Real Thought

Paul Krugman, a professor of Economics at Princeton, had a column published today in the NY Times which suggests that the recovery from our economic woes may take longer than either Senator Obama or Senator McCain wants to admit.  Fine, I can agree with that.  However he goes on to make the point that certain short recessions of the past were “caused” by the Federal Reserve tightening up interest rates in order to control inflation while the current downturn has been caused primarily by the housing bubble.  In other words, the short recessions of 1990-91 and 2000 were caused by government intervention in the economy and were fixed by the Fed lowering interest rates while the current downturn is being caused by market forces and the Fed has been pretty much worthless in trying to soften the downturn or shorten it’s duration.  He uses the metaphor of “pushing on a string” to make his point.    OK, I can even agree with that to some degree.

Here is where I have to disagree with Professor Krugman; he then goes on to say that the way Senator Obama, should he become president,should move  to end this downturn  is to,  ”…move quickly and forcefully to address America’s economic discontent. That means another stimulus plan, bigger, better, and more sustained than the one Congress passed earlier this year. It also means passing longer-term measures to reduce economic anxiety — above all, universal health care. ”

So let me see if I understand Professor Krugman’s position.  This current economic downturn is driven by market forces beyond the federal government’s ability to ameliorate.  In fact, the efforts by the Federal Reserve to try to dampen the effects of the downturn have been the equivalent of someone “pushing on a string”, in other words, ineffectual.  The solution to this “economic crisis” is not less ineffectual government interference in the economy, which Professor Krugman admits has caused previous recessions, but more government intervention; including universal health care even though goverment intervention in this current downturn has been ineffectual.

So his position is that we have problem A and we tried solution B but solution B did not work and what we need is more solution B.  That is abusrdist reasoning.   As Albert Einstein said, “The definition of insanity is doing the same thing over and over again and expecting a different result.” If government intervention is ineffectual, more government intervention will still be ineffectual.  I have a different solution, that we stop government intervention in the current economic downturn, allow those who made poor investments to fail, allow our economy to readjust and move on from a new economic baseline.

I really cannot believe that some editor at the NY Times didn’t see Professor Krugman’s article for the absurdist piece that it is.

Simple, reduced consumption and increased supply.  Since oil topped $140 a barrel, United States consumption has dropped.  People are driving less and trying to sell their large, fuel inefficient automobiles for smaller, more efficient means of transport.  People are driving less.  I know that I am.  with the advent of almost free e-mail, fax and file sharing technology, people no longer have to physical transportation of information.  I just e-mailed my buddy Andy in Santa Cruz all of the routes my Sea Scout ship will be using for this year’s long cruise to Avalon on Santa Catalina Island.  Before, I would have burned the files to a disk or a CD and mailed them.  This is no longer necessary.  I suspect that many others are doing the same, using less fuel and reducing demand for petroleum.

Furthermore, with President Bush’s recission of the executive order banning offshore drilling in United States waters, I believe that there is the very real threat of greater oil supply on the market.  This has sent commodities traders into a bit of a panic and has shown that the mere threat of increased supply will cause the market to beging falling.  Couple this with increased supply of alternatives to oil and you have teh beginnings of a downturn.

Happy 4th of July!  Yes, I know that fuel prices are out of whack and the dollar is weak and we have two marginal candidates for president, but screw it!  We, the citizens of the United States are the most fortunate people on the face of the earth!  We are the freest and wealthiest country of all, by any measure.  We revel in discord and discontent for that is when we rise to our best.  We truly believe that all men are created equal.  So, today, I am going out with my Sea Scouts and we are going to anchor off Alcatraz Island and watch the San Francisco fireworks.  Tomorrow, I am driving (yes, I said driving) to LA and my buddy Dan and I are taking his boat over to Santa Catalina for a few days.  Now, where else in the world can the grandson of a fisherman and a small grocery store owner be able to do that?  Maybe Australia.  We really need to take a step back, realize that the future is not as gloomy as the chicken littles in the mass media would have us believe and simply muddle through.  Things will get better.  We survived a revolution against Britian, a bloody Civil War, Pearl Harbor and WWII, the Cold War and the attacks on September 11, 2001.  $4.50 a gallon gas is a piece of cake!  So, go out today, put some dead animal on the grill, watch some fireworks and be truly thankful that 232 years ago on a sweltering Philadelphia day, a few brave men voted to dissolve our political connection with Great Britian.  We, their posterity, can never thank them enough.