There is no such thing as conservative economics or liberal economics. There is just economics -- which is a social science based on a combination of theory and fact. Economics is basically contextual. But facts are not.

There are two myths that are constantly repeated that simply drive me up the wall every time I hear them. They are accepted as gospel by democrats and republicans alike. I want to challenge them -- but let me emphatically state that I recognize the fact that we've just been through the worse financial crisis since the Great Depression. We have also had the worse housing recession since the depression. But, we have not had "the worst recession since the Great Depression"! This is not the "Great Recession",1980- 82 was.

A recession is defined as two consecutive negative quarters in the gross domestic product (GDP). The US went into a recession in the fourth quarter of 2008 as the GDP fell by 1.1%. In the fourth quarter it fell to -6.6% and in the first quarter of 2009 the GDP was negative 6.5. The figures may be revised and even challenged, but the general direction and depth are pretty clear by now. Since then the GDP turned positive and has been so ever since.

Now consider the recession of 1980. In the second quarter the GDP fell 8.23%, much greater than the present recession. It was negative through the first quarter of 1981 in which it was negative 6.5%. 1980 was an election year and the prime rate soared to over 20%. President Carter pressured Paul Volker to imposed credit controls and cut interest rates, which he did and brought the rate down to 11%, almost half
its former level.

After the election when Ronald Reagan won in a landslide, Volker allowed rates to return to market levels and they hit 21.5% During the 80-81 period GDP went positive briefly due to the fed's artificial stimulation. It is looked back as a double dip recession as we fell back into negative growth in 1982, but in fact it was one recession briefly interrupted by a failed government attempt to prevent it. (I expect somewhat the same results this time.)

During those years we had a thing called the "misery index". It measured the pain that the average person was experiencing. It was made up of a combination of inflation and unemployment. At the worse of the recession, the inflation rate hit 14%. Today it is running 1%. Unemployment back then at its worse point ran 10.8%. The worse point today has been 10.1%. The misery index at worse back then hit 21%. During our recent recession it was more like 12%. Almost half as painful. Clearly, the facts do not support the perception that this is a worse recession than the 1980-82 recession.

Further, stocks back then had fallen to less than 1929 levels in real terms. Today stocks are substantially higher than those levels. Gold, in real terms, was almost twice the price of where it is today. To reach the panic levels of those days we would have to see gold above 2200 dollars an ounce. And the dollar was crashing back then. Today the dollar is relatively stable. The US government back in 1980 was selling its gold and buying dollars in an attempt at preventing it from crashing. It was that serious. But nothing worked. As the election approached the mood of the nation was that the US had no future. We were looking into the abyss with no plan to get out of our free fall.

You can argue that this is worse financial crisis since the Great Depression and certainly the worse real estate crisis, but not the worse recession. That statement is a political statement to make points, not objective analysts to be taken seriously. The fact is that the decline in GDP was not near as bad in 2008 as the 1980-82 recession. After a brief recovery in 1981, we fell back to negative growth for another full year in 1982.

The other most abused statement is, "We are in our current mess due to the failed policies of the past"

This statement always refers to the Bush years of 2000 to 2008. But this statement isn't actually directed against Bush. It is an attempt to discredit Reaganomics who championed free market economics. Reganomics successfully led us out of the recession of 1980-82 and into 25 years of unprecedented prosperity.

I believe that a change in political philosophy of a nation precedes the change in its economic direction. Such was the case when we turned away from then socialist/interventionist policies of the 70's and toward free market capitalism in the 80's. The rest, as they say, is history.

Bill Clinton continued the mix of Reganomics during his terms as President. Clinton actually took it to another level by "ending welfare as we knew it" in this country and promoting NAFTA, a free trade agreement that raised the standard of living for all involved. The Clinton tax increase, fought tooth and nail by Republicans, was minor in my book and never sufficient to throw Reganomics off track. It was a mere adjustment. His "pay as you go" initiatives helped pave the way to a budget surplus with the support of a republican Congress that contained spending like few Congresses before it. And his reduction in capital gains rates was a re-affirmation of Reaganomics and helped lead to the prosperity of the nineties.

Between Ronald Reagan and Bill Clinton, both of whom I voted for by the way, we enjoyed the greatest period of growth since the Industrial Revolution. When we talk about the failed policies of the past are we talking about the only three quarters of negative growth in the economy in 25 years? Those failed policies?

Or the declining inflation rate from 14% when Reagan took office to nil over that same period? Those failed policies? Or the falling prime interest rates from 21.5% to 3.0%? Those failed policies? Or the greatest period of productivity, innovation, and technological advancement the world has ever known called the technological revolution? Or maybe we mean the failed employment policy which took the unemployment rate from 10% to 4% during the Bush years, the lowest unemployment rate ever recorded in American history. Perhaps it was that failed policy?

Both of these statements, these myths, "the worst recession since the Great Depression", "due to the failed policies of the past", need to be contested every time they are uttered. They both are attempts at re-writing history. As such they are an affront to truth and justice and need to be challenged whenever and wherever possible. People that attack free market economics are entitled to their own opinion, but they are not entitled to their own facts.

Whenever I hear someone reject the idea of free market solutions by exclaiming "Oh no! We've tried that and it failed" I want to recite the above facts. Whenever I hear people say that an army of regulators are what we need in this country rather than objective laws that protect against force and fraud, I want to take them to Cuba and show them around.

Margaret Thatcher, philosophical soul mate to Ronald Reagan, said, "the problem with socialism, is eventually you run out of other people’s money". Cuba learned that. East Germany and Eastern Europe learned that. The Soviet Union learned that. And China learned that and changed its system from a nation that takes money to one that makes money.

If we indeed have a "Great Recession", it is not the one in back of us. It will be the one in front of us. And it will not be due to the failed policies of the past, it will be due to the failed policies of the present and future.

Paul Nathan
Paulnathan.biz