The American Spectator

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Economics

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All of this is complete foolishness. Consumers are not irrational, and the economy is not broken. The vast majority of people are completely trustworthy. And those who understand capitalism -- where it comes from, what causes it to work -- have not lost faith. Capitalism is robust and reliable. It does not "fail." Nonetheless, capitalism has brought so much good over such a long period of time that people have begun to take it for granted. They have forgotten that capitalism is the end and the means. The fruits of capitalism are so overwhelmingly delicious that we forget that the best part of the system is that it provides personal dignity. It allows men and women to find their most productive place in the world, while it lifts living standards to new heights.

Nonetheless, many "conservative" columnists have joined with many politicians to make an argument that this crisis is so severe that the government must intervene. Even if we don't like what government is doing, it must be done.

Another interesting twist in the emotion department is that conservative politicians and pundits have become massively bearish as well. This is a reaction to President Obama's agenda, which leans pretty dramatically in the liberal direction. More government spending, higher taxes, and regulation all hurt the economy. The pundits are right that the direction of policy is negative for the economy over the long run, but I am afraid most of them do not make the distinction between long and short term.

Their bearishness is going to look pretty foolish in the next 12 to 18 months as the economy booms. The Fed is so easy that it will overcome any policy problems in the near term. This is reminiscent of the early 1990s, when President Clinton raised taxes and proposed a new health care plan. Talk radio predicted the Clinton recession, which never came. Why? Because the Fed was super-easy in the early 1990s.

The immediate data we see every morning when we roll out of bed have not been pretty. The unemployment rate is near 10 percent; defaults and foreclosures continue to rise; that house (or houses) down the street isn't selling. It has been a nasty recession. But it's not the end of the world. Because the panic took economic activity to such low levels, the bounce alone from that will lift economic activity dramatically in the quarters ahead.

But, more importantly, capitalism itself will reassert itself and lift growth in the quarters beyond the bounce. The economy is set to surprise the conventional wisdom in dramatic fashion. It's not as bad as the punditry or you think.