Skip to comments.An Unusual Economy? (Thomas Sowell)
Posted on 08/29/2011 12:20:07 PM PDT by jazusamo
Many in the media are saying how unusual it is for our economy to be so sluggish for so long, after we have officially emerged from a recession. In a sense, they are right. But, in another sense, they are profoundly wrong.
The American economy usually rebounds a lot faster than it is doing today. After a recession passes, consumers usually increase their spending. And when businesses see demand picking up, they usually start hiring workers to produce the additional output required to meet that demand.
Some very sharp downturns in the American economy, such as in the early 1920s, were followed quickly by bouncing back to normal levels or beyond. The government did nothing and it worked.
In that sense, this is an unusual recovery in how long it is taking and in how slowly the economy is growing while the government is doing virtually everything imaginable.
Government intervention may look good to the media but its actual track record both today and in the 1930s is far worse than the track record of letting the economy recover on its own.
Americans today are alarmed that unemployment has stayed around 9 percent for so long. But such unemployment rates have been common for years in Western European welfare states that have followed policies similar to policies being followed currently by the Obama administration.
Those European welfare states have not only used the taxpayers' money to hand out "free" benefits to particular groups, they have mandated that employers do the same. Faced with higher labor costs, employers have hired less labor.
The vast uncertainties created by ObamaCare create a special problem. If employers knew that ObamaCare would add $1,000 to their costs of hiring an employee, then they could simply reduce the salaries they offer by $1,000 and start hiring.
But, since it will take years to create all the regulations required to carry out ObamaCare, employers today don't know whether the ObamaCare costs that will hit them down the road will be $500 per employee or $5,000 per employee. Even businesses that have record amounts of cash on hand are reluctant to gamble it by expanding their hiring under these conditions.
Many businesses work their existing employees overtime or hire temporary workers, rather than get stuck with unknown and unknowable costs for expanding their permanent work force.
As unusual as 9 percent unemployment rates may seem to the current generation of Americans, unemployment rates stayed in double digits for months and years on end during the 1930s. Franklin D. Roosevelt's administration followed policies very similar to those of the Obama administration today. He also got away with it politically by blaming his predecessor.
>>>>Government intervention may look good to the media but its actual track record both today and in the 1930s is far worse than the track record of letting the economy recover on its own.
He is correct, of course. Doing nothing would be far preferable to what Obama is doing or what the Republicans are proposing. Just leave the economy alone and it will get better.
Government actions are unpredictable.
The market hates unpredictability.
It is as if you spent a lot of time researching fast horses and good jockeys with an eye towards betting lots of money, but when you showed up to the races they announced that they had an official who would add or subtract from race times as he saw fit.
Still want to bet your money?
He’s right, of course. But additionally, I think there is a demographic factor. Baby boomers, of which I am one, are simply going to be spending less from here on out. My kids are grown, so I’m not buying stuff for them anymore. I’ve bought and furnished my last house. I no longer need four cars and the two that I have I’m going to keep around for awhile. I’m socking money away for old age.
The company I work for laid off a third of our permanent work force and replaced them with temporary employees. They don’t have to pay the temps benefits.
I agree. I'm 55 and I don't plan on making any more major purchases in the foreseeable future. We actually started planning for this about 7 years ago.
Unusual to say the least.
Read this guy’s blog on the economy. He testifies in Congress quite a bit (and gets called an ideologue by the Dems). Pretty funny - he simply stands for free markets and little government involvement.
That’s understandable right now though tough on workers. With the way things are the temp agencies are having no problems getting good workers.
It was government policies that kept the great depression alive until after WW2.
Sowell’s analysis is spot on but incomplete. The best economic analysts I’ve been reading have made the point that this isn’t a standard 20th century “recession”, nor is it really like the Depression, although it feels that way. Rather, this more favorably compares to a 19th century “contraction” which occurred for 16 years in the late 1880’s. By Contraction is meant that the economy is in fact shrinking; thus for example, we’re seeing far lower employment rates expressed as a percentage of eligible working population holding jobs. That rate is down to something like 63%. Typically it runs in the high 80’s. At the same time, we’re seeing a serious “wealth” contraction with something like 1/3 of the residential real estate market under water with no hope for recovery. Housing hasn’t really ever bottomed out.
I “think” (meaning I’m not sure) the problem may well be twofold, 1) too many are being paid far too much to not work and 2) horrible trade policy has incentivized the offshoring of jobs.
There being little in the way of political talent in the offing, I don’t expect any speedy resolution to this mess. For all practical purposes, this is the “new normal”.
The worry is for the ‘class warfare’ people, in media/Dem politicians/the usual suspects, to coordinate their effort and brand those of us ‘unpatriotic’ and escalate their unhappy feelings.
They truly want a civil war, and think they can come out from it the winner.
As a fellow baby boomer (tail end of the era) I agree, however, Doctor Sowell used as an example the 1920 recession. There were no baby boomers during that recovery. It is not that we spend less, we are a bigger hit on the economy as we retire. That said, when you paid into a system for 47 or more years, considering you a problem now after taking your money for so long is unethical and a result of mismangement by the government.
Same here; I’m 51 but the only expenses left are to put the kids through college. We have a nice home in a nice neighborhood and don’t plan on moving or any major upgrades now that the basement is finished. The cars are paid for and well-maintained; I’ll keep them until they are ready to return to the soil from whence they came.
Most people in my age bracket are doing the same (if they have any sense, that is).
The media, as usual, professes to be shocked, *shocked*!, that direct government control over large sectors of the economy doesn’t produce prosperity and happiness.
Excellent point and right on. I sometimes wonder what it would be like to have a media that would present the news and conditions without their obvious leftist slant, but then we couldn’t refer to them as the enemedia. :)
Or the Democrat Propaganda Ministry.
Not to mention, I am not interested in discretionary spending until 0bama is out of the WH. I do not want to contribute in any way to the potential “success” he might claim if it appeared we were having a recovery. We are truly middle class in my household. If I have this attitude, think of the money being held back by the “wealthy”.
“He also got away with it politically by blaming his predecessor.”
Until he was able to get us into WWII, after promising that he would not.
The Depression ended when Roosevelt’s heart stopped beating. He was our version of a leftist dictator. Only the Constitution and the Supreme Court kept us from going completely totalitarian.
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