The economy: Stock up on wheelbarrows?
The dismal “science” of economics is difficult. But the Misery Index – a term once favored by former President Carter -- is fairly easy to understand.
The Misery Index is the rate-of-unemployment plus the rate-of-inflation expressed as a point value. When President Ford’s Misery Index was 12.66, candidate Carter used that against Ford. Ironically, Carter ended his own presidency with a Misery Index of 19.72 -- the highest since World War II. President Ronald Reagan, employing free-market principles, took the Misery Index down to 9.72, setting off 25 years of generally high employment and relatively low inflation.
In 2008, the sub-prime mortgage crisis revealed President Clinton and the Democrats in Congress, in the years subsequent to Clinton, had been pushing for home mortgages for poor people who could not even pay their phone bills, much less make their mortgage payments. Moreover, the main malefactors: Congressman Barney Frank and Senators Christopher Dodd and Charles Schumer pushed for regulations that punished banks if they failed to make mortgage loans no sane banker would ever make. Like the debates leading up to the Smoot-Hawley Tariff Act of 1930, which triggered the Great Depression, the sub-prime mortgage crisis in the U.S. produced a world-wide economic morass.
Looking back over the history of the 20th Century we see how foolish decisions on the part of European governments and Japan made America rich. The belligerents on both sides of World Wars I and II needed enormous amounts of capital to pay for munitions. The United States, that great maritime nation protected from invasion by two great oceans and possessed of an un-bombed means of production, provided capital and munitions for the Allied Powers. So, even before the end of World War II, the British Pound Sterling was replaced by the U.S. Dollar as the world’s benchmark currency, the paper money by which the value of all other paper financial instruments is determined.
In 1945, President Truman inherited an economy that was inflated because we had a lot of wealth chasing too few consumer goods. So, Truman’s starting Misery Index was 13.63; however, by the time Truman left office, the switch from war production to the production of consumer goods and America’s strong financial position as the world’s creditor reduced that number down to 3.45.
But, as we can see from the time of the sub-prime mortgage crisis and right on through the recent G-20 Economic Summit in South Korea, the relative financial position of the U.S. to the rest of the world is weakening. Indeed, almost all of the western developed nations are showing financial weakness. Conversely, Red China, India, and Indonesia are gaining financial power.
The reasons for the decline of the western developed nations are abundantly clear: over consumption of consumer goods and over-borrowing to pay for that over-consumption. Unfortunately, the Federal Reservists, the Obamessiahs in the White House, and the EarMarxists in Congress seem clueless. Government overspending and printing more paper money to borrow from ourselves to pay debts for which we do not have the capital to repay in the first place is the path to the kind of inflation that robs the elderly, in particular, of their savings.
Moreover, using “stimulus” money to create a job for a government bureaucrat means the salary and benefits to pay for that new bureaucrat must be taken from the pockets of taxpayers. That is not economic growth. Historically, reducing taxes on individuals and businesses and lifting government restrictions on free-market capitalism result in the creation of real jobs – not government made-up jobs.
Unless we reverse course, we could be like Germany in 1923 when the wheelbarrow used to carry the millions of German Papiermarken it took to buy a loaf of bread had more intrinsic value than the essentially worthless paper money inside the wheelbarrow.
Nationally syndicated columnist, William Hamilton, was educated at the University of Oklahoma, the George Washington University, the U.S Naval War College, the University of Nebraska, and Harvard University.
©2010. William Hamilton.