Paleo Retiree writes
Tiresome-Old-Fart-Reflections Alert …
Younger people seem convinced that nothing as awful as what we’re currently enduring has ever been seen before. But the mood in the U.S. in the late ’70s (when I was a young adult) was every bit as doomy as the mood is these days. We’d left Vietnam with our tail between our legs; there’d been riots and assassinations; our cities had collapsed; our financial wizards had lost control of the currency (read up on the bewildering misery that was stagflation); the gas shock had made us aware of how reliant we were on mideasterners who didn’t have our best interests at heart; NYC had declared bankruptcy; a President had been drummed out of office … And the glossy optimism of the 1950s, when American prospects seemed sunny and unlimited, was still recent history. What a contrast the late ’70s were, and how quickly we’d turned a bad corner. It was an extremely depressing and upsetting time. There was a small industry in publishing articles and books on the general theme of “The U.S. is finito.”
For all I know we’re even worse off today than we were in 1979. Some important things are certainly different about our current situation, god knows. Seems to me (FWIW, of course) that the existence of the internet changes something fundamental. These days anyone who’s curious — and who has a connection to the web — can easily pull the curtains aside and observe the Wizard of Oz hard at work cranking all those levers. How could it not affect our prospects that we’re no longer as vulnerable to being fooled as we once were?
And for all I know the house of cards will indeed come down tomorrow, as many seem to expect. I’ve got the dwelling-on-the-possibility-of-doom gene myself. But my experience in living thru the mid/late ’70s has also left me open, if reluctantly, to the possibility that our nutty elites will figure out some way to stave off total collapse for a few more decades. They’ve done it before, so maybe they’ll do it again. Who really knows? It’s got to be admitted that, however evil they can be they’re also mighty clever …
I agree about remembering those times, but disagree with the conclusion. Boom and bust is the natural economic cycle. Overconfidence reigns at the top of the cycle. Over-pessimism takes over at the bottom of the cycle.
True, but with Fed money pumping, the balloons keep getting bigger…with concomitant busts. The bust is supposed to be the good part, as this is when the fool and his money are not only parted, but when the fool KNOWS he’s been parted from it. In other words, the bust is when the mal-investments are cleared. But the Fed now goes around trying to prevent the bust from happening. That is asking for trouble. Back in the seventies when we were experiencing all those difficulties (remember Nixon’s crazy price freeze, and Ford’s dopey “Whip Inflation Now” buttons?) not only did people NOT understand what was happening, neither did our leaders. We need another Paul Volker, but we won’t be getting him. Instead, we’re going to get monetary policy disguised as fiscal policy. And politicians are perfectly happy to let the Fed take the blame.
I do agree that it is a mistake for the Fed to try to salvage the bad investments during the bust, and that this only deepens the bust.
Yes, the late 70’s were dark times indeed, with regard to the International situation and the economy. People tend to forget that it wasn’t all Star Wars, Disco, and lines of blow; the Iran Hostage Crisis, the ongoing march of Communism, genuinely terrifying inflation, soaring gas prices, crime rates twice as high as they are now – it was pretty scary. But I think one big difference between then and now is that back then, the elites were clueless/incompetent (think Gerald Ford/Jimmy Carter), but would have probably done the right thing had someone told them what it was, whereas today, the elites seem indifferent to the well-being of average people at best, and actively hostile at worst. Not necessarily a step forward.