If I were not such an admirer of the United States I should be inclined to say that in electing the rabid leftwing Obama to the presidency Americans deserve everything they are getting -- and good and hard. But America is a generous and unique country and deserves much better than this. Regardless of what Obama and fellow leftists assert America is special. The first country in history to be founded directly on the principle of liberty and the "inalienable rights of Man". That Obama and his merry band of bitter leftists mock this fact reveals their not-so underlying contempt for 'their' country's traditions, history and citizens.
To comprehend why Obama refuses to change economic course one needs to understand the fact that he is a genuine leftist. In plain English: a socialist. Not the Marxist kind but the Mussolini kind. For these people economics is basically an ideology. There are no economic laws, only the Will of the Collective, meaning the state. As the Marxist economist S. G. Strumilin declared: "Our task is not to study economics but to change it. We are bound by no laws". (Cited in Robert Conquest's Harvest of Sorrow, Pimlico, 2002, p. 112.) Mussolini could not have put it better -- and neither could Obama's supporters. But economic laws do exist and defying them invites disaster.
One symptom of disaster is widespread persistent unemployment, a dreadful phenomenon of the 1930s whose spectre appears ready to make a reappearance. Despite the so-called stimulus and the half a trillion or so dollars injected into the economy (I'm ignoring the idle bank reserves) the economy is stagnating and the jobs situation is still grim. Seasonally adjusted monthly employment data from the Bureau of Labor Statistics paints depressing picture. From January to June total employment increased on average by 144.7 thousand per month but for private employment it was only 96.2 thousand.
Compare this figure with the Brookings Institute's estimate that with a monthly job-creation figure of 208,000 it would take 11 years to close the "job gap" ("the number of jobs it would take to return to employment levels from before the Great Recession".) To top it off, the labour force is expanding at an average rate of 125,000 per month. At this rate unemployment could start rising again. (No wonder many Democrats are beginning to panic.)
This situation has shattered the post-war pattern of recession-and-recovery. If this pattern had been maintained the rate of expansion in GDP would have been about 8 per cent by now and unemployment would be falling. Instead GDP is growing by 3 per cent, meaning there is no real economic growth if by that we define growth as capital accumulation, nor does this appear likely in the near future.
Now it is true that the Fed's criminally loose monetary policy created masses of malinvestments that needed to be liquidated. Nevertheless, there has been, at least in my opinion, sufficient time to liquidate them and put the economy back on the road to recovery. Obama's policies have sabotaged this process and given the country stagnation. Expect Bernanke to try and redeem the situation by keeping rates at or close to zero. This is a doomed policy. There is no such thing as demand deficiency. Even if there were it should be obvious to Bernanke that the real problem is not lack of dollars but the Obama administration.
Desperate to find an escape hatch some Democrats are now calling for Obama to extend the Bush tax cuts. (I bet that made him choke.) Naturally, this man of 'iron' refuses to budge. He knows what Americans deserve and he intends to go down in history as the one who to gave it to them -- good and proper. It's ironic that Democrats who only a short time ago were arguing that tax rises were good for the economy have done a 180 degree turn, if only to try and save their rancid political skins.
As expected, they and their critics still don't get the problem with taxes. It has nothing to do with consumer spending spurring growth -- which it doesn't -- but the state commanding more and more resources which squeezes investment which in turn shortens the capital structure. It's this process that eventually lowers real wages and living standards. Those leftwing economists (how is that for an oxymoron) who argue that government spending makes up for private investment are absolutely clueless about the nature of capital and true investment. What is more, they intend to stay that way.
It has been suggested that the government can break the economic impasse by becoming a buyer of the last resort. Basically this means that the government should print hundreds of billions of dollars which it would then spend on goods and services. If you think this sounds fishy, then you are damn right. The first and obvious thing is that this is a case of out and out inflation. In other words, the country should try and inflate its way around consequences of Obama's economic malice by raising prices so that the money returns to business outweigh the costs of his administration's policies.
The state of economic commentary is so bad that the effects of such a policy on the structure of relative prices and the production structure and hence manufacturing is thought to be nonexistent or insignificant. It simply is not understood that even if this policy succeeded in restoring full employment it would only be temporary and at the expense of real wages and capital accumulation.
At the end of the day, something has to give. If Obama is not forced to change course the economic consequences for millions of Americans will be increasing severe. Although "there is a great deal of ruin in a nation", as Adam Smith once observed, there is still a limit to what any economy can endure. Despite its size and power America is no exception.
