lynnux notes that government regulation establishes the rules by which banks operate and even creates their opportunities for profits, but these vital economic realities come into being in the first place through the agency of politicians, people like Barney Frank, whose expertise (such as it is), and interests and concerns have no connection to economic realities or markets.
Politicians seem such busy-beavers today, “doing things” “for” us. Why such whirling dervishes, generating laws in bulk? In its broadest outlines, law is mostly static. Politicians seek to appear to the public to be men of action “doing something.” This leads them to make too many economic and personal choices that they are not supposed to be making “for” us at all, picking winners and losers. It is now to the point where, famously, they no longer even read the laws they promulgate upon the body politic. Their process is finger in the wind (test the zeitgeist for what buzz evokes positives), then claim to be acting in name of the democratic will of the people—who, like banks to regulators, can later be blamed, should anything go wrong. As a republic, not a direct democracy, our representatives are supposed to be doing the right thing, in their best judgment. We rely on their decency, wisdom, and intelligence and vision for the long term. They have no way of knowing anything about their constituency anyway, because to pollsters, people only express self-interest, not the public interest. The public interest can only be assessed at a remove, which is the representative’s job. Pollsters get whatever they fish for. Responders also like to echo conventional wisdom. Implementing conventional wisdom is not politicians’ job. ...
Politicians wrapped in soundbites simply may not be qualified to make all the rules they seek to impose on us in their show of “caring” for us. This, I think, is what Richard Posner is getting at when he speaks of The Crisis of Capitalist Democracy. We need systems engineers today who really do understand the system. Politicians are mostly not this, but marketing specialists. They dissolve always into futile calls for infinitely ethical global governmental forces (themselves) to abolish investment uncertainty in a complicated utopian merger with perfect empirical risk analysis, forgetting that the past is no divining rod of the future (nor of truth. ...
The law is being asked to make business judgments law simply should not be making at all. Law is static. Markets are not. The market will adjust to any fixed rule, changing the “new normal.” Positive feedback loops (“positive” does not imply good) can ensue, at many unexpected levels. The media’s celebrity focus on political figure summiteering, however, follows an old trope, of suggesting to the public that our pseudo-gods and deities, through law, can command markets. These heroes then arrogantly begin to believe their press releases and to act accordingly.
Lawyers often go to law school precisely because they don’t like math or statistics. The type can quite easily ignore economic reality as they proceed to plug old forms and numbers into new contexts.
Conrad Black observes the liberal media redirecting its fire from Herman Cain in the direction of Newt Gingrich, and shrugs indifferently. It is already obvious to any intelligent observer (like Mr. Black) that Barack Obama (absent divine intervention) has no real hope of being re-elected and that the election of 2012 is destined to be a genuinely transformative election, sweeping all of the consequences of the election of 2008 onto the ash-pile of history.
For me to achieve a degree of optimism from this procession of accident-prone Republican candidates might seem aberrant or a worrisome sign of cabin fever, but it isn’t. The grace of revelation came in two mighty flashes of celestial light, a few seconds apart, thunder to follow closer to next November. Whatever obloquy may be rained down on the well-tended topknots of the Republican hopefuls, it will not excuse or reelect the administration described by one commentator a few weeks ago as “the worst since before the invention of electricity.”
This administration will have produced $5 trillion of deficits, which will have the economic consequences of a 500 percent increase in the money supply in four years, without any serious effort to suggest how it is going to close the spigot, much less repay any of the accumulated debt. Only someone more familiar than I with the most fantastic realms of fiction could find adequately recondite metaphors for this level of fiscal irresponsibility. There has not been a hint of entitlement reform; no interest in a reforming budget or in changing the actuarial assumptions or vesting conditions of Social Security; no comprehensive analysis of municipal, county, or state debt, as Harrisburg, Pa., and Jefferson County, Ala. ($3 billion) went down in the last two weeks like tenpins; nor an effort to tackle the $1 trillion student-loan debt bomb. The administration continues its glazed pall of official prevarication in a reassuring monotone.
There has been no serious effort even to make the 10 percent token reduction in the projected decade of deficits required by the outcome of the debt-ceiling fiasco. The president clings to his arithmetic of the 99 percent and cozies up to the infantilists of Occupy Wall Street (even as he continues his dalliance with the stragglers among his limousine-borne Wall Street groupies). And Treasury Secretary Geithner, having been struck dumb like Zechariah in the temple for the last two years, recovered his voice to exhort the impecunious Europeans to join America in the St. Vitus’s Dance of spending confected trillions of virtual electronic dollars/euros. ...
At least Herbert Hoover acknowledged that a depression was in progress, and Jimmy Carter spoke of a malaise (of which his presence in the White House was the principal symptom). The president and other administration spokesmen seem supremely confident that all they have to do to retain immersion rights in the public trough for another four years is hammer the piñata about the 99 percent and incant the name of the preceding president.
As long as there is an alternative that can speak and tie up its shoelaces in the morning, I do not believe that this administration can be reelected. It is so unrelievedly incompetent that its fecklessness is more a matter of sadness and embarrassment than of the rage that engulfed George W. Bush. This, I surmise, is why the liberal establishment, the Times editorial writers and columnists, the Hollywood groupies, the rich fundraisers, don’t detect that the ship is sinking, and still squeal with delight as the Republican challengers fail to generate more than tentative or reluctant enthusiasm. But they are reading the wrong dials; there will be a Republican nominee. The country will not reelect this mockery of an administration, and whoever the Republican is will be elected and inaugurated, even if he has operated an open-air dog kennel on the wings of an airborne aircraft while groping relays of stewardesses.
And the other illuminated revelation, which came swiftly after the first: The voters will not only be disposing of a failed administration; they will be approving the Republican platform, which will call for radical tax simplification and reduction, entitlement reform, serious health-care reform, real spending reductions, incentives to increased domestic oil production and natural-gas use, and an absolute commitment to preventing Iran from becoming a nuclear military power.
It will be a drastic reform program that will signal that the United States is awakening like Brünnhilde, however unlikely the Siegfried, finally resuming world leadership, acting on its budget and current-account deficits, and behaving like a Great Power and a textbook case in self-government for the first time since President Bush Senior. The effect of the change will be electrifying. ...
The new president may have an imperfect CV and too-perfect hair; Speaker Boehner may surpass Mr. Obama’s historic favorite, Iran’s Mohammed Mossadegh, in his proclivity to burst publicly into tears; the White House may be as boring and banal as it was under George W. Bush (though that is unlikely, especially in syntactical matters); but America will lead in policy terms, if not in the personality of its leader. Problems will be addressed and the mere anarchy of abdication compounded by smug official sophistry will no longer be loosed upon the world. Mr. Churchill’s bust may come back to the Oval Office, and FDR’s address at D-Day, including the godly references that the Bureau of Land Management feels disrupt the spirit “of the elegant memorial,” may yet be displayed there. The night will end and glorious will be the dawn, in Washington. I have seen the future, and in it, people work.
November 15, 2011 – CBO Director Doug Elmendorf admitted to Senator Sessions that in the long run the stimulus will shrink the economy. He testified at a Senate Budget Committee hearing that the stimulus will indeed “be a drag on GDP” over the next ten years.
Megan McArdle, Business and Economics editor at the Atlantic, was attending her tenth B-school reunion at Chicago and ran into econometrics specialist Steven Kaplan who had updated the Thomas Piketty and Emmanuel Saez data on top incomes through 2009.
The numbers show that income inequality fell sharply as the economy declined.
Isn’t that wonderful? Occupy demonstrators can clearly now pack up their tents and drums and go home.
Income inequality is clearly easy to cure. Simply adopt left-wing policies, ruin the economy, and sit back and watch all the boats sink, with the upper boats descending to levels much closer to their neighbors than before.
The baby boomers had everything – free education, free health care and remarkable personal liberties – but they squandered it all. Now their children are paying for it. —The New Statesman
Joseph Fouche first quotes Lex’s reaction to the Occupy* protests:
My hatred of the Boomers, who have brainwashed and wasted these kids is boundless. There is nothing wrong with them. They have just never been taught anything but bullshit. They have been betrayed by their parents and their teachers. It is very depressing. The country has been shamefully dumbed down.
Reading all this with just a little partisan bias, I’d say that he then blames left-wing Baby Boomers for both the intellectual vacuity of their young epigones and for the country’s inability to reform its policies and effectively address the current crisis.
They say they want a revolution. To have a revolution, you must have a secular social catechism that accumulates the sort of strategic effects that will trigger a fatal split in our current set of societal elites. In the crisis so far, we’ve only seen dusty formulas trotted out by ancient and creaky Boomers yearning re-fight the glorious battles of youth.
Again.
And again.
Here’s an unintended side-effect of extended human lifespans: ideological stasis. To butcher Max Planck: a political notion does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it. Boomers, given unnaturally long biological life by historical developments they barely comprehend, give unnaturally long life to their foolishly destructive notions. Society may stagnate in some areas while progressing in others with unforeseen effects. This may make the process of sorting out of what’s needed to grapple with our current predicament prolonged, painful, and prone to triggering frustration and outbreaks of corrective violence.
Go tell the Boomers that, in the words of Oliver Cromwell and Leo Amery:
You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!
Older and more respectable (i.e. employed) lefties weren’t occupying Wall Street. Instead, they were smiling happily and fantasizing about the Revolution, or at least another great big wave of punitive regulation and taxation, as the young, the dumb, and the Bohemian took to the streets in Lower Manhattan to protest against Wall Street and the bankers.
Somebody gave those protesters the wrong address.
If they want to wave signs and shout slogans at the people really responsible for our economic problems, they ought to be protesting in front of the offices of their own educators, the same people who overcharged them and left them quite commonly without either wisdom or marketable skills, but buried in student loans.
Those protestors are typically college graduates, and there they are on the streets, bearing allegiance to political sentiments and theories alien to their own country’s fundamental values and traditions. They are overloaded with fashionable poses and slogans, but are perfectly innocent of serious political philosophy. They don’t like their own country’s political and economic system, institutions, and history, but they might think very differently if they had ever actually been informed accurately what any of those things are.
If those protestors knew enough of history and economics to associate the material prosperity and technological progress that they are accustomed to with the free economic system that produced them, if they even had been given enough of an adult understanding of the world that they could understand that business corporations, like Wall Street banks, are not, and cannot possibly be, charities, they would not be protesting where they are.
Wall Street did not cause the recession. Government caused the recession (by following the same left-wing philosophy that those protestors and the people who educated them embrace) by inadvertently grossly inflating home real estate prices, as the product of efforts to make long-term mortgage financing ever more widely and easily available. Government has worsened, and prolonged the recession, by dramatically meddling in the economy in the area of health care, by adding to the regulatory burden, and by generally increasing uncertainty. All of the damage was done on the basis of precisely the same ideas and philosophy that those demonstrators are trying to advance.
If all those kids, drop outs, poets, and Bohemians had the benefit of a decent education; if they actually understood history, economics, and political philosophy; if they understood how the world actually works and what banks do; none of them would be where they are doing what they are doing.
He is being polite about it, saying that we are still “a great country” which has, in recent decades, “gotten a little soft.”
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The failed recovery is obviously our fault, not this administration’s. We all know that Barack Obama is a higher being, who could have delivered Hope and Change; who could have “ended a war and secured our nation and restored our image as the last, best hope on earth;” who could have made the rise of the oceans begin to slow and the earth begin to heal; if only we had been worthy of his magnificent leadership.
These considerations cause Frank Fleming to engage in some serious introspection.
Obama was elected on the promise of hope and change; he was going to make everything better by fixing the economy, ending all wars, and making every rainbow a double rainbow. As smart and capable as we all knew he was, he should have succeeded beyond our wildest imaginations. But instead, we’re even worse off than before — I don’t remember the last time I even saw a single rainbow. The only explanation is that somehow we’ve angered Obama and caused him to turn against us. It’s just that I’m not sure how.
Now, we could go to a town hall and ask Obama, “What have we done to make you want to destroy this country?” I think that is a horrible idea, though, as Obama will only glare at us and become even angrier. Obviously what we’ve done is extremely bad based on the way Obama is treating us, and it would only be worse if he knew we were ignorant of our exact slight against him.
We just need to accept the fact that we’re a bad country, and that’s why Obama is not following through on the hope and change he promised. So now what we need to do is try to figure out how to become a better country so Obama will like us and decide that he doesn’t need to destroy us. So I’ve done my best to study Obama and figure out some ideas to make us a country he considers worth saving.
Mark Steyn looks at the pre-2012 political jockeying taking place in America these days and the European economic mess and feels in the mood for a little doom and gloom.
I mentioned in this space a few weeks ago the IMF’s calculation that China will become the planet’s leading economic power by the year 2016. And I added that, if that proves correct, it means the fellow elected next November will be the last president of the United States to preside over the world’s dominant economy. I thought that line might catch on. After all, we’re always told that every election is the most critical consequential watershed election of all time, but this one actually would be: For the first time since Grover Cleveland’s first term, America would be electing a global also-ran. But there’s not a lot of sense of America’s looming date with destiny in these presidential debates. I don’t mean so much from the candidates as from their media interrogators — which is more revealing of where the meter on our political conversation is likely to be during the general election. On Thursday night, there was a question on gays in the military but none on the accelerating European debt crisis. It is certainly important to establish whether a would-be president is sufficiently non-homophobic to authorize a crack team of lesbian paratroopers to rappel into the Chinese treasury, break the safe, and burn all our IOUs. But the curious complacency about the bigger questions is disturbing. ...
In a perfect snapshot of this administration’s witless banality, the president traveled last week to the Brent Spence Bridge across the Ohio River and claimed that, despite the fact that the structure connects the home states of the Republican House leader and the Republican Senate leader, the meanspirited GOP is going to kill the jobs bill and thus all prospects for a new bridge between their two states.
The bridge has nothing to do with the jobs bill. Work on a new bridge is not scheduled to begin for four years and wouldn’t be completed until 2022 at the earliest. Because in the Republic at twilight you can run up another seven-and-a-half-trillion dollars of new debt in less time than it takes to put up a bridge. Even as cheap political showboating the president’s photo op was a pathetic joke, with the laugh on you.
If this is the best America can do, there won’t be a 2022, not for the United States, or anything that would be recognizable as such.
Jeffrey Tucker points out that the Austrian economists Hayek and von Mises explained long ago in the 1930s why the Keynesian policies of credit expansion being used today to try to bring about recovery would not be effective in restoring prosperity then or now.
Did you ever have the feeling that we’ve been through this before?
Think of it. Those in charge have only recently sworn — yet again! — that if we keep interest rates at zero, keep battling the symptoms of recession and unemployment with spending and jobs programs, clobber the speculators with regulations, and otherwise keep trying to revive moribund industries, all will be well. Just don’t cut government spending or let interest rates rise!
So where have we heard it all before? It was the 1930s, when the battle between F.A. Hayek and J.M. Keynes raged in the English-speaking world, not only in the academic journals but in the newspapers in London and the United States.
Hayek gave a series of lectures based on his previous works in German that tried to explain that the ruling elite and their theoretical apparatus had it all wrong.
In a thousand different ways he said the same thing: “To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about.”
Further, “because we are suffering from a misdirection of production, we want to create further misdirection — a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end.”...
Ludwig von Mises wrote in 1931:
Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
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Doctor Housing Bubble today looks at a home in the Bel-Air section of LA, whose declining price he describes as “chasing the market into the bottom.”
Why is this poor house’s market value tanking so horrifically? Doctor HB notes that the same trillions of federal loans to “a very familiar list of lenders… WaMu, IndyMac, JP Morgan, Wells Fargo, and Bank of America” have allowed a shadow market of 56 homes in the unprocessed foreclosure pipeline to loom over the 23 homes actually offered for sale on the local MLS. Your tax dollars at work.
Last week the California unemployment rate shot back up to 12 percent. Couple this with the underperformance of revenue for the state and we have heavy headwinds ahead. It will be a herculean effort for home prices to remain inflated in bubble markets as the economy and incomes slump. Part of what has held up the housing market in many areas is the building up of shadow inventory to control supply and try to increase home prices. This has been a dramatic failure and has cost the U.S. taxpayer trillions of dollars simply to keep the too big to fail banks afloat with financial swindles. There is no reason for this policy to continue unless we want to have another lost decade for our economy (this seems to be the path we are embarking on). Even prime locations are having a tougher time in this market. Today we will take a look at a home in the Bel-Air neighborhood of Los Angeles that is chasing the market into the bottom. ...
Of the 23 homes listed on the MLS for Bel-Air 3 are short sales and one home is listed as a foreclosure. Yet this does not tell us the entire story and this is the continuing saga of problems that we will be facing for years to come.
56 homes are in the shadow inventory for Bel-Air yet only 1 foreclosure has made it to the MLS! What is even more disturbing is that many of these homes in the shadow inventory were purchased right at the peak.
Ah yes, a very familiar list of lenders we see here. WaMu, IndyMac, JP Morgan, Wells Fargo, and Bank of America. Look at when the loan was recorded. Many of these shadow inventory properties were purchased during the mania in 2006 and 2007. This is only a sample of the 56 homes in the foreclosure pipeline. The shadow inventory is a big issue although the media wants to make it seem that it is only occurring in poor neighborhoods. Of course they don’t want to focus on neighborhoods where many of their executives live.
Why is the recession continuing? A large part of the answer is that failed mortgage loans have not been liquidated and resolved, the real estate market has been artificially kept in an unconstructive state of stasis by federal assistance. The large lenders received massive federal loan subsidies, allowing both them and their unfortunate insolvent borrowers to continue to reside in a financially comatose condition essentially on federal life support.
But the housing market and the economy cannot recover until the loans destined to die are really dead, the houses destined to be foreclosed are really foreclosed and resold, until the bad inventory is all sold at distress prices and the whole mess cleared off the national books.
In essence, the dégringolade produced by federal interventions in the home mortgage industry was so painful that government, Wall Street, and many home mortgage borrowers have all preferred to drag out the agony rather than take their medicine. That preference on every part is natural and understandable, but it is a major economic policy mistake, and the whole country is paying for it in both the literal and the figurative sense.
John Hinderaker shrewdly diagnoses the source of recent liberal paralysis of will in Washington.
Many liberals believe that government policies have little impact on the economy. A number have expressed that view to me privately. They think that the private sector will produce wealth regardless of what happens in Washington, and the only question is how to split it up. I think that is what President Obama and his advisers believed when he took office. The country was in economic turmoil from which it inevitably would recover, as it always does. When it did, Obama would get the credit.
In the meantime, the administration’s mantra was “never let a crisis go to waste.” Obama saw economic decline as an opportunity to pave the way for socialized medicine, to enact a near-trillion-dollar payoff to public sector unions in the guise of “stimulus,” and to extend the government’s control over various sectors of industry.
I think Obama and his advisers were genuinely surprised, not that their policies didn’t bring about economic recovery–they couldn’t have expected that–but that recovery didn’t happen of its own accord. That is why they are so nonplussed today.
I think John is perfectly correct.
Barack Obama and the democrats in general thought the Panic of 2008 was just a bump in the economic highway, contrived by smiling liberal Fates intending to deliver them into power. A panicked public would accept the leadership of the left during a momentary crisis and find themselves soon after living in a European-style welfare state. The New Deal’s march in the direction of socialism would be completed. President Obama would join the pantheon of progressive builders of grand collective entitlements, going down in history beside Franklin Roosevelt and Lyndon Johnson. The economy would fix itself; it always does. And President Obama would receive the credit for both the recovery and for Obamacare.
But, then, the economy did not heal itself.
There comes a point in Ayn Rand’s Atlas Shrugged, after the announcement of Directive 10-289, when the efforts of capitalist heroes Dagny Taggart and Hank Rearden to keep the railway system operating and steel mills in production begin to fail.
Somebody like James Taggart, one of the leftist supporters of the regime, begs Dagny or Hank to keep the failing system afloat. The hero assures the collectivist that the burden of regulations and redistribution has made it impossible. But we want it, insists the second-hander looting collectivist. It’s your responsibility to make it work for us.
Barack Obama is no more able to understand than James Taggart the incompatibility of limitless liberal demands and a viable economy.
James Pethokoukis suggests that the lights burned late on Friday at the White House and loud sounds of weeping could be heard by anyone nearby.
[Friday] night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):
Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.
The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …
Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out.
[T]he two political parties are diametrically opposed on recession-fighting policy. The Republican recipe to “boost growth” is to lower tax rates and regulation, and the Democratic recipe is to “invest” in stimulus spending. For Republicans, “structural economic policy changes” means reform Social Security and Medicare; for Democrats it means raise taxes.
There is no “agreement.” There is only a game of chicken to see who blinks first before August 2.
But we are conservatives. We do not just want to “win;” we want to do the right thing. How do we get out of the recession?
The best way to understand a recession is this: It is a period of adjustment during which the malinvestments of the previous boom are liquidated. Usually, in our era, booms are ignited by cheap money injected into the credit system by government. Cheap money seduces people into borrowing too much.
In the 2000s boom the malinvestments were the homes that millions of people bought with cheap credit, courtesy of Fannie, Freddie and CRA. Homebuilders expanded and sucked a ton of workers and capital goods into homebuilding. Everything looked good until interests rates rose and home prices started to decline.
You know what happened next. “Malinvestment” became nightmare investment, as the greedy bankers foreclosed on millions of homes, and home prices cratered.
But at some point the foreclosures will ease up, bottom-feeders will buy up the flood of houses, and home construction will resume.
The logic of Democratic “stimulus” is that if government shovels out enough money it will tide the economy over the crater. Home prices will recover, businesses will revive, and growth will resume. But what if home prices don’t recover before the stimulus runs out?
Back in 2009, the Obama administration made a judgment, implicit or explicit, that the housing crisis would be over in a couple of years, and that cheap money (QE1 and QE2) and a trillion dollar stimulus program would tide the economy over till then. But they were wrong. The housing market still hasn’t bottomed out, and the economy hasn’t snapped back, as this chart demonstrates.
The Obama mistake was bad enough but the Obamis made a second error. Assuming that the economy would revive in accordance with Baldrick’s cunning plan, they went ahead with their plans for expanding government spending and regulation, spraying money at their deserving supporters. They thought that the economy would soon be strong enough to increase the weight of government. With ObamaCare they increased the weight of government in health care. With regulation, spending, and subsidies pushing green energy they increased the weight of government in energy production.
That’s where the slick assumptions in Cohn’s “increase short-term deficits in ways that boost growth” kicks in. Suppose your “short-term deficit” doesn’t boost growth? Suppose it is just another wasteful government program that increases the weight of government, and postpones the day when happy days are here again?
That’s where the Obamis are sitting right now. They have shot their bolt with cheap money and stimulus spending and cranked up the National Debt by 40 percent. But here we are in Summer 2011 and there is still no light at the end of the tunnel.
To fix things the Obamis would have to adopt the Republican agenda and reduce the weight of government. They would have to repeal ObamaCare, reverse their green energy boondoggle, lower tax rates, and cut wasteful government spending.
You can see the problem. For the last 40 years, ever since the “unexpected” success of Reaganomics, liberals have been telling themselves and everyone else that supply-side economics is a mirage. Now they have to admit that everything they believe is wrong.
For the second time in some of our lifetimes, the American voting public has been treated to a full-scale, practical test of left-wing, Keynesian economics in operation. We saw all this before in the latter half of the 1970s.
Barack Obama’s great leap forward to the shiny new American European-style welfare state has turned a political version of Bernard Law Montgomery’s WWII Operation Market Garden, Obamacare being the “Bridge Too Far.” But the economics of the world of reality is actually a less forgiving, and much more formidable adversary, than the Germany Army in the Fall of 1944. The Allies went on to win WWII. Obama will be going to join Jimmy Carter in the ashbin of history and will soon be Carter’s rival for the title of worst president anyone can remember.
