Everyone says that our economy is “horrible.” Gas for our cars is headed toward $5 a gallon. The stock market has turned seriously downward. Unemployment is edging upward (although the unemployment rate is still holding about even). Yet two basic points make it difficult for this amateur to see just why our current economy is so horrible. For me, the most important issue in any economy of any democratic republic is job growth. In 1976, I wrote speeches for Senator Henry M. “Scoop” Jackson (D., Wash.), in which the three main priorities of his campaign were identified, in this order, as “Jobs, jobs, jobs!”
The second-most-important thing for a democratic society, to my mind, is that there be consistent economic growth. The reason is that the most destructive of all human social passions is envy. If there is no growth, the only way people have to vaunt themselves is to tear others down. (In nearly all static societies, envy sparks immense social frictions.) In a growing economy, by contrast, people have a chance to stop comparing themselves with their neighbors (and tearing them down). Instead, they can work as hard as they can to meet their own goals. If their own position tomorrow will be significantly closer to their heart’s desire than it is today, then they don’t need to care how their neighbor is doing.
A republic like the United States simply must defeat envy, and focus on a better future for each family. The only way that can be accomplished is by reasonably consistent and gently upward economic growth. Growth is the necessary condition for the pursuit by each of his own happiness. A happy society is a more generous and loving society.
In this light, the U.S. — with a growing GDP from the year 2000 until today, along with a steady growth in the number (and percentage) of people employed — is better off than almost all nations in Europe. Whatever else is happening in the U.S. economy today, these are very good indicators.
U.S. output today is just about 40 percent higher than it was when President Clinton left office. The nominal GDP has grown from $10 trillion at the end of 2001 to $14 trillion at the end of January 2008. In other words, the U.S. has added to its national wealth an equivalent to the whole nominal GDP of China (in 2007, $3.25 trillion). The U.S. today is as big as it was in 2001, plus the whole GDP of China.
At the end of 2001, when President Bush’s economic policies were just beginning to take hold, total civilian employment was just over 136 million. At the end of January 2008, it was 146 million. Some ten million new jobs! Not the greatest, but not bad; certainly not “horrible.” During the last six months, the number of the employed is down 100,000 — not as huge a decrease as everyone has been imagining. The total employment in June was 145.9 million.
I freely admit that the economy under Ronald Reagan and Bill Clinton did even better. Under Reagan (1981-89) and Clinton (1993-2001), the U.S. added more than 35 million new jobs. This was a stupendous accomplishment. Yet under President George W. Bush, the total number of employed civilians has risen much less dramatically, by ten million new jobs.
How did Reagan and Clinton do so much better? Reagan offered drastic changes in the tax rates paid by inventive, productive, and entrepreneurial citizens. (The tax revenues then received by the U. S. Treasury soared to all-time highs, most of these paid by the top half of income earners.) There followed the largest growth in new small enterprises in American history, and with them the largest single jump in the number of employed citizens. (Most new jobs are created by small businesses, not large, and by new industries — e.g., computers, cell phones, and fiber optics — not mature ones.)
When Bill Clinton was elected in 1992, he inherited a tremendous “peace dividend” from the enormous effects of the great events of 1989 and 1991, the collapse of the Berlin Wall and the change of governments in Central Europe and Russia. By contrast, when President Bush was elected in 2000, he was less than a year away from a devastating military blow against the American homeland — which knocked several American industries (transport, tourism, restaurants and hotels, financial markets, etc.) to the floor.
There is much more to be said about the current economy, and how unprecedented it is in its level of GDP and employment. But there is much bad news as well. The refusal to drill for new oil in the United States, and to build new refineries and new nuclear reactors, has left America colossally dependent of Middle Eastern powers (and also Venezuela), whose wealth supports international terrorism against the free world. We are both depriving ourselves of independence, and subsidizing with enormous sums those who would like to destroy us.
This stupid policy has also led to Americans’ paying $4.50 at the pump per gallon of gas, with prices in the near future heading toward $5 or more. Yet bad news sometimes has a few good consequences, too — not enough to take the pain away, but enough to ignite hope.
For example, the high price of oil is causing some Americans in the global economy to compare anew the cost of transport against other costs. Some are reconsidering whether it might soon be cheaper to produce closer to home. The high price of a barrel of oil is also making new forms of exploration for oil and production cost-effective.
Again, $4.50-per-gallon gasoline is forcing Americans to change their driving habits, not to mention their car-buying habits. The driving patterns of teenagers are also likely to be cut back. And $4.50 gas has changed the political balance in the country. An ever-larger majority of voters is chanting: Drill now, drill here.
Look ahead. People buying futures contracts based on the price of oil as they expect it to be down the line, on condition that no new supplies come on line, are soon going to have to be careful lest new drilling and new refineries move from drawing boards to reality. Buyers of futures cannot afford to be wrong. They will quickly have to alter their projections about future supplies and future costs. Thus, the price of future barrels of crude can fall quickly, long before new gas starts flowing from new wells. Futures markets live and die by future expectations. The future price of gasoline can drop more rapidly than pipelines and refineries can be built.
As for buyers in a bear market, such markets have long been a textbook ideal. When prices are low is a great time to start buying. When the market starts upward again, returns will come in quite handsomely. The inner feeling of going upward is wholly different from the inner feeling of going downward. In my many years, I have known up and I have known down. Up is better.
Published in National Review Online July 17, 2008