" ... fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate." ArticleIf you're like me, you have any number of friends who repeat economic "facts" that just aren't true. They hear the "facts" in some news clip and accept what they heard without blinking. The favorite "fact" of our time is that our economy is in grave peril of repeating the Great Depression. It must be true; BHO says so, right?
A second popular "fact" just now is that the financial crisis and the recession are "proof" that private enterprise and voluntary exchange don't work---the free market has failed. That means we need more regulation and more federal control of just about everything, right?
Even so much as a slight glance at the record shows the vacuousness of that proposition. In fact, the failure is that of federal intervention and regulation of private enterprise. For the past 75 years our economy has been anything but a free market. That's particularly true for financial markets---the source of our current economic distress.
The financial services industry (securities trading, commercial banking, consumer finance, investment banking, mortgage banking, and insurance) is the most regulated industry in America. It has been so since at least 1933. Check the history. To now claim that the failure of financial markets is a failure of free markets is simply absurd.
It is possible that we are on the brink of repeating the Great Depression. But if we are, let's at least be clear about what is happening. Really bad monetary policy and regulation of free trade precipitated the Great Depression. Put aside which political party is responsible for it. That won't matter if we repeat the Great Depression. What's critically important is understanding what causes recessions in the first place. As I've argued here before, recessions are the collapse side of a credit expansion cycle caused by the unholy confluence of actions of the Fed and Congress.
The Fed created the housing bubble with credit and money expansion that dwarfed real production of goods and services. The Congress created regulations and laws that undercut sound mortgage underwriting standards (zero down liar loans). The Congress also created an income tax code that encourages debt financing of everything over equity financing---for both consumers and corporations. So let's at least keep the record straight.
Now we're all supposed to believe that massive deficit spending---spending for just about everything and anything but infrastructure---coupled with even greater credit and debt will be our economic salvation? Be honest; does that really sound right to you? If your economic bones are telling you that smells fishy, trust your bones.