The Real Economy

By Kevin D. Williamson

Tuesday, June 14, 2022

 

Having experienced a GDP contraction of about 1.5 percent in the last quarter, the United States may be on its way to a formal recession — two or more consecutive quarters GDP contraction — but, even if that turns out not to be the case, many economists forecast that the country is headed for a recession in the near future. As Bloomberg sees it, the spike in consumer prices has the United Kingdom enduring a “recession in all but name,” and you could say as much about the United States.

 

Of particular concern is the metric of “real” — meaning inflation-adjusted — wages, which declined by 1.7 percent between January of 2021 and January of 2022, and which have continued to decline over the course of this year, most recently falling by 0.6 percent in April. With real wages declining and household wealth being eaten into by declining share prices and home values, Americans’ real standard of living is under siege. It is bad when Americans report that they are feeling uneasy or pessimistic about the economy, as expressed in such metrics as the consumer-confidence index, but it is worse when those subjective evaluations are attested to by the quantifiable aspects of economic life.

 

I am very cynical about politics and super-double-atomic cynical about the Democratic Party and its operatives. That being said, I don’t think that the Democrats are pretending to care about abortion (they care about abortion more than they care about any other issue) or gun control, but I do expect them to lean into those issues extra heavily as the economic news stays bad or gets worse. Those debates already are ghastly and stupid, and I am confident that they will get more ghastly and more stupid in the coming weeks and months — more violent, too, as the arson attacks on anti-abortion groups and crisis-pregnancy centers suggest.

 

We maintain a silly, superstitious, and generally dishonest discourse about the relationship between the state of the economy and which party controls federal elected offices, especially the presidency. During the last year of his presidency, Donald Trump saw the worst quarter of economic contraction in U.S. history followed by the best quarter of GDP growth in U.S. history — neither of which had very much to do with the president or the policies of his administration. These were driven by Covid-19 shutdowns and the rollout of the vaccine, which produced a real GDP roller coaster in 2020. The Trump administration had some good economic policies (provided in no small part by Larry Kudlow and Kevin Hassett, National Review’s former economics editor and the senior adviser to NR’s Capital Matters, respectively) and some genuinely dumb policies (provided by cranks and crackpots such as Peter Navarro), but neither the good policies nor the bad ones were the main drivers of economic events in 2020 — or, indeed, throughout the Trump presidency. Presidents do not actually have the ability to enact a great deal of economic policy on their own (that’s why they all end up loving tariffs — tariffs they can do on their own), and don’t get much done when the other party is in full or partial control of Congress, as was the case for most of Trump’s presidency. And the effects of big changes in policy (such as the tax reforms enacted in 2017 by Acting President Paul Ryan) usually take a long time to really show themselves — for good and for ill.

 

So, it’s a dumb parlor game — but Washington’s favorite parlor game — to cook up narratives assigning credit and blame for dramatic economic events to presidents. The subprime-mortgage meltdown and related credit crisis that unfolded at the end of George W. Bush’s presidency were much more the result of policies enacted between the 1930s and the 1980s than they were anything of Bush’s doing. Ronald Reagan benefitted enormously from a booming economy in the 1980s, but the real beneficiary of Reagan-era economic reforms was Bill Clinton, whose intellectually empty and morally compromised administration was buoyed by the second half of the Long Boom.

 

Speaking of the Long Boom — long, but no so long as we might have hoped — here is an interesting bit of history: In Wired’s famous 1997 “Long Boom” essay, there were ten “spoiler” scenarios offered that might prevent the emergence of the prosperous, happy future the authors imagined. These included: (1) U.S.–China cold war; (2) Decline of productivity growth from new technology; (3) Russian decline into a mafia-state that menaces Europe; (4) Breakdown in European integration; (5) Ecological crisis that disrupts food supply; (6) Terrorism; (7) Unexpected increase in cancer rates; (8) Spike in energy prices as alternative-fuel sources fail to make up for disruptions in fossil-fuel provision; (9) Epidemic; (10) Revanchist cultural backlash against globalization. Other than being overwhelmed by increased cancer prevalence, we walked into every one of those socioeconomic land mines — nine out of ten! None of those was really the doing of a U.S. president or his administration. Maybe the Bush and Clinton and Bush administrations should have taken al-Qaeda and its predecessors more seriously, maybe the Obama administration should have done a, b, and c on energy instead of x, y, and z, maybe somebody should have given Vladimir Putin a hug back in the day — you can tell yourself any story that makes you feel good, but none of this was the result of any particular president, presidency, or presidential decision.

 

What is at work in our attitude toward the presidency is the “feudal mentality” as described by Paul Ricoeur in Memory, History, Forgetting:

 

How could rumor, the false news of the capacity of kings to cure scrofula, spread and impose itself unless with the help of a quasi-religious devotion as regards royalty? What had to be presumed, even while guarding against anachronism, was the force of a specific mental structure, the “feudal mentality.” In contrast to the history of ideas, not rooted in any social ground, history had to make a place for a deliberately historical treatment of “ways of feeling and thinking.” What was important were the collective, symbolic practices, the unperceived mental representations, of different social groups . . . .

 

Ricoeur was writing in response to his reading of Marc Bloch’s The Royal Touch: Sacred Monarchy and Scrofula in England and France. Everybody who laughs about how our peasant ancestors thought about the magical curative powers of kings should ask themselves why they think that the economy grows only when the president “cares about people like me” or some such related rubbish.

 

A better account of recession than the economics of the divine presidency is offered by the “Austrian” school of economics, so called because its principal exponents were two Austrian geniuses, F. A. Hayek and Ludwig von Mises, who did their most important work in the United Kingdom and the United States, respectively, owing to the lamentable European habit of chasing its best minds off the Continent. I am not an economist and surely will be guilty here of oversimplification, but the Austrian view of recessions seems to me very useful right now, though it may not be as useful in understanding other recessions. (Every unhappy economy, like every unhappy family, is unhappy in its own way.) The Austrians put money (particularly in the form of credit) at the center of their analysis, and argue that artificially cheap money (artificially low interest rates) causes capital to flow to investments that would be unprofitable in unmanipulated economic conditions — and a recession is what happens when those “malinvestments” are unwound when the manipulation becomes too expensive and the underlying economic reality asserts itself.

 

Our current trouble with inflation and stagnant growth is a particularly interesting example of this, to my mind at least, because in this situation the real economy — the exchange of physical goods and services — is at the center of the conversation because of supply-chain disruptions. If you can’t get that Ukrainian grain onto ships and get those ships into foreign ports, then it doesn’t matter what kind of clever policy engineering your government agencies or central bankers engage in — the wheat isn’t going to be there, and you cannot fiat it into the grain silos by means of policy or legislation. We have had a lot of very cheap money for a very long time, and negative interest rates are still a thing in some corners of the global economy. We have had oodles of capital sloshing around the economy, but somehow we still have not built the things that are most needed. And so we do not have enough oil and gas pipelines, tanker ships, regassification facilities, and other such unfashionable bits of life-giving infrastructure.

 

Lots of solar panels on rooftops in California, though.

 

I have, of course, strayed from the Austrian monetary analysis here, but you didn’t sign up for a retired theater critic’s newsletter for econometrics. The lesson that should be obvious to all of us by this point, however, is not something that you need a doctorate in economics to understand. “The economy” is not a product of government policy, the federal budget, the Department of Commerce, the Small Business Administration, or — thanks goodness — Joe Biden’s best ideas on any given Monday morning. (I am pretty sure President Biden’s best idea on any given Monday morning is: Oatmeal!) The economy is real stuff, real goods and real services that have real value because real people need and demand them. Congress and the president and the whole cabinet can get together and thunder with one voice: “Let there be baby formula!” and this will have no effect.

 

(“Fiat lux? Fiat formula!”)

 

We need a good deal less presidential magic in our economic thinking and a good deal more real-world — the real real world! — work. That’s true on both sides of the aisle. If progressives were serious about climate change, they’d be looking to replace coal with natural gas around the world and working to facilitate the expansion of nuclear energy — the obstacles to which are mainly financial and political rather than technical or physical. Conservatives who are serious about long-term growth and economic innovation have to be serious about the acquisition and cultivation of brainpower, which means working to fix what actually ails our universities rather than just using campus “woke” shenanigans to raise money — and it means taking a much more grown-up view of immigration as well.

 

The current economic troubles are likely to deliver control of Congress to Republicans in 2023 and may contribute to the election of a Republican president in 2024. But while I am confident in the near-term electoral prospects of the Republican Party, I am not at all convinced that Republicans know what to do with power. “The economy sucked under Joe Biden” may get you elected, but it isn’t a real analysis, and it isn’t the basis for a real agenda. People who love to advertise themselves as “patriots” should understand that winning the election is the beginning of the work — and the beginning of their obligation — rather than the culmination of it.