Let's Have A Depression Now

The United States is more than four years into its form of economic purgatory. The government pronounced the recession over in June of 2009. That announcement does not conform with reality or even subsequent government suspect data. Even the Administration-friendly New York Times [16] knows better:

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study [17] by two former Census Bureau[18] officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

To believe the recession ended requires a bizarro interpretation of economics where bad is actually good and good is actually bad.

21st Century politics sees no need for truth. When government believes itself to be responsible for the economy and convinces the people of that, it has put itself into a box. In a world where government claims credit for good things, bad things ultimately become their responsibility as well. Recessions are bad things which government should not have allowed to happen or should fix quickly.

The reality is that government does not create wealth or economic abundance. (They can create poverty, however.) When recessions occur, they threaten the myth of all powerful government. The first reaction of government is to do something regardless of whether something makes sense or not. The second phase is to declare the problem solved (in this case, claim the recession ended).

This kind of politics is dangerous on two counts. First, government risks what little credibility it has left (which I might say is not necessarily a bad thing). Second, it causes government to pursue policies which reinforce its lies. It is these policies which created the current economic crisis in the first place.

The country’s economic problems began decades ago. In trying to cover them up with economic interventions (stimuli), government actions prevented the economy from correcting the imbalances that caused slow growth. From a political standpoint, economic policies encouraged institutions and people to use debt to live beyond their means. The massive debt buildup in both the economy and the government hid the underlying problems and allowed them to grow ever larger and more malignant out of sight.

After decades of such interventions, the economy no longer is able to function efficiently. In order to remedy the problems, massive liquidations of debt and misallocated assets are necessary. There is no other way to achieve an economic cleansing. It may be possible to continue this economic charade with additional interventions, but there is a limit to how far it can be continued. Japan has achieved zombie existence for over two decades by refusing to face up to the imbalances in their economy. Our government has chosen the same course of “extend and pretend.” There is no hope for a recovery until something like another Great Depression liquidates the built-up imbalances.

No politician wants to be in office when that event occurs. Thus, they make matters worse for the country by continuing to spend money we don’t have to prop up an economy that cannot and should not be saved. Their goal is not to repair the economy but to ensure the most favorable terms for their own re-election. As a result they continue to savage the future of the country in order to protect their own present.

People will eventually regain control of their government. They always do. Unfortunately the process of history is slow and sometimes ugly. Multiple generations around the world have never known freedom. China and the Soviet Union are two examples that are just now transitioning toward freedom. Are we to enter some institutional dark ages where our grandchildren and their grandchildren do not experience freedom? It is possible because all governments prefer more power for themselves and less liberty for their citizens.

The required change is so great as to be analogous to an addict trying to break his habit. Most addicts have to hit rock-bottom before reality intrudes. In the case of the US, we are going to hit rock-bottom when the economy collapses. That is likely to be within the next ten years and could be at the front end of that estimate. This world-changing event may (at least temporarily) drive a stake through the heart of big, oppressive welfare-state governments.

There is no guarantee that government will shrink when this happens. Civil unrest is a likely outcome. Statists may attempt to use the crisis to further expand government. Martial law and other restraints are likely. Hitler used a similar situation to rise to power. Parts of the Constitution were emasculated under New Deal policies that “had to be done” to pull us out of the Depression. Of course, we never got out of the Depression until after the end of WWII.

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