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http://www.takimag.com:80/blogs/article/the_anti_reagan_revolution_revolution/
[COMMENT: Schiff, like so many, has a pretty accurate view of the problem, but little sense of how to turn it around, no real solution. The solution is spiritual, not economic or political.
Either Jesus is Lord, or civil government will be.
E. Fox]
In 1980, when the U.S. economy was last in serious trouble, Ronald Reagan
offered the correct diagnoses that government was the problem and not the
solution. His message resonated with voters, propelling him into the White
House to implement an agenda of lowering marginal tax rates, reducing government
spending and business regulations, restoring sound money, abolishing entire
government departments, and basically allowing free market vibrancy to unshackle
an economy burdened by big government. Though in practice much of the
Reagan revolution never materialized, at least in theory his basic premise was
sound.
In contrast, the country has now hitched its wagon to the views
of Barack Obama. We don’t know much about what he truly believes about
economics, but the little that we do know is not encouraging. Obama has
repeatedly heaped the blame for the current crisis on the excesses of
unregulated capitalism and the greed of the wealthy. For him, the free
market is the problem and government is the solution.
The
President-elect has promised to cage the destructive forces of capitalism,
impose more regulation, raise marginal tax rates, increase government spending,
and restore prosperity by redistributing wealth from those who earned it to
those considered to be more deserving. Like most of his generation, Obama
believes that economic growth results from consumer spending, primarily from the
middle class. Any policy that keeps the consumers headed to the mall will be
promoted.
Unfortunately, while Reagan had a hard time getting his full
agenda through Congress, Obama will likely be much more successful. The
effort to concentrate more power in Washington will be far more appealing to
Congress then Reagan’s idea of restoring it to the people.
This sharp
contrast in philosophy should not be taken lightly. Reagan looked to
unleash the pent-up free market forces that had been smothered by a generation
of Great Society reforms and uninterrupted Democratic control of Congress.
Today, the public is looking for the Obama Administration to create the growth
that the free market has apparently destroyed. The hope that our economy
will grow as a result of government spending and micro-management is the most
seminal shift in political philosophy since the New Deal.
Despite the
absence of Reagan’s promised spending cuts, the economy generally did well
during his presidency (The growth would have been more genuine if the cuts had
been delivered). However, Obama’s policies will immediately make the
current situation worse and the nation will suffer severely as a result.
Rather than a sharp recession at the beginning of his term followed by a
significant expansion, the recession that Obama inherits will be far worse when
his first term ends.
What nearly all politicians, on both sides of the
aisle, fail to understand is that the current contraction and credit crunch is
necessary to restore order to an economy that is horribly out of balance.
Years of misguided fiscal and monetary policy and market-distorting regulations
have resulted in reckless borrowing and spending on Main Street, pervasive
gambling on Wall Street, and rampant fraud and corruption at every intersection.
America’s borrow and spend economy, and the bloated service sector that evolved
around it, must be allowed to topple, so that a more sustainable economy
grounded in savings and production can rise in its place. Any government
efforts to delay the adjustment and spare us the pain will backfire, turning
this recession into an inflationary depression.
Of broader concern
however is the sharp turn in ideology, and what it means for the future of our
nation. If this is a permanent shift, then America will lose any
resemblance to the economic titan of the 20th Century. Our standard of
living will decline sharply, our economy will be ravaged by inflation, tens of
millions will be unemployed, more individual liberties will be surrendered, and
rugged individualism will be supplanted by the nanny state. In short,
Latin America may extend north to the Canadian border.
However, if this
shift proves temporary and Obama’s reign either ends in one term or if he can
summon the intelligence and courage to reverse course once the situation
deteriorates, then perhaps one day there will be light at the end of a very long
tunnel.
While all of us can certainly hope for the best, prudence
suggests that we had better prepare for the worst. Not only does that mean
divesting our portfolios of U.S. dollar denominated investments but preparing
for the possibility of emigration. With economic conditions at home
becoming increasingly intolerable, the call of freer economies and greater
prosperity abroad may be too tempting to resist.
Peter Schiff is the president of Euro Pacific Capital and the author of Crash Proof: How to Profit From the Coming Economic Collapse and The Little Book of Bull Moves in Bear Markets.
Article URL: http://www.takimag.com/blogs/article/the_anti_reagan_revolution_revolution/* * * * * * * * * * * * * * * *