What will 2009 bring? While predicting the future is guess work, accurate predictions are merely educated guesses based on objective assessments of current events and a healthy knowledge of history.
Prior to the elections some economist predicted that if Obama was elected the stock market and economy would suffer major declines escalating the crisis. These dire predictions were not mere anti-Obama rhetoric but educated guesses based on an objective assessment of empirical and historical data and current events. So far, the predictions have been accurate. The day after Obama’s election the stock market crashed and has since lost more than 42% of previous value. The housing market, consumer index and GDP have continued to decline, businesses are downsizing and unemployment rates are increasing. Many are fearful of a depression. Why? Intellectually vacant liberals blame President Bush. Others understand economic realities, are aware of historical similarities and recognize the crisis is a confluence of many events.
One economic reality is what economist Robert Higgs calls “regime uncertainty.” This occurs when business leaders are uncertain about the political leader in power and become anxious about the private property rights in their firms’ capital and income. Will assets be protected or heavily taxed? While belly-button gazing liberals were captivated by the new messiah’s promises and slogans of “hope and change”, most business leaders saw regime uncertainty.
Obama is unknown, untested and inexperienced. While moronic liberals dismiss his mentoring and close associations with radical Marxist like Frank Davis, Khalid Al-Mansour, William Ayers, Marilyn Katz and disciples of Saul Alinsky, the business community is well aware of them. They validate his Marxist rhetoric which causes extreme uncertainty. His campaign rhetoric against “Social Injustice” and promise of “Economic Justice”, liberal code words for Marxist wealth redistribution, and billions for economy killing programs like guaranteed health care, free college tuition, universal 401k’s, free job training, wage insurance, free child care and preschool, more subsidized public housing, more welfare or earned income tax credit, a $10 minimum “living wage” and breaks for “patriot employers” who capitulate to unions creates uncertainty for investment.
Economic growth is predicated on economic freedom. The more economic freedom a nation has the more prosperity. Canada”s Fraser Institute noted a direct correlation between the extent of economic freedom and size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally, and regulation of credit, labor, and business. It reported a decline of economic freedom in the United States in 2008. Bush’s massive intervention of government and Obama’s promise of even more will cause even less economic freedom and more decline.
Obama escalated uncertainty with his Marxist tax the rich promises. Taxing theories and history has proven tax cuts on “the rich” and business stimulates economic growth. The Laffer Curve illustrates changes in tax rates has an arithmetic effect; higher taxes equal less revenue and an economic effect; lower tax rate equal more revenue. The same principle is found in the difference between static and dynamic economies. Concepts lost on liberals.
History has proven that tax cuts stimulate the economy. Post WWI, President Wilson raised the top tax rate from 7% to 77%, which stifled growth. The following Harding-Coolidge tax cuts dropped the top income tax rate to 25%, which stimulated growth associated with the Roaring Twenties. FDR increased the top income tax rate to 94%, prolonging the depression and it remained above 90% into the 1960’s. The 1964 Kennedy tax cuts reduced the top tax rate from 91% to 70%. The Reagan Tax Cuts reduced marginal tax rates by 25%, top tax rates to 50%, and capital gains tax rates to 20%. While the Harding and Kennedy tax cuts stimulated growth and Bush’s tax cuts in 2002 reversed the Clinton recession and spurred growth, the massive tax cuts of Reagan resulted in unprecedented growth in GDP and tax revenues.
Compare these periods of economic growth with the Marxist policies of FDR, Carter and Clinton. FDR gave America the Great Depression and the largest industrial collapse in 1937. Carter gave America economic malaise and the “misery index”, the sum of inflation and unemployment that reached 22%. Clinton’s 1993 tax increases resulted in a decrease in growth of GDP and tax revenues. Still Obama advocates increasing the top tax rate which causes more economic uncertainty.
The historical relevance is discerning. Current circumstances are similar to the events prior to the Great Depression. President Hoover, like President Bush, attempted to correct a severe financial shock with extraordinary government interventions into the marketplace. Both interventions failed. The unpopular Hoover was replaced by a “charismatic” Democrat, who escalated the interference in a very weak economy. Today an unpopular Bush is being replaced by a “charismatic” Democrat who speaks of expanding government intervention in a very weak economy. FDR’s erratic economical and social experimenting prolonged the depression by causing severe “uncertainty” in the private sector. Obama promised the same kind of Marxist interventions and it’s already having the same effect on the economy.
In November 1932, President-elect Roosevelt refused to outline his policies or endorse Hoover’s. Obama is also silent about his plans. FDR came into office proposing a New Deal and Obama is talking of New Deals. The new messiah is at the confluence of a perfect economic storm. He can follow his Marxist training and like FDR give America another Depression or let the free market work through the anticipated recession.