Donna Wiesner Keene is a senior fellow at the Independent Women's Forum, CEO of BrainTrain, and has held positions in the Reagan, Bush, and Bush administrations.
During the Japanese boom, American graduate schools were hailing Japan's lifetime employment, mandatory retirement at age 55, and all the idiosyncratic cultural throwbacks to the feudal-system-McArthur occupation-democratic culture as ways to help the United States boom. Yet when Japan's strong regulatory bureaucracy could not keep up with the world's best computer entrepreneurs and innovations, the government added multiple blows to the economy with ever-larger government stimulus packages. Structural anomalies were not fixed, and more than a decade later, Japan is still on economic life support.
First, in October, came a bank bailout package of $700 billion, hailed by American media as a solution to "the worst crisis in our lifetime." This first stimulus package didn't work. A la the Japanese, America's solution, as Congressman John Boehner says, is to borrow again from our children and use debt for a new government spending package.
So last week the Democratic Congress proclaimed a new era of magnificent borrowing, where up to $1.4 trillion dollars is needed to stimulate the economy. Like the leaders of Japan, Obama's team is going to fix the economy with more regulation and all the government spending boondoggles the Republican Congresses refused to pass. There is money for any Democratic idea dreamed up in the last century, now called "investment." This will, according to Washington-think, create green jobs and grow the economy.
Carter learned that letting a Democratic Congress have its way created 18 percent interest rates and 21 percent inflation. Faced with pending Carter-era malaise, our government simply bailed out the banks and subsidized interest rates at a new low.
MacArthur set the Japanese currency at 360 to one dollar in the postwar 1940s and decades later Kohl of Germany took his strong but weakening currency the mark to new lows by agreeing to join the euro and the European Union. These artificial means don't work for long, and the "cure" is often worse than the original problem. Look to New York and California state governments, who led the way in spending and in environmental rules. Both are in financial dire straits. Where are their green jobs?
Gwen Ifill asked recently on The News Hour how this credit crisis came up so fast. Yet many conservatives have been warning about U.S. debt for 40 years. History shows that unchallenged debt eventually increases exponentially and destroys nations, as in the Roman Empire, or most recently, major countries across South America and Asia. When government debt soaks up all available savings, businesses cannot afford to borrow. The more the government borrows, the higher the price of credit, the less business can expand to create jobs and growth. America's saving grace has been that countries with cash have been willing to finance our debtso far.
But as in so many things, a poorly educated populace can hold any cockamamie idea for a while, until it doesn't work. Good intentions—we all hold the democratic idea that the administration and Congress have good intentions—will not fix bad policy. Presidents Carter and Bush younger both tried to spend the economy into voting for their political party in the final days of their administrations—and both suffered huge party losses.
I fear that the American population is on the cusp of a big lesson in basic economics and in history. Educated in "new math," Americans have lost the ability to determine when they are being played. Young voters seem more gullible to the idea that a new young president can ignore the laws of monetary policy and spend us into a bright new future. This generation has never known a pre-Reagan economy and is the beneficiary of pay-as-you-go, even if it was only a concept in some congressional sessions.
Inflation is the only way to pay for government spending when taxes won't—but it is only a word to late baby boomers and generation X. History and inflation may have a whole new relevance all too soon, as history quite predictably repeats itself.