Some portions of this essay first appeared on The Policy Think Site in February, 2010. Needless to say, since then things have only gotten worse.
BEWARE THE AMERICAN BUBBLE
By Jay B Gaskill
The behavior of the progressive left is beginning to make old fashioned liberals sound and vote more and more like conservatives. Where are the old fashioned liberals? No, they are not all dead. Think of the late JFK, Sen. Daniel Moynihan and Sen. “Scoop” Jackson; but also think of the not-so-late Gov. Andrew Cuomo, Sen. Joe Manchin, Sen. James Webb, Sen. Mark Warner, Sen. Joe Lieberman and Sen. Diane Feinstein.
Institutional and party loyalty goes only so far. Members of the democratic party are being asked to endorse policies that will take the country down the road to failure, all in the name of ideology, by neglecting the basics and ignoring the clear and present dangers. Issue by issue, and politician by politician, this is a bridge too far…especially now, when it is evident we are living in a bubble.
All bubbles burst. It is a law of nature and economics.
Catastrophic failure wonderfully concentrates the mind – unless it causes its architects to adopt a “much more of the same” suicide pact. We are broke and getting broker. There is no politically easy fix.
The late John Maynard Keynes has become the poster child for the mischief that results when a somewhat useful economic theory becomes a hard core economic doctrine. The current economic mess is just a warning of the catastrophe to come. The current administration and a plurality of ditherers in the congress, blithely ignorant of the failure of thirty years of Keynes-inspired deficit spending, are on a suicidal course.
It would be a very good idea for the country to get off that train before the collision.
If I am correct, later generations will lump Keynes’ ideas in the same category of “good intentions with bad consequences” category now occupied by the permissive child rearing theories of Dr. Spock.
In 2008, I posted an article titled “The Great Keynesian Collapse”[i] It still holds up very well.
Keynesian economic theory is a spectacular 21st century failure. Theory has collided with mischievous political exploitations, and theory has lost the contest. This sad outcome can be traced to three major economic factors, all of which now provide sufficient reasons to discredit the entire edifice of Keynesian-derived policy:
[●] the utter lack of fiscal discipline by popular democracies, whose politicians are ever seduced by the promise of a free (fiscal) lunch;
[●] the profound impact of the world economy, the monetary effects of which are fully capable of swamping local currency and money supply policies;
[●] the staggering incompetence of government bureaucracies when it comes to the creation of wealth-generating enterprises.
AVERTING THE GREAT AMERICAN COLLAPSE
Following the huge deficits generated by the WW II economy, fiscal sanity and economic progress gradually reestablished themselves during the Eisenhower years and, briefly, during the first three years of the brutally truncated Kennedy administration.
The great fiscal watershed was the administration of Lyndon Johnson. Following JFK’s fiscally cautious approach to Keynesian economics, LBJ wholeheartedly bought into the notion that the USA could finance a major cold war military engagement and a major domestic spending commitment simultaneously – via deficit spending.
The Vietnam War and the Great society set the stage for the later collapse of Keynesian economic theory in much the same way that an intoxicated teenage driver in an ultra-safe Mercedes sedan sets the stage for a highway disaster. The padding, the crush zones, the airbags, the seat belts, the safe brakes and all the rest are mere illusions in the hands of a reckless teen – or a master politician.
This was the beginning of the modern American economic fantasy – the impossible dream that the US economy could forever spend its way into eternal prosperity using unearned funds borrowed against an imagined brilliant future whose exponential growth would always carry the debt load like a thoroughbred racehorse carries a 120 pound jockey.
No racehorse has even been able to finish the Kentucky Derby while carrying a dead elephant on its back.
The Nixon administration muddled through without repudiating the LBJ-Keynes bargain, but did not greatly aggravate its effects. After a brief transition under President Ford, the grand LBJ Keynesian bargain suffered its first major collapse, resulting in the Carter recession, a period of rampant inflation and dismal economic performance. Each succeeding administration – including Reagan, Bush I, Clinton, Bush II and Obama was seduced by the perverse Keynesian notion that we can continue to borrow against a bright future, while all the time relentlessly ruining that future beyond recovery by digging a debt crater so deep that no sunlight can reach the bottom.
The current administration has committed the USA to a course that is dragging us into a deep, dark, slippery-walled debt pit. We could already be too deep for rescue before the end of President Obama’s first – and possibly only – four year lease on executive power expires. The only real debate is about “Are we there yet?”
All of the post-Eisenhower GOP administrations played the Keynes game, too, succumbing to a dangerous trade-off: “Please fund our defense and security priorities and we’ll look the other way when your domestic ‘social justice’ priorities are met with borrowed money”. This is what is meant by two cooperating elites. Bargains like these explain more than any other single factor why the Tea Party movement was so threatening to all current federal office holders.
Think about it from a common-sense perspective for a moment. Virtually 80% of elected federal officials actually think it is reasonable to discount worries about annual deficits as long as they represent an arbitrary acceptable percentage of overall civilian spending for goods and services (the GDP). As if these new deficits aren’t adding to a mountain of unpaid indebtedness. As if they aren’t placing us in the path of fiscal collapse when, inevitably, fewer and fewer willing lenders are available. As if we could really manage with a debt load that exceeds the annual GDP (as it now does).
This is exactly like a family ignoring its practice of always borrowing and never repaying because “it’s only a little bit at a time”, while continuing to redefine “a little bit”.
Yes, we Americans will soon face some heavy lifting. But our nation’s full recovery is possible, but only when the borrowing addiction is broken. The private enterprise engine that created American prosperity can save us, but only if we are willing to save it. If – for ideological reasons – someone does not believe in the essential validity and utility of a robust, healthy private enterprise system, then that same someone will be extremely unlikely to sponsor or even acquiesce in the measures needed to revive the patient. To use the medical metaphor, the left occasionally sees the utility of a strong private, commercial system (much as an intelligent vampire sees the utility of a fat, healthy host) but is stuck on ineffective therapies, like bleeding the patient.
A healthy business environment is characterized by freedom from political manipulation, conditions that secure financial stability, enforcement of contracts, freedom from burdensome restrictions and permissions, decisions driven by market-determined prices and success-determined profits, all in an atmosphere in which creative innovation is sufficiently valued that the politicians are willing to allow it to “do its thing” without subsidy or penalty.
But each of these economically progressive ideas is alien, repugnant or misunderstood to a greater or lesser degree by almost all card-carrying members of the progressive left who are still well embedded in the Beltway bureaucracy and the media. Yet these very notions are the ingredients of economic recovery. Let me go further. There is more than enough privately held investment money to start and sustain the American recovery. But these potential investors will not risk it without a reasonable prospect of making a solid profit that won’t then be taken away from them by opportunistic politicians.
Because the current administration is being led by card-carrying members of the progressive left, recovery and prosperity will not take hold in the USA until there is a credible, decisive change of direction. All of the sane, traditional liberals who have taken the time to study the national situation know this to be true, but social and party pressure has forced most of them to abide in silence. This will change….
Copyright © 2012 by Jay B Gaskill, Attorney at Law
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