Maggie's Farm

Let's put this in historical context.

FDR was the first American President who believed in the power of government to "fix" economic problems and who passed large scale programs. Many of those programs made people dependent on government, and, in doing so, transferred more power to government.

This did not go unnoticed by politicians, who are always looking to entrench themselves in power. (Politicians can take many forms from kings and queens to dictators to Presidents and Congressional representatives and so on.)

This began a fundamental philospohical change in the role of government in the US. (I can't remember the name of the Socialist who ran for President many times and lost each time. He said something to the effect that his losses did not matter because the Democratic Party had essentially adopted the socialist view of government.)

Keynes came along and helped give government the jsutification to pull the economic levers. It's no coincidence that most politicians are Keynesians.

Then you had Johnson and the Great Society. New social programs and the expansion of old social programs were the order of the day. The theme of benevolent government. More than $12 trillion has been spent on social programs with arguable social benefit given the cost. However, more of the population has become dependent on government. The "don't worry, the government is here to take care of you" crowd continued to grow.

Carter, perhaps the worst President of the last 100 years, was a disaster in many ways. He expanded the concept of government subsidies to finance with the Community Reinvestment Act that was later greatly expanded under Clinton. Everyone should have a home regardless of whether they can pay for it or not. We all know where that ultimately took us (along with help from the Fed, the banks, hedge funds and so on). We have economic disaster of Fannie and Freddie (and no one even talsk about it any more). The seeds of much of this disaster is directly tied to Democratic policy.

Now we have more pernicious economic policy under Obama that is invading everything (banks, GM, Chrysler, cap and trade, health care, etc.).

Eisenhower, Reagan and Bush provided somewhat of a respite. They looked to individual initiative and believed primarily in markets. However, all allowed more spending on all kind of things that should not involve government. As the Democrats have moved to the left so have the Republicans under the weight of compromise and an inability to articulate why conservative economic principles make the most sense to pursue. Bush II liked markets, but he abdicated all discipline when it came to spending.

To make matters worse, much of the current spending by government (federal and state) is consumption spending. It merely transfers wealth in an inefficient (i.e. expensive) manner as the bureacracy siphons off its cut. We are borrowing to consume. There is little investment spending that could actually create a return. California anyone?

It is easy to blame Bush II because he was unpopular with both liberals and conservatives for different reasons.

However, the state of our current economy reflects decades of bad economic and social policy primarily at the hands of Democrats with an assist from Republicans.

As long as we pursue economic policies that promote dependency on government, borrow to fund current consumption and punish economic success, the economy will at best muddle through.

It could get much worse. Strangely, the worse it gets, the more people will look to government and trade freedom for bread - which is what is happening now. The history of the treatment of civilians under regimes where people are not free is not encouraging.

In "Wealth, War and Wisdom," Barton Biggs, a 30 year Morgan Stanley veteran, warns investors must "assume the possibility of a breakdown of the civilized infrastructure."

Such a "breakdown" would be the result of an economic collapse.

It doesn't have to be this way, but we need to make a dramatic change in course if we want to avoid lurching from crisis to crisis.