1999: Goldilocks v. The Bears

by Patrick J. Buchanan – December 25, 1998

1998 has been marked by a conservative spat between what might be called the Alfred E. Neuman (“What, me worry!”) Club and the Chicken Little (“The Sky is Falling!”) Caucus. By Christmas, it was game, set, match — the Neuman Club.

Unemployment was at a 30-year low, inflation was in check, the economy had grown by nearly 4 percent. Wall Street had run the bears back into their caves. The “New Paradigm” conservatives — those “ranting evangelists of Global Capitalism,” in British author John Gray’s mocking phrase — were toasting the Goldilocks economy.

But have the Gods of the Copybook Maxims truly been dethroned by “globalization”? Is history really bunk? Have the iron laws of nations been transcended? For, to some of us still, the storm clouds loom larger and darker than ever.

Consider: As corporate profits contract, stocks are selling at 26 times earnings; Microsoft, at 20 times revenue. Such prices seem to defy not only the lessons of history, but the law of gravity.

What explains it? $150 billion in panicked bailouts of Thailand, Indonesia, Korea, Russia and Brazil prevented a crash, as did three cuts in interest rates by a frightened Fed and a monetary policy that is shoveling billions monthly into U.S. markets.

Yet the results in the Global Economy are mixed. Thailand and Korea may be recovering, but Russia and Indonesia are not. As for Brazil, it was facing default and devaluation before the IMF rushed in $41 billion. Yet Brazil’s interests rates are near 30 percent, its deficit is 8 percent of GDP, recession looms, and Congress is not making the budget cuts the IMF demands. And as Brazil goes, so goes South America.

Japan, which accounts for two-thirds of Asia’s economy, is facing yet another year of recession. Japan’s debt is 110 percent of GDP; the deficit 10 percent — astronomical figures. Population is contracting. The stock market, at 40,000 in 1990, was below 14,000 at Christmas.

If Japan cannot pull itself out of the ditch, who pulls Asia out? Not to worry, the Neumanites assure us, the United States will pull the whole world out, and our president told us how in November:

“We had a meeting early on when it was obvious that this economic difficulty was going to be very, very severe,” said Clinton in Japan. “I made a decision … that we would do everything we could to leave America’s markets as open as possible, knowing full well that our trade deficit would increase dramatically for a year or two. I did it because I thought it was a major contribution we could make to stabilizing the global economy and the economies in Asia.”

There you have it. In the name of global altruism, America’s great industrial heartland is to be put on the auction block.

This year, the United States will run a merchandise trade deficit of $250 billion, with China and Japan accounting for half. As container ships arrive at U.S. ports full and leave empty, we learn that 200,000 U.S. manufacturing jobs were lost in 1998, bringing to 760,000 the total since 1989. How healthy is a prosperity where manufacturing dies?

The Neumanites, nesting in their tax-exempt universities and think tanks, laugh off the de-industrialization of America — “In the Global Economy, who cares who produces what, where?”

With their dollar hoards from trade surpluses, foreigners are buying up America. They now own $1.3 trillion more in U.S. stocks, bonds and companies than we own abroad. That is the equivalent of 16 percent of U.S. GDP. By 2010, says one analyst, foreigners could own the equivalent of half the U.S. economy. Our current account deficit, which includes net investment income, is now exploding.

From Holland to Spain to Britain, this has been a symptom of imperial decline. The Neumanites assure us it no longer matters.

Hog and wheat prices are at depression levels — and the Great Depression of the 1930s began in the farm belt in the 1920s. Not to worry, we are told, consumers will soon see lower food prices.

To the contention that new service jobs do not pay the wages of lost manufacturing jobs, that the disparity in income between the elite and Middle America is growing, comes the retort: “We are all in the market now. Enjoy!”

With 70 percent of our economy based on consumer spending, 1998 was the Year of the Consumer. But for the first time on record, U.S. consumers are now drawing down savings to splurge at the mall. Auto debt, credit-card debt, home-mortgage debt, and personal and corporate bankruptcies — are all at or near record levels.

Does it all not matter? Perhaps not. But the wisdom of James Burnham may yet be validated: Whom the gods would destroy, they first make optimists. Happy New Year!