Tuesday, December 2, 2008

What if they declared a recession and nobody showed up?

What if they declared a recession and nobody showed up? The commies used to have an expression that they circulated amongst their fellow travelers and "useful idiots." They used to ask the question "what if they declared a war and nobody showed up?" A lyric from a popular song of the period even stated, "I'm declaring peace."

I guess the success of the not showing up strategy depends on the aggressor. When Pol Pot declared war and nobody showed up he proceeded to make war on civilians unimpeded by a force capable of stopping him. This was the point of all the Commie propaganda, not to stop the killing, but to get us to not get involved and to therefore give the power to the communist party.

The Keynesian capitalists have long had the idea that if a recession is called we should simply refuse to participate. Recessions, we are told, are illogical lapses in confidence and logically if the government wisely stimulates the economy in the right way using deficit spending, then that will create a bridge to the next boom. This next boom will grow the economy, and the increase in tax revenue that the boom creates will pay off or pay down the debt that was run up by the deficit spending that built the bridge to the boom.

So, for instance, we had the free-trade boom with many people getting rich from the creative destruction that happens when high tech meets low tech and high wages meet low wages. The American factory worker was replaced by the Mexican worker and then the Chinese. The Mexican small-holder couldn't compete with the mechanized American farmer and was replaced by the capitalist collective farmer in Mexico. This ruined many Mexican rural communities and sent the Campasinos North.

Some people get rich through this creative destruction, and even the losers through the process of closing up shop, selling off, moving and trying to start something else generate some economic activity. The activity of selling off and moving to a new job is a one-time event and usually only represents a fraction of the contribution to GDP that the continued success of the destroyed family business could have contributed in the long term. So after the hype of the gold rush fades things settle down and the bean counters notice slowed growth.

Enter the Dot Com boom that started in the Clinton years; you know the one that was propped up and extended by accounting fraud. That bubble burst right at the end of Clinton's' second term and has generally been blamed on "W" Bush. Then 911 hit and the US started borrowing money to buy munitions and private contractor services; the debt grew.

The wars however are not an industry and something had to be done to build consumer confidence or confidence in consumerism in order to continue gluttonous spending. We call this gluttony of food, drink, entertainment and junk the rising standard of living. Yes, two parents working full time to finance a McMansion, diabetes inducing diet, and storage units full of junk is how we define the good life. Our personal and national finances are in ruin, we have personally and nationally lost the means of production; clearly something had to be done!

The answer the financial gurus came up with was the mortgage and real estate boom based on easy credit. Easy APR terms, easy to qualify for a new or bigger house, and easy refinancing of credit card debt into mortgages on overpriced homes. This didn't actually build a bridge to the next boom so much as it maintained the consumer's status quo, masking the fact that the country's industry was being busted out. The economy was going well so Bush was reelected.

An economy based on an industry of consumption of services and imported goods, paid for by getting into credit card debt, that is paid for by rolling credit card debt into a refi on overvalued real estate - such an economy is only based on everybody playing along. The only thing we still have going for us is that the rest of the world hasn't adjusted to all this and figured out how to leave us high and dry.

When they do you can talk up your theory of non participation in recessions all you want, but when a Pol Pot of a recession comes along your co-operation won't be necessary.

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