State of the Union: Ten Economic Graphs That Should Scare The Hell Out Of You

Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought. ~ MIT economist Rudiger Dornbusch

At President Obama’s State of the Union Address this year, which was heavy on recycled platitudes and light on substance, the president did more to prepare for the upcoming general election than actually give a genuine assessment of the state of the union, but that’s pretty par for the course. A sincere state of the union by the President of the United States may be more than most Americans are ready for yet – the horror of listening to the president describe the true economic realities we face might be more than many people could handle. I hope I’m wrong and most Americans would welcome an honest word from a major politician as a breath of fresh air.

What would a sincere state of the union address look like? The president could just show us graphs of economic data and leave it at that. It would be the most radical truth-telling we have heard from the White House in a long time. If you really want to know the state of union and you have the stomach for it, here are ten economic graphs that show just how precarious the state of the union really is and just how long our current economic troubles are likely to last:

1. Graph of the world’s reserve currencies and the duration of their reserve currency status since 1400 C.E.

Are you seeing this? When I saw this on ZeroHedge earlier this month, I decided instantly that this graph should be everywhere. Nothing lasts forever and this graph eloquently and poignantly demonstrates that world reserve currency status is no exception.  

McDonald's shows how we're still in a recession

McDonald's reported record profits of $27 billion in 2011.  Hooray, evidence of a global economic comeback, right?  Not so fast.

For most people, McDonald's isn't necessarily their food of choice.  Sure, there are some people who voluntarily eat at McDonald's very often.  But overall, the food at McDonald's is low quality and extremely unhealthy.  In economic terms, it's what we call an inferior good.

Usually when we think of goods and services, we are thinking of normal goods.  Normal goods  are items for which demand increases when income increases, and vice versa.  Sports cars are a normal good.  When people make more money, they are most likely to buy sports cars.

Inferior goods run the opposite way.  When people's income overall decreases, demand for inferior goods increases.  This is because people are substituting the inferior good for something that they would rather have, but cannot afford.  Case in point -- low quality food from McDonald's.  

Food from McDonald's is probably not at the top of most peoples' menu of choice.  However, as real income (not actual money in pockets, mind you, but rather real purchasing power) decreases as it has over the past several years, we should expect demand for inferior goods like McDonald's to increase.  Don't be surprised if at the end of fiscal year 2012, we find that McDonald's profits have increased even more.

The Unintended Consequences of Government Policy

The law of unintended consequences, often cited but rarely defined, is that actions of people -- and especially of government -- always have effects that are unanticipated or unintended.

Consider the following short list of legislation and packages of bills:

• Federal Reserve Act of 1913
• The New Deal
• The Great Society
• The Civil Rights Act of 1964
• Sarbanes-Oxley Act
• Dodd-Frank Act
• Department of Education Organization Act
• Reorganization Plan Number 3 (Environmental Protection 
• Agency)
• Food and Drugs Act of 1906 (Food and Drug Administration)

It seems that most people take these pieces of legislation at face value and defend them based on what they were taught in school or what they see and hear on television. Popular opinion is quick to point out the sincere intentions of these pieces of legislation and the importance they play in our lives. Popular opinion is also as quick to shy away from talking about the reality of these pieces of legislation in what is commonly referred to as the unintended consequences.

Listen to Those Who Saw It Coming

"Air Force veteran Nellie Cooper thought she was following good advice when she refinanced her home's mortgage with an adjustable-rate loan," writes Gidget Fuentes of armytimes.com.  Turns out this was not the case.  Rather, following many years of illusionary expansion and soaring prices in the housing market, people like Cooper faced "financial ruin" when it all came crashing down.  After an environment was created by the government in which anybody could buy a house -- whether they could afford it notwithstanding -- the situation quickly changed.  The bubble burst and the price many individuals paid went beyond a dollar value.

Unfortunately, we are still stuck in this rut as the government has not decreased its active role in our lives and in the market.  However, we can look back before the housing bubble popped and observe something very impressive: There were many people who actually saw it coming.  Not surprisingly, they all have something in common: they're a part of the pro-liberty movement.