Mises Daily Articles
Obama and the Economy
Travel with me back to yesteryear, the early days of the Reagan administration, when taxes were being cut and spending increases were being curbed (actual spending cuts were few), and when journalists were losing their heads about the supposedly catastrophic state of the economy.
The prevailing ethos in those days in the White House was somewhat sensible. The idea was that the recession had to be permitted to run its course. The late-1970s inflation coupled with recession had wrought dollar depreciation plus high unemployment and high interest rates. These were part of the adjustment process. No one doubted it.
Now, there was a time, only a few years earlier, when the Keynesian orthodoxy claimed the power to control the economy the way we control our cars. One could adjust inflation up to drive unemployment down, or adjust inflation down and pay the price in higher unemployment. It was a trade-off, and the wise economists would decide what was socially optimal.
One can only marvel at the naïveté, but it all came crashing down with the advent of the simultaneous appearance of both inflation and unemployment, and Keynesian confidence was shaken to its core. The better members of the Reagan team were more realistic. They believed that the goal of government policy was to create the conditions for economic growth, and if that meant letting bad policies wash themselves away during the transition, so be it.
The journalistic establishment at the time hated them and their free-enterprise ideas. So, of course, all bad news was treated as not only worse than it really was: it was also blamed on the Reagan administration, as if it had control over events that Keynesians imputed to government. So, if times were bad, who were to blame but the people in control?
Every day the headlines blasted away, as if the media establishment were trying to whip the public up into a hysterical frenzy against tax cuts. People were encouraged to blame That Man in the White House for all existing evil, and the nightly newscasts were filled with furrow-browed anchors doing stories on the poor suffering masses and their desperate plight. Their political agenda was aggressively on the display, brazen beyond belief.
And then something amazing happened. The economy began to recover. Unemployment fell, inflation crashed, interest rates came down, and growth returned. The criticism later changed: the Reagan administration was accused of being too pro-growth and unleashing greed and "cowboy capitalism." But it fell on deaf ears, and Reagan won a landslide reelection in 1984.
Now, I'm not saying that Reagan was laissez-faire or that the economic recovery didn't owe something to a newly fashioned form of military Keynesianism. Rather, my focus here is on the spin: the press hated him and exaggerated the failings of the economic structure in order to destroy policies it hated.
The contrast with the Obama administration can't be more stark. No one in these ranks said that malinvestments have to be washed out of the system, and bankruptcies and unemployment must be tolerated for a time in order to get back to economic growth. Nay, nay, they pulled out the old bag of tricks and claimed that they only needed to loot the public of hundreds of billions and spend it on building up government, and then, wow, like magic, the entire economy would come back to life.
But it hasn't. The stock market survives, but that's no indication. Stock markets are never better performing than during a hyperinflation. Interest rates are rock bottom, but only through artificial means. Gross Private Domestic Investment is still falling off a cliff, having already completely erased ten years of investment from the record of history. Here is a fundamental factor that suggests that terrible things are still to come our way. And I guess I'll have to put this in italics because the point seems to be lost in the shuffle: unemployment is still rising, even soaring, straight to double digits!
The sociology of this intrigues me to no end. Unemployment is one of the human elements that journalists are supposed to glom onto. Oh, look at poor Bob and Jane and how they lost their jobs and have nowhere to go, etc., etc. Talk about human interest! Where are the weepy stories about the plight of people wandering around with no work? Instead, we get happy clappy stories about how things are not nearly as bad as they might be had the great and powerful Obama of Oz not appeared to save the day. There is also the remarkable spin that things are getting worse, yes, but at a slower pace than before — an observation that might be most commonly heard in Hell.
Obama himself has other lines.
"In the last few months, the economy has done measurably better than expected."
Well, that depends on your expectations, doesn't it? It is irrefutable. But the press is glad to be the echo chamber: "Figures released last week showed that the economy contracted more slowly in the second quarter than many economists had expected."
And then there are the benchmarks, and that might be the scariest part of all. The Obama administration is convinced that we can have no real and lasting recovery until homes go up in price. A top adviser said, "Until we see a robust recovery in housing markets, housing prices, in jobs and family income, we're not anywhere near out of the woods."
This is precisely the same inanity that afflicted the Hoover and Roosevelt administrations. They saw falling prices as the problem to be remedied rather than the saving grace of an otherwise abysmal economic environment. So they kept trying to stamp out good things thinking that they were bad things, effectively burning the crops instead of killing the rats that had infested the harvest.
We can fully expect the mainline press not to understand economics. I can deal with that. But not even to draw attention to the awful reality of the current economic situation, simply because many members of the mainstream press are sympathetic to the idea that the government should be stealing ever more money from us for the state? Here is where ideology leads to blindness, which leads to the worst form of propaganda.
I suspect that they will no more get away with this now than they did in the 1980s.