The recovery-less ‘recovery’
Our nation’s economic downturn has seemed to go on forever, even though it was perhaps two years, but supposedly, the economic news is good from here on out. The government has reported 3.5 percent annual growth in the third quarter of this year, so that means the recession officially has ended.
Just in time for another one to begin.
I am going to be emphatic here, and not everyone will like what I have to say, but nonetheless I am going to say it: our economic nightmare is not over, and if the U.S. government continues down the path it currently is on, we are going to see much worse in the future. Despite the positive press out there, I am going to point out why I think the situation today is dire, and becoming worse.
First, and most important, we have to remember why this downturn occurred. The George W. Bush administration, in promoting its “Ownership Society” propaganda, decided to encourage home ownership and “encouraged” lending institutions go to along with its program. There was money to be made, and everyone from the mortgage brokers to Wall Street brokerage houses jumped in.
For a while, the Kool-Aid seemed to work wonders. Americans refinanced their homes, some got rich in the ultra-hot real estate markets, and all of us sent the dollars overseas to buy whatever people who accept dollars could send us. People around the world, in response, purchased more and more U.S. government debt. Indeed, it was the Mother of All Toga Parties.
All good toga parties, however, must end sooner or later, as either the proprietors run out of booze or the partygoers run out of oxygen. In our case, it was a bit of both. It was evident that no matter how hard it tried, the government via the Federal Reserve System could not reflate the housing market. Members of OPEC, remembering that their product was denominated worldwide in U.S. dollars, started expressing alarm that maybe, just maybe, they were being paid in something akin to Monopoly money.
Second, when faced with the financial wreckage, what was a Fed chairman to do? In the early 1980s, Paul Volker, who had been appointed to his position in 1979 by then-President Jimmy Carter, decided that reflating the economy was not an option. Instead, Volker allowed interest rates to rise and did not flood the markets with near-unlimited credit.
The original adjustments were painful, but after the inflation-fed economic malinvestments were liquidated and the economy had recovered its fundamentals, then we saw a very long period of real economic growth. We actually had a period in modern American history in which private enterprise at least was given some benefit of the doubt, and when the Soviet Union broke up, people supposedly understood that socialism had failed and failed miserably.
That was then. In response to the inevitable financial meltdowns brought on by the Fed’s reckless policies, the Fed engaged in, well, more reckless policies. Recalling a false history of the Great Depression that never was true (that the Great Depression occurred because government did not spend enough money), Fed Chairman Ben Bernanke has thrown money everywhere, enabling the government to nationalize bankrupt companies and essentially take over the finance industry.
After doing this for more than a year, the economy has stopped its downslide. However, as I said at the beginning, that hardly is the end of it. We have to remember that the Bush administration and the Fed triggered the housing boom in order to deal with a recession that occurred in 2001 — which came about after the Fed-induced stock boom came crashing down. (Can anyone see a pattern here?)
In case people don’t recognize the pattern, let me refresh some memories. The long expansion of the 1980s ended in a recession at the end of the decade. Recovery was uneven until the last few years of the 1990s, as the Fed’s aggressive monetary expansion met the “New Economy” rhetoric, and out of it came yet another boom that would bust.
Here is the pattern: After Volcker permitted the economy to have a real recovery, subsequent recoveries were much more inflation-driven. While the boom of the late 1990s was something to behold, the recovery after the 2001 recession was not as robust, and I can assure the readers that this “recovery” will be even more anemic until it ends in real-live inflation and more unemployment.
Furthermore, the Obama administration’s extremely costly interventions from health care to environmental policies will be the weights that will restrict any meaningful recovery from happening. Right now, they have not kicked in, and when they do, future bouts of inflation will have almost no effect except to force up consumer and producer prices.
During the recession of 1982, the country’s economic fundamentals were put back in balance. Government interventions in this latest downturn, however, have guaranteed that massive amounts of resources will continue to be directed toward economic dry holes, and the rest of us will pay the price for things like the taxpayers propping up the United Auto Workers and the coming health care fiasco.
What does that mean in plain English? It means that the U.S. economy is going to have high unemployment into the foreseeable future, and investors are going to realize that the government’s hostility toward private enterprise is going to mean fewer and fewer opportunities for profit. Capital will flee our borders and the government, in revenge, will ramp up tax rates and become even more heavy-handed. I wish I had better news, but there it is. For those of you who “voted for change,” you will get that “change,” but it is not going to be what you expected.
Dr. William L. Anderson is an assistant professor of economics. A native of Chattanooga, he received his bachelor’s degree in communications from the University of Tennessee, his master’s degree in economics from Clemson University and his Ph.D. in economics from Auburn University.
An accomplished writer, Anderson has written for national publications such as Reason Magazine. He has served as a reporter and editorial writer on the staff of ETBJ for over 18 years.
