Bernanke has made so many references to the Great Depression over the last 18 months that it is impossible to keep count. We have all read or heard by now that he spent his academic career studying the Great Depression and therefore he is the pre-eminent expert to guide us through the current financial mess. It is a good thing he has studied it. We definitely can learn from our history and for that matter the history of others who have been down similar road before us regarding economic difficulties. He has stated numerous times the fault of the government during the Depression was to back off of easing monetary policy too soon as a contributing factor in prolonging the duration of the Depression and uses that as the justification for the printing of trillions of dollars and the “buying” of US Treasuries and other instruments in the market place such as mortgage-backed securities. He projects continuing those policies for the indefinite future and wants us to believe that is a good thing.
Of course all that activity by the Fed results in the expansion of government control in even more vital sectors of the economy. There is a significant percentage of folks out there who love that and place complete trust in the role of government. He constantly makes a comparison to those events of the ’30’s to the events and occurrences of today. Some of that is legitimate and appropriate. We can find useful knowledge from past events. However today’s Fed is far more political than it has ever been. It is at this moment essentially another cabinet position of the current administration rather than the completely independent body it was intended to be when created. While we study the similarities between then and now it is also important to recall the differences between the two eras.
Social Security was just starting and the ratio of workers was very high compared to the retirees. Also the live expectancy was only 62 and most importantly of all the system was not considered a retirement plan but merely a welfare plan for the most needy of the elderly. The Federal budget was small compared to GDP at that time and the military budget was non-existent. That lack of military power played its part in the rise of Mussolini, Stalin and Hitler. It was certainly not our fault alone but we didn’t exactly step up to the bar and push back against those tyrannies. Indeed many were embracing Stalin at the time. We also didn’t have food stamps, subsidized housing, a government program that controlled the mortgage industry like Fannie, Freddie and the Fed do today; there was no Medicaid or Medicare to pay for at that time.
You are all reminded of what that great philosopher Brother Dave Gardner taught us all decades ago that you can’t do the “same” thing again, ever. As he taught you can only do something similar to what occurred before. Unless you know how to do time travel you can never do the same thing again. Bernanke is forgetting this valuable lesson in his comparisons to then and now. He keeps talking about us doing or not doing the “same” thing today as was done then. His methods at the moment are working hand in glove with the group in the administration that is promoting a European style economy. There are lots of positive aspects to that European model, but it has some very negative downsides.
Mostly what the European model lacks is the spirit of rugged individualism and innovation that are the hallmarks of the American economy historically. They lack that. Just look at all the major advances in science, medicine, physics, economics and industry over the last 150 years and the US is the clear leader in any category by leaps and bounds. Sure who wouldn’t want 6 weeks vacation every year, “free” medical care and free higher education and a public dole that allows a comfortable existence without working. But we need to be objective and also recognize the flip side of all those. They have had and still have much higher rates of unemployment than we do because it is almost impossible to fire anyone once hired so companies are very reluctant to add employees. In France now there is great controversy over this issue. There free higher education system is wonderful but remember only a tiny fraction of their population has access to it; the majority are in “trade” school by about age 16. They are rapidly reaching the point of insolvency because of the huge debt burdens of their governments to support their welfare programs, see, Greece, Portugal and Spain for starters and then Italy and Ireland with Britain and France trailing pretty close behind. Even the EU is finally realizing that someone has to work, wants to work rather than live on the dole, build new things, and that everyone can’t just sit home and write poetry or sip Merlot in front of their 50 inch TV.
Bernanke is taking the wrong lessons from 75 years ago. Failure for incompetence or bad decisions is a good thing, a sound dollar is a good thing, low taxes are a good thing, smaller government is a good thing and promotes a more vigorous and growing economy. Even in the completely non- capitalist Soviet society people had to work, indeed they were required to work for the social justice of all was the theory. We need the government to be an honest arbiter and referee of our capitalist society but no more than that. It doesn’t and shouldn’t be in the auto industry, the banking business, the mortgage business, credit card business or the medical industry. When some of those industries faltered the big government types said we had no choice but to rescue them, excuse me, we did have a choice. They could have failed and then re-emerged as better companies in every instance and the creditors and shareholders would have suffered no more than should be expected for making bad decisions. We are seeing the consequences of those decisions now–a growing Nanny government who is morphing into a dictator government to achieve social justice for us all. Lord protect us from ourselves. People deserve the government they allow to rule them. Hopefully, we will deserve better soon.
The health reconciliation bill has a provision to manipulate the accounting with regard to deficits and Social Security. You recall there are changes to Social Security to save money but they say it is revenue neutral because the money is replaced. What is actually provides is that to the extent enforcement of this act reduces Social security funds they shall be replaced by the Treasury every quarter. Sounds good except that is just more IOU’s going to SS from the Treasury, it is not real money, merely another promise of money down the road but it helps balance the books for health care proponents. www.olcranky.wordpress.com