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In response to my ongoing discussion of a deflationary depression versus an inflationary depression, readers often ask me if a “soft landing” is possible. I guess the answer to that question depends on how you define soft landing.
If by soft landing, you mean we will somehow muddle through, things will calm down on their own, and we will not experience a great deal of pain, the answer is no. But if your definition of soft landing is an economy that declines slowly, without violent revolution, I would say such a scenario is possible.
There are a number of complex factors at play here, but let’s begin with the most obvious one: human nature. I believe it was Groucho Marx who told the joke about a man standing on a street corner, hitting himself over the head with a hammer. When asked why he would inflict such pain on himself, the guy answered, “Because it feels so good when I stop.”
Groucho’s joke reminds me of just how adaptable human beings are. After all, Americans have been hitting themselves over the head with a financial hammer for decades, but they’ve become so used to it that they are immune to the pain. Human beings have an uncanny ability to adapt to discomfort.
Which is why, in the past, most producers continued to create wealth even when their taxes rose to draconian levels – 94 percent for the top tax rate during World War II. With such astronomical tax rates in effect, it’s amazing that we managed to survive – but we did.
So, yes, I believe people could get used to the lower living standards that are on the horizon once resignation sets in – provided the drop isn’t too fast. But since Obama and his progressive pals took control of things in Washington, we’ve experienced a dramatic drop in living standards in a very short period of time, and that has gotten people’s attention.
Many are talking about postponing retirement – or not retiring at all; cutting back on, or completely eliminating, vacations has already started; dining out four nights a week is becoming a thing of the past; and soon people won’t be able to afford to buy those high-priced tickets to sporting events that fill sports stadiums and arenas from coast to coast.
In this respect, Obama’s fake move to the center could be the best thing that ever happened to his spread-the-wealth agenda. To the extent government infringements on individual rights are spread over a longer period of time, Americans are more likely to adapt to a progressively lower standard of living. It’s not really muddling through; it’s muddling downward – in stages – one step at a time, and giving people a chance to adapt to the next lower standard.
If you’re thinking gradualism, you’re right. It’s worked like magic for the U.S. government for at least a hundred years, and it could once again protect politicians against outright rebellion. By contrast, a quick and total deflationary collapse would not be peaceful, because, unlike 1929, a huge percentage of today’s population has a deeply ingrained entitlement mindset.
But what about producers? Won’t they stop producing? Not at first. I believe that, at least for a while, producers will keep producing even as they have to share ever-larger pieces of their pie with non-producers.
At some point, however – and no one knows exactly when that point will be reached – producers will escape to Galt’s Gulch. It may not be a physical place, as in Ayn Rand’s “Atlas Shrugged,” but, one by one, they will stop producing. And if things get too bad, many will simply expatriate.
Which brings me back to a soft landing. It may be hard to accept, but a gradual lowering of the living standards of most Americans would be more harmful over the long term than a rapid collapse of the U.S. economy.
As an analogy, immediately after 9/11 a vast majority of Americans were fighting mad, and the general tone of the public was patriotic. Today, the radical Islamic threat is far greater than it was right after 9/11, but because there have been no major attacks on U.S. soil, the “war on terror” is no longer a high priority in most people’s minds. Americans have gotten used to the idea that terrorists are spread throughout the U.S., pretending to be everyday citizens, so they have mentally adapted to the threat.
The point is that everything, no matter how damaging it may be to our well-being, becomes normal to us over a period of time. An abused woman comes to believe her situation is normal. A kid who is bullied in school comes to believe his situation is normal.
My concern is that if we keep hitting ourselves over the head with the hammer of a slow collapse of our economy, Americans will gradually get used to a step-by-step lower standard of living, the result being that they will come to think of each new level as normal. No rebellion – just a nice, soft landing.
Which is why, if it’s important to you that your children and grandchildren live better than you’re living today, you should pray for things to unravel quickly – followed by a successful counterrevolution in the form of educating the public about both the morality and practicality of freedom and free enterprise.
The truth no one wants to face up to is that we cannot start rebuilding America until we hit bottom and admit that we no longer have a republic, that our government is corrupt and out of control, that our Constitution has become irrelevant to our rulers, and that our debt can never be repaid. As I have said so often, most people do not love truth; instead, they try to make true that which they love.
Speaking for myself, investing the time, energy and discomfort involved in fighting for freedom trumps a slow and peaceful slide into servitude any day of the week.