Ninety percent of the economy is 100% mental.
Recent comments by former Texas Senator Phil Gramm regarding the state of the U.S. economy have evoked a storm of criticisms and even a denunciation from Republican Presidential Candidate John McCain to whom Gramm has been acting as an ecomomic advisor. The problem began when Gramm, during an interview with Washington Times, said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining, complaining about a loss of competitiveness, America in decline."
Gramm, who holds a PhD in economics and taught at Texas A&M University for 12 years was certainly right about whether the US is in a recession, and if you hold to the strict definition of the term there can be no question of that fact; a recession requires two consecutive quarters of negative growth, which has not occurred. Q.E.D. However, as Senator and presidential candidate Barack Obama put it, Gramm was suggesting that the economic problems are all in our minds. That there are no high gasoline prices and jobs aren’t being lost. Nothing can be further from the truth.
The biggest issue Gramm was addressing, in the wrong way, but none the less, correctly is the fact that so much of an economy is mental. That markets are driven by expectations, and that a large part of the gasoline pricing mess has happened because the markets expect 1) shortages of petroleum due to increased demand and 2) the possibility of war in Iran or terrorist activities elsewhere disrupting world oil supplies. The same thing applies elsewhere. When people believe that the economy they are part of is in trouble they are likely to react protectively, exercise more thrift, and cut back on elective purchases. This lowering of “consumer confidence” causes a ripple effect leading to declines in income for merchants and manufacturers, who may lay off employees. You might say, to borrow from Yogi Berra, that 90% of the economy is 100% mental. The result is that because we expect things to be bad, we react in a way that causes negative effects, creating a self-fulfilling prophecy. I am not alone in this assessment. It turns out that Amity Shlaes, author of The Forgotten Man, one of the best historical works on the Great Depression shares these views. Her analysis can be found here .
To make matters worse, most news sources have been providing significant negative publicity on the current situation. They tend to reinforce existing negative attitudes making the problem worse. Finally, with a public that has been and continues to be led to think that they cannot make the situation better on their own, they turn to government for answers. Instead of the Yankee ingenuity and rugged individualism which marked America’s ability to solve problems in much of the past, Americans want someone to give them a trouble free life, where nothing ever gets in the way of their personal pleasures. In short, the people who do this are whining, instead of taking on the problem and solving it. This is not the Great Depression. This is just a minor bump in the road. When voters and politicians claim that we are in the midst of a disaster, they are whining. When they roll up their sleeves and get to work then they are being true Americans.
To take the matter further, many voters are demanding government action to correct the situation. They have, possibly due to lack of education, no understanding that government is the problem here. Government is responsible for the high gas prices and for the lack of suitable alternatives. Preventing access local petroleum sources in the name of radical environmentalism and NIMBY issues such as Senator Kennedy’s desire for a view from his home unsullied by windmills, are only two such aspects of the problem. They have no understanding that the best solution is for government to get out of the way and let the citizens solve the problem through private business, the desire for profits and individual initiative.
Senator Obama suggests that we cannot drill our way out of an oil shortage. Instead he proposes to tax our way out of it. Increased taxes did not work in the 1930’s and won’t work now. So far he has not shown how increasing taxes on oil production will act as an incentive to produce more. Economics 101 generally teaches that taxing something acts as a disincentive. Perhaps the Senator did not take such a class, or he slept through it instead of paying attention.
There is also the contention that it will take five to ten years for meaningful amounts of oil to be extracted. Under current circumstances that might be true. The circumstances can be changed by exempting those involved in petroleum exploration and extraction from regulations and lawsuits while giving them tax incentives to bring oil fields into production as rapidly as possible. It is amazing what businesses can do when they are given a good reason. One excellent example was the repair to damages caused by the 1994 Northridge California Earthquake which were achieved in record time because of financial incentives.
The bottom line here is that as long as people believe that government is the source of all blessings and should solve all of their problems, the problems will only get worse. Instead of whining about government not doing anything, or blindly following a political cult leader further into government tyranny, they should be Washington DC to demand that government get out of the way and let the people take over for a change. Of course, it is likely that many government officials don’t want to do so. As Hugh Hewitt suggested on July 11, people such as Obama, Nancy Pelosi, Diane Feinstein, Harry Reid and company don’t need to worry about gas prices. They have their fortunes made, and the little people, the ones hurt the most by current economic issues, can fend for themselves. Hugh has a point, for as long as the little people continue to turn to wealthy legislators for help, they will get slapped in the face with platitudes and “blame the other guy” rhetoric. We should expect nothing more from the party that stands for power rather than for liberty.
slaib@intellectualconservative.com
http://intellectualconservative.com
Read more articles by Steven D. Laib
