Originally in American Thinker, March 8, 2010.
In America, we are beginning to sense a nasty reality that President Obama must acknowledge: Our worst economic problems lie ahead, and fixing those problems is going to hurt — plenty. Our federal government now runs a con game that promises people a level of financial security impossible to deliver. Honoring Medicare and Social Security obligations alone will require confiscatory taxation capable of killing off prosperity. And so it is time to cure our nanny-state insanity and get back to basics.
Current events in Greece illustrate the misery that comes from ignoring the basics. The Greek economy is collapsing. A rampant entitlement mentality and the resulting government expansion have ballooned publicly-held debt to 121 percent of the country’s 2010 economic output. (America could exceed the 100-percent debt-to-output threshold in 2011.) The European Community’s reaction to the Greek tragedy? Mixed. French Prime Minister Sarkozy says the euro block will help “if needed.” German Chancellor Merkel offers no aid. A senior member of Merkel’s party suggests that Greece sell some of its islands to raise money.
Greece’s Prime Minister Papandreou says that Greece has become “a laboratory animal in the battle between Europe and the markets.” Progressives view society as their laboratory. Just as President Obama preaches to Americans too dim to swallow his wisdom, Euro-progressives want to force foolishness on a people’s unreceptive leader.
Greece needs to address its own problems, the first of which is reality-blind union workers violently whining for government to hand over money the government doesn’t have. But the EC, observes Manhattan Institute’s Nicole Gelinas, cannot bear to let Greece solve Greek problems. Too risky. Greece is too big to fail. Gelinas writes, “The empty purse is Papandreou’s best tool for keeping public resolve strong in the face of crippling strikes by public workers.” In other words, forcing bratty children to take the hit for bankrupting mom and dad is just the right medicine. In Greece, severe pain just might spark sane policies.
In America, we’d first have to purge Washington of most of that asylum’s patients; otherwise, sanity would remain a pipe dream. Buffoonery abounded in our 2008 economic crash — partly induced by over-borrowing induced by over-lending induced by everybody-must-own-a-house nonsense. Even now, Barney Frank and other starry-eyed congressional ideologues still deny that lending to moneyless borrowers assures disaster.
To deal with our American disaster, experts call for our economy to be “transformed.” President Obama wants a “fundamental” transformation. But what America really needs is a transformation that would undo a century of malignant progressivism that perverted the free-market capitalism on which our nation was founded. Returning to those free-market basics will not be painless.
New America Foundation fellow Reihan Salam compares our current jam to the early 1980s recession. He finds that the economic restructuring that President Reagan and Federal Reserve Chairman Volcker implemented “subjected American families to extreme economic pain, and hundreds of thousands of industrial jobs evaporated and never returned.” By reducing taxes and not interfering with business and financial market shakeouts that must occur in economic down cycles, Reagan and Volcker allowed failing companies to fail, disappearing jobs to disappear, and worthless investments to remain worthless.
Not much fun, but the solution worked. Reagan’s phased-in tax cuts gradually eased America’s economic pain and freed up capital to ignite the most prosperous twenty years in modern times. Had Reagan chosen the course elected later by George W. Bush and Barack Obama, doing “everything in their power to preserve the economy,” Salam believes that America “would be an economic backwater.” It’s hard to escape the feeling that Salam had Obama’s fundamental transformation in mind.
Still, America does need change. Economists Brian Wesbury and Robert Stein point out, “Even if Greece, Illinois, California, or the U.S. itself … declared it would make zero [debt] payments … it would still have substantial annual budget deficits. At that point, the only fix would be to cut spending because potential lenders would go on strike.” So the reality is that even before considering loan payments, Washington spends more taxpayer money than Form 1040 grabs — a modus operandi that Obama wants to turbo-charge.
To clean up our economic mess, we must face up to its causes. The subprime mortgage meltdown played a role, but the biggest driver was enormous government spending — not just on welfare state entitlements, but also on corporatism that rewarded favored big businesses and motivated Wall Street to create the flimsiest investment schemes ever. Then, when subprime mortgages and investments derived from those mortgages collapsed, Washington rejected anything resembling back-to-basics and also did nothing to unburden the small business engine that could quickly restart the economy. Instead, Bush and Obama threw trillions of future taxpayer dollars at big business bailouts and phony “job-saving” programs, thus delaying the inevitable: the liquidation of bad investments and bad companies allowed by Reaganesque tough love.
Other presidents successfully applied tough love. In 1914, Calvin Coolidge noted, “Self-government means self-support … History reveals no civilized people among whom there was not a highly educated class and large aggregations of wealth”. Such honesty about how freedom breeds inequality of results is rare in American politics. Coolidge acknowledged the importance of industrious individuals garnering large rewards and creating wealth from which all individuals benefit proportionate to individual contribution. As president, Coolidge helped engineer a quick recovery from the early 1920s recession by continuing President Harding’s tax-cutting and spending reduction. Americans agree with Coolidge: A moral government frees people to account for themselves.
 Donald McCoy, Calvin Coolidge: The Quiet President, Macmillan, 1967, pp. 53-55.