NEW YORK--My father taught me to go left.
Not politically. He was a right-wing Republican. At the movies.
"Most people choose the right entrance," he told me. "There are usually more seats on the left side of the theater." He dressed like a conformist, but Dad was a contrarian. "If you don't know what to do," he said, "do the exact opposite of what everyone else is doing. On average, conventional wisdom is always wrong. Run away from the crowd--and you'll come out ahead in the long run."
Never has the wisdom of his words been more apparent. Acting like Chicken Little proven right, government and business are making decisions that are the exact opposite of the right ones. Which is nothing new. Politicians and businessmen also do the exact opposite of what they should do during boom times, too. If the leaders of our government and major corporations were smart, they would respond to booms and busts the opposite of the way they do.
During a boom, salaries are high, stock prices rise, state and federal tax revenues go up and governments run a surplus. Soon we hear calls to cut taxes. As a result, tax rates fall. So do government revenues. This is stupid. During a period of growth governments should increase taxes. After all, people can afford to pay more when they earn more.
During a bust, salaries stagnate or decline. Securities markets crash, governments run into trouble. So they raise taxes. This is stupid, too. People are broke. The last thing they can afford is higher taxes. Governments should cut taxes when the economy sucks. They should be drawing on that nest egg they should have stashed away to pay bills and stimulate recovery.
The Stupid Opposite Game has been in full effect since the mid-1990s. Bill Clinton, who presided over the largest and longest economic expansion in U.S. history, slashed income taxes. President Barack Obama, dealing with the gravest economic catastrophe since the 19th century, is effectively increasing them. To Obama's credit, he doesn't have a choice. The cycle can only be broken during a boom. It has to begin with that nest egg.
Then there's spending. Obama is a victim of the fear reflex, proposing a freeze of federal spending for the rest of his term--except for the military. Hit especially hard would be the Army Corps of Engineers. This is the opposite of what he ought to be proposing.
The Corps of Engineers builds the massive public works projects that immediately employ thousands of workers and leave a legacy of infrastructure that can promote future growth. As FDR did during the 1930s, Obama ought to increase spending on infrastructure.
The military budget ought to be slashed. True, wars stimulate the economy. But they cost more than they earn--in lives, subsequent foreign aid and international contempt.
If CEOs and government officials were smart, they would be hiring like crazy. Millions of smart people are out of work. They can be hired much more cheaply than in the late 1990s. Venture capitalists ought to be loosening their purse strings. There's no better time to start a new business.
So what is a good contrarian to do? Celebrate. Take chances. Because the sky really is falling--and that's great.