A Portrait of the Economy
It's the best of times. It's the scariest of times. Last year, U.S. exports, industrial production, real hourly compensation, corporate profits, federal tax revenues, retail sales, GDP, productivity, the number of people with jobs, the number of students in college, airline passenger traffic and the Dow Jones Industrial Average all hit record levels. For the third consecutive year, global growth was strong, continuing to lift (and hold) millions of people out of poverty. From 30,000 feet, heck from 1,000 feet, it sure looks like the best of times.</br></br>In relative terms, the first five years of the current recovery have been much better than the first five years of the 1990s recovery. But all this has not softened the pessimism of many pundits and politicians who are either unimpressed or expect the whole thing to come crashing down any minute. That is, unless the government firmly grabs the reins of the global economy and steers it clear of disaster.</br></br>Many believe that the debate is over on global warming, nationalized health care, tax hikes, rich-versus-poor, the trade deficit and "obscene" oil company profits. Forgotten in this rush to pass judgment on capitalism is the fact that the last two times government seriously tried to control the U.S. economy -- in the 1930s and in the 1970s -- they made a terrible mess of it.</br></br>In the 1930s, the Smoot-Hawley Tariff Act caused a collapse in global trade, while the Fed allowed the money supply to shrink by one- third. Government regulation in the 1920s prevented banks from branching, which caused more than 10,000 to fail in the 1930s, deepening and prolonging the Great Depression. Herbert Hoover's tax hikes were icing on the cake, capping off a perfect storm of D.C. policy mistakes.</br></br>It took another 35 years, and a nice run of prosperity, but Washington finally gathered the courage to try this again. Between 1965 and 1981, Great Society welfare and health-care programs, wage and price controls, inflationary Fed policy, 70% marginal tax rates, 50% capital-gains tax rates, and highly regulated energy, airline, banking and trucking industries created severe problems. The Misery Index (calculated by adding inflation and unemployment) rose to 21.9% in 1980 (today it is 7.2%).