The Economic Depression and the Election of 2012

            Beginning in the fall of 2011 there has come about a widespread misunderstanding among the class of talking heads and political pundits.   It is widely assumed that the election of a Republican President and Republican takeover of the Senate will mark such a change in policy that the nation will be delivered from the deliberate destruction of the economy which has been wrought by the Obama administration. This notion is fatuous.  It is highly unlikely that any change in economic policy will save the nation from the new normal of approximately 25% unemployment and negative inflation adjusted GDP growth.

            The reasons that the current economic collapse will undoubtedly stretch out over at least three decades are very clear.  In the first instance, there has been a multiple decade policy of subsidizing housing which created a bubble in the real estate market.   Ever increasing market values had the ancillary effect of subsidizing consumer spending as home equity was widely used to support an unreal and unsustainable standard of living. At the same time that this policy of subsidizing consumption was occurring federal policy deliberately subsidized oversees manufacturing and punished domestic manufacturing.   Moreover, overseas production of petroleum was subsidized while earnest efforts were being made to put domestic production out of business. These policies left the United States with a consumer based economy and chronic huge trade deficits.   The reasons why these policies were followed is simply because it was believed (ideology) that these policies would raise the standard of living of producer nations and bring prosperity to everybody in the world who previously lived in a cave and wore a loincloth.

            The path to economic recovery will require a repudiation of all of these failed policies of the past after an honest acceptance of the reality of demonstrable failure.  The ideology (sometimes called Progressivism) has failed. This failure was entirely predictable.  Every thing government taxes aggressively to changes hands in a black market, and everything the government subsidizes booms in an economic bubble which inevitably collapses.  The bubble in real estate has burst and the United States can no longer support the level of consumption which was previously quite artificial.   The bursting of the real estate bubble has cause huge international demand destruction.   Those nations who entered into this period with large debt are in the worst shape.  For them the recovery will be many decades in the future.  The producer nations which entered into this period with large reserves have only seen a delay in the arrival of the ubiquitous economic destruction. They may have stored up supplies of commodities for future production, but they have lost a huge percentage of their customer base.   Many economic pundits have suggested that the increasing incomes of persons living in producer nations will pick up the slack in consumer demand.   This notion is thoroughly mistaken.   The reality is that it does not matter how many billions of people are earning five dollars per day.  They will not replace the destroyed American consumer.  The loss of home equity in the United States is in the range of fifty trillion dollars and there is nobody anywhere in the world whom has a similar pile of stored value available to support consumer spending.

            In the process of the last many decades of policy incompetence and failed ideology which has been forthcoming from Washington there has been built up about fifteen trillion dollars in debt and one hundred trillion dollars in unfunded liabilities.  Economic recovery from this catastrophe would require sufficient budget cutting to produce a five hundred billion dollar annual operating surplus in perpetuity and at the same time serious efforts to restrain the growth in unfunded liabilities as far as the eye can see.  Frankly, there are only two Republican candidates in the Presidential sweepstakes who would attempt this, and there are no probable Republican candidates who could succeed in implementing these policies. Even if these policies were to be implemented, a recovery in the United States economy would require the addition of five hundred thousand net new jobs every month for twelve years. Such a happy result is simply beyond the scope of the possible.

            This is an exercise in realism.  A realistic appraisal of the situation suggests economic depression continuing for at least three decades, and the sad fact is that this will be our future regardless of election results of 2012.