Add this to your daily diet of Daily Wildcat FastFacts: America is not coming to an end, nor is its economy.
This may seem obvious, but you’d have a hard time telling from the rhetoric in the media these days. Pseudo-Cassandras have come out of the woodwork, led by Paul Krugman, who has emerged victorious from his malodorous, beard-munching hatred of the Bush administration, and appears now to be a shining knight of righteousness and brilliance. This is the same Krugman who once remarked, “”The only thing we have to fear is the lack of fear itself,”” which seems to be the attitude of just about every “”serious”” politician these days.
Bollocks. While the economy has slowed down from its neck-breaking speed of yesteryear (the streak of 120 straight quarters of positive economic growth is an all-time record), this is merely a part of the natural course of the business cycle. Yet every time, with prophecies of doom echoing from all corners, the economy recovers and in fact exceeds its previous levels of output. This slow-down is no different.
Take, for example, the hundreds of thousands of jobs lost since the beginning of 2008. The job decrease puts unemployment at a scant 5.1 percent, which is quite low when compared not only to past history, but to foreign countries as well. France currently has an unemployment rate around 8 percent, and our northern neighbor Canada stands at 6 percent (after falling almost constantly from a high of 7 percent in 2005). The Eurozone has a “”record low”” unemployment rate of 7.2 percent. So much for the welfare state “”creating”” jobs.
Furthermore, most of these jobs were lost in the sectors of construction, manufacturing and professional and business services. Two of these sectors are directly tied into the subprime housing fiasco, which is a just lesson for those who built and financed houses for those who could not afford them. Manufacturing, meanwhile, has been in a more-or-less steady free-fall since the 1970s, completely independent of any recent slowdown. The total losses in these three sectors were greater than the 80,000 total jobs lost this month, meaning that outside of these sectors, the number of net jobs is actually increasing.
Or what about home values, which have catastrophically plunged in many parts of the United States? Well, after the extreme overvaluation that has persisted since 2001, an adjustment was necessary. Yet just as these houses were overvalued in the past, they are, if anything, undervalued today. Savvy investors, including the UA, are seizing on this fact, grabbing up construction contracts and buildings before these prices shoot back up again.
As for the stock market? A cursory look at a one-year graph of the Dow Jones Industrial Average seems to reveal an oscillating trend downward. Yet such short-term analysis belies the greater truth that the market trends dramatically upward, with few downward slopes along the way. Even now, in these economic doldrums, the DJIA is almost 1,000 points higher than at the peak of the dot-com bubble.
What, then, is to be done now? Everyone seems to want to do something. Senator Hilary Clinton has said that Sen. John McCain’s “”hands-off”” plan, “”sound(s) remarkably like Herbert Hoover,”” and insinuates that these policies led to the Great Depression. Senator Clinton is correct, but more right than she realizes. Rather than being hands off, President Hoover was a rabid interventionist, who signed the draconian Smoot-Hawley Tariffs to “”save American jobs,”” increased agricultural and naval construction subsidies, instituted the nation’s first Federal unemployment assistance and deported almost two million Mexican nationals. And indeed, these policies led us merrily into what is commonly known as the Great Depression. Franklin Roosevelt, Hoover’s successor, promised full economic recovery through increased government spending, and in return we got double digit unemployment, an extreme devaluation of the dollar, and a legacy of welfare programs, such as Social Security, that continue to consume even greater portions of American taxpayer’s desperately needed money. Perhaps, though, we shouldn’t be too hard on Sen. Clinton; those bullets in Bosnia must have damaged her hearing.
This legacy of inept meddling continues today. A one-two punch of drastically lowered interest rates by the Federal Reserve and excessive government spending at both the federal and state levels have flooded the market with dollars, drastically reducing its value. It is the threat of increased regulation that will exacerbate the next slowdown of the market, much as the increased regulation in the wake of the economic crises of the 1980s led to the complicated financial structures behind the subprime-loan-fuelled collapse.
In the end, letting the government try to “”engineer”” the economy is like letting teenage pyromaniacs play around in a fireworks factory: ultimately, a lot of people are going to get hurt.
Evan Lisull is a sophomore majoring in economics and political science. He can be reached at letters@wildcat.arizona.edu.
