Does character matter? We are obliged to say yes. Character must matter. But where does character show itself in the pre-eminent economic conundrum of our times – the market meltdown of 2008 and the deepening recession of 2009? Yes, Chrysler workers accepted pay and cuts to benefits to save their jobs. But that concession was forced on them, and they remain ready to bill the people of Canada for any pension defaults down the road. In this case, the retreat on wages speaks more to strategic necessity than moral choice.

The Chrysler workers are not alone. They exhibit the same traits as the other special interest constituencies that rely on government for economic advantages denied to the people who wind up paying for them. As Fraser Institute senior economist Niels Veldhuis put it in his critique of the federal budget in January, the government “caved in to the special interest groups lined up in Ottawa with their hands out for federal cash.” In the lineup this year, he noted, were such “select groups and preferred industries” as senior citizens, farmers, the auto industry, forestry, tourism and arts and culture.

The phenomenon is sustained by an exaggerated sense of personal entitlement and by the time-tested principle of the squeaky wheel. It is a characteristic of governments, whether affluent democracy or criminal gang. It is ostensibly economic in nature, but is actually political (enabling governments to appear benevolent). It is amoral (giving governments cover to buy elections, which is otherwise a crime). And it imposes consequences (letting governments determine corporate winners and losers). How can people still believe in the concept and promise of equal treatment before the law when so many other people are singled out for special treatment? They can’t.

Against all odds, though, some integrity remains. The Fraser Institute itself, for example, accepts neither government grants nor government research contracts. This is character – which, in part, is simply the refusal to nationalize your personal wants and needs. But with trillions of dollars already pumped into the economy around the world, how many have said “no thanks” – aside, this time round, from Ford? (Thank you, Mr. Ford.) For its part, the U.S. government now requires companies to accept federal money whether they want it or not. Why? The answer lurks in the explanation that the Wolf gave Little Red Riding Hood when she asked him about his big hands: “All the better to hug you, my dear.”

We are tempted to think things were different in the old days, that character played a more important role than it plays today. Did it? The answer is an unequivocal yes. Until the Great Depression, more or less, governments discharged their responsibilities with only single-digit resort to GDP. A fierce independence was the default position of good citizenship. As one Canadian historian put it, Jeffersonian democrats – deeply distrustful of expansive government – “littered the ground” on both sides of the U.S.-Canada border.

In his recent blog on the devastating recession that followed the War of 1812, New York author C.J. Maloney wrote persuasively on the question of character: “The response of America’s intellectual and political elite to the Panic of 1819 was, in most ways, vastly different from what it has been so far in our current [crisis],” he writes. “Although we live under the same legal constitution and within the same lines on the map, the America of 1819 had a citizen who was, culturally speaking, utterly alien to the modern American.”

The panic of 1819 had its origin in the easy-credit economy of the War of 1812. The United States was on the gold standard when the war began but was compelled – by war debt – to abandon gold in 1814. For the next five years, the federal and state governments printed money with great abandon. Prices rose by 25 per cent, import prices by 70 per cent, in three years. In 1817-1818, credit increased by 40 per cent.

Although guilty of the same credit excesses as modern consumers, people responded differently in the recessionary days of yore. The Massachusetts Legislature repudiated stimulus spending in 1819 because, it said, this would simply increase the state’s indebtedness; rather, it determined to leave the solution to “the community itself, according to public wants and needs.” Virginia’s United Agricultural Society, an important coalition of farmers, declared that it would “not harass our representatives with high-wrought pictures of distress which their wisdom could not have anticipated and cannot remove.” The Union newspaper of Pennsylvania castigated state plans to extend emergency credit, asserting correctly that more excess credit would only make things worse.

“Who … would dare express such heresy today?” Mr. Maloney asks. “In my lifetime, I have never seen nor heard such a thing.” He mourns for “ideals long dead to my time.” Left to the people, the panic of 1819 was over in three years. The Great Depression, in contrast, lasted 10 years. The current recession deepens. Who knows how indebted to governments we will be when it ends, or how more dependent on governments we will be? And who cares in our own times that the best plan – as Mr. Maloney astutely expressed it – is often no plan at all?

By NEIL REYNOLDS
Globe and Mail
April 29, 2009

By Richard G. Scott, December 20, 2008

The answer is yes. Recessions are unpleasant experiences for many businesses and the people who work for them, not to mention of course the people who ultimately lose their jobs during recessions.

So then if recessions are bad, then we should just ban them, right? Why would we want to keep having these pesky occurrences every few years if it makes so many of us downright miserable? Surely we can elect people to make sure that we are protected from recessions, with their powerful big government sugar daddy programs and bailouts. Yes, that’s the role of government, to make sure that none of us experience personal hardship as a result of the business cycle.

Unfortunately most people, including politicians and reporters, don’t even know what a recession is. A recession occurs when a country’s economic growth contracts for 2 consecutive quarters (a depression takes 4 quarters of negative growth). So with that yardstick in mind, is Canada currently in a recession? So far the answer is no. Not only have there not been 2 quarters of negative GDP growth, but our government has forecast 0% growth for 2009 in Canada. That’s not great, but it’s also not a recession.

Recession or not, in the technical sense, is really not the point. There have been 10 post WWII recessions of varying severity, each of which has been followed by the natural recovery of business strength. The point is that recessions are a needed component of the natural business cycle. Recessions remove the froth, burst the bubbles, and cool down excessive unsustainable growth. It is part of our free enterprise system and is taught in most first year economics classes. Businesses and economies never grow in a straight line. There are always peaks and valleys.

The good news is that left to its own resources, the system invariably emerges stronger than before. Recessions cleanse our economy. Businesses restructure, become more productive, create more jobs and ultimately are more viable than before. Some government help is always welcome, provided it is doled out in reasonable measures and does not disrupt the natural course of events to any great extent. Monetary stimulus in the form of moderate rate cuts, and fiscal stimulus such as small deficit spending are a welcome boost to the system, just as tighter monetary policy and budget surpluses come in the good times. Minor adjustments to the economic levers are not a bad thing.

What has happened here in Canada as we end 2008 however constitutes the biggest government intrusion into the private sector in most of our lifetimes, all in the name of averting a so-called economic crisis. This is a very dangerous adventure by our government, and could easily result in a precedent setting disruption of our economy. Once out of the bottle it’s very tough to get the genie back in again.

Such massive and knee jerk spending acts by our government will leave the country in a budget deficit condition for years to come. Other government programs will be curtailed, and hardships will simply be delayed or experienced elsewhere. The best thing in the end that governments can do is to interfere as little as possible in the private sector, which by definition has always taken the good times with the bad. The good times have always been longer in duration, and on balance have given us all an ever better standard of living.

But of course politics and economics are strange bedfellows, and politicians seldom look beyond the self interest of their own re-election.