West in "Near Depression"

Despite that the economy has not experienced a second dramatic plunge since 2008, we're by no means out of the woods.  The IMF concedes that the West is verging upon an economy depression.  However, despite Keynesian warnings from Krugman and his ilk, austerity will have positive effects for the economy, not negative.  More regulation, public expansion, and taxes will act as an anchor to the economy.  The "experts" always seem to forget that the government can only print so much money and take on so much debt before disaster strikes. 

 

Instead of spending our way out of debt (which is a preposterous notion to begin with), we should be focusing on growing our way back to fiscal sanity.  Entire bureaucracies (like Education and Energy in the US) need to be eliminated.  The government needs to be downsized in scale, depth, and breadth.  As government has encroached further and further into private economic activity, it has complicated business processes, increased unemployment, and led to countless inefficiencies and cost increases to free enterprise.

 

Government must start acting in ways to make the cost of business less.  Businesses will hire more workers if they believe they can make higher profits by adding to their workforce.  But Obamacare and pending tax increases only add to the costs of doing business and the uncertainty of future tax increases and health costs makes it impossible or unwise to hire new workers.

 

Donald Luskin in the WSJ today points out that the "stock market over the last year and a half has followed a path eerily similar to that of 1937" which then crashed severely under the weight of FDR's New Deal policies.

 

So what lies ahead?  "Let's start with taxes. If today's low rates expire at year-end per current law, that would at a stroke reduce after-tax income for every working American, the average reduction being 3.3% according to the Tax Policy Center. Do the math: 94% of income goes to consumption, and consumption is 70% of gross domestic product. All else being equal, if the Bush tax cuts don't get extended, that's a 2.3% hit to 2011 GDP. That means instant double-dip recession, starting at midnight, Dec. 31" says Luskin.

 

A GOP Congress won't necessarily make everything bright and happy.  The President will have to sign any law passed by the Congress, and if he chooses ideology over reality, America and the West's economies could be doomed to another depression.