May 13, 2010

We’re Not Europe, But We’re Getting Closer (and FDR Took Us Here Before)

Filed under: Economy,Taxes & Government — Tom @ 9:16 am

NotEurope0510In a Wall Street Journal column this morning that should be read in full, Daniel Henninger looks over the ocean and describes where we’re heading under the person HillBuzz likes to call “Dr. Utopia”:

One of the constant criticisms of Barack Obama’s first year is that he’s making us “more like Europe.” But that’s hard to define and lacks broad political appeal. Until now.

Any U.S. politician purporting to run the presidency of the United States should be asked why the economic policies he or she is proposing won’t take us where Europe arrived this week.

In an astounding moment, to avoid the failure of little, indulgent, profligate Greece, the European Union this week pledged nearly $1 trillion to inject green blood into Europe’s economic vampires.

For Americans, this has been a two-week cram course in what not to be if you hope to have a vibrant future. What was once an unfocused criticism of Mr. Obama and the Democrats, that they are nudging America toward a European-style social-market economy, came to awful life in the panicked, stricken faces of Europe’s leadership: Merkel, Sarkozy, Brown, Papandreou. They look like that because Europe has just seen the bond-market devil.

… Angus Maddison, the eminent European historian of world economic development who died days before Europe’s debt crisis, wrote in 2001: “The most disturbing aspect of West European performance since 1973 has been the staggering rise in unemployment. In 1994-8 the average level was nearly 11% of the labor force. This is higher than the depressed years of the 1930s.”

Whoa. Stop. Right. There.

Grasp what is in the bolded sentence. ….

Read it again, just to be sure, and never forget it.

What Maddison is telling us by inference is that Europe during the Herbert Hoover/Franklin Delano Roosevelt Depression Era far outperformed the USA in keeping its people at work.

As is somewhat commonly known, US unemployment stayed unacceptably high throughout the 1930s despite (really because) of everything Hoover and then FDR did:

By June 1937, the recovery—during which the unemployment rate had fallen to 12 percent—was over. Two policies, labor cost increases and a contractionary monetary policy, caused the economy to contract further. Although the contraction ended around June 1938, the ensuing recovery was quite slow. The average rate of unemployment for all of 1938 was 19.1 percent, compared with an average unemployment rate for all of 1937 of 14.3 percent. Even in 1940, the unemployment rate still averaged 14.6 percent.

Every unemployment figure cited is far worse than the “under 11%” of 1930s Europe, which with the exception of Germany was not embracing doctrinaire socialism.

In other words, we’ve been here before. It was awful. Only World War II and FDR’s passing saved us from his central-planning nightmare.

As has been noted at this blog many times, they should have known better, but many if not most of those who supported Barack Obama in 2008 did not believe they were opting to put the worst aspects of FDR on steroids and a not-too-distant circling of the economic drain in their future. But that’s really the deal they made.

Five months of election results and their offshoots — just for starters, see defeated Congressman Allan Mollohan, retiring Congressman David Obey, retiring Congressman Bart Stupak, new Massachusetts Senator Scott Brown, elected New Jersey Governor Christie, elected Virginia Governor McDonnell — have made it crystal clear that many of those who opted for the hopey-changey mush they were offered in 2008 have realized that they were baited and switched into 21st century Euro-style socialism.

ObamaCareSubsidiesHeritage032610Actually, it’s even worse than that, as I wrote in March in detailing ObamaCare’s subsidy structure, which includes de facto marginal “tax” rates of over 100% (see the purple boxes in the graphic on the right after clicking to enlarge it). I called it “far more extreme than virtually anything Europe’s most brazen socialists have attempted since World War II” — because it is.

This time, a World War won’t save us. Going back to Henninger:

Stagnation isn’t death. Economies don’t die. Greece proves that. They slow down. Europe’s low growth rates allow its populations to pretend that real, productive work is being done somewhere by someone. But new jobs are created slowly, if at all. Younger workers lose heart.

Economic stagnation is a kind of purgatory. Once there, it’s not clear how you get out. The economist Douglass North, in his 1993 Nobel Prize acceptance speech, said that one of the vexing problems of his discipline is, “Why do economies once on a path of growth or stagnation tend to persist?” Japan also seems unable to free itself from stagnation.

I have an answer to Douglass North’s question that I believe will stand up to scrutiny: The dependents and rent-seekers in a statist/socialist economy won’t let go of their freebies and privileges without a (sometimes violent) fight, and it’s easier for politicians to try to find any way they can to accommodate them. Witness the reaction on the streets of Greece.

We’ve already gone too far down the Greecey 21st century European path. We must stop it before it boxes us into persistent stagnation, demoralizes our young, and condemns future generations to mediocrity and misery.

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8 Comments

  1. Uhm… The bailout of Greece signals “Europe becoming like the U.S.”, not the other way around.

    Comment by JSK — May 13, 2010 @ 11:59 am

  2. #1, elaboration welcome.

    Comment by TBlumer — May 13, 2010 @ 1:00 pm

  3. One point: It was not the war that pulled us out of the depression. Instead it was the effect the war had on destroying all the other country’s industrial capacity. Leaving the US in position of almost no competition for manufactured goods for almost twenty years. That is what gave us the prosperity of the 1950s and early 1960s.

    Comment by Bob — May 13, 2010 @ 3:38 pm

  4. From the Delusional Department regarding deficit spending:

    http://voices.washingtonpost.com/ezra-klein/2010/05/galbraith_the_danger_posed_by.html

    I have one more answer, though! Since the 1790s, how often has the federal government not run a deficit? Six short periods, all leading to recession. Why? Because the government needs to run a deficit, it’s the only way to inject financial resources into the economy. If you’re not running a deficit, it’s draining the pockets of the private sector. I was at a meeting in Cambridge last month where the managing director of the IMF said he was against deficits but in favor of saving, but they’re exactly the same thing! A government deficit means more money in private pockets.

    Interesting revisionist interpretation of history? Recessions are caused by a lack of deficit spending!!! Do we need any more reasons as to why the Obama Administration is so clueless as to the effects of it’s policies and is completely flumoxed as to why Nirvana hasn’t arrived yet? Keynesians are so clueless it’s pathetic.

    Comment by dscott — May 13, 2010 @ 7:04 pm

  5. Here is another metric for comparing Europe to the US, the GDP PPP:

    http://blog.heritage.org/2010/05/12/europe-faces-reality/

    Imagine, Germany’s GDP PPP is LESS than Alabama!!!!

    But back to my point in #4, look at the government jobs in DC… $164,295 Obama’s emphesis on creating government jobs is an attempt to pay off all his buds in the Democrat Party. Look at all the commissions set up under ObamaCare, cushy well paying jobs on the taxpayers back. Obama intends to have the Fed print money to pay for all of his government programs. (Parallel to Robert Mugabe of Zimbabwe) The only thing that makes Europe look worse is that the Euro has no real backing thus the bonds sold in Euros for countries such as Greece are dragging down the value of the Euro relative to the Dollar.

    This is good news for Obama since everyone uses the value of the Euro as a yardstick for the Dollar, thus giving Obama the ability to deficit spend even more without the appearance of inflation. Remember, inflation is introduced into the domestic economy as the value of the Dollar falls in relation to currencies we import goods from. The falling value of the Euro in effect dampens the price of all their products. Since Oil is increasingly denominated in Euros, oil should stabilize or moderate. Since the Chinese (a major importer) peg their currency to the Dollar the inflation price of printing dollars is not seen. The upshot is Obama can deficit spend UNTIL one of the world’s economic powers decides they aren’t going to peg their economic future to the US and Europe, at that point the house of cards comes tumbling down. Hint, hint, China.

    China will accomplish without bullets and bombs what Mao never could dream of in his wildest imagination.

    Comment by dscott — May 13, 2010 @ 8:29 pm

  6. @TBlumer: Well the European Stability Fund looks a lot like TARP, something the US government instated back in 2008.

    Comment by JSK — May 14, 2010 @ 6:16 am

  7. #6, you’re going to have to do better than that. TARP is to banks (and car cos). ESF is to countries.

    #5, that differential is disgraceful, and would probably be similar if you isolated Fairfax Co., VA and a couple of MD counties and did the same thing. The Heritage article is great.

    We’d better hope the Tea Partiers in China can work really, really fast.

    #4, that’s delusional. So the Clinton surpluses caused the recession of 2000-2001? Bill’s precious “legacy” goes up in flames. GMAFB.

    #3, the war forced FDR to abandon many of his statist designs so that industry could be freed up to make the military hardware required to win the war. After the war, we were the only big guys left standing intact. Both elements are relevant. Corollary thought: If FDR’s statism had gone unchecked and into overdrive after 1937 and hadn’t been effectively put to a halt by the “Tea Party” of 1937-1938 leading to the 88-seat Dem losses in the 1938 elections, we might not have had the capacity to do what we had to do industrially to win WW2. Hmmm.

    Comment by TBlumer — May 14, 2010 @ 8:24 am

  8. [...] In a nut-shell: Tea Parties may be Europe’s only hope.They may be ours, if the US is not going to be an EPIC FAILURE that Europe looks to be. [...]

    Pingback by Tea Party Italiano — Italy’s First Tea Party « Temple of Mut — May 17, 2010 @ 3:40 pm

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