Maybe I'm wrong, but something told me this past Saturday morning that Representative Davis wanted to read something about himself. One of his minions asked a Virginia Beach Republican Committee officer to query me about my blog. I have been enjoying an occasional breakfast with the group and they have been trying to decide why I have been attending and who I represent. Apparently they need to categorize attendees and among the things that they were certain was that I didn't defer from the label Democrat. So, I told the gent that I didn't have a blog, but that I had contributed to VBDems, Raising Kaine, and Daily KOS on maybe six occasions during the past year. This reminded me of a joke that I won't repeat here about being labeled for life based upon a single act. But I had already gained a measure of the Congressman from something even before this. You see, he was coming toward my table, working the room, introducing himself, and glad-handing everyone. Before he got to my table someone cut him off and said something to him. He moved away with a quick glance my way.
I really didn't intend writing about his appearance, but the insistence that I am a blogger inspired me. The congressman meandered through rationalizations for handing the reins of our Republic over to a clique within the party of power and privilege. Core beliefs and values are a theme you hear a lot about at these gatherings; pablum for the believers. These are not the core beliefs and values of the founding fathers. These are the core beliefs and values serving a set of elitists who understand that the consolidation of power provides geometric growth of power and that fears any other consolidation of power; a source for their disdain for unions.
There were actually a number of issues he discussed that had me cocking my head like the RCA dog at the gramophone. But I seized upon his insistence that the economy is hitting on all cylinders. His measure is the current unemployment rate: "lowest in the world." But he has chosen a yardstick which has no meaning for the long run. Yet, I have to say, he seems to sincerely believe this stuff.
This economy is running on borrowed time and money. There are at least four consequences of this administration's economic policies that may come home to roost with very unpleasant outcomes. First, the devaluation of the dollar. Next, Chinese monetary and trade policies. Then, economic consolidation. Finally, the deficit. There is one more card for these fellows to play as we head into the 2008 elections: a reduction in interest rates. That will signal the beginning of the end of this oblivious economy. Oh, it will drive the market higher and increase personal consumption for the short run, making the economy appear healthy as we head into November, but then the bloom will be off the rose and only the thorns will remain.
You see, in most of the industrial world, the dollar has as little as half the buying power it had at the beginning of this administration. This is an invisible tariff on foreign goods. The administration gets to claim it is breaking down trade barriers while imposing an invisible barrier to foreign goods. Intended or not, it makes products from other countries less competitive than goods made in America by effectively making imports more expensive. The only currencies that have not gained on the dollar are those of nations inexorably economically linked or third world nations whose fortunes rise and fall with ours by circumstance. So, when you look at the price of oil, don't only see a more competitive market, recognize a less competitive dollar. Half the dollar's value already makes oil twice its old price without any additional demand. And, there is more demand.
China is a special case. China doesn't allow the yuan to float freely. So we benefit from goods imported at artificially low prices. It happens that those goods do not have strong representation in US markets, so there isn't much harm except to nations competing with China for US business. But when China decides to export automobiles to this market, stand by for the wailing and gnashing of teeth. When the yuan floats in retaliation for protectionism or for any other political end, stand by for hyperinflation.
The Securities and Exchange Commission was established in part to protect the economy from the abuses that were a catalyst for the market crash in 1929. One of the major concerns was the domino effect of the failures of intertwined holding companies and subsidiaries. Economic consolidation meant that the failure of a bloated, hollow economic entity had far reaching effects. Today there is a rise in private equity management that looks to have the potential for similar abuses in the capital market and there has been essentially no review of the potential consequences.
But even more disturbing are the areas in the economy where the government (no self-respecting private sector entity would ever suffer this insult without a collusive relationship) lets no-bid contracts. We have managed to allow economic sectors upon which national security depends to consolidate to sole-source status. Competition is the life-blood of the capital market. It ensures the invisible hand brings the market to equilibrium. This environment can only lead to abuse and to a trend toward consolidation in other areas potentially financed by private equity management firms. Nevertheless, I'd bet that the consolidation of equity is one of the reasons for the stock market's performance. There is a growing equity base competing in a market diminishing in relative terms.
Finally, there is the deficit. I dislike taxes as much as any other citizen. But the tax cuts have had very little to do with energizing the economy. They've had a lot to do with generating an astounding deficit. That deficit is one of the major reasons, along with the three outlined above, that this economy is cooking along. If you trust me on this, you can skip to the last paragraph. But if you are unconvinced, read on.
Hoping not to drive you away, I'll discuss a little economics. Not the voodoo of the '80s and the monetarists, but the real deal. I'll show my hand. I am a Keynesian who admires the observations of Adam Smith. I am an unabashed capitalist who can explain the dangers of consolidating markets (aka monopolies). I also enjoy a little economic history.
You see, FDR benefited from events beyond his control and learned that heavy deficit spending is essential to powering up a failing economy. Keynes theorized this, but up until the war, the federal government was working at the wrong order of magnitude. There are consequences to deficit spending; any family that uses credit cards understands this. Those were mitigated by the times. For one thing, this was not a culture of consumption. And, it was considered patriotic to buy bonds; save money. That provided the capital for growing the economy. And the foundation for our eventual economic juggernaut was in place. There are two ways to generate a deficit: you can grow government spending or cut taxes. In this instance, it wasn't tax cuts.
To be fair, I will accept that the country was in the wilderness from the time that President Nixon violated every principle of a free market economy by imposing wage and price controls through the period that Presidents Ford and Carter proved incapable of providing the stewardship necessary to right the ship.
President Reagan did not have a big, hot war, but the cold war served his purpose. Yes, there were tax cuts, but boy howdy, did that conservative know how to spend money that wasn't ours. Once again, deficit spending set the course for economic growth. But for once, the other side of Keynes' formula took hold when President Bush the Elder's pledge of no new taxes wasn't honored. Eventually, the course was set for paying off the deficit during a period of magnificent economic growth that did not require the catalyst of deficit spending, and set us up to respond to the next economic downturn.
And the downturn came. However, circumstances provided cover for an unimaginable magnitude of deficit spending by the "fiscal conservatives." This administration has achieved this level by going full throttle both with tax cuts and spending. I am certain that Keynes would have counseled a slower course to allow the multiplier effect of the private sector to gain momentum and eventually generate the desired sustainable growth. But without the patience or political courage to allow the economy to right itself over time it was easier to provide the equivalent of the multiplier effect by multiplying the deficit.
So, while it may be true that we are enjoying low unemployment, I'd bet the figures aren't so good for underemployment. And, I'd wager the seeds of the next economic storm have been sewn. You see, any of the four consequences I discussed can become critical when interest rates are lowered as we approach the 2008 election. But it seems that Congressman Davis is oblivious so long as he and his wife can be ensconced in some elective seat or other when it arrives. Based upon his talk on Saturday, I assess that as over-employment.