Real Thought

Gott im Himmel!! The economy is going to crash!!!!  We need massive government bailouts and control of industry!  Capitalism is finished!  We are in the worst crisis since the Great Depression!

OK, here is the real truth.  We are not in the worst crisis since the Great Depression.  Period.  End of story.  You see, during the Great Depression real domestic output fell by something like thirty to forty percent and there was twenty five percent unemployment.  Today, domestic output has fallen one tenth of one percent and we have six percent unemployment. Even the worst case scenarios foresee a decline in domestic output of no more than five to ten percent and unemployment of no more than ten percent.  There you go, this crisis will, in reality, be no worse than the stagflation of the late 1970’s and so what if it is?  All government intervention did in the 1930’s was prolong the Depression.

Nobel prize winning economist and economic adviser to President-elect Obama, Paul Krugman, in an article published in the New York Review of Books says that we need to perform a “rescue operation” on the economy.  He points out that letters of credit are getting harder to obtain and that international trade is suffering.  His evidence?  The Baltic Dry Index has fallen eighty nine percent in the last year.  The BDI is a measure of world shipping rates.  Well, in reality, the BDI has lost over 90% of its value in the last year, partially to the loss of credit but also to the development of larger cargo ships, more efficient loading and routing of those ships, reduced manning of those ships and finally a fifty percent decrease in the cost of fuel for those ships.  Also, may I ask, when exactly are lower shipping costs bad for the economy?  I was always under the impression that the lower the shipping costs, the lower the price for the consumer and the greater profit margin for the producer.

Of course, Professor Krugman’s plan is for the government to buy stock in the failing institutions and become part owners of the banking system.  Look, this is simple, no.  The government has no business doing this.  It was Fannie Mae and Freddie Mac, the government mortgage and loan corporations which got us into this mess to begin with.  More than that,  from where is the money used to by bank stock going to come?  We already have a national debt that is unprecedented.  As a matter of fact, that was one of the main complaints against the current administration, that it had “mortgaged our future” by increasing the national debt.  But now it is OK to add billions or even trillions of dollars to the national debt under President Obama?  I guess so, as long as the corporate vested interests which support President Obama, Representative Pelosi and Senator Reid get their cut.  It is not OK to raid the Federal treasury if you are Republican but quite another thing if you are a Democrat.   I have a better plan, how about we cut Federal spending by, say $700 billion dollars and give each taxpayer a  $5000 check.  Better yet, how about we cut government spending by $700 billion and use the savings to pay off the current national debt.  That would do a great deal to stimulate the economy.  But what do I know?  I am not a Nobel prize winning Economist.