Transitional change and 'its the economy stupid'. (originaly published 11-5-2008

[Bishrook aka Fate sisters]

Transitional change and 'its the economy stupid'.
Wed, 11/05/2008 - 18:54 — bishrook aka fa...

I break from talking about RPGs for a minute to go to a political topic. You have my apologies.

You are probably sick of hearing about this election. Every talking head and Blogger has weighed in and most have done have focused on the issue of race.
Yes, Obama is a Black man. Yes his election tells us much about how America has changed in the last half century. But you have heard all of that.
Many have also claimed that Obama marks the beginning of a transitional new era.
These come along in our history (and other histories as well) roughly every 20 to 30 years. What happens is a change in the worldview of both the public and the intellectual discourse.
The last time this occurred in Politics was Ronald Reagan. The creed was about the dangers and pitfalls of too much government. The policy pro ultimatly posals arged that it was was best both to deregulate and devolve power. It argued that peoples self interest led to a greater good (As in Adam Smiths Hidden hand).
The period before that had be smitten by the success of the government to mitigate the great depression and fight World II. It argued that while a market economy was needed and valuable it was plagued with serious failures among them being concentrating wealth into small class, serious abuses in the marketplace and a lack of demand driven economic growth.
If the 1980 zeitgeist was suspicious and cynical of social service and sacrifice the post war transition saw such as virtues.
By this time I am sure you have seen where I am going. This election could return the discourse to a different variety of the post war zeitgeist.
Indeed it could.
But it might not.
To use Clintons slogan in 1992 "its the economy, stupid"
Typically recessions in the post war period have lasted somewhere on the order of a year of two. If this is once again true then Obama and this 'new' Zeitgeist are in good shape.
But what if it doesn't?
I will not make great depression comparisons though they are obviously some can be made there.
But there is the case of Japan that is nearer and almost as scary.
Back in the 1990's there was a property boom in Japan. Banks were making loans based on property values sometimes as much as ten times(or more) as much as pre-boom values. Typical Middle class home where selling for a million in the Tokyo and Osaka area.
Then the bubble popped. Property values slid downward and eventiall dipped below the pre-boom level in many cases.
Banks collapsed. The stock market plummeted. The Government moved to help the banks from collapsing. Unemeployment went up.
Then the government trid over the years to use demand management to jump start the economy. Prime rates at Bank of Japan were lowered almost to zero. Huge amounts of money were borrowed and used to build roads, bridges and railways.
But none of this really worked or worked well.
Japanese companies ended life time employment, they kicked middle managers into the streets, unemployment went up and wages went down.
(None of this ever reached anything like the great depression I hasten to add.)
Then another spector popped up it's head.
Deflation.
Price began falling.
People stopped buying and making purchases of a durable goods like Cars, Televisions and appliances and using them longer. After all with prices falling the later you bought the more you saved.
This eems to have cancelled out all that goverment spending.
The recession last just over 11 years.
As you can see the USA government policy won't be much different then Japans but perhaps it can do it better and hopefully our economy has fewer long terms weaknesses then Japan.
But if Mr Obama still has a sick economy in 2012 he will be in trouble.
What will the electorate do?
They might re-elect him anyway. In 1936 Roosevelt was elected despite the continued depression.
They could move further to the left and push him in that direction. He might even face a primary challenge.
or they could reject his approach and move back to the Republicans.
Then if in 2016 the economy is still in trouble so will this new transitional zeitgeist.
Now I am not predicting anything. I think far more likely the economy will recover within 18 months. I think Obama will win a second term
But I look at history and economics and a note of caution tempers these expectations.