Socialist, savior or short-term irrelevant?

By DAVID MOON, Moon Capital Management, LLC
August 30, 2009

In the past six months, we have heard plenty of criticism about the negative impact of President Obama’s economic policies. One popular argument is that the President promised that if his stimulus package was passed, unemployment wouldn’t rise above eight percent. We are now at 9.5 percent and a report quietly released during the president’s vacation this past week forecasts unemployment to reach ten percent this year.

It is becoming increasing popular, especially among the growing number of the president’s critics, to blame this increased unemployment on a failure of the Obama stimulus package.

It is misplaced criticism.

It is just as silly to blame this recession – either its existence or persistence – on evil, greedy capitalists or some grand Dick Cheney scheme to benefit his pals at Halliburton.

The causes for this recession are relatively simple, but very multi-faceted. There is no single culprit.

If forced to choose a primary explanation, however, it is the cyclical nature of the economy. Like baby poop, recessions happen.

Although the federal government – especially the executive branch – has been very busy with its economic and other domestic agenda items since January, very few of those policies have yet had any impact on the economy.

The economy is like an offensive lineman or one of those massive crawler transporters NASA uses to haul the Space Shuttle out to the launch pad. It generally goes in one direction, can make slow, cumbersome turns, but requires a great deal of time and energy to do so.

That doesn’t mean that I’m a fan of many of the federal government’s recent economic policies. For personal philosophical reasons, I am not. The federal government acquiring General Motors was a mistake – for many reasons. It was similarly a mistake to force the “sale” of Chrysler to Fiat. (The Italian auto company didn’t actually put any money into the deal.)

Cash for Clunkers was a PR success, but it encouraged people to borrow more money – which will only serve to exacerbate and prolong the current or some future recession.

Good people honestly disagree about whether or not a single-payer medical insurance system is great social policy, but it is absolutely horrible economic policy.

By themselves, these moves irritate me, but aren’t likely to have a lasting effect on the economy.

Politicians rarely have a real and lasting effect on the economy – and when they do that impact is typically not felt until years after their legislation is enacted. John Kennedy’s and Ronald Reagan’s tax cuts are examples.

The lasting economic effects of Franklin Roosevelt’s social programs are undeniable.

But despite the philosophical differences people might have with many of the moves this administration is pursuing, these are not the most troublesome longer-term threats for our economy and the investment climate.

The most dangerous hazards are the result of an economic pendulum swinging in one direction for the last quarter-century – and the very predictable eventual swinging of that pendulum in the opposite direction.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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