Is Rhetoric Wrecking Our Economy?

 

Sen. Bernie SandersSticks and stones may break our bones, but there’s good reason to believe words are destroying economic growth.

The usual vital signs we look at to judge economic health are all over the place and don’t exactly paint a positive picture. The unemployment rate is down, but a lot, if not the majority, of that is being caused by a shrinking labor force participation rate. The economy is technically growing, but the growth rates are abysmal. The stock market is way up, at record levels, but much of that is likely being caused by the near-zero interest rates spurred on by the Fed. In effect, we’re not witnessing a surging stock market; we’re just looking at the inflation we expected from easy money policies manifesting itself on Wall Street instead of Main Street. Forget the formal indicators though. The American people are telling us, in survey after survey, that things haven’t improved much, if at all, from the “Great Recession” of 2007-2008. All in all, we’re far from out of the woods. What gives?

There have been all sorts of attempts at explanations. There are the usual partisan objections to specific policies. Then there are the concerns about specific sectors of the economy. Then there are downright weak excuses for sluggish economic growth such as “this winter was pretty cold.” Seriously. There may be a nugget of truth, or a grain for that last one, to all of these things, but most of these discussions seem to ignore the fundamental fact that our economy is incomprehensibly enormous and contains trillions of moving parts. The fact is that little tweaks here and there, plus milder weather, aren’t going to help much. But that hasn’t stopped our politicians, especially our current president, from trying. And what we may be overlooking as we try to identify and solve the relatively minute issues is the biggest problem altogether: Our politicians’ mouths.

One major reason why the economy of the United States has been able to grow to the extent it has and enrich millions of people here and abroad is because of stable rule of law. Renowned economist Ludwig Von Mises explained it best when he said, “Economic action demands stable conditions.”

The British Common Law system inherited by America has granted an incredible level of stability. Individuals and businesses have been able to plan and invest with high levels of certainty and confidence that contracts will be enforced and private property will be protected from the violence of government and others.

Then we elected President Obama on the vague platform of “Hope and Change,” which happen to be the precise opposites of what businesses do and look for when making investments.

Most voters will tell you that not many things have changed since 2008, as far as they’re concerned. Yet just because the average American doesn’t feel like they’re doing any better off doesn’t mean things aren’t radically different. It seems like everyday we’re hearing about new rules and regulations being handed down from the Obama administration. From ObamaCare to the EPA, the rules governing economic activity in the United States seem to be in a perpetual state of flux. Thousands upon thousands of new pages are added to the rulebook annually. Economists are warning of higher energy costs and protesters are in the streets demanding higher government-enforced wages and benefits. Meanwhile, the President and his ideological allies have taken to the soapbox to demonize private industry. From President Obama’s infamous “you didn’t build that” line to Democratic Socialist Senator and presidential candidate Bernie Sanders telling packed arenas he wants to raise the minimum wage to $15 an hour and jack the top individual tax rate to 90 percent, how on Earth are businesses supposed to feel confident enough to make long-term investments, including hiring more people and paying them more?

Successful business owners aren’t stupid or ignorant. They pay attention to the news and they can read the writing on the wall, hence their success. How can we expect our economy to grow when all of the people primarily responsible for initiating that growth are being threatened with higher costs on their existing investments?

The tone of our current and prospective elected officials is a real problem and one that has plagued us before. During the Great Depression, FDR used his famous fireside chats and other speeches to frequently demonize the private sector and blame businessmen for the nation’s economic woes. Not only were government and Federal Reserve policies directly responsible for initiating the Great Depression, a strong case can be made, despite the popular sentiment otherwise, that FDR’s policies and rhetoric caused the initial economic contraction to turn into the prolonged suffering that marked the era. Surveys at the time are compelling evidence of this:

“Public opinion polls in March and May 1939 asked whether the attitude of the Roosevelt administration toward business was delaying recovery, and 54 and 53 percent, respectively, said yes ... Fifty-six percent believed that in ten years there would be more government control of business … Sixty-five percent of executives surveyed thought that the Roosevelt administration policies had so affected business confidence that the recovery had been seriously held back.”

History reflects the other side of this dynamic as well. Ronald Reagan was famously optimistic about the strength of American entrepreneurship and blamed the government for constantly getting in the way. The economy roared back under his watch, despite some less-than-conservative spending habits on the part of that administration. Calvin Coolidge, president during the Roaring Twenties, is known for being a man with very little to say other than “no” to the expansion of government and new laws and rules.

American voters are right to be frustrated during this election cycle and are naturally drawn to politicians with bold words and visionary plans. Unfortunately, this is likely counterproductive. Our economy requires a certain level of political and legal stability, but our politicians’ loose lips may ultimately be sinking the ship.

Published in Culture, Economics
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  1. Aaron Miller Inactive
    Aaron Miller
    @AaronMiller

    Much of Obamacare looms over the economy, waiting for President Obama’s executive orders to expire and the full oppressive weight to come crashing on top of us when he leaves office. Sadly, even if the ACA was miraculously overturned by Republicans in 2017, Republicans bought the premise that Obamacare must be replaced with something. Consequently, they threaten the economy with further legal changes which CEOs cannot predict and plan for.

    Then there are the mortgage and loan manipulations which persisted after the crash years ago. So businesses can reasonably expect another downturn.

    Then there is the uncertainty in Europe (and Asia). Even if Greece’s neighbors are prepared for the immediate economic consequences of that nation’s imminent insolvency, how will their economies handle the flood of refugees and chaos when the rats abandon ship?

    Many certainties threaten American businesses in the near future. Words of hope won’t help much without some harsh wisdom in the form of preemptive legislation.

    • #1
  2. Arizona Patriot Member
    Arizona Patriot
    @ArizonaPatriot

    Your main point is excellent, and correct.  I have a pet theory that it was this type of uncertainty that held back the economies of many non-communist countries during the communist era.

    I disagree on your minor point about inflation “manifesting itself on Wall Street rather than Main Street.”  That is not how inflation works.  The absence of inflation indicates that the Fed has done a good job managing the money supply in a very unstable period.

    Someone with greater technical knowledge may want to chime in on this, but in general, tightening of bank lending standards causes a contraction in the “money supply.”  The Fed offset this in 2008-09 with an expansionary policy toward the narrower types of “money supply,” very effectively.

    As the Fonz once said, “the proof is in the pudding” — which in this case means that the price stability experienced in the US during and since the financial crisis is proof of good management.

    • #2
  3. Seawriter Contributor
    Seawriter
    @Seawriter

    What is choking the economy is Obamacare. It is a discriminatory tax hurting the self-employed and small business owner disproportionately. Large corporations, which self-insure are insulated from the worst aspects of the law. So are government employees. Outside those groups? Expect to pay somewhere between $10,000 to $15,000 for health insurance that does not cover much of anything.

    The mystery of Obamacare is who does benefit?  Not the consumer, who gets nothing for a lot of something. Not the insurers, who seem to be going out of business.  Not the medical professionals who find themselves squeezed by the insurers. Not even the government – they don’t get the money paid in for insurance.

    It seems the Obama administration has found a way to destroy money, creating a financial burden that benefits no one, but takes billions out of the economy. It is killing job growth, sucking disposable income out of the hands of those who are working and encouraging millions to go on government assistance rather than working and getting nothing for their efforts.

    Seawrier

    • #3
  4. Ralphie Inactive
    Ralphie
    @Ralphie

    As someone who has a small business I would say a combination of regulations and the increased use of government subsidies like food stamps and disability (a lot of people can feel better about basically being on welfare if they have a problem) and the decline of cultural admiration of those of us the are self employed.  It seems most people want to “get a good job” not create one.

    Obamacare is a big one, but combined with all the other regulations, not just at the fed but state and local level make it discouraging for start ups.

    Little kids are fined for lemonade stands, while grown up lawyers in positions of high authority are excused for not following government protocol for keeping records.

    • #4
  5. Could be Anyone Member
    Could be Anyone
    @CouldBeAnyone

    The progressives had more or less laid the foundation of FDR with Woodrow Wilson. Instituting a tax on production (income), a federal reserve, and a host of regulations like agricultural price controls ensured that the collapse would happen. While Coolidge and like minded Republicans held off further regulation and eliminated some regulation they did not eliminate enough. An example of an industry that suffered during the roaring twenties would be farmers who after WW1 had expanded their operations and they had taken out loans to do so. Those food price controls lowered the going price significantly (rationale was to save European farmers from the more competitive US farmers) and this meant that many farmers could not pay off those debts and went bankrupt. Others attempted to compensate by farming the more profitable crops repeatedly (ignoring the concept of crop rotation, which they knew but they were desperate) and in combination with lower than average precipitation this caused the Dust Bowl.

    This impact was severe on the Midwest and south and led to some changes in demographics and also served to stagnate the economies of those regions during the 20s and 30s. Overall federal regulation caused that issue.

    But I digress. The main issue is that progressive economic jargon and even thought still pervades US culture. When any politician says they will create jobs they are mimicking Keynes and his government consumption theory. Government however does not in fact hire people to add value to the economy (rather tax collectors take value as do regulators in many cases), they do though determine the environment in which an economy occurs and it is mostly hostile right now.

    When politicians say we need to protect american workers by penalizing companies that move jobs over seas or that certain nations’ goods need tariffs then those politicians are again falling for progressive protectionism. Attempting to harm trade doesn’t compensate for the lack of productive efficiency of your worker, instead deal with laws that affect your own production in your nation. Lower taxes, maybe even eliminate some taxes, eliminate some regulations and you’ll US workers producing just as many goods for the same rate as China and even on top of that though is the fact that economies change.

    The US was once mainly agrarian, then it was urban factory oriented, and now it’s becoming mechanized technologically oriented. People need to accept the fact that increasing productivity means manpower once needed for the production of certain goods frees them to go apply that manpower to another employment like being an IT. You no longer need to operate the machine, you simply need to know how to fix the machine and you will earn more (in real cash, not nominal) than the factory worker 60 years ago did.

    • #5
  6. The Cloaked Gaijin Member
    The Cloaked Gaijin
    @TheCloakedGaijin

    Patrick Hedger: Is Rhetoric Wrecking Our Economy?

    Can magic words also cure the economy?

    Why worry about hard work, saving, and innovation when snake oil words and lies are available?

    • #6
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