Did President Obama have reason to crow about the American economy during his last State of the Union address? Thomas Donlan of Barron’s suggests the answer is no.
We fall into a delusion if we allow any president to take too much credit or bear too much blame for economic cycles, which turn at their own speed. You can throw virgins into the volcano, but earthquakes and eruptions follow their own geophysical schedules.
Neither a $787 billion fiscal stimulus, nor a few trillion dollars of fresh debt, nor a few more trillion of subsidized low-interest rates reversed any fundamental economic trends. They, too, follow their own schedule, which Hyman Minsky described in his theory of financial instability: Long periods of prosperity create complacency and generate excessive risk-taking; big economic crises generate fear and financial caution. Unfortunately, the turning points are unpredictable.
As the president said, the U.S. has the strongest, most durable economy in the world. As he didn’t say, that was just as true in 2009, 1981, 1933, and 1921. The main difference among them is that in 1921, the government didn’t move to cure the economy. Our former colleague Jim Grant told that story very well, with a clear eye on lessons for the other crisis years and for the present, in his book The Forgotten Depression: 1921: The Crash That Cured Itself.
Can crashes really cure themselves? Or do Keynesians have the key to economic science and health? All we really know is that it’s morning here, and it was night back there.
Although he was justifying another form of impulsive behavior, Jimmy Buffett was also right when he said it’s always 5 o’clock somewhere. The president got on the bus near the low spot; if he’s lucky, he may be a cyclical winner like Bill Clinton, finishing the eight years before the next big decline.
But the rooster doesn’t deserve credit for the sunrise.
Obama was on thin ice when he said, “Anyone claiming that America’s economy is in decline is peddling fiction.” That case is not closed.
