Is something wrong with the economy, or is it just our imagination at work?

Former Sen. Phil Gramm discusses America’s “mental recession” with the Washington Times.

During his more than two decades in Congress, Phil Gramm of Texas was best known as an apostle of  “voodoo economics,” a term coined by President George H.W. Bush to describe the once trendy idea that low taxes on the wealthy solve every economic problem. (See also Reaganomics, supply-side and trickle-down economics.)

Now, as a top economic adviser to John McCain, Gramm has gone a step further by suggesting that America’s current economic slump is largely “a mental recession” and that we are “a nation of whiners.”

Still, Gramm’s remarks seemed to embarrass McCain, who on Thursday was trying to demonstrate compassion to hard-pressed voters in Michigan. He said he disagreed with his adviser. “Phil Gram doesn’t speak for me; I speak for me,” McCain said before coming to the Twin Cities later that day.

Asked later if Gramm would be Treasury secretary in his administration, McCain said that was no longer a possibility and suggested instead an ambassadorship to Belarus.

Barack Obama, meanwhile, also poked fun at Gramm’s attempt at pop psychology, saying that we “already have one Dr. Phil.” He added, “We need somebody to actually solve the economy; it’s not just a figment of your imagination, it’s not all in your head.”

The psychological component
Ordinarily Gramm’s statement might not have caused much stir. But Republicans, including McCain, have lately suggested a psychological component to the slumping economy.

“A lot of this is psychological, because I agree the fundamentals of our economy is still strong,” McCain said recently. He repeated his notion on Fox News saying that “a lot of our problems today, as you know, are psychological — the confidence, trust, the uncertainty about our economic future, ability to keep our own home.”

On other occasions he has mentioned the psychological benefit of his gas tax holiday idea. He has also said that a commitment to offshore oil drilling might give the economy a psychological lift, if nothing else.

Gramm’s remarks, from an interview in the Washington Times, came as the Pew Research Center released a new survey exploring the nation’s sour mood, including grumpiness about the economy. They came also on the heels of a Harvard  Magazine article detailing the widening economic disparity between the wealthy and other Americans. Many Democrats blame those widening disparities, evident over the last 30 years, on the supply-side and deregulation policies championed by Gramm — and now by McCain.

Let’s take a closer look at all three of those elements, first at Gramm’s comments to the Washington Times.

He said that the economy is weighed down above all by the mistaken conviction that economic conditions are the worst in two or three decades and that America is in decline. “You’ve heard of mental depression; this is a mental recession,” he said, noting that technically the nation was not in recession.

“We have sort of become a nation of whiners,” he told the Washington Times. “You just hear this constant whining, complaining about a loss of competitiveness, America in decline, despite a major export boom.”

“We’ve never been more dominant; we’ve never had more natural advantage than we have today,” he said. ”We have benefited greatly” from the globalization of the economy in the last 30 years. The former U.S. senator blamed the media for the loss of public confidence, although the interviewer pointed out that most analysts attribute the slump to record high gasoline prices and big drops in the value of homes.

“Misery sells newspapers,” Gramm continued. “Thank God the economy is not as bad as you read in the newspaper every day.”

Later, Gramm stood by his words as Democrats stepped in to criticize. Sen. Claire McCaskill of Missouri said his comments reflected on a candidate who’s “not in touch” with conditions in the country.

No illusions at the pump

Sen. Amy Klobuchar of Minnesota said when she last filled up her Saturn in the Twin Cities, “people at the pump were not hallucinating.”

Now to the Pew report on the nation’s mood (with a generational twist), as reported by the Washington Post’s Monica Hesse. Baby boomers, especially, she noted, are “a bunch of whiners.”

“More than older or younger generations, boomers — born from 1946 to 1964 — worry that their income won’t keep up with rising costs of living,” Hesse writes. “They say it’s harder to get ahead today than it was 10 years ago. They are more likely to say that their standard of living is lower than their folks’ but that things don’t look too good for their kids either (67 percent of younger generations, meanwhile, feel they have it better than their parents).

Hesse continues: “Everything stinks, except for the things that stink even more, and it’s not exactly clear why, considering that this is the population with the highest median income. Boomers also have fewer difficulties affording housing or medical care, the survey says, and they enjoyed greater job security last year than older or younger generations. So what’s the deal?”

Why are boomers so cranky?
Hesse interviews experts to probe more deeply the boomers’ pessimistic mindset.

One possible influence is that their adult lives — since the 1970s — have been dominated by one unshakable economic trend: an ever widening gap between the rich and other Americans. To them, life looks like a lottery in which a few were chosen for the fabulous wealth track while most others have lost ground. A detailed article, “Unequal America” by Elizabeth Gudrais in the current Harvard magazine, investigates this point.

Among Gudrais’ observations: The United States no longer ranks even among the top 40 nations in life expectancy, with the disadvantaged population suffering far poorer health than others. Americans, in general, have seemed to accept and tolerate this and other evidence of growing disparities as part of our unique culture and economic system. Inequality now compares to that of the Guilded Age — 1870 to 1900. The notion of social mobility, meanwhile, is exaggerated, she asserts. Forty percent of those born in the bottom quintile of income remain there as adults, with a similar result for those born at the top.

The Harvard article’s probe of a familiar topic might explain why the boomer generation has been in a sour mood for several decades and why Phil Gramm — and other champions of supply-side and deregulation policies — might be tempted to describe economic angst as a figment of the imagination.

Steve Berg, a former Washington, D.C., bureau reporter, national correspondent and editorial writer for the Star Tribune, reports on urban design, transportation and national politics. He can be reached at sberg [at] minnpost [dot] com.

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Comments (3)

  1. Submitted by Gail O'Hare on 07/11/2008 - 07:34 pm.

    Even David Stockman, the boy wonder who sold supply-side economics to Reagan, ultimately admitted it was smoke and mirrors. I can’t understand how anyone was duped by this myth when GWB revived it, nor why McCain continues to push it. The “strong economy” of the past few years has benefited a very small percentage of Americans. We’re worried because we have reason to be.

  2. Submitted by Bernice Vetsch on 07/11/2008 - 04:53 pm.

    McCain may have disavowed Gramm’s “whiners” remark, but not his trickle-down advice or the endorsement of No-Tax-Guy Grover Norquist, or his plan for tax cuts that will do even more harm than those of George Bush’s because they will require huge cuts in social programs in order to balance the budget. It would be the right wing’s opportunity to gut Social Security, Medicare and Medicaid and every other program that helps those Americans who are left out of the wealth-building process.

    See Robert McIntyre’s analyses at the web site of Citizens for Tax Justice (www.ctj.org) and his other writings at American Prospect Magazine (www.prospect.org).

  3. Submitted by John Olson on 07/12/2008 - 11:51 am.

    Graham need only look at this own company’s stock price to know that the recession is not mental (Ticker: UBS, 52-week range: $18.52-$62.34, closed Friday at $19.49/share).

    To those who have lost their homes through foreclosure, it is not mental.

    To those who have lost their jobs, it is not mental.

    This is very real and it is going to be a lot more painful for all of us before any healing can begin.

    Regardless of who gets elected in November, the victor will inherit a wrecked economy, Iraq and everything that goes along with both issues. Whomever loses the election may actually (by that time) walk away and say to himself “whew, glad I don’t have to deal with THAT…”

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