Why it is important to understand what is happening to the economy
One of the great failings of the Bush administration wasn’t a lack of intelligent economic policies, but rather a lack of effort in explaining the economy to the public. While Bush had his failings in economics (SOX, the failure to veto any bloated spending bills, and allowing the Mark-to-Market rules to go into effect come to mind), he generally favored free trade and lower taxes. However, there was a pattern of political passivity that allowed their enemies to control the scope and the terms of the debate, a political passivity that allowed the elections of 2008 to happen.
In the end, this was probably Bush’s, and the Republican party’s, greatest downfall of the past 8 years. It is important that now that people understand what is happening with this current recession enough to make judgements about what our current leaders are doing with the economy:
1. the “stimulus” package (AKA the pork bill) has had little impact on the economy. Despite the urgency that required its passing without having been read and reviewed, little of the money has been spent. This isn’t unusual, government works take a lot of time to start and approve, but the real problem here is that the stimulus bill didn’t focus on parts of the economy that needed help so much as it tried to help Obama’s political allies (i.e., government employees of all kinds and unions, sometimes the same people).
2. The biggest impact on the economy has come from the Fed. It was their flood of money that prevented a deflation as a result of the panic in the fall of ’08, and that has served as a counterbalance to the balancesheet problems created by the ill-timed Mark-to-Market rules from November ’07. While this may have long-term negative implications (e.g., much of that money will have to be withdrawn from the economy at some point in the future), it was a successful short-term intervention.
3. Several economists have called for a V-shaped recovery to the economy from the beginning, and we are seeing exactly that sort of a recover – LONG before the stimulus has had time to have any impact. The best and most detailed of this analysis comes from Brian Wesbury of First Trust Portfolios at http://www.ftportfolios.com/retail/research/economicresearch.aspx . They called for this type of recovery and their data shows a classic V to the recovery.
4. The much touted programs for “fixing” the economy that have come from Obama and Congress are long-term drains on the economy that will limit the future growth of the economy – most people and business wisely see their plans and recognize that taxes will be higher in the future, that the government has taken up spending that cannot be paid without major, negative changes. The combination of the spending, higher taxes AND the Fed’s loose policy will be difficult to control and will likely result in inflation.
5. Uncertainty continues to be a huge issue – nobody knows yet where this political cabal will stop in their takeover of the economy. Banking is, to a certain extent, now government controlled. the Automobile industry is now owned by the government and the unions (done through a good measure of traditional Chicago-crony politics and hardball). They are looking to change multinational tax policy, looking to take over health care, looking to regulate and tax energy usage in the US. This uncertainty makes accurate future business projections difficult if not impossible. Who would invest in huge improvements or expansions at this time?
These 5 points are incredibly important. At some point when the modest recovery happens this 3rd quarter (or at least starts to appear in high level economic numbers that are reported in the press), this administration is going to try to take credit.
- Don’t let them have this credit. If the stimulus hasn’t yet been spent, it’s foolish to argue that it somehow started a recovery. Don’t be fooled by their scripted press conferences.
- And remember that the long-term unemployment and inflation we are likely to see is a direct result of their policies.
- And remember that the long term growth rate below average that we will see under their policies is a direct result of their power grab and the uncertainty and inefficiency it is causing in the economy
Main lesson here.. don’t be fooled.
