Greenspan managed to get away with a low-interest boom in the nineties, thanks to the rise of cheap imports from overseas markets. China both kept their prices low and bought US treasuries so that government debt could increase with little consequence in popular perception.
The Fed’s low interest rates and the resulting cheap money fueled bubbles during the Clinton and Bush (the younger) years. When the NASDAQ crash occurred, we had an opportunity to suffer through a recession and reset the economy. Bush, however, probably believed he would never be a two-term president under such conditions. And it is easy to see the lure, since he would probably lose to a candidate who would pressure the Federal Reserve to inflate another bubble. So why take the thankless job of Martyr? Part of the answer is: So you don’t go down in history as the single president who destroyed the American economy, and so discredited the Republican brand, that the very worse possible successor to your stimulus precedents could win the office.
Remember: Bush picked Ben Bernanke to be the next Chairman of the Federal Reserve because he pretended that we were not facing a dangerous housing bubble. Since Bush, Mr. Hope and Change kept Bernanke in power where he has doubled down on the toxic stupidity that has degraded the economy further since the day he (Bernanke) stepped into office.
This brief history of recent events is commonly recited to explain why we are now poor, broke, underwater with debt, and/or unemployed. Everyone wants recovery. But I am rehearsing this recent history to make another point: we are headed into a far worse economic situation in the long term because of this recession and “slow recovery” so that, even if we had a fantastic recovery tomorrow, we will still suffer more economic pain in the future.
The engine of recovery and of real economic growth in general, is people working. And, while we were already headed toward problems, this recession has come at the worst cultural time. It is going to be much worse.
It is happening in several different ways at once. One area I have already written about is student debt combined with post graduate un- or underemployment. Couples are indefinitely delaying children because they don’t see how they can make it on their income with their expenses—a major expense being student debt.
For readers who have been taught the overpopulation myth, the impending disaster may be hidden from their view. But unless something changes dramatically, America’s de facto one-child “policy” is going to bring economic stagnation. (This is especially true in countries that provide for the aged by a pension system that requires more working young people than retirees.) Economic bubbles are misallocated investments and resources. …[D]uring a recession and anemic ‘recovery,’ in a culture when it is easier than ever to not get married and not have children, a further and more massive misallocation is easily made. A demographic winter gets arranged in order to pay bills. Present indebtedness leads to less people in the future.
Mish (who I think is the best Austrian economics blogger dealing with contemporary trends) touched on another aspect of this issue with his post, “Bernanke wants 2% inflation in a deflationary world. Who pays the price?” He points to a PEW study that provides this graphic:
So as married 31-year-olds reach their thirty-second birthdays, not enough younger people are getting married to replace them. And we can guess their probably not breeding either.
The reason they are not marrying isn’t too hard to figure out. Young women are rarely willing to move into the guy’s parent’s basement. And they are probably even less likely to want to bring a crib into the room.
Mish writes:
Bernanke wants 2% inflation in a deflationary world. Wages have not kept up with inflation as Fed policies exacerbate the trends. The result is apparent. Everyone pays the price, but especially young adults who cannot afford to get married, and they certainly cannot afford a house. The Fed wants home prices up to help out the banks, but what about the new household formation? And what about student loans and the ability to pay those loans back? And think about how cheap money allows corporations to borrow money for next to nothing to buy technology to replace humans with hardware and software robots.
This effect on young adults is far more perverse than the consequences of their absence from marriage, parenthood, or the workforce. The most toxic consequence is that they get used to it.
There are parents who will actually defend their child basement dweller as someone who ought to not enter the workforce. But the damage is not limited to that extreme. The time to begin life as an adult should not be delayed. As I argue here, much of Obama’s “economic” speeches seem to be designed to entice us all to be satisfied with a basement, subsidized, existence.
People who can’t live without the protection of authority figures, and who can never get married or form a household, are increasingly the future of America. Even those who do have some sort of role in the productive economy are being urged to see children as a problem they can do without. Of course, I actually agree that couples should be politically free to breed or not, but you know how that works out—with the non-parents turning into busybodies lording it over parents and telling them how to raise their children. This also often happens with the elective single-child parents over against the multi-breeders. That aspect of the future will also be ugly since it will amplify some ugly features of the present. This recession has hit us at a time when the culture is most inclined to decide that babies are a dispensable luxury, and when the resulting political environment will make it harder to parent children if you love lots of them.
All of this promises a future of economic decline, and probably far worse things. Human beings are being trained for domestic captivity without any real means to pay for the costs of the zoo.<>
