Question on the Economy

A friend from graduate school wrote to get my thoughts on the economic crisis. He sent a series of questions wondering if there was a way out for the United States and what the consequences of recession will be.

Here was my response:

Do you remember people claiming that this recession was the worst since the Great Depression? There is a reason this claim is being made. Last year we were asked to bail out banks by literally giving them hundreds of billions of dollars to prevent them from closing, something that took place during the Great Depression. This means we are experiencing a crisis of the same magnitude that caused the depression, but we have taken preventative actions to reduce or delay the negative consequences. This action consisted of the government giving banks over $2,000 for every American citizen. If we had failed to act, the consequences would have been grave. The banks would have shut down and people would have had a difficult time getting cash… While this may not sound like much, there are serious consequences as the economy would have come to a stand-still. People would not have been able to do simple things like buy gas or groceries. When you hear the comparison to the Great Depression you have to acknowledge that without the first bailout we would be in the same circumstance today. While this may sound bad, it gets worse.

The U.S. has lost control of the dollar and given China and other Asian states the responsibility to maintain its value. We have officially given up trying to maintain our currency's value and have passed the responsibility to countries of the East who have a lot of positive investments in the dollar. Our official policy is to tax Asian states to keep our government open and financially solvent. Well, eventually China and other states will get sick of this and do something. It is clear that this cannot go on for the long-term. No one knows how they will react, but they will not continue to allow this indefinitely. We are so broke that we are literally resorting to the policies of the Weimar Republic. The only thing is that we are not forced into this by another country, we have chosen it for ourselves.

What really concerns me is the call to form a new international order, one that would allow global governance. It may address some irregularities, but overall it would only serve to reduce democratic governance in the world and would create larger institutions. To solve one problem, we would create a larger one. The larger the institution, the greater its potential for evil. My fear is that our action in response to this crisis could put into place an institution that, in trying to do good, would bring about harm on a greater scale than humanity has witnessed. The warning of Orwell is growing more relevant every day. A new global government would have power so great that it would be incomparable to anything we currently have. And, given our past, we have to be concerned with the lessons of history. Human persons have not changed. Larger institutions create the opportunity for bad things to be done on a greater scale than ever. The largest political sovereign should be the state. Many would consider this statement passé, but I am a realist. Human beings working with the best of intentions can rarely produce a world that is better; often our good ideas only make things worse. Do you remember Flannery O’Connor and have you ever heard of Walker Percy? In different works, these Southern writers wrote the same sentence, “tenderness deprived of the source of tenderness leads to the gas chamber.” These global institutions have every intention of improving the world, but I worry that they will do the opposite.

I also fear to see how democratic states will react to this depression. The risk to the U.S. is that people will be willing to give up individual liberties in order to eat. We have already given up our privacy as a people and consented to domestic surveillance. What else will we give up to survive? Increasing governmental power always comes with a price. Democracy becomes very vulnerable when the economy weakens. Think about what the Great Depression did to the states of Europe…

The world needs a strong U.S. and this economic crisis is only serving to facilitate the transfer of power in the international system to Asia. I fear for the world that will emerge in the wake of our decline. The United States will not be the only country in the world to suffer. A new, Orwellian world may fill the gap. Let's hope and pray that the U.S. is able to make the difficult adjustments and survive as a great power. Freedom will suffer globally if we decline. What does this mean for the future of our country and the world? We shall soon find out.