Bacon Cheeseburgers Are Health Food…
…and other popular myths of the modern world. Take for example the notions of “fiscal discipline”, “belt-tightening”, and “austerity”. Bacon cheeseburgers just sound so good; if this world was any good at all, they would cure cancer. But they don’t. The idea of government tightening the belt during downturns sounds equally good to most reasonable folks. After all, when a household loses revenue through job loss or a cutback in hours, responsible parties must find savings in the budget. This then is the popular refrain; profligate spending as a nation brought us to the terrible point, and only restraint will bring us back safely from the precipice.
The problems with this kind of thinking are numerous, if not obvious. As in most downturns, it was not profligate public spending that sent us into the Great Recession, but rather the reckless investments and private sector spending driven by an unregulated asset bubble. No matter how much your friendly conservative member of Congress, pundit, or commentator says to the contrary, the facts in evidence are clear. The one risk (and it is not to be understated) to government spending by a nation (like the United States) with control of its own currency, is excessive inflation.
The United States did not suffer high inflation leading into the recession, and despite the consistent and loud warnings of the Austrian/Freshwater schools of economics, we have not seen it in this recovery. Given the expansion of our monetary base, we will begin to see the rumblings of inflation when the unemployment rate starts to get closer to 5%, but there are a number of techniques that we can use to minimize it then. To get to the point of worrying about inflation, we must refocus ourselves on dealing with the jobs deficit, and austerity does not create jobs. It didn’t create jobs in 1930, it didn’t create jobs in this recession in Great Britain, Ireland, Portugal, and Greece. It has only sucked the air out of economies in the United States.
Be as conservative as you like; call Keynes whatever you will; send Paul Krugman hate-mail; but the fact is that those economists who have used the predictive models prescribed by salt water economists like Krugman, Bernstein, and Baker, have been correct. Undeniably, irrefutably, correct. Remember all of that talk about the Obama Stimulus, hyperinflation, and the skyrocketing cost of financing the national debt? Yeah…it is 3 years later, and there is no hyperinflation, and government bonds are at all time lows. Those that wanted more stimulus in order to restart the economy more quickly have their proof in the form of an all time slow recovery.
Most of us are raised to know that we need to sacrifice in times of need; we need to prioritize needs over wants, and buy current needs, and savings for future needs, before moving on to the wants. That is a fine notion. But businesses and nations do well to understand what the needs really are. There is no better time for a business to invest in renovation or expansion then a downturn. The factors of production will never be lower in price. The same can be said of governments, who should be doubling down on the nation’s needs.
And what does the nation need?
We need those things that made us great; forgive the flag-waving, but I do believe we are the greatest. We need the best commercial infrastructure in the world; the most efficient, most state-of-the-art transportation, energy, and communications grids in the world. We need the most consistently well-educated population in the world, the well-spring of inventors and entrepreneurs. We need an internationally-competitive business environment; we have some of the most relaxed tax laws and requirements in the industrialized world, but U.S. multi-nationals are burdened with two costs that few of their competitors face; health care and retirements.
We could have these things; indeed, in the past we have had most of these things, but we Americans have become very proficient over the last thirty years at demanding the same service at lower tax rates. It is as easy as All-American apple pie to do, you just find something you think another citizen or group doesn’t pay for (that you don’t like), and demand it be cut. In 21st Century America, we now have a cottage industry of folks churning out myths and fantasies about “economic freedom”…basically a land of milk and honey without taxes or regulation. Simply put; a land that can’t exist.
Kicking the slackers off the program so you can have magically lower taxes sounds nice, but the folks suggesting the magic are always short on the math. Fiscal austerity sounds like something Grandma would have taught you, but the idea has simply never worked at the level of national government. We could go a long way down the road of our aspirations; we could start the journey by rolling back our tax code to either the Reagan or Clinton Administrations. That is right friends; you pick your favorite poison, Bubba or Saint Ronnie the Gipper. In fact, we could do anything we put our minds to, just like Grandma taught us. Just like we taught ourselves in World War II, the Cold War, the Space Race, and the race to the top of the world’s industrialized nations.
It won’t taste as good as that cheeseburger, or sound as good as “lower taxes”, but it will be real.
The Rational Middle is listening…