The End of the World As We Know It? I Doubt It
There seems to be a near consensus among admirers of Austrian economics that the U.S. economy is doomed. They write of a "double dip" recession and depression, further and substantial declines in housing prices and, almost paradoxically, of an accelerating price inflation that will destroy the U.S. dollar. Buy gold and silver (even at nominally high prices) they urge because things are likely to get very, very bad.
Well now, I say we step back and take a deep breath.
No one admires the elegant theories of Austrian economics more than this writer. I have written early and often on this website about the Federal Reserve—induced boom/bust cycle and how the Fed's money expansion and low interest policy would ultimately end in economic disaster. And given the massive federal spending and borrowing, I've even raised serious questions about whether the U.S. government can avoid bankruptcy. I'll put my radical credentials up against anyone.
It can be readily admitted that the U.S. economy is not in great shape and that current economic policy is counter-productive, BUT the question going forward is: Are things likely to get crushingly worse?
Let's be specific (which few doomsayers want to do). Will official unemployment rates rise to, say, 20% or even higher? (I know, I know, official unemployment rates are misleading.) Will housing prices nationally decline another, say, 25%? And will the excess liquidity piling up in the financial system (and in corporate treasuries) be borrowed, spent, and invested, and lead inevitably to a destructive price inflation? And will all of this double and triple precious metal prices?
And WHEN will all of this occur? Is Armageddon 2 or 3 years away, or will it likely happen 10 or 15 years down the road? Timing, after all, is almost everything. This writer is old enough to remember several previous severe recessions where the very same clarion calls of impending doom were made repeatedly. Take, for example, the late 1970's and early 1980's, with gas lines caused by price controls, with both rates of inflation and interest rates at double-digit levels, and with many clever pundits predicting runaway inflation, the return of the near stone age and $5000 per ounce gold. Certainly the "end" was near then, too. Yet the U.S. economy survived and eventually expanded and investing in gold in 1982 — and holding while waiting for the inevitable collapse — would have been a remarkably poor investment strategy.
As for the current economy, things could get worse, even dramatically worse, but I'll go out on a limb and "predict" that there will be slight marginal improvements in overall economic health as we move ahead in the next, say, 18 months.
After all, as admirers of Austrian theory we know that recessions necessarily correct the malinvestments of the boom and make way for more rational and sustainable investments. In this recession, massive price declines and foreclosures in real estate, both residential and commercial, have done the job that they were intended to do: they have brought actual "supply" more closely into coordination with real "demand." Entrepreneurial opportunities now abound and the improvement in personal and commercial balance sheets and the increase in real savings set the stage for some economic improvement.
More profitable business opportunities might also arise out of several positive changes in public policy. For example, there are reasonable expectations to believe that the 2010 November elections will stall severely the Obama economic agenda including, perhaps, the repeal of the so-called Bush tax cuts. Further, most of the Fed monetary mischief may be over for the near term: their "pushing on a string" credit expansion has just about run its course. Finally, although it's a longer shot, the Supreme Court may well toss the bulk of Obama-care into the "unconstitutional" trash can...where it clearly belongs.
Will things be booming in 2012? I doubt it. But I don't think that we will be eating berries or baking our own bread (unless we want to) or paying $100 for a quart of milk (or 6-pack of beer). One caveat. If the Middle East blows up, all bets are off.
September 21, 2010
Dom Armentano [send him mail] is Professor Emeritus at the University of Hartford (CT) and the author of Antitrust and Monopoly (Independent Institute, 1998) and Antitrust: The Case for Repeal (Mises Institute, 1999). He has published articles, op/eds and reviews in The New York Times, Wall Street Journal, London Financial Times, Financial Post, Hartford Courant, National Review, Antitrust Bulletin and many other journals.
Copyright © 2010 Dom Armentano