Juxtaposed on the front page of The Wall Street Journal on Saturday were two stories that tell opposite sides of the lingering economic crises.  One article discussed the slight uptick in global trade as an indicator of the economic recovery to come.  The total interchange of good and services between countries fell more sharply in the current crisis than since the Great Depression.  Any sign, then, of revitalized trade augurs positive economic activity that would eventually be good for jobs.

The other story described the personal tragedy of credit card and other individual debt crushing low income families, especially those earning less than $30,000.  In some cases, their debt exceeds their annual income.  These are the same subprime borrowers who were offered mortgages they could not afford, often based on inflated property appraisals, because of “Federal legislation in the late 1970’s [Home Mortgage Disclosure Act and the Community Reinvestment Act]” [1].  Good government intention leading to a disastrous individual result is an example of the law of unintended effects.

A person’s debt being greater than their income is akin to a country’s public debt exceeding its GDP.  This could be the United States in a few short years and the correlation between the individual and national conditions is: bigger government means less opportunity for individuals.  And our government, at all Federal, state, and local levels is just getting bigger.  Total public debt is now $12 trillion and going up by the minute with no sign of terminal velocity.  This about 86% of our GDP and it is sucking the life out of our economy.

The increase in global trade may hold the answer to a solution.  For the most part, it resulted from emerging Asian countries which are seeing growth in exports of technology products—semiconductors, liquid crystal displays, automobiles.  

American companies, too, are seeing some growth in exports fueled by the weak dollar which makes American products look cheaper to overseas buyers.  But this comes at a price.  A lower dollar means our imports are more expensive, and these are products we cannot stop buying—oil, for example.  Once more, the poor are hurt disproportionately. 

Innovation is the better answer.  The false promise of government action seduces the poor and politician alike, and as government acts we find again the unintended effects of hampering of innovation and distorting the risk-reward calculus upon which entrepreneurs base investment decisions.

As an example this week, our “pay czar” is forcing limitation of executive compensation at banks.  That our country, founded on veneration for free man and free enterprise would tolerate a Federal paymaster who is adorned with the moniker “czar”, requires the cerebral power of a physicist trying to discern the meaning of a black hole.  That aside, the treshhold case that raises Washington’s ire, or envy, is the obligation Citigroup had to pay $100 million to the head of Phibro, their commodities trading unit.  Yes, this is obscene pay by any normal human standard, but that is the shareholders’ problem.  Yes, Citi was rescued by tax dollars (actually by money borrowed from China, but never mind that little detail).  Yet, why force Citi to make business decisions that would ultimately hurt the taxpayer?  In 2008, Phibro contributed almost $700 million to Citi’s bottom line [2].  For us, the taxpayer-creditor, more profit should seem like a good thing.  But this is not self-evident to the imperial American czars: they effectively forced Citi to sell Phibro to Occidental Petroleum for below its intrinsic value so it would not have to deal with the compensation issue.

Then there is this gem: “Democrats Weigh Tax on Financial Transactions” [3].  Washington wants a piece of every retiree’s 401(k), of every young family’s IRA or their child’s 529 education fund, or of every individual’s savings.  In addition, there is a very real possibility that financial transactions will move overseas to avoid this tax, and with them jobs.

Last, but certainly not least is the growing ball of twine that the Senate calls “health care reform” the cost which is projected at a staggering $800 billion.  Based on a vague set of tax increases and cuts in Medicare (coming entirely from “efficiencies”, mind you) the Congressional Budget Office estimates that the Federal deficit over the next ten years would slightly decrease [4].  When have we known the government to wring efficiencies out of anything, or to make accurate forecasts of costs over a ten year period?

There is real hope for a different approach, though, and it comes from overseas.  David Cameron, Tory candidate for prime minister of Britain, inveighed this way a recent speech [5]: “We are not going to solve our problems with bigger government.  We are going to solve our problems with a stronger society.  Stronger families.  Stronger communities.  A stronger country.  All by rebuilding responsibility.”

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[1] “The ‘Democratization of Credit’ Is Over”, 10 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125511860883676713.html 

[2] Citigroup: The Struggle to Keep Phibro Happy, 29 April 2009, The Wall Street Journal, http://blogs.wsj.com/deals/2009/04/29/citigroup-the-struggle-to-keep-phibro-happy/

[3] “Democrats Weigh Tax On Financial Transactions” 10 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125512957855977163.html

[4] “Preliminary Analysis of the Chairman’s Mark for the America’s Healthy Future Act, as Amended”, 7 Oct. 2009, Congressional Budget Office, http://www.cbo.gov/ftpdocs/106xx/doc10642/10-7-Baucus_letter.pdf

[5] “Full text of David Cameron’s speech”, 8 Oct. 2009, The Guardian, http://www.guardian.co.uk/politics/2009/oct/08/david-cameron-speech-in-full