Not too long ago an industrial giant experienced one of the greatest economic booms in its history. Thanks to easy credit and low interest rates, investors in that country ran up astronomical debts and used those proceeds to bid up the price of real property and the stock market. With home values and pensions way up in value, folks were feeling very secure about their economic futures. For the average investor in that country it seemed like the good times would never end.
Then the bottom fell out. Realizing the boom was becoming unsustainable, the country’s central bank raised interest rates. Suddenly, the enormous debt built up during the boom years went bad. Banks began to fail and the government responded by bailing out the financial institutions which were "too big to fail," in order to avert a total collapse of the economy.
Anyone who remembers the 1980s and early 1990s know the country in question is Japan. Beyond bailing out the too big to fail banks, the Japanese government also attempted to use fiscal stimulus and the Japanese central bank attempted to use low interest rates to produce an economic recovery. The result has been two decades of little or no economic growth and an unemployment rate that has hovered around two times what it was in the 1980s. This period in Japanese history has come to be known as Japan’s Lost Decades
Now, you may have guessed that the country being described in the first two paragraphs above was the United States. Obviously, you would have also been correct. During the 2000s, we experienced our own phony, central bank-induced economic boom. Easy credit and low interest rates were used by many Americans to amass huge debt while bidding up the price of housing and the stock market. New-found wealth through asset appreciation gave many a false impression that they were set for life and the good times would never end.
Article comments
— go to most recent comments1 - Glenn Contrarian
Kenn -
I wonder, then, what you would say about Obama being the most fiscally-conservative president since Eisenhower? Sure, you could point to the stimulus (one-third of which was tax cuts), but the vast majority of our deficit is due to lower revenue thanks to the Bush tax cuts and due to our unpaid-for wars and Medicare Part D.
Also, you should also be aware that the austerity measures taken in Europe are not working - austerity measures have AFAIK a zero success rate in bringing nations out of recession or depression.
2 - Kenn Jacobine
Glenn,
I wrote a piece a while back about the claim that Obama is the most fiscally responsible president since Ike. The fact is he isn't. If Bush was a big spender, and he was, then so is Obama. Obama has not only kept pace with Bush's spending but he has exceeded it. It is ridiculous to base the claim on percentage increase.
Secondly, Europe has just begun austerity. The EU did a lot of inflating before that and I am not even sure what is happening is actually austerity. Truth be told I haven't paid that much attention to it. The point is that in economics there are lag periods. Policies do not go into effect and then a week or month later things change. It takes a longer time and I would think that the bigger the economy the longer it takes.
Having said that I do think the stock market reacts simultaneously to news and events. But, the stock market resembles more of a casino than an indicator of economic health or illness.
3 - Igor
Thrift and savings do not increase capital available to business. We have plenty of available capital, business doesn't know how to invest it, since there is low demand. Consequently, cash capital (as well as inventory) lies fallow and uninvestable. We are over-capitalized, as business magazines say every month.
The USA needs sales. Business needs more demand from consumers.
4 - Glenn Contrarian
Kenn -
Obama has not only kept pace with Bush's spending but he has exceeded it.
BUT you're rejecting out of hand the fact that he has increased spending by the lowest percentage of any president since Eisenhower. Combine that with the fact that Americans have the lowest tax burden since the beginning of the 1950's and the fact that we've got the lowest corporate tax rate since 1972 (and the second-lowest EFFECTIVE corporate tax rate in the developed world), and that means Obama truly is the most fiscally-conservative president since Eisenhower.
And the fact that you just don't like the guy won't change that fact.
And btw, Europe's been trying austerity since 2008. That's four years, so don't tell me that they've "just begun". Besides, what's the healthiest economy in Europe - and one of the healthiest in the world? Germany...which is VERY socialized by your standards. Same goes for Canada, for that matter. And Canada never went through the Great Recession, either. That should tell you something.
5 - Kenn Jacobine
Glenn, Spending was by far the highest it had ever been when Obama took office. What is the historical percentage for spending to GDP - 18-20 percent? I think it is around 25 percent right now?
You can't have it both ways. You claim austerity is not working for Europe and then you claim Germany has one of the healthiest economies around? Which is it?
6 - Glenn Contrarian
And you know very well that even though Obama's increased spending by less than any president since Eisenhower, if the GDP goes DOWN, then even if Obama had not increased spending at all, the percentage of GDP would still have gone up.
And you also know very well that Germany has very high taxes and very 'big' government compared to America - even after all austerity measures there. As for the bailouts of Greece, they were NOT stimulative in nature - all they were, were bailouts of financial institutions. And did that help Greece? Nope.
And you didn't address Canada at all.
7 - Clav
BUT you're rejecting out of hand the fact that he has increased spending by the lowest percentage of any president since Eisenhower.
Meaningless in such a context. A 1% increase on a base of $100 is $1; a 0.5% increase on a base of $1000 is $5. Which is the greater expenditure?
8 - Clav
Hate to belabor the obvious, but if i don't, Glenn will dance all around it.
The fact that Obama's percentage increases are the smallest percentages in years is irrelevant because the base amount of expenditures from which those percentages are calculated are magnitudes greater than the bases of Eisenhower, Truman, et alia.
So Obama's percentages mean nothing; he's still spending more than anyone who preceded him -- even GWB.
9 - Clav
And the worst part of the whole thing is that all that expenditure hasn't done a damn bit of good -- we're still mired in the worst (and now longest) recession since the depression.
10 - Zingzing
Nevermind that he got stuck with a couple of ongoing wars and a financial crisis leftover from the previous admin. Wonder what the spending would look like without all the things that were out of his control... Or at least without all the things he wouldn't have spent money on given any other alternative.
11 - Glenn Contrarian
Clav -
You're comparing apples and oranges - the degree of the rise of the percentage of GDP is precisely the right measure, for if you're looking at base dollars only, you're not only ignoring inflation of prices and amounts since Eisenhower, but you're also ignoring the much greater expenditures America has now than before.
For instance, Eisenhower didn't have to pay for Medicare, Welfare, Medicaid, and a whole host of relatively minor expenses like the EPA, the FDA, OSHA, and other federal acronyms. Or are you going to blame Obama for the existence of those programs, too?
12 - Kenn Jacobine
Clav is correct - the claim that Obama is not a big spender percentage increase wise is a distraction. I hardly think the 15 million Americans still counted as unemployed and all the countless others who got discouraged and dropped off the rolls could care less. Keynesianism is a failed and bankrupt philosophy.
13 - Glenn Contrarian
Really?
Would you care to show me even ONE significant First-World nation that has operated long-term on Austrian-school economics? Would you care to show me even ONE significant example of a nation that pulled itself out of a severe recession or depression by applying austerity measures?
No, you can't. Not even one. Why is that, Kenn?
I can show you lots of such nations that DO operate using Austrian-school economic theory - and they're ALL third-world nations.
Why is that, Kenn?
14 - Igor
@12-Kenn: the problem is that you have no idea what Keynesianism is. Simply put, Keynes policies are counter-cyclical: when times are good you pay off debts and put money away; when times are bad you borrow to finance expansion. Counter cyclical. What GWB did in 2000 when we were flush was pro-cyclical: he increased spending with huge tax cuts and two expensive wars.
Pro-cyclical policy is very bad in capitalism because it increases the intrinsic instability of capital systems.
Kenn: you really should apply yourself and learn from sources other than political diatribes such as are common in the rightist press.
15 - Glenn Contrarian
Igor -
Simply put, Keynes policies are counter-cyclical: when times are good you pay off debts and put money away; when times are bad you borrow to finance expansion. Counter cyclical. What GWB did in 2000 when we were flush was pro-cyclical: he increased spending with huge tax cuts and two expensive wars.
Well said!
16 - Igor
Our bad experience with GWBush, an MBA from Harvard, should warn us about hiring another "CEO President" like Romney. Business experience simply doesn't apply to government service.
17 - Kenn Jacobine
Glenn,
You have a short memory or you just like to engage in the same old arguments. The United States before the Hoover-Roosevelt Great Depression had a liquidationist (Austrian) approach to depressions and you know what most ended in a hurry and none were as long as the GD or current GR. The 1921 Recession is the best example because Hoover who was Commerce Secretary under Harding wanted to do all sorts of government interventions, but Harding resisted and the deep depression healed itself in about a year.
18 - Kenn Jacobine
Igor,
Dubya is just dumb and a bad example. Romney is just a corporate puppet. A businessperson could be an effective leader. There are a lot that have moral courage, vision, honesty, and intelligence - adjectives that by definition do not apply to politicians.
19 - Glenn Contrarian
Kenn -
There are a lot [of businessmen] that have moral courage, vision, honesty, and intelligence - adjectives that by definition do not apply to politicians.
Really? Someone should go tell the family of the guy that JFK saved from drowning when PT 109 was sunk. Someone should tell WWII figher pilot George H.W. Bush. Someone should tell all the Founding Fathers, too.
And someone should tell Cory Booker, too.
Kenn, sweeping broad-brush statements (like yours) are considered logical fallacies for a REASON. The only "by definition" that applies is the one in your own mind (and in the mind of millions of Fox News viewers).
20 - Glenn Contrarian
And Kenn -
>Concerning the 1920-21 recession:
...there’s a big difference between inflation-fighting recessions [like the 1920-21 recession], in which the Fed squeezes to bring inflation down, then relaxes - and recessions brought on by overstretch in debt and investment [which is what we have now]. The former tend to be V-shaped, with a rapid recovery once the Fed relents; the latter tend to be slow, because it’s much harder to push private spending higher than to stop holding it down. And the 1920-21 recession was basically an inflation-fighting recession - although the Fed was trying to bring the level of prices, rather than the rate of change, down. What you had was a postwar bulge in prices, which was then reversed:
I'll give you this much, Kenn - you showed that my own sweeping statement that austerity never works for any recessions was wrong. But as your favorite Keynesian Paul Krugman (whom you probably reject out-of-hand because he says things you don't like) says, there's more than one kind of recession, and the 1920-21 recession was a completely different animal from the one we went into in 2008.
21 - Kenn Jacobine
I would consider JFK a statesman not a politician - there is a big difference.
As to the 1921 depression - it was caused primarily by the money printing to finance WWI. Whether central bank manipulation of the money supply goes into armaments, houses, or whatever it still results in mal-investment in the economy. When the government does nothing and let's the mal-investment liquidate, history informs us that depressions correct themselves quicker. The Wiemar Republic, which experienced a similar economic downturn at about the same time, printed marks and brought on hypeinflation and eventually Adolph Hitler.
22 - Glenn Contrarian
Kenn -
Y'know, I think I'd rather take the word of the Nobel-winning economist over yours when it comes to determining what led to a particular recession.
And all of a sudden you say, oh, well, JFK wasn't a politician, oh, no, he was a statesman. Uh-huh. Right. And Eisenhower? George H.W. Bush? And what about the many other successful politicians who were decorated for bravery in combat? Remember, according to you, politicians by definition don't have courage or vision or honesty or intelligence.
What, then, about Ted Kennedy? In the beginning he was a loser, including the joke that was his military service (he got discharged as a private first class). But would a man lacking in courage run for a high-profile government office when two of his brothers had been assassinated? Maaaaaaaybe...but the odds are strongly against it!
And how about Gabby Giffords? Sure, it doesn't take courage to get shot by a crazy man...but go ask her space shuttle-pilot if he thinks his politician wife is lacking in any of those qualities - or would you then state that he doesn't know what the heck he's talking about?
And best of all, guess what the most dangerous job in America is, the one that has the highest on-the-job death rate (with the sole exception of our submariners in WWII (22%))? President of the United States. Every single time they speak in public, they know - they have to know - that the Secret Service ain't perfect, that there could very well be a sniper rifle aimed at his or her heart. You don't think that takes courage?
What I'm getting at, Kenn, is that sweeping broad-brush statements such as yours in which you're declaring an entire profession as completely lacking in the above qualities...simply doesn't belong in intelligent discourse. If you had said that politicians - and CEO's and Wall Street bigwigs and lawyers - are significantly more likely than the common man to lack those qualities, then I could have agreed with you. But leave the broad-brush prejudicial statements out of it, please.
23 - Dr Dreadful
Cynic's definition:
Statesman (n.): Dead politician.
24 - Kenn Jacobine
Really Glenn? You are going to defend an institution that has a 9 percent approval rating? Gabby Giffords a hero because she got shot? Ted Kennedy a hero? Wasn't he the guy who perpetually cheated on his wife and one time drove drunk and the woman died by drowning. Oh, then he didn't report the accident until the next morning. To say nothing of how he used his social position to get out of it.
Glenn, overall politicians are a slimey bunch. They play the game, get elected, and thrive on the power of it all. They steal our property, send our young people off to endless wars, violate our rights, and live high off the hog.
25 - Kenn Jacobine
The difference between JFK and Obama is the following: Obama promised peace but refuses to buck the military industrial complex. Kennedy sought peace and lost his life because of it. That is the difference between a politician and a statesman.