever known over the cliff is Economics 102, Macroeconomics or how an economy works.

Most people, including the best-government-money-can-buy, look at the economy as if it were controlled by magic having no idea where the rabbit goes or where the doves come from, and since I doubt I’ll convince any of our all-knowing leaders to enroll in freshman macroeconomics I want to offer a crash course in Economic Reality.

1. Government regulations distort markets and inflate bubbles.
2. Every generation experiences at least one bubble and at least one bust.
3. Every bubble bursts.
4. Every burst bubble is followed by a panic.
5. Panics inspire economic regulations.
6. Economic regulations reflect political ideologies not economic realities.
7. Economic regulations always regulate the excesses of the last bubble.
8. Economic regulations are always blind to the excesses of the next bubble.
9.

Democrat/Socialists, intent upon thrashing the business community in the name of socialistic equality of income and wealth, are racing full speed ahead in the foggy dark, confident that they know this time how to avoid collision with economic icebergs.
The recent Beige Book reports by the twelve Federal Reserve District Banks reveals an economy that is, at best, expanding slowly in some sectors.

A Wall Street Journal article dated November 19, 2012, reports:

Investment Falls Off a Cliff
U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty

U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.

The Obama administration, post-election, has resumed hammering business with regulations designed to add hundreds of millions of dollars to corporate expenses.  No one knows what tax rates will be or whether, as some Democrat/Socialists threaten, President Obama will deliberately allow current tax rates to expire in January, as a way to gain political leverage.  For the radical wing of the Democrat/Socialist Party, smashing our society down to socialistic equality of income and wealth is a goal that trumps business-led economic revival.

With uncertain prospects for next year’s tax rate increases and for legislation to bring the burgeoning Federal deficit under control, this New York Sun editorial is timely:

Norquist’s Finest Hour
Quote:

To them all we would say remember 1937. That was the depression within the Great Depression. For a while it looked like things were trending for the better. FDR bought the 1936 election with unprecedented spending, just like President Obama did in 2012. Then came a cutback in spending and an increase in taxes, and the country promptly went into the most brutal downturn of the whole 1930s. The liberals, and a handful of Republicans, are all trying to make Mr. Norquist the goat in all this. If we get a 1937 type event because of tax increases, they’ll be singing a different tune. The left likes to say that it was the war that finally pulled us out of the Great Depression. The alternative today — read our lips — is tax cuts on the margin, deregulation, and a move to sound money.

The present ugly mood in the nation is directly traceable to the man who is the worst president ever elected to that high office, Barack Hussein Obama. His utter lack of regard for our guiding instrument of governance, the Constitution, is rivaled by his contempt for all Americans.

The June 25th Rasmussen Reports polls found that 55% wanted the U.S. Supreme Court to uphold Arizona’s immigration law. (It struck down most of it but retained the state’s right to authorize police to request proof of citizenship.) 54% favored repeal of Obama’s healthcare law and, as we know, it was retained based on being deemed a tax.

Elections always exacerbate the nation’s mood and, in a nation that is so evenly divided between conservatives and liberals, their outcome has often been decided by “independents”, voters that swing in either direction depending on events and candidates. It’s a toss of the coin whether Obamacare or the economy will be the driving issue of the November elections.

A look back at American history provides an answer to why the economy is suffering though frankly in may offer little comfort. That said, it is still worth knowing where we came from to reach this present point.

America has been through previous recessions and even a Great Depression, but what is generally unknown is that they were the result of presidents and congresses that did not understand the workings of the nation’s free market economy.

It was Lincoln who put in place tariffs to protect American manufacturing and they stayed in place even through Franklin Roosevelt’s struggle to deal with the Great Depression. Following the end of World War II, the average U.S. import tariffs on durable goods fell from almost 30% to around 8%.

The virtual removal of tariffs and the embrace of global “free trade” are at the heart of the nation’s present financial crisis.

As Martin Seiff, the author of “That Should Be Us”, an analysis of the nation’s present crisis, wrote, “The Republican Party of Abraham Lincoln and Dwight D. Eisenhower was not a party of free trade. Every one of the ten Republican presidents who succeeded Lincoln remained committed to his tariffs policy.

“A tariff in fact acts as a tax on imported goods, but a tariff simultaneously acts as a tax break and a huge incentive to domestic investors to invest their money in domestic U.S. manufacturing instead…international investors love to invest in an industrial economy that is protected by tariffs.”

“It was not the abstract theory of democracy or the philosophical superiority of freedom that attracted more than thirty millions immigrants to the United States in the seventy years from 1860 to 1930; it was the prospect of a better, wealthier life. Democracy flourished in the United States throughout that century for the same reason that it failed in Germany in early 1930s. It failed in Weimar Germany because the economy collapsed, not just once, but repeatedly.

It’s a cliché that nations and men repeat the same errors, stumbling into various crisises. The locations may change, but the patterns of history remain.

The world is teetering on a new Great Depression. Democracies are at risk. In the 1930s there were an estimated two billion people worldwide. Today there are seven billion people in the world; the pressures to feed them and meet their other needs have increased exponentially. It strains relations between nations and within them.

In the U.S. the Great Depression began in 1929 and lasted until the Japanese attack on Pearl Harbor in 1941 that brought the U.S. into the conflict. World War Two had begun in Europe when Nazi Germany invaded Poland in 1939 and then invaded France in 1941. In Asia the Empire of Japan invaded Manchuria in 1931, expanding further into China in 1937.

Over eighty years ago the time was ripe for aggression by those with the will to pursue it. At the time it was lacking in the U.S. that had a long tradition of avoiding “foreign entanglements.” The military was hardly prepared. By contrast the U.S. has acted since the end of World War Two as the global policeman protecting the sea lanes and its allies.

What America had, however, was an industrial base that was up to the task of becoming “an arsenal for democracy.” Today our manufacturing base has been hollowed out with much of it outsourced to other nations or harmed by unions, excessive regulation, and trade policies that left them at a disadvantage.

China, by contrast, is largely self-sufficient and has built its energy production sector while our manufacturing base, along with the ability to provide the energy it requires, is being destroyed by Environmental Protection Agency regulations and Interior Department restrictions on new mining and drilling.

I cite this because, in my view if not the official one of economists, the U.S. is in a Depression. Across the Atlantic, Europe is facing the collapse of its political and financial union.

There are huge numbers of unemployed in the U.S. even if there are no soup lines as existed in the 1930s. Much of the middle class has seen some forty percent of its wealth disappear, mostly in the depreciation of the value of their homes. Many are on some form of government dole whether it is food stamps or unemployment compensation. The U.S. debt is historic–$15 trillion and climbing–and could prove catastrophic.

The present times mirror earlier ones in which empires trembled and fell. Neither Russia nor China would be unhappy to see the greatest capitalist democracy in the world fall into ruin.

Syria’s internal conflict bears an eerie resemblance to the Spanish Civil War from 1936 to 1939 when that nation fell under fascist control, preceding World War Two. In Syria, the United States, Europe, and their Arab allies are aligned against the dictatorship of Bashar Assad while, on the other side there is Russia, China, Iran and Hezbollah, an Iranian proxy that controls Lebanon.

Just as the League of Nations proved incapable of ensuring peace in the run-up to World War One, so too the United Nations has no such capability today. It is utterly corrupt and has its own agenda to impose itself on the world as a global government.

Some of the most enduring images of the great depression of 1929-1939 are those of long lines of obviously beaten-down men in soup lines… hungry women and children with haunted eyes. Shantytowns sprang up all over the country, called Hoovervilles in mocking derision of the disastrous policies that engendered the crash and the even worse schemes which perpetuated the depression until 1939 and the advent of the Second World War.

Twenty five per cent unemployment… some eleven million three hundred thousand people lost their jobs, homes and farms, out of a pre-depression population of 120 million. Contrast that to today, with a population of over 312.8 million with some 27 million American workers no longer on the unemployment rolls. These folks didn’t just fly to never-never land. They are the flotsam and jetsam of Barack Hussein Obama and his DeMarxists’ living fantasies. It’s that pesky hopey changey thing again.

Today, there are forty five million plus families dependent on food stamps in Barack Hussein Obama’s ‘Ameritopia’ (thanks, Mark Levin). There are 15.7 million Americans officially out of work, despite all the DeMarxist spin to the contrary. In Barack Hussein Obama’s America, one million one hundred thousand jobs were lost by women. So much for the Republicans’ and Mitt Romney’s supposed ‘war on women’.

The true war is on all of America and, just like the depression, it was brought on by unsound monetary policies. The world’s, and most specifically Europe’s, economy was devastated after the First World War. It was U.S. money and U.S. know-how and determination that rescued Europe et al from the utter devastation that was World War Two, rather than leave them to the gentle ministrations of the Soviets and their slave states.

We cannot lift Europe from her own abject ignorance of viable economic policy. It has as much to do with the attitude of subservience that seems to be pervasive in so much of the continent. A relic of lingering feudalism, which we here in the United States rejected hundreds of years ago. They call it socialism now. We know it as communism light. It’s antithetical to everything we believe here… at least the vast majority of us.

We’ve watched the DeMarxists attempt to destroy our republic with growing anger and resolve, which has translated itself to a nationwide movement dedicated to the removal of Barack Obama and all of his Marxists. It’s becoming apparent to all but the most dedicated of the kool-aid crowd that Obama and the reds are in deep Kimchee. The tone around the Washville swamp is one of increasing desperation, as the Democrats assess the magnitude of the public’s displeasure. Further, they cannot hide the dismay and confusion that’s boiling out of the nation’s capital these days.

It’s not just Obama’s crowd that’s sweating it either… a look around at races across the nation will show that Tea Party candidates are winning, and winning big. The great RINO hunt of 2012 is well under way. All of the bought-and-paid-for votes of the Republican turncoats will be scrutinized, along with the Republican Party’s limp-wristed and ineffectual leadership. There is much to be reconciled there as well. Americans deserve leadership responsive to the voters that they serve.

Semper Vigilans, Semper Fidelis

© Skip MacLure 2012

During and after his 2008 campaign, Barack Obama was hailed as the second coming of Franklin D. Roosevelt. History records that Roosevelt presided over the Great Depression, begun in the previous administration of Herbert Hoover who got most of the blame. Roosevelt’s policies extended it well beyond the normal recovery from a recession.

In his book, “Dupes”, historian Paul Kengor, wrote “Roosevelt won in a landslide in November 1932. To liberals and traditional Democrats everywhere, he was more than just a new face at 1600 Pennsylvania Avenue. He was a kind of political savior at the most desperate time in their lives.”

Roosevelt was immediately assailed by the Communist Party USA as he launched his New Deal stew of programs intended to reverse the effects of the economic crisis. As Kengor notes, “No president had ever moved so far to the left, and so quickly, but it was not enough for the comrades.” They portrayed Roosevelt “as a warmonger bent on wreaking havoc on the poor USSR (Soviet Russia)” because they feared the U.S. might go to war against it.

As we now know, some of Roosevelt’s closest advisors were either Communists or extremely sympathetic to Communism. Harry Hopkins was one of them and was later exposed as a likely Soviet agent. The Venona transcripts of secret communications between U.S. Communists and their Soviet handlers revealed this.

Obama came into office following the 2008 financial crisis which, as we know, he blamed entirely on George W. Bush. Triggered by Fannie Mae and Freddie Mac, two government sponsored enterprises, the crisis reflected the many “subprime” mortgages they had pressured banks to make. Bush’s efforts to rein them had fallen on deaf ears.

Like Roosevelt, Obama initiated a number of policies and legislation, not the least of which was his “stimulus” package to turn around the economy, but which has left it with a higher level of unemployment today than in 2009-10. His other initiative, stimulating Green energy has cost taxpayers billions.

In “New Deal or Raw Deal?” historian Burton Folsom, Jr., wrote of Roosevelt’s National Industrial Recovery Act (NRA) documenting that it and other measures did nothing more than balloon the federal government while interfering with the normal action of capitalism to recover—as it had many times before—from financial crises.

Oklahoma Senator Thomas Gore, first elected in 1907, summed up Roosevelt’s efforts saying at the time, “No depression can be ended by gifts, gratuities, doles, and alms handed out by the Federal Treasury, and extorted from taxpayers that are bleeding from every pore.”

As Folsom put it, “Capitalism had failed in Roosevelt’s view of the world and that opened the door for new experiments in government ownership and government direction of the economy. Private enterprise would become public enterprise.”

Why anyone would think that Barack Obama, a “red diaper baby”, raised by leftists and mentored in his youth by a card-carrying Communist, Frank Marshall Davis, would act any differently than Roosevelt, repeating all his mistakes, is to be ignorant of history.

The Worst Recovery Ever

Writing in the April 3rd Wall Street Journal, Edward P.

Ask any financial advisor what to do when you are drowning in debt and they will tell you to spend less and pay down your debt. This is just common sense. However, if you ask politicians what to do, they will advise that the nation spend more and borrow more.

Despite a huge national debt and deficit, the federal government just concluded its biggest spending year with its second biggest annual budget deficit. For fiscal 2011 which ended September 30, the government spent $3.6 trillion, an increase over the $3.52 trillion posted in 2009.

The budget “deficit” is the difference between the revenues that government took in and what it spent. The “debt” is the accumulation of yearly deficits. The U.S. has a debt of $15 trillion and this grows by billions daily due to the interest that must be paid on the amount of borrowing required to sustain its operations. Fully 40 cents of every dollar the government spends is now borrowed.

The Congressional Budget Office noted that the deficit is “greater than in any year since 1945” as World War Two wound down. As a Wall Street Journal editorial expressed it, “The Obama years have racked up the three largest deficits, both in absolute amounts and as a share of GDP, since Hitler still terrorized Europe.”

In the wake of the failed Super Committee, charged with cutting a mere $1.2 trillion over ten years, the editorial noted that “President Obama fiercely resisted even the token spending cuts for fiscal 2011 pressed by House Republicans earlier this year.” He continues to press for higher taxes on “the rich” despite the fact that the rich pay the lion’s share of income taxes already. By Obama’s definition, the rich is anyone earning more than $200,000 a year. By most definitions, that qualifies as middle class, not rich.

We are entering a period that is likely to be called something like the Great Depression Two or 2.0. History usually serves as a guide and, as Hans Bader, counsel of special projects for the Competitive Enterprise Institute has noted, “government spending (and budget deficits) rose dramatically in the Depression under both the Hoover and the Roosevelt administration…(both) increased, rather than cut, spending in the Great Depression.”

It is a dangerous thing to cling to myths about the Great Depression. Bader says “Big government liberalism is a religion, not a school of rational thought. A false understanding of the history of the Great Depression is the cornerstone of left-wing ideology…”

The Great Depression was a series of recessions. In the August 5 New York Times, Bader noted that “In 1937, the Supreme Court upheld anti-business legislation that had been struck down by lower courts, like the National Labor Relations Act, in decisions like National Labor Relations Board v. Jones & Laughlin Steel Corporation. That made unions more powerful, led to a wave of costly strikes and discouraged hiring. The increased wages demanded by unions resulted in employers laying off many workers.”

Does this sound familiar? Efforts by States to rid themselves of collective bargaining, primarily with civil service unions such as Service Employees International Union (SEIU), is a reflection of the way they have drained public coffers with wage, pension and health plans that exceed those of private enterprise.

It failed for presidents Hoover and Roosevelt in the 1930s Depression, just as it continues to fail for Obama.
All of Obama’s economic stimulus endeavors – the $800 billion 2009 stimulus, mortgage refinancing, home buyer credits, cash-for-clunkers, and his current so-called jobs creation program – are just one-shot dribs and drabs of the sort that failed for President Franklin Roosevelt in the Depression.  The metaphor then was pump-priming: the concept that dumping a bit of water into the pump and exercising the pump handle would restart the economy and end the Depression.  None of it worked.

In Paul Krugman’s terminology, the economy failed to gain traction.  High unemployment stretched out for 12 dispiriting years.  We are now traveling the same path for the same reasons.

The following is an op-ed article appearing in the September 25, 2011, online edition of the Wall Street Journal.

SEPTEMBER 26, 2011

Stimulus and the Depression: The Untold Story
The U.S. doesn’t need another war to revive the economy. We need a policy turnaround like the one in the late 1930s.

By HAROLD L. COLE AND LEE E. OHANIAN

About one-half of President Obama’s proposed $447 billion American Jobs Act consists of payroll tax holidays designed to boost spending and increase hiring. But these temporary policies will do little to jump-start the economy, much as earlier temporary economic Band-Aids, such as the 2009 stimulus, did little to improve the economy.

Proponents justify stimulus spending in part based on the widely held view that government-fueled increases in “aggregate demand” during FDR’s New Deal ended the Great Depression and brought recovery. Christina Romer, former chairwoman of Obama’s Council of Economic Advisers, has argued in op-eds that government should continue to spend for this reason. And in a 2002 speech as a Federal Reserve governor, current Fed Chairman Ben Bernanke claimed that monetary expansion and the turnaround from the deflation of 1932 to inflation in 1934 was a key reason that output expanded.

But boosting aggregate demand did not end the Great Depression. After the initial stock market crash of 1929 and subsequent economic plunge, a recovery began in the summer of 1932, well before the New Deal. The Federal Reserve Board’s Index of Industrial production rose nearly 50% between the Depression’s trough of July 1932 and June 1933. This was a period of significant deflation. Inflation began after June 1933, following the demise of the gold standard. Despite higher aggregate demand, industrial production was roughly flat over the following year.

The growth that followed the low point of the Depression was primarily due to productivity.

Productivity is considered a supply-side factor by many economists: It is determined by the technology and regulatory structure of the economy and therefore is largely independent of spending policies.

The growth rate of real per capita output is the sum of the growth rate of per capita labor input and productivity growth. Increasing aggregate demand is supposed to increase output growth by increasing labor input. But between 1932 and 1934, the period that Mr. Bernanke cited in his speech, per capita real gross domestic product (GDP) growth was entirely due to productivity growth, as per capita total hours worked—a standard measure of labor input—was actually, according to our research, lower in 1934 than it was in 1932.

“I see nothing in the present situation that is either menacing or warrants pessimism…I have every confidence that there will be a revival of activity in the spring, and that during the coming year, the country will make steady progress.” That’s what William Mellon, the U.S. Secretary of the Treasury, had to say on December 31, 1929. The Great Depression would last until 1941 when the U.S. entered World War Two.

“Could we have a crash a la 1929? The flat answer is no.” So said Dr. Pierre A. Rinfret, a noted economist, writing in Time magazine on October 5, 1987 and, on October 19, 1987—instantly dubbed “Black Monday”—the Dow Jones average plunged 508 points.

Despite the pronouncements of Presidents and pundits, it was the December 30, 1929 edition of Variety, a newspaper for the entertainment industry, that got it right. The day after the crash its headline read, “Wall Street Lays an Egg.”

All through history, the opinions of “experts” have been subject to revision and derision. The Internet has simply multiplied our access to a multitude of opinions. It behooves us all to pick our experts very carefully. A good track record is always a good sign, along with a healthy measure of common sense.

As the economies of the U.S. and several European nations totter on default it is essential to draw on lessons from the past. The most obvious lesson is that the governments of the U.S. and the Europeans have been spending far more than they can tax or borrow.

All have spent decades since the 1980s wasting billions on “alternative” sources of energy in the name of global warming or climate change. All have stayed busy before and since the end of World War Two consolidating power in the U.S. federal government and more recently in the European Union.

Herbert Hoover on whose watch Wall Street crashed in 1929 generally gets the blame, but five years earlier in an address to the annual meeting of the U.S. Chamber of Commerce, Hoover said, “The test of our whole economic and social system is its capacity to cure its own abuses,” warning that, “If we are to be wholly dependent upon government to cure these abuses, we shall by this very method have created an enlarged and deadening abuse through the extension of bureaucracy and the clumsy and incapable handling of delicate economic forces.”

“The clumsy and incapable handling of delicate economic forces.” Spoken nearly 90 years ago!

What a perfect phrase to describe what the nation has been passing through as Congress during the last days of the Bush administration and the passed two and a half years of the Obama administration has demonstrated.

The financial crisis of late 2008 was the result of government “entities”, Fannie Mae, created in 1938, and Freddie Mac, created in 1970, both intended to stimulate the housing market by securing the loans made by banks for the purpose of giving everyone, including those who could least afford it, the opportunity to own a house. By the time the crisis hit, they jointly owned more than 50% of all U.S. mortgages.

httpv://www.youtube.com/watch?v=7QLoeehMw0w

The second myth here is particularly useful in that it points out the policies followed during the Great Depression made things worse. The useful comparison is between the US and other countries. That same point is relevant today as I have pointed out in several of my op-ed pieces and posts regarding Canada, Germany, and the rest of the world generally.