Phil Gramm vented a little frustration about the doom-and-gloom talk surrounding the economy in an interview with the Washington Times, and Democrats have jumped all over it. Gramm, speaking as a surrogate for the John McCain, decried the rush to pessimism, noting that we have not yet experienced a single quarter of contraction, let alone a recession. His description of a “mental recession” has McCain’s opponents gleefully portraying Gramm as out of touch:
In an interview with the Washington Times, Phil Gramm, a former Texas senator who is now vice chairman of UBS, the giant Swiss bank, said he expects Mr. McCain to inherit a sluggish economy if he wins the presidency, weighed down above all by the conviction of many Americans that economic conditions are the worst in two or three decades and that America is in decline.
“You’ve heard of mental depression; this is a mental recession,” he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. “We may have a recession; we haven’t had one yet.”
“We have sort of become a nation of whiners,” he said. “You just hear this constant whining, complaining about a loss of competitiveness, America in decline” despite a major export boom that is the primary reason that growth continues in the economy, he said.
“We’ve never been more dominant; we’ve never had more natural advantages than we have today,” he said. “We have benefited greatly” from the globalization of the economy in the last 30 years.
Gramm has at least the non-recession correct. In fact, growth ticked slightly upwards in the last quarter from 2007Q4, going from 0.6% to 1.0%. Since recession is defined as two successive quarters of negative GDP growth, Gramm rightly states that we haven’t yet had a recession. The export boom shows that America can compete on a globalized stage, despite the shrieks of economic collapse that accompany trade talks.
Democrats call Gramm out of touch for calling the US a “nation of whiners”. It may be politically inapt in an election year, but the description isn’t far wrong. We hear comparisons made to the Great Depression and a “Herbert Hoover economy”, but that only proves how incoherent and economically illiterate critics can be. Growth remains positive and unemployment remains in the range of historical average of 5.5%. Contrast that to the economy of Jimmy Carter, when unemployment, inflation, and interest rates all went out of control — and even that was nothing next to the Depression. Whiners? You bet.
And the most ironic part of this criticism is that most of the people launching it want to do exactly what Hoover did — revert to economic protectionism. They want a Smoot-Hawley approach to foreign trade that would make whatever economic troubles we do have grow exponentially.
Gramm made a mistake, though, in assigning whiner status to the entire country, and the Democrats are poised to pounce on it:
“How dare john McCain and his advisers so callously dismiss the challenges the American people face? No wonder voters feel john McCain is out of touch. He and his campaign don’t even understand the everyday issues Americans are dealing with.”
The problem with today’s economy comes from two sources: the credit collapse from the burst of the housing bubble, and the rapidly-increasing price of fuel. Both parties can take the blame for the former if any blame at all is to be assigned, but the latter belongs squarely in the lap of Democrats. Republicans have tried for years to increase both domestic production and refining of oil, as John Boehner reminds everyone today in the New York Post, but the Democrats have obstructed all efforts. Had we brought the OCS and interior sources on line during the 1990s, we would have no supply crisis today. Had we done so after 9/11, when the strategic issues regarding oil production became blindingly obvious to all but the most obtuse, we would be seeing the maturation of those supply sources right now.
Instead, what did we get? Thirteen years of whining that it would take seven years to bring new sources of oil to the market. I’d say that Gramm diagnoses the problem with accuracy, and that the Democrats should own up to their affliction.