Recently the war in Iraq seems to have dropped out of the news while the status of the US economy has suddenly become the main focus even in the Presidential caucuses and primaries. Associated Press articles last week characterized a 306 point drop in the stock market, as a "plunge" that underscored "deepening concern about the country's economic health." What happened last week was not a plunge. It was a small adjustment.
Since I was born in 1929, basically at a time when the Stock Exchange was at its highest point, and grew up in the Great Depression, the ups and downs of the economy have always fascinated me. Some years ago in researching the subject I noticed that there had been 10 times during the previous 100 years when the stock market suddenly lost 35% to 86% of value. It is interesting to note that when the presidential race of 2000 was beginning, the media was praising Bill Clinton for the great state of the economy, when the market closed the first week of March at 9796.03.
During and since the 2000 presidential race, the media has seemed determined to drum up a "Bush recession." In fact, I wrote a couple of articles on this in 2003 when the Democrats were predicting a disaster ahead as President Bush signed his tax cut, job growth bill in May and again, in December of 2003, after the Democrats had announced that President Bush would have the worst economic record "since Herbert Hoover."
For 8 years, as the media have proclaimed repeatedly that the economy was failing under George W. Bush, the stock market has moved steadily upward, reaching a record 14,000 several times in July and October 2007. In 2000, Clinton's last year in office, the market was going down. In July of 1999 the stock market had hit 11,313, but by March 7, 2000 it had dropped to 9796.03. That's a 13% drop in the Clinton administration - which no one in the media ever characterized as even a sharp drop, much less a "plunge."
When the World Trade Center and the Pentagon were attacked in September 2001, after Bush had been in office less than 9 months, the market dropped to 8247.56 but gained nearly 6000 points by October 9, 2007 when it reached 14,164.53. During these up and down fluctuations, employment has remained at record high numbers. A 306 point drop is an adjustment, not a plunge. In fact, it was an adjustment of about 2.5%. A 25% drop in the market, which would be a drop of more than 3000 for the current stock market, could be called a "plunge." Last week's 2.5% drop was a small adjustment.
Few today seem to really know what happened in 1929. On September 3, 1929, the Dow Jones Industrial Average reached a record high of 381.2. On Thursday, October 24, 1929 the market had dropped 21% to 299.5. By 1932, which was a presidential election year, the market had dropped almost 90% and unemployment was over 30%. The Democrat candidate, Franklin Delano Roosevelt, blamed the economic condition facing the nation entirely on his Republican opponent, Herbert Hoover and America's system of free enterprise capitalism. In his inaugural address of March 4, 1933, which is remembered for him saying "the only thing we have to fear is fear itself," FDR outlined his plans to reverse the depression primarily by doing away with free enterprise capitalism and introducing socialism. He announced that the "restoration" of the economy "lies in the extent to which we apply social values more noble than mere monetary profit." Those "social values" were mostly socialism.
He announced his plan for the federal government to engage "on a national scale in a redistribution endeavor to provide a better use of the land for those best outfitted for the land," along with "national planning for and supervision of all forms of transportation and of communications and other utilities which have a definitely public character" and "a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money." New jobs, FDR announced, would not come from the private sector but would "be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources."
The government would become the major employer of the nation, with government programs such as WPA, not private enterprise. At a time when people were losing their homes and farms, Roosevelt chose to shut down the banks and move the economy away from free enterprise capitalism. He told the American people that they must "move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress is made, no leadership becomes effective."
My mother and most of her generation obediently did as they were told, totally believing every word the persuasive FDR said. During those Depression years I remember huddling around the radio, which was plugged into the only electric outlet in our house, as my mother listened intently to her hero, FDR.
My mother did not live long enough to see the stock market ever rise to the level it was when I was born. It took 25 years, the Second World War and the election of Republican Dwight D. Eisenhower before the stock market finally again rose to 382. Not only did most of my mother's generation, but also most of my own generation, were convinced that it was Roosevelt's socialist response to the Stock Market crash that saved the nation. Yet, what FDR did was to make it impossible for entrepreneurs or home owners to get credit to open a business or buy a home. In his book The Age of Turbulence, Alan Greenspan, former chairman of the Federal Reserve Board, observes, from his many years as an economist who watched the disintegration of the Soviet Union and other socialist economies, that creating wealth requires both the right to own property and risk taking - and freedom. Socialism is designed to reduce or eliminate the right to own property, risk taking and freedom, which is probably why during my formative years the stock market remained stagnant and home ownership was very difficult to accomplish.
The Great Depression lasted for over two decades because Roosevelt and the Democrats effectively scared the voters into following their lead into socialism. People who did have money, were afraid to spend it or put it into a bank, where it could circulate. Instead, they hid what little money they had and saved every penny. We even saved string and straightened nails, rather than buying new string or nails. While that may traditionally be considered admirable, it does not lead to inventiveness, risk taking, new technology and consumer spending - all of which are necessary to improve the standard of living of the poor, according to Greenspan.
It appears to me that we are again being frightened into a recession by the media and the Democrats. However, I am hoping that the effort will be thwarted by young voters. Today's young people don't usually read the newspapers and when they do, they don't believe what they read, as their grandparents did. Furthermore, few of them seem to have any difficulty in finding a job. Unemployment nationwide is still only 5%, which, only a few years ago, was considered dangerously low and a cause of inflation. In my state, unemployment is only 2%. By 1932 unemployment was over 30% and generally only the father was in the workforce.
This does not look to me like a recession. It looks like someone is trying to manipulate the public into thinking there is a recession, for political purposes. Hopefully, the younger generation will continue to ignore the media, the economic doomsayers, and their grandparents' warnings about the "coming recession." If they do, I think the year 2008 will be a good year for the economy, especially if the Bush tax cuts are made permanent and we don't elect a socialist president and Congress in the November election.