Musings on the Second Great Recovery Experiment and the Promise of Natural Gas: Ron Muhlenkamp
In this interview, Ron Muhlenkamp tells The Energy Report how good policy ended the 1980-82 recession and set the stage for two decades of prosperity. He also explains why bad policy is hampering recovery now, and what this means for investors.
Source: Tom Armistead of The Energy Report (8/21/14) Like the economy as a whole, the Muhlenkamp Fund is still struggling to extricate itself from the morass of the Great Recession. Ron Muhlenkamp, founder of Muhlenkamp & Co. Inc., sees a forerunner to this downturn in the 1980-82 recession. In this interview, he tells The Energy Report how good policy ended the earlier slowdown and set the stage for two decades of prosperity. He also explains why bad policy is hampering recovery now, and what this means for investors. The Energy Report: Ron, in an online seminar in June, you compared the government's response to the 2008 financial panic and recession with its response to the recession of 1980-82. How are those recessions comparable? Ronald Muhlenkamp: We've had 12 recessions since World War II. We had a serious recession in 1973-74, and I've done a lot of work on recessions ever since. The 2008 recession shared a distinction with the 1980-82 recession: Each, at the time, was the most serious recession since the Great Depression of the 1930s. Each was preceded by conscious government policies that were meant to improve the economy. In the 1970s, we printed money in an attempt to negate periodic recession. We got inflation. In the early 2000s, we encouraged—mandated—the writing of mortgages to people with low incomes. We got a housing bubble. We then responded to these two recessions with very different policies, and the policies have produced different results. It is important for us to learn from that. The 1980-82 recession followed a decade of high inflation during which an accommodative Federal Reserve was printing money. By 1979 inflation had reached 13%, and most economists believed it was intractable, that it was going to be 10% or more going forward. Jimmy Carter appointed Paul Volcker chairman of the Federal Reserve, and Volcker said he was going to break the back of inflation by printing money at a 6% rate. Conventional economists responded by saying, "If inflation is 10% and you print money at only 6%, you'll have a minus-4% real gross domestic product, and you'll have a very serious recession bordering on depression." Volcker said, "I'm going to do it anyway." Within three years, inflation went from 13% to 3%.