Is it the Democrats' neo-fascist economics that is holding back recovery?

Gerard Jackson
BrookesNews.Com
Monday 3 May 2010

The first quarter GDP figure of 3.2 per cent should be a sobering reminder of the anaemic state of the US economy in light of the fact that the annual rate for the fourth quarter of 2009 was 5.7 per cent, giving the second quarter a drop of 43.9 per cent. (If this happened under a Republican the Democrats' lapdog media would still be crucifying him.) Whichever way the administration and its friends try to spin the latest figure there is no doubt that it is a very poor result and below expectations.

Frequent readers know that I define growth not in terms of GDP but as a process of capital formation. In this respect the latest figure is truly dismal. Inventories amounted to 1.57 per cent with the remainder basically consisting of government spending and private consumption. Fixed investment was insignificant. In other words, there was no genuine increase in net capital accumulation, meaning there was no real growth. Nor did there seem to be any hiring by the private sector even though the media picked up on the news that consumer spending jumped by 3.6 per cent. This is not as great as it may seem.

What is worrying most analysts is that this recession is not playing out like any other post-war recession. In a very important way it is not even playing out like the Great Depression. What should happen is that as the recovery gathers steam the growth in GDP starts accelerating (the rate at which the level of idle capacity is falling speeds up). When this process gets underway unemployment should begin to decline. Instead we find the unofficial rate of unemployment stuck at about 10 per cent and the rate of growth in GDP suffering a major reduction after experiencing a significant surge.

Let's take a historical perspective. In 1934 GDP turned positive, growing by 7.7 percent: for 1935 and 1936 the respective GDP figures were 8.1 per cent and 14.1 per cent. Unemployment also began to fall during these years. Then there was the 1981-1982 recession, the one Democrats blame on Reagan. After diving to 4 per cent in 1982 from 12.1 per cent in the previous year GDP then leapt to 8.7 per cent in 1983, rising to 11.2 per cent 1984 before declining to 7.3 per cent in 1985 after which it never fell below 5.8 per cent for the rest of the decade¹.

Unemployment had peaked at 10.8 per cent in November 1982. It then started a rather slow but steady decline. In both cases it is evident that the unemployment rate responded quickly to the improvement in GDP. This has not been the case under Obama. Furthermore, in 1983 21 weeks was the mean average for unemployment: it is now 31 weeks. It should be cause for particular worry for the Democrats that the demand for labour is not responding to the current changes in GDP.

All of this is bound to be disappointing to those who believe — as the Democrats apparently do — that government is the solution and never the problem. That the economy's response to Obama's economic policies has been lacklustre to say the least can only cause them consternation and fuel their desire to seek out scapegoats rather than re-examine their statist dogma. Sound economics — meaning free market economics — explains why government spending does not drive genuine economic growth but sound economics is something the Democrats resolutely refuse to accept.

It is sound economics that warns that one should not expect a positive response from business if it is expecting you to let loose in the near future with an avalanche of burdensome taxes, onerous policies and costly regulations. It ought to beggar belief that an experienced political party finds it inconceivable that the raft of taxes it intends to unleash in January next year would have a detrimental effect on business expectations. Only a party consisting of dogmatic statists could possibly find this surprising.

So at this point we can conclude that what makes the present recession drastically different from all the post-war downturns is a Democratic Party that is now so statist one is entitled to call it socialist. (I would say it is socialist in a neo-fascist sense²). For these people there really is no such thing as economics. They seem to have wholeheartedly adopted the view (along with the vicious tactics of the hateful Saul Alinsky) of S. G. Strumilin, a Marxist economist, who once declared: "Our task is not to study economics but to change it. We are bound by no laws". (Cited in Robert Coquest's Harvest of Sorrow, Pimlico, 2002, p. 112.) It is a belief that any fascist would enthusiastically endorse.

If the Democrats insist on clinging to their statist (neo-fascist) approach to economics I don't see much hope for the US economy. GDP might continue to grow or even accelerate somewhat but under these conditions I cannot see a sustained process of economic growth emerging.