The Spoil​ed States: Do We Expect Too Much?


Do we Americans expect too much out of our economy, and when the economy doesn't deliver, do we expect too much out of our government?

It's easy to cast aspersions on America's spending habits, self-absorption and provincialism, but these criticisms are usually overdone, unwarranted and motivated by the envy of others. Nevertheless, in the current clamor of an election year — when the pressure on politicians to "do something" about the current credit crisis is intense, and when the Federal Reserve is under enormous pressure to prevent a recession — we can see the rumblings of a populace that thinks continual economic growth is our due, our birthright, as basic a right and as sacred as our freedom.

Since 1981, we've had three recessions: in 1981, 1991 and 2001. The recession in 1981 lasted 16 months, and each of those in 1991 and 2001 lasted eight months.

So, during the 312 months since the beginning of 1981, the American economy has been in a recession during 24 of them, or 7.7 percent of the time. For the rest of the time — 92.3 percent of the time, or 288 months — the economy has grown. Not too shabby, as Adam Sandler might say.

It's paradoxical but entirely logical that during a time when the volatility of the business cycle has been increasingly tamed (in the form of less frequent recessions and greater price stability) that Americans seem more and more panicked at the very mention of the word recession.

Still, giving a macroeconomics lecture to someone who just lost his job and is about to lose his home, and telling him to "buck up" and keep things in economic perspective is, no doubt, pretty heartless and clinical. There's no denying the pain that many Americans are feeling, and that, possibly, many more will feel over the next year.

Meanwhile, inflation is making a comeback, too, constricting the ability of the Fed to stave off a recession with lower interest rates, and igniting a debate within the financial community as to whether the Fed should fight inflation and not worry so much about a recession, or try to prevent a recession, even at the price of re-inflation.

What a Choice!
Fed chairman Benjamin Bernanke has a difficult choice to make: If he fights inflation, he will be accused by politicians and Wall Street banks of being insensitive to the needs of poor and middle-class Americans, and if he continues to lower short-term interest rates to help prevent a recession, he will be accused by the inflation hawks of being a girlie-man who couldn't stand up to the bullies on Wall Street and in Washington.

Perhaps the inflation hawks are right: It may be better to experience some intense short-term pain now, like a shot in the arm, rather than a drawn-out, long-term attempt to push the problems into the future. Still, assuming their diagnosis is correct, their medicine will be painful.

Even though the business cycle has been tamed, it has not been eliminated. Capitalism works, but it's not perfect. If we want animal spirits and unbridled exuberance, then we also have to suffer the hangovers when we overdo it.

We had a tough time from 2000 through 2002, but we got through it, and were rewarded with some decent years during 2003 through 2007. We may be entering another tough time now, the duration and severity of which no one can really predict.

But what is equally real is the long-term strength and resilience of the U.S. economy, exemplified by its ability to rebound from economic downturns, and its 200-plus-year record of economic growth and wealth creation.

Fred D. Snitzer is chief operating officer in the investment-management firm of Prudent Management Associates, specializing in high-net-worth and tax-deferred asset management. For information, go to:



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