The era of the Great Depression produced any number of songs conveying the mood of this dramatic period of our nation’s social and economic change, including two particularly popular tunes that reflected opposite ends of the misery spectrum to which many of us, including our economists can relate to today.
“Brother Can You Spare a Dime”
They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?
Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it's done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it's done. Brother, can you spare a dime?
“We’re in the Money”
We're in the money, we're in the money;
We've got a lot of what it takes to get along!
We're in the money, that sky is sunny,
Old Man Depression you are through, you done us wrong.
So how is it that in the midst of the nation’s economic depression two markedly different interpretations of the economic landscape were put to tune? Well in the thirties, I would submit, that “Brother Can You Spare a Dime” most accurately expressed the sense of disillusionment and dismay that pervaded the country – conveying a clear message of collapsed dreams. On the other hand, “We’re in the Money” was more of a jingle than a song, designed to lift people’s spirits with lyrics encased in a snappy upbeat tempo.
The same and different today
Today we find our nation in similar economic circumstances to the thirties – sort of a depression lite (two or three more years of recession will qualify as a depression). Also similar today, the Obama administration is seeking the Keynesian solution of massive government spending and an expansionary monetary policy to turn the economy around. Doesn’t anyone in the White House know that it took WWII to get the nation out of the depression?
This is not to suggest that a war (favoring guns over butter) is just what is needed to get us out of this economic mess - we haven’t been able to win wars anymore the way we did in WWII. It just seems that a healthy dose of proven Supply Side economic solutions of tax cuts to promote business capital investment coupled with a Laissez-faire policy that government not interfere with natural market forces (the invisible hand), is infinitely superior to the failed policies of socialism.
While FDR had his detractors, he was a broadly popular President for four consecutive terms, despite introducing socialistic programs in an enormously expanded U.S. government never before imagined. BHO has been on the job almost eight months now, and it’s safe to say that the bloom is off the rose, amid plummeting favorability ratings as his reach has far exceeded his grasp.
This most peripatetic of all Presidents has been like an unsuccessfully house trained puppy, pretty much making a mess wherever he goes. The President has the potential to easily eclipse the heretofore incomparable ignominy of former President Jimmy Carter.
The interpretation of the economic landscape represents a wide divergence of opinion among economists, giving credence to the historical apothegm for economics as the “dismal science”.
The dismal science applied for better or worse
Little has changed over the centuries, in terms of economics being viewed as much an art as a science, suspecting much of this view is attributable to its appellation as the “dismal science”. The derogatory alternative name’s origin goes back to the 19th century when Thomas Carlyle, the Scottish historian and essayist, gave the name “dismal science” in response to the writings of the Reverend Thomas Malthus, who grimly predicted that starvation would result as projected population growth exceeded the rate of increase in the food supply.
The question, hanging like a cloud facing economists concerning the recession - which is it, are we coming out of a recession or may we expect more of the same?
The “We’re in the Money” economic interpretation of current conditions is most frequently evident through those economists and economic analysts wandering in the halls of government, most notably the reappointed Chairman of the Federal Reserve, Ben Bernanke. Federal Reserve Chairman Ben Bernanke on Friday offered his most optimistic outlook since the financial crisis struck, saying the economy is on the verge of growing again. Bernanke’s hopeful remarks on the economy contributed to a rally on Wall Street. The DJIA surged about 155 points, or 1.7 percent, and broader stock averages also gained sharply.
The financial markets have stabilized, and some businesses and consumers have found it easier to get loans. Still, the banking system has yet to return to normal, Bernanke said. Financial institutions face further losses on soured investments. And many businesses and households still can’t get the credit they need to fuel the economy, he said. “Although we have avoided the worst, difficult challenges still lie ahead,” Bernanke told the gathering of fellow bankers, academics and economists. “We must work together to build on the gains already made to secure a sustained economic recovery.”
Now, on the other hand there are the “Brother Can You Spare a Dime” economic proponents which include those analysts who saw and warned that this economic crisis was coming— Noureil Roubini, Peter Schiff, Marc Faber, Bill Bonner, Richard Daughty and Mike Shedlock—the consensus seems to indicate that much worse is on the way.
Roubini, a professor at New York University's Stern School of Business, said it appears the global economy will bottom out in the second half of this year, and that U.S. and western European economies will likely experience "anemic" and "below trend" growth for at least a couple of years.
Yet he warned that policymakers face a "damned if they do and damned if they don't" conundrum in trying to unwind their massive fiscal and monetary stimuli to keep the global economy from toppling into a depression. He said that if policymakers try to fight rising budget deficits by raising taxes and cutting spending, they could undermine any recovery. On the other hand, he said if they maintain large deficits, worries about excessive inflation will grow, causing bond yields and borrowing rates to rise and perhaps choking off economic growth. Roubini said another reason to worry is that energy, food and oil prices are rising faster than fundamentals warrant, and could be driven higher by speculation or if excessive liquidity creates artificially high demand.
The most sobering assessment is provided by Niall Ferguson, financial historian, Harvard professor, and author of The Ascent of Money: A Financial History of the World, says conditions are especially dangerous. Countries are experiencing double-digit drops in exports, “depression-style contraction,” and the world is still in the “early stages of the game at this point.” Ferguson told Canada’s Globe and Mail, trade wars and a revival of protectionism threaten. The system is “fragile” and “there is a real danger that globalization could unravel,” he says.
According to Ferguson there will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic conflict. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization … ultimately leads to something really big in the realm of geopolitics.
So how bad off is the U.S. economy, who Ferguson says “is a made in America crisis that has gone global”.
The notion of national impecuniosity
How does one know that the U.S. has gone from the world’s richest nation to a government with impecuniosity (little or no money)? It is the combination of the incomprehensible amounts of debt (what comes after a trillion) and the rapid change in the amounts that is most disturbing. The most salient example occurred last Friday when The Obama administration OBM raised its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion. That’s almost a 20% increase; staggering when dealing with these numbers.
How much longer will the Treasury markets exist with this mounting deficit? The United States relies on large foreign buyers such as China and Japan to cheaply finance its debt, and they will demand higher interest rates as they begin to doubt that the government can control its deficits.
A few numbers to put the impecunious state of economic affairs in perspective:
National Debt - $11.734 Trillion
U.S. Spending YTD - $2.576 Trillion
U.S. Budget Deficit YTD - $1.219 Trillion
GDP YTD - $8.962 Trillion
U.S. Tax Revenue YTD- $1.356 Trillion
U.S. Debt Held by Foreign Countries - $3.456 Trillion
U.S. Trade Deficit YTD - $227.520 Billion
U.S. Unfunded Liabilities (Social Security, Medicare/Medicaid, Rx drugs)- $58.949 Trillion
A Leadership Crisis
In the house of mirrors that is the White House where the curved mirrors distort all images of our democratic republic, has produced an economic debacle of biblical dimension unprecedented in the nation’s history. The consequences of a marginal community organizer incubated in socialist orthodoxy and now acting as leader of the free world is nothing less than a lachrymose tragedy.
No, BHO did not inherit this economic monstrosity, the TARP which he inherited is the only Bush spending program that he is dealing with. The rest are his babies, and what an ugly family portrait it is - Stimulus Bill, the Omnibus Spending Bill, the bank bailouts, the GM and Chrysler bailouts, Cash for Clunkers, and Obamacare (if it passes) all belong to him.
In addition to being the most peripatetic of all Presidents, this tin ear ideological automaton has squandered a filibuster proof majority in both the House and the Senate because of his “scorched earth” policy of governance.
Viewing where the liberals have taken this nation one wonders how such a body itself is governed; the words of the Italian fascist Benito Mussolini come to mind…. when asked how one governs the Italian people he responded – “Governing the Italian people is not impossible, merely useless”.
It appears that we are witnessing the disintegration of the Obama Presidency as the economy continues in the tank, Obamacare is on the rocks, as the public’s confidence in BHO’s leadership steadily erodes. At this juncture, people of the common persuasion of restoring our nation to a free enterprise republic should take heed with the lessons learned from The Stockdale Paradox.
The Stockdale Paradox
The name refers to Admiral Jim Stockdale, who was the highest-ranking U.S. military officer in the "Hanoi Hilton" POW camp during the Vietnam War. Tortured over twenty times during his eight-year imprisonment, Stockdale lived out the war without any prisoner's rights, no set release date, and no certainty as to whether he would survive to see his family again.
He shouldered the burden of command, doing everything he could to create conditions that would increase the number of prisoners who could survive unbroken, while fighting an internal war against his captors and their attempts to use the prisoners for propaganda.
At one point, he beat himself with a stool and cut himself with a razor, deliberately disfiguring himself, so that he could not be put on videotape as an example of a "well-treated prisoner."
He exchanged secret intelligence information with his wife through their letters, knowing that discovery would mean more torture and perhaps death. He instituted rules that would help people to deal with torture (no one can resist torture indefinitely, so he created a step-wise system - after x minutes, you can say certain things - that gave the men milestones to survive toward). He instituted an elaborate internal communications system to reduce the sense of isolation that their captors tried to create using taps and pauses.
At one point, during an imposed silence, the prisoners mopped and swept the central yard using the code (tapping) "We love you" to Stockdale on the third anniversary of his captivity. After his release, Stockdale became the first three-star officer in the history of the Navy to wear both aviator wings and the Congressional Medal of Honor.
When asked "Who didn't make it out?" Stockdale relied, "Oh, that's easy, The optimists. Oh, they were the ones who said, 'We're going to be out by Christmas.' And Christmas would come, and Christmas would go. Then they'd say, 'We're going to be out by Easter.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart."
After a long pause, Stockdale said, "This is a very important lesson. You must never confuse faith you will prevail in the end - which you can never afford to lose - with the discipline to confront the most brutal facts of your current reality, whatever they may be."
Allow me to admonish the optimists among us as Stockdale might - "We're not getting out of this before 2010 and then not completely out until 2012, deal with it!"
Until then, brother can you spare a dime?
