Conservative's Conscience

Where Are We Headed? Who Wants to Go There? Part III

WHERE ARE WE HEADED? WHO WANTS TO GO THERE? PART III

Under the above title, three major problems of the day were appraised. The subjectively developed scorecard is as follows:

o War - We are a divided nation; divided we will fall.
o Protection of the value of the dollar - The combination of historical spending momentum, plus current spending will drive debt into the stratosphere. Inflation is on the horizon; the American credit rating and the value of the dollar are at risk.

o Energy - Administration objectives are based upon a controversial theory of global warming and its causes. No country should turn its economy upside down based upon such incomplete evidence. And that's what the president wants to do. This is scary foolishness.

In this column Economic Growth will be examined. During the presidential campaign it pushed war aside and became the central issue, a switch in emphasis that erased whatever chances John McCain had for winning the election.

It is commonly said that President Obama walked into a recession. That is true. And it is said that it's the worst recession since the Great Depression. That is not true. But it has the capacity to be so if incorrect policies are put in place.

There have been in modern history three critical points when the financial stability of the United States was in great peril: The Great Depression period, under Roosevelt; 1980, under Reagan; 2008 (potentially), under Obama.

Rooseveltians give the great war-leader credit for ending the Great Depression, pointing with pride to multiple federal programs he created. Not true. As late as 1940, the unemployment rate was about 15 percent. The embarrassing truth is: Hitler and Japan yanked the U.S. economy out of it doldrums.

Their actions pulled the U.S. into the war, energized the war industry, hired every warm body on the street and dropped the unemployment rate to 1.2 percent.

The lesson: Don't do what Roosevelt did -- his spending and his tampering with the private sector prolonged the depression. The war bailed him (and us) out.

Reagan in 1980 had a different problem from Roosevelt's -- one could argue a worse one. In addition to the slow economy and the shaky banks, the federal budget had been out of control for two decades; a Cold War full of nuclear tensions continued, which directly threatened the physical existence of the nation, and an inherited mound of debt made it difficult for the president to maneuver.

Reagan's misery index (the sum of the interest, inflation and unemployment rates) was three-times higher than Obama's; his unemployment rate alone was 50 percent higher.

This isn't the time or place to get into the specifics of Reagan's approach to the problem. It is sufficient to say he did not spend as Roosevelt did, nor did he over-regulate or tax the job makers. Instead, he specifically targeted those most likely to invest and create jobs; he provided incentives that got them moving.

There was no interference in the private sector; bankruptcies were regarded as part of the necessary debris that attaches to the free market, which overall enriches its population as never before.

It was slow going. Reagan was hammered by the elite media. But once the worm turned, record years of growth followed that, except for a short dip during the administration of George H.W. Bush, lasted until 2000.

Reagan's critics point to the increase in public debt during his administration from $712 billion to $2052 billion, an increase of $1340 billion -- no question about it, a serious piece of change. What they conveniently fail to note, however, is:

o The nation was involved in an expensive Cold War, for which deficits have historically been used. Deficit spending, $206 billion.
o The budget was burdened by debt accumulated since the 1960s (thank you, LBJ). Deficit spending, $215 billion.
o Great Society programs continued full blast throughout the Cold War. Deficit spending, $866 billion.
o The remaining deficit spending was indirectly related to the Cold War (foreign aid, etc). Deficit spending, $53 billion.
o As a result of Reagan's war policies, the Soviet Union collapsed and the Cold War (dating back to President Truman) ended. This made it possible for future presidents to discreetly trim military costs and reduce deficits.
Source: The National Debt of the United States, 1941-2008, Robert E. Kelly, 2008, McFarland, N. Carolina

Obama too has a different problem, in some respects more difficult (banking) and in others, not so.

He has no Cold War to concern him that at any moment could explode into ruination. But he does have a relatively small shooting war going on in the Middle East, which he has yet to acknowledge with the steadfastness of his predecessor.

For Obama the problem is as much internal as external, if not more so. Government interference in the housing sector of the economy is the root cause of the foreclosures that weakened banks, tightened credit and slowed the economy.

He has not formally recognized this or taken steps to prevent reoccurrence. Instead, he has hammered the private sector.

Obama ignores the Reagan model and has apparently bought into the false myth that Roosevelt's spending orgy fixed the Great Depression. Spending he has proposed and fundamental changes in the economy that he regards as fundamental (energy, health care) would make FDR beam with pleasure.

Except for badly-needed support to some banks, Obama has not targeted incentives at investors (reduce/eliminate capital gains taxes) or job creators (small business is the source of most new jobs). As a result, they will not perform to capability. Instead he has copied the spending model of Roosevelt. It is certain he will increase debt but ....

In the meantime, government causes of debt are untouched. Barney Frank, Chris Dodd and others, intimately involved in causative activities, are now in charge of the fix. Only in Washington could such a thing happen.

And Obama is going even farther astray from the Reagan model. Taxpayer money is being invested in banks and in automobile companies. State/city/town deficits are being subsidized by federal money.

And on it goes.

Sooner or later the economy will turn by itself. But what will it look like? Will we still be free? This is your future. Is it where you want to go?