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February 02, 2009

Beware of Obama's "New Deal" - It Didn't Work the First Time

Most on the Left and much of the media is hailing the Obama prompted stimulus plans heading through Congress at warp speed as the solution to our economic problems - a modern day "New Deal". But the dirty little secret about the New Deal is that it didn't work - it actually prolonged the Great Depression. Shouldn't that give us all pause?

The true story of the failure of the New Deal has been covered recently in two great books, Liberal Fascism by Jonah Goldberg and The Forgotten Man by Amity Shlaes. The both point out that the New Deal was really a case of social engineering by liberal political elites and propaganda rather than an attempt to provide economic relief to the nation as quickly as possible. In fact, had World War II not intervened, the Great Depression might have lasted well into the 40s or beyond, unless many aspects of the New Deal were repealed.

Today in the Wall Street Journal there's an even better brief on the failed economics of the New Deal by two respected economists, Harold L. Cole of the University of Pittsburgh and Lee E. Ohanian of UCLA, How Government Prolonged the Depression. It's a must read, since Obama and the Democrats are attempting to do a similar thing today.

The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

...Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.

So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.

It's a frightening history lesson that none - none - of us learned in school, where we were taught to worship at the altar of FDR. Which is the same altar that we are now being told to worship Barack Obama at.

What's the old quote, those who forget history are doomed to repeat it?

January 09, 2009

Few In The Media Admit That Obama Is Using Scare Tactics

Every morning I receive the e-mail notification of that day's ABC New's "The Note" political newsletter. This morning's edition came as I was reading the transcript of yesterday's speech on the economy by President-elect Barack Obama, which can be found here.

Contrary to the drive-by media's review, the speech - billed as Obama's first major one since the election - is merely another one from his endless campaign, and a poor one at that. Long on the rhetoric of fear and short on specifics, many points and phrases seem to be culled from a Washington Post commentary by Lawrence Summers, dated 12/28/08, Obama's Down Payment - A Stimulus Must Aim for Long-Term Results.

I was struck not only by the absence on any intellectual heft in Obama's speech, but also by its fear-mongering. Disturbingly similar to the tone that we saw from Treasury Secretary Hank Paulson in September on the financial services bailout, the President-elect warns us that the end is nigh, and unless we act quickly to approve upwards of a trillion dollars in government spending without adequate review by those taxpayers who are responsible for paying for it, the world will end. Scare tactics, pure and simple.

Obama's speech was so negative that I wondered if any of his friends in the media would criticize him for it, as they criticized other Presidents like Presidents Bush and Reagan in the past when they alerted the nation to economic trouble. Instead, for the most part, I found apologies thinly veiled as 'news articles' (Obama Cites Grim Economy At Start, as Past Presidents Have).

But the e-mail that I received from "The Note" this morning surprised me by calling out Obama on what he really was doing:

Barack Obama is using scare tactics as a sales pitch for fast action, but he's meeting immediate resistance from leaders in his own party, as he pushes a massive stimulus bill that's rich with tax cuts, ABC News senior political reporter Rick Klein writes in Friday's Note

And when you go to the actual column itself, The Note, 1/9/09: Obama Pressed From Left on Stimulus, you find not only an accurate summary of what Obama was trying to do, but also an acknowledgment that Obama hasn't even produced one scrap of paper showing what his plan looks like:

It turns out you don’t have to look very hard to find the fault lines in President-elect Barack Obama’s bid for a massive stimulus bill. He tried to scare Congress into acting quickly on Thursday -- and more pressure is coming Friday and beyond -- but there’s still no measure to act on, or even the outlines of one.

It can be argued that the recent bailouts have done nothing to 'save' the economy. They just served to save some favored financial businesses, and punish others. From the precious little we know about Obama's bailout, his plan is going to be a giant modern day TVA, this time designed to enlarge unions. Again, favoritism. This time designed for an electoral advantage.

President-elect Obama has rightly kept his mouth shut over foreign policy issues prior to assuming office. By the time his stimulus package is released, he will probably wish that he had kept his mouth shut about the economy as well.

January 08, 2009

Obama Prepares the Electorate for 2010

There's a fascinating post by James Pethokoukis over at U.S. News & World Report's "Capital Commerce" blog titled Why Obama Will 'Own' the Recession. Pethokoukis shows the extent that Obama (and the media, for that matter) has been going to "Hooverize" the outgoing President Bush - laying the entire blame for this recession at his feet. By doing so, and by prepping the American public for a lengthy and painful recession, the author feels that the President-elect is laying the foundation for the Democrats' platform in 2010 - namely, that Bush left this country in such a mess that the Dems can't be held liable for failing to fix it in 2 years:

For eight decades, Democrats have successfully blamed Republican Herbert Hoover for the decade-long Great Depression. That, even though Franklin Roosevelt's New Deal failed to restore prosperity or dramatically lower unemployment, and his tax increases in 1937 snuffed out a nascent recovery.

Now today's Obamacrats are apparently going to try and Hooverize President Bush in an effort to shield themselves from the potential political fallout of a prolonged recession. It will take years to fix the American economy, Obama says, and years of trillion-dollar budget deficits to do it. And everyday it seems that Team Obama tries to lower economic expectations, such as bearishly predicting that unemployment would hit double-digits.

The not-so-subtle message in the middle of all these pessimistic prognostications: When ya'll go to vote in 2010 and 2012 and a) unemployment is still as high as it's been in decades, b) income growth is sluggish at best, c) the budget deficit is running at a trillion bucks a year, and d) stock prices remain stubbornly low -- hey, don't blame us, you can't rebuild Rome in a day or even in a first term. Remember, Bush really left us a mess.

The incoming administration has apparently learned the  lesson of Bush's big mistake when arguing for the Iraq War, that when embarking on a decision that will define your presidency, it's better to underpromise and overdeliver. Of course, Obama has every reason to honestly believe the economy is going to stay on the mat for a good long time. According to the just-released minutes from the Federal Reserve's December meeting, the central bank now thinks the economy will "decline for 2009 as a whole" and that the jobless rate is "likely to rise significantly into 2010." And in its new forecast, the Congressional Budget Office said the U.S. economy is now in a recession that "will probably be the longest and the deepest since World War II." What's more, the CBO says, the economy will shrink 2.2. percent this year and grow a wimpy 1.5 percent next year as unemployment exceeds 9 percent. Finally, respected Harvard University economist Kenneth Rogoff just released a paper demonstrating that the aftermaths of financial crises are usually marked by "deep and lasting effects on asset prices, output and employment. Unemployment rises and housing price declines extend out for five and six years, respectively." So the consenus is gloomy.

Pethokoukis, however, doesn't think that this will be successful, even with the help of the drive-by media. He feels, correctly, that Obama and the Democrats will be tampering with the economy so much, especially in the next few months, that if immediate results aren't apparent, voters will start to blame the Dems - if not Obama himself.

For the record, I don't blame Bush for the recession - I blame Congress, especially the Democrats, for meddling in housing and lending practices. This whole mess was created by the housing collapse. Well documented efforts to stave off that collapse by the Bush Administration, which was caused by too easy credit to unqualified borrowers, was stopped in its tracks by the Democrats in Congress, along with more than a few cowardly Republicans - all afraid of being called "racists".

If the housing market had remained healthy, or if it had followed the normal cyclic nature of housing booms and busts of the past, none of the present mess would have occurred.

I do blame the Bush Administration for abandoning free market economics from September 2008 until now, something that the Obama Administration seems intent on continuing.