Phil Gramm was Technically Right, Politically Wrong

UPDATEThe WSJ OpEd by Thomas Frank has a much less kindly take on Phil Gramm's intemperate remarks.

Amity Schlaes won my affection for her brilliant analyses while writing for The Financial Times. She also authored a paradigm-shift perspective on The Great Depression with her book The Forgotten Man." Here is Amity's take on Phil Gramm's remarks:

Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ.

Gramm's second sin was political. Calling voters whiners is to shame them. He later rephrased this comment, saying it was not voters he meant but politicians. That's because shaming voters is something American politicians simply don't do. Campaign Econ is unabashedly populist, and to seek to elicit shame is regarded as unpardonably elitist. Earlier this year, the McCain team was already terrified of seeming elitist. His advisers convinced themselves that the closeness of the primary contest was due to a lack of generosity. In January, when the McCain folks were desperate to win the Michigan primary, they ground their teeth down as Mitt Romney pandered to the auto industry. Romney's promise of unlimited support for carmakers won him that primary -- but not the nomination. Still, since then, McCain's advisers have sought to prove that he understands Campaign Econ; consider their proposal of a summer gas tax holiday.

I can recall many years back ['96?] when Gramm had amassed a huge pile of campaign funds in an attempt to run for POTUS. It soon became clear, however, that empathy of any kind was not part of Gramm's personal make-up, and all the money in the world couldn't make this Humpty Dumpty whole after a few choice misspoken & condescending remarks like his recent Heritage Foundation observations. The guy is politically tone-deaf, and subtle as a mule. However, he WAS technically correct. And in his world, right overrules contingencies like elections. But Amity puts perspective into the opposite view that The Sky Is Falling, the Paul Krugboy school of predicting seven recessions in the last seven years:

Campaign Econ is certainly understandable. Gas prices are ruining vacation plans and killing businesses. Many Americans have lost or are about to lose their homes to foreclosure or in distress sales. The federal government may not be talking about it much yet, but inflation plagues the country. The weak dollar is altering our everyday calculations. For many, this is not a happy summer.

Still, to liken the current moment to the Great Depression, or even the early 1980s, as Campaign Economists have, is to whine, just as Gramm said. During the Depression, people lost their homes even though they had borrowed only 10 percent of the purchase price. People losing their homes today frequently have borrowed 90 percent or more. The country approached double-digit unemployment in the early 1980s. This week, even as McCain was trying to talk his campaign past Gramm's comments, joblessness stood at a historically modest 5.5 percent.

And Campaign Econ has costs. The first is that talk of a downturn -- or "mental recession," as Gramm put -- can itself generate a downturn. Keynesian economists say this is so because consumer spending slows when people are afraid. But there's also a non-Keynesian dynamic. Grumbling leads to costly government rescues that scare markets and slow growth.

Second, as evidenced by the plummeting prices of Fannie Mae and Freddie Mac shares, serious trouble may be closer than we think. The plunging stock of the government-sponsored mortgage companies reminds us that those entities urgently require restructuring. Wall Street figures and the Senate Finance Committee that Gramm used to chair are already talking about how to structure a bailout. But this task is about stopping recession, not luxuriating in it.

Social Security and Medicare also need rewriting -- and Gramm put forth one of the better proposals on Social Security in the 1990s.

In short, to fix it all, we need a frank conversation about the economy. McCain, in fact, inaugurated one back in 2006 when he gave a speech that was downright Gramm-like at the Economic Club of New York.

In that speech, McCain said that on entitlements, hard choices were necessary. He concluded: "Any politician who tells you otherwise, Democrat or Republican, is lying."

This was McCain at his best. Many voters knew it, too.

The way to strengthen the economy right now is to elect leaders who dare to talk about problems in precise and even technical terms -- and then act on them. McCain has that capacity, but only if he can transcend Campaign Econ.

Fannie Mae & Freddie Mac were Dem cash cows for their big-money boys like Jim Johnson, recently disgraced for getting a wonderful deal from Countrywide, necessitating his subvehicularization from the Obama campaign [Johnson ran Fannie Mae & various companies like Target, and sicced the MSM on Wal-Mart as a marketing gimmick.]. But Dem peculation, as Charlie Rangel demonstrates today in the NYT by snatching four rent-controlled apartments & then denying any special treatment, is totally shameless & sempiternal.

John McCain has shown endless flexibility & pandering on his Amnesty for Illegal Immigrants over the years, as well as ideological suicidal tendencies with McCain/Feingold.

Johnny Mac is going to find out that the MSM is not "my base" if he dares speak the truth about an economy going through a "rolling readjustment" while the Dems & their pilot fish in the media say the economy is a Katrina.