Economic Lessons From 1983

Quite often in the last several weeks defenders of the administration's stimulus plans, bank and auto takeovers, cap and tax and health care reform have made references to how our economy was in 1983. They especially use the data regarding unemployment from that time to justify the current policies and proposed policies. Inflation was still high at that time and so was unemployment. But that is about where the analogy begins to break down. We are told by the administration apologists that if we will follow their advice and let Government, Inc. take the leading role in our economy and raise taxes through the income tax code and cap and tax and green jobs and government control of banks and the auto industry that everything will turn up roses. Their position is that if we just trust them that the economy will recover and prosper under their directives and direction.

Well, they have only a couple of their facts right and all their conclusions wrong about comparing 1983 to today. First, we had been dealing with a decade of inflation. Gerald Ford even had that silly WIN button he wore to try to promote the fight against inflation. For those who don't recall it stood for "Whip Inflation Now". It didn't work and nothing that Carter did made things better. Indeed his efforts made things even much worse. In the late '70's and into the election of 1980 there were weekly rumors about what item or items would be in short supply due to FERC and all the other government policies in vogue at that time. You can't turn the economy on a dime, it takes time. Even when an administration is attempting to alter the economic course the general public and the business world have to buy into it and believe in it. Confidence and expectations are what drive any economy. Consumers spend more when they are confident about their jobs and what their tax burden will be and even more so if they believe their taxes will be reduced. Likewise Wall Street and everyone with an IRA or 401K always make their investment deciions on what they believe the future holds. They never look back except as a learning tool and guidance about what they believe tomorrow will bring.

In 1983 the atmosphere and confidence level were quite different than they are today. Today we face the prospect and threatened certainty of much higher taxes across the board. The income tax rate will jump for high wage earners, the cap and tax legislation will tax everyone that breaths, even the estate taxes will jump up again in 2011 and the price tag for health care reform will be high, very high. The small business owner will be hit from all sides, his personal taxes will rise, his cost of doing business will rise with health care reform and the cap and tax legislation will make his cost for his product or service more expensive to deliver to his customers. At the same time the cost for electricity will soar and those who want a new car in a couple of years will find the cost much high due to CAFE standards and the "green" initiatives being proposed. Add to those factors the overwhelming US debt and the continued borrowing by Government, Inc. and the concommitant interest expense to pay the Chinese and others for buying our bonds and the propects for inflation are plain to be seen by anyone who looks. We are assured that inflation is not a concern but it is self evident that it is a concern unless spending is dramatically curtailed or tax revenues are sharply increased. There is virtually no talk of any coherent plan to address the spending debacle and nothing to indicate a drop in borrowing for a far as the eye can see.

In 1983 there was hope--lots of hope and enthusiasm. Even though inflation was still high and so was unemployment the proposals from Washington were encouraging, not discouraging for small business. It was indeed a time to celebrate a "Morning in America". Optimism abounded because the prospects were for lower taxes for individuals and businesses and for less government intrusion into our daily lives, not more. When folks thought about the future a year or more out they believed that things would be improving. They didn't see the US debt being a insurmountable burden on their shoulders. They believed that they could achieve success.

Who do you know these days that is optimistic about the future of our economy? How many do you know who even optimistic about the preservation of our freedoms and a restrained Federal role in our affairs? The true believers love the proposals. They like and want the government involved in everything and they like the government controlling all or almost all of our economic activity. They love Big Brother and want to be a part of his organization. While that number is significant I don't believe it is more than a 30% or so range of our population. I may be wrong. Maybe I hear a different drummer. But the one I hear beats the tune of freedom and hope. I do hope many will go back and refresh their memories about what was occurring during the early '80's. I think it would be great to recycle that approach to government and our c0untry again. We faced dark clouds hanging over us in 1980 but unleashing the American spirit for entreprise parted them to a bright sky for years. We face storm clouds today and they are of our own making and we can cast them away if we follow tried and true principles.

American Presidents should not be addressing school kids. Not any of them of any party. That is not a wise path to take. It is too fraught with potential abuse to be allowed. A President should not speak to captive audiences but only willling citizens. www.olcranky.wordpress.com