Tiny Bubbles Make Me Happy

Tiny bubbles may have made Don Ho feel fine but they annoy the hell out of President Obama.  After listening to President Obama speak at the town-hall in New Hampshire something struck me.  Well it struck me before, but this time I was compelled to write about it. President Obama has a Utopian vision of an economy lacking the usual ups and downs.  He longs for an economy that steadily plods along never dipping into bad times and never really booming with success.  Tuesday night in Portsmouth, Obama repeated his desire for a steady-state economy.

“…before this recession hit we had an economy that was working pretty well for the wealthiest Americans, it was working pretty well for Wall Street bankers, it was working pretty well for big corporations, but it wasn’t working so well for everybody else. It was an economy of bubbles and busts. And we can’t go back to that kind of economy.

If we want this country to succeed in the 21st century — and if we want our children to succeed in the 21st century — then we’re going to have to take the steps necessary to lay a new foundation for economic growth. We need to build an economy that works for everybody, and not just some people.”

I strongly believe in taking lessons from history.  If you’ve read some of my past essays you’ll know this.  Last year I was reading a marketing textbook that contained an inset about another national leader who dreamt of an economy without ups and downs.  The year was 1947, India had just gained its independence from Great Britain.  Indian leaders felt capitalism was exploitative and volatile.  They wanted an economy that was more compassionate and more stable.

Jawahar Lal Nehru

India’s first Prime Minister was Jawahar Lal Nehru came from a wealthy Indian family and joined India’s left-wing independence movement in his twenties.  Nehru was a lifelong liberal and champion of public sector economics.  He believed government control of the economy was the only way to achieve long-run economic stability.  Following independence, Nehru obtained the services of Indian statistician, Prasanta Chandra Mahalanobis, in an effort to design an economic system for the new nation.

The economy they devised was a complex intermingling of both public and private sector business models controlled by massive regulations and complex tax codes.  While largely modeled on socialist theory Nehru wanted to avoid the heavy-handed Soviet-style direct control of all industry.  They expected to achieve an economy that would work for all of the people, not just some of the people.  Sound familiar?

What followed is well-known history to my parents as well as my own generation.  High taxation, heavy regulation, and extreme protectionism resulted in high unemployment and very retarded economic growth.  Indian economic growth was so infamous that it has become known as the “Hindu rate of growth.” Between 1950 and 1991 the average economic growth in India was 3.5%, while individual income only grew 1.3%.  By 1974 massive starvation swept the nation. Food shortages were brought on by drought and poor food processing and distribution systems; a result of the economic system that penalized business.

In the 1980s, India began massive borrowing to support its government and economy.  However, their best efforts at borrowing could not raise enough money to support the massive social programs of the Indian government.  The crisis peaked in 1991 when the government came within $1 million of bankruptcy.  The IMF stepped in and bailed the Indian government out.  In doing so the IMF demanded changes be made so the country could turn around.  Over the next several years trade barriers were eliminated, government regulations relaxed, taxes lowered, and private industry encouraged.  In other words capitalism was reintroduced and embraced.  (My textbook places emphasis on the introduction of free trade.  While I agree this was important, tax policy and regulatory changes may have been equally important.)

So when the President says, “It was an economy of bubbles and busts. And we can’t go back to that kind of economy.” Is he not suggesting a longing and desire for a socialist economy exactly like India enjoyed between 1950 and 1991?  If we allow Obama to pursue his Utopian dream we might find ourselves in desperate need of a Chinese Mother Theresa.  His Utopian dream could be our Orwellian nightmare.  Maybe Obama needs to learn how to accept the economic bubbles, maybe even let them make him happy.

After all, we are in a bubble now.  The current economic bounce is a bubble.  It is a government spending bubble.  The economy is not really recovering.  Sorry but I disagree with those economists who say the recession is over.  I’m glad the administration has stopped talking doom and gloom but they are now exaggerating the economy, not to encourage recovery but to justify massive tax increases (Cap & Trade) and the seizure of private health insurance.  For the recession to be over we should see job creation and a reduction in unemployment.  But jobs are not being created.  This so-called recovery is jobless and has been artificially created by massive government borrowing and spending.  Once the money runs out the bubble will burst.  Geithner can’t raise the debt ceiling high enough to sustain this bubble.

    • DaveNate
    • August 17th, 2009

    While I completely agree with this article, I am reminded of a different situation where Socialism fell on it’s face, and Conservative Rupublican want to attribute it to massive government spending.

    I am talking about the conservative mantra that Ronald Reagan brought about the downfall of the Soviet Union through massive government military spending. What a joke. Communism brought about the downfall of the Soviet Union.

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