October 24, 2009
http://tinyurl.com/ykssx38 Lawrence Kudlow obtained a degree in history at the University of Rochester in
1969. He subsequently attended Princeton University’s Woodrow Wilson
School of Public and International Affairs but failed to obtain a degree.
Despite a limited education in economics, he has held positions as advisors to
presidents with respect to economic policy and as an economist for Wall Street
firms. He’s part of the problem, and people like him are responsible for
the mess our nation faces in the ever approaching future.
In a piece he wrote at nationalreview.com he makes some rather
outrageous claims. One is that free-market capitalism “conquered the
inflation of the Carter years”. We all know that the Fed policy under
Volcker did that. But Kudlow wouldn’t know this. It’s taught in
Economics 101, a course that Kudlow never took.
Another outrageous claim is that the prosperity of the past 25
years is a result of free-market capitalism. Now I’m not crazy to suggest
that free-market capitalism isn’t a good thing. In fact, free-market
capitalism with limited government intervention would be the best policy for
the long term. But that’s not what we’ve been experiencing.
One of the engines of our prosperity over the past 28 years has
been subsidies. That’s right. Subsidies. The U.S. economy has
been subsidized over the past nearly three decades like nothing before in the
history of the planet. The U.S. has been subsidizing itself through
various methods to give us temporary prosperity but at a very high long term
cost.
First is the dollar. The U.S. has maintained a strong dollar
policy. There’s nothing wrong with that. A stable currency is
good. But look what it’s done. For decades foreign countries,
businesses and investors have been investing their savings in U.S. dollars and
dollar dominated securities. How do they get these dollars? They
give us stuff. They sell to us and then keep the currency or use it to
invest.
In a normal situation we use dollars to buy oil from Mexico and in
turn they’d use those dollars to buy chicken from us or something else.
But instead foreign interests have been selling to us but not buying anything
back from us in return. Some might say, “It’s not our fault.” But
we have gladly gone along with this. We have maintained a strong dollar
policy for years with this intent. The Fed can produce money, and we can
use it to buy stuff giving us the appearance of prosperity.
Another thing we do is just borrow and borrow and borrow, and I’m
not just talking about the Federal government’s deficit. The Federal
government has spent irresponsibly and run up a national debt that my mind is
unable to fathom. But the Fed’s low interest rate policies have also
encouraged consumers (that’s what we are) to spend and spend. Student
loans, credit cards, home equity loans that are tax deductible these policies
have encouraged consumers to spend and spend. Many people were counting
on selling their homes, buying less expensive retirement homes and using the
huge profit as a retirement nest egg. Now that those hopes have been
dashed, the government is borrowing from foreign interests again so that it can
subsidize and encourage consumers to spend even more through the cash-for-clunkers
monstrosity and credits for first-time home buyers.
They want to get GDP growth back up and unemployment back down so
they can be re-elected in the next election cycle. “Consumer spending is
70% of the economy,” they say. “We’ve got to get consumers spending
again.” God forbid they should save.
Another subsidy is Social Security. People are counting on a
fat monthly Social Security benefit upon retirement so therefore they don’t
save as much. Instead they spend more.
Sooner or later the credit cards and home equity loans have to be
paid back. Sooner or later those Social Security benefits are going to
have to be paid. And what happens if all those foreign investors no
longer want to hold their savings in dollars and dollar dominated securities?
The borrow-and-spend policies of the past 28 years have dug us in a hole so
deep that it will take the rest of our lives to dig out of. If it comes
collapsing down on us it could mean one of the most severe economic and fiscal
crises that this nation has ever faced with high inflation, high unemployment
and negative economic growth. Whoever is president at the time will get
the blame despite the fact that it’s the fault of all of us.
At a minimum we’ll have these debts to pay off. Those of us
that are younger are going to be paying for the retirement of those that cause
all of this. And it’s disgusting that people like Kudrow are still
endorsing the very policies that got us into this mess.
