We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
Our Recent Essays Behind the Front Page
Sunday, September 9. 2012
Dirtier Lives May Be Just the Medicine We Need
Wooden boat-building on Martha's Vineyard
Do you eat quinoa?
Mike Rowe: "Holy crap! He read it!"
What Is Competency-Based Education?
The Obama Campaign’s New False Narrative - Was fixing the economic mess really too big a job for any president?
It wasn't too big for Reagan
Ms. Warren is unaware that oil companies are among the best - perhaps the best - employers in the country.
Rejecting the European Project - Daniel Hannan’s book deserves a wide audience.
In Top Journal, Obamacare Boosters Push ‘Global Spending Target’ - Which is the very definition of "rationing," the word they aren't supposed to say
Photo below via Lucianne:
Thoughts On A Sunday
It's been relatively quiet around The Manse this weekend. The large crowds of summerfolk have dwindled now that school is back in session, so it's only the weekenders making the trip to the lake. And even then it's mostly those...
Weblog: Weekend Pundit
Tracked: Sep 09, 19:41
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The Obama Campaign’s New False Narrative - Was fixing the economic mess really too big a job for any president?
You have only to look at the graph to see why this recession is nothing like previous recessions.
Take a look at job creation with dates, so you can see what is really going on.
Then the author rewrites history to suit the narrative.
You are right. This "recession" is different from those for some time. Reagan was elected with double digit interest rates and unemployment, yet the housing market was vibrant (at least as vibrant as it could be with such high interest rates). Reagan did not have to deal with banking crisis (unless you want to call the S&L crisis a banking crisis). He also did not have the problem of such a large percent of the population who were over extended with debt and I think this is what makes this "recession" worse than most and for that reason I, for one, do not expect the same kind of recover that we had under Reagan. And I certainly don't expect the kind of recovery that happened after the Depression of 1920, but then that one was cured quickly by doing... almost nothing.
However, Obama has handled it poorly at almost every turn and thus we have what could charitably be called a "tepid" recover. He has borrowed trillions of dollars to pay off insiders (see Solyndra and a dozen other solar energy companies), "invest" in electric vehicles that are largely a failure and built in Finland, provided loan guarantees to Brazilian oil companies for their deep water exploration after he banned it in our waters (and to add insult to injury, expressed the hope that the US could be a good customer of Brazilian oil), nixed the Keystone pipeline so now China will be a competitor for Canadian oil, raised the level of regulation on everything. Obamacare and Dodd-Frank both have large sections that give govt. bureaucrats responsibility for a large number of regulations which have not been written yet. That's a short list.
The job's graph you linked to shows that the job creation has stalled (and should we expect anything else given the record outlined above?). It is not falling as it once was, but it shows that job growth continues to be outpaced by population growth (something like 150,000 jobs per month are required to just maintain equilibrium). You were wise not to frame your argument around the unemployment since the only reason it looks as good as it does (does it look good to you?) is because of all the people who are no longer counted when it is computed. One might be forgiven for thinking that there are a lot of people retiring early, but the fact is that older people are working longer.
Your GDP graph during Roosevelt's depression is misleading, too. Since part of the calculation for GDP is government spending, it is no surprise that it would look so good. I think the unemployment rate and wealth per capita would be better gauges, but since the unemployment rate never dropped below double digits, that wouldn't support your argument. However, that graph just serves to show how bad Obama is doing on that front. He's spending more money and we are getting nothing for it. He wants to be the next Roosevelt - something that should keep us up at night.
mudbug: This "recession" is different from those for some time.
That's right. You can simply glance at the graph and see that the current recession is far, far deeper than previous recessions. The banking system was in shock, and the economy was in free fall when Obama took office.
mudbug: Reagan was elected with double digit interest rates and unemployment, yet the housing market was vibrant (at least as vibrant as it could be with such high interest rates).
The recession of the early 1980s was largely induced by monetary controls meant to put the lid on inflation. Once the federal reserve took off the brakes, the economy returned to growth.
mudbug: Reagan did not have to deal with banking crisis (unless you want to call the S&L crisis a banking crisis).
The S&L crisis was not nearly as profound as the banking crisis of 2008, nor did it occur at the beginning of the Reagan Administration.
mudbug: And I certainly don't expect the kind of recovery that happened after the Depression of 1920, but then that one was cured quickly by doing... almost nothing.
That was also an induced monetary recession (British & American), which ended as soon as the brakes were lifted.
mudbug: However, Obama has handled it poorly at almost every turn ...
Your list cannot account for macroeconomic phenomena of such magnitude.
mudbug: The job's graph you linked to shows that the job creation has stalled (and should we expect anything else given the record outlined above?).
You ignore the magnitude of the problem that occurred prior to the Obama Administration. Comparing it to previous recessions, as the writer did, which even a cursory look at the jobs graph he provided shows you why they are not of the same order of magnitude.
The U.S. broke the economy.
mudbug: Your GDP graph during Roosevelt's depression is misleading, too. Since part of the calculation for GDP is government spending, it is no surprise that it would look so good.
Of course it includes government spending. It's simply a fact that GDP expanded at a fast clip and unemployment dropped during the New Deal.
Your first four points are arguing against nothing. I stipulated that this "recession" is unlike others in the recent past - agreeing with you on this point. My point in my comments was only that Reagan and Obama faced different challenges but they were both severe. We had a currency crisis since Nixon. You are right that Volker was wringing inflation out of the economy in the late '70s and early '80s - thus causing the recession from '80 - '82. To say that Volker's easing of monetary policy later was the cause of the Reagan Recovery is fatuous. Monetary policy only goes so far - notice it's not going far now. Reagan also lowered regulations and taxes making it a much better environment for business creation. Something this president knows nothing about.
I did not ignore the magnitude of the problem prior to Obama. I reiterated it. Speaking of breaking the economy... The government required banks to lend money to people who could not afford to pay it back and then guaranteeing those loans sounds like a recipe for disaster to me. There are lots of other causes - the bigger the problem, generally, the more people at fault. One problem that was a large contributing factor was the opacity of the MBS and CDOs. They should have been put on an exchange - a problem Dodd-Frank does not deal with (but it doesn't deal with "Too Big To Fail" either).
Your new charts are interesting in that they include the war years. Of course unemployment dropped and GDP rose during those years. You aren't claiming ramping up for war and the actual war was part of the New Deal, are you? What was part of the New Deal was stupid ideas like a farmer can't grow crops for his own consumption, that gold is the devil's metal and was a cause of the depression, and spending money you don't have would get us out of it. Roosevelt's Treasury Secretary, Henry Morgenthau, knew better.
mudbug: Your first four points are arguing against nothing. I stipulated that this "recession" is unlike others in the recent past - agreeing with you on this point.
Thought it was rhetorical, as you seemed to keep arguing the point.
mudbug: Of course unemployment dropped and GDP rose during those years. You aren't claiming ramping up for war and the actual war was part of the New Deal, are you?
It's clear from the numbers that when the New Deal was implemented, GDP rose and unemployment fell. When it was cut back, a recession ensued. And yes, ramping up for war stimulated the economy.
If spending money you haven't got is so effective at boosting the economy, why is it having so little effect? Why would we ever have another recession? Why did the Great Depression last for ten years? Why hasn't the massive spending in Japan taken it out of its malaise? Why hasn't the massive spending benefited Greece, Spain, Italy, or for that matter, Europe? I think Greece is a pretty good comparison. FDR, like Hoover before him (why didn't that spending work, either?) spent money on real infrastructure projects (would those have been "shovel ready?"), but Greece, like Obama, when he wasn't throwing money at failed solar power projects run by his friends, spent most of it's money paying the benefits of retired people (over 50), public sector union benefits, and social programs.
Japan is an interesting case. They have very low interest rates and that is mostly possible because the savings rate in Japan is so high, but when that is tapped out, do you think other people will invest in the debt of a country in decline? Not without a large interest premium. Now ask the same question of the U.S. The only reason we have the interest rates we do is because of Helicopter Ben's printing press and that the dollar is the world's reserve currency. At some point we will have to actually pay market rates on our debt. Then where will we be if we only pay an average of 6% on $20T - our debt with another four years of Obama? Add that $1.2T to the cost of SS and Medicare which Obama refuses to reform. Now add in all the social programs and subsidies. Now add in defense (if there's anything left over).
The view that the New Deal was so effective was certainly not universal - even in Roosevelt's administration as I already mentioned:
“No, gentlemen, we have tried spending money. We are spending more than we have ever spent before and it does not work. ...I say after eight years of this Administration we have just as much unemployment as when we started.” – U.S. Treasury Secretary Henry Morgenthau, Jr. (1939)
I take Morgenthau's word for it. He was there - in the middle of it, actually - and those were his words at the time. We are looking back with whatever prejudices we feel justified in having to satisfy our own idea of what works or not.
mudbug: If spending money you haven't got is so effective at boosting the economy, why is it having so little effect?
You are confused. It's not spending, but countercyclical policy that mitigates the business cycle. In this case, a $0.8 trillion stimulus can't fill a $10 trillion hole in the economy.
mudbug: Why would we ever have another recession?
Countercyclical policy doesn't eliminate recessions, but mitigates them. Recessions of the last few decades have been relatively mild. However, the Bush Administration used procyclical policy. They used large tax cuts to stimulate an overheated economy, then engaged in unfunded war, which further stimulated the economy. They then allowed a shadow market to develop outside the purview of regulators, which led to collapse.
There's an interesting theory. A side-effect of the relatively mild business cycle of the last few generations meant that people thought that financial collapse wasn't possible. This then led them to take inordinate risks leading up to the financial meltdown.
mudbug: Why did the Great Depression last for ten years?
Because it was so deep. The economy grew very quickly during the New Deal, but it had a lot of ground to make up.
mudbug: Why hasn't the massive spending in Japan taken it out of its malaise?
Because they haven't actually stimulated their economy. Every time they used fiscal stimulus, the central bank imposed monetary controls on inflation.
mudbug: Why hasn't the massive spending benefited Greece, Spain, Italy, or for that matter, Europe?
Again, it's not massive spending, but countercyclical policy that mitigates the market cycle. Not endless deficits and government control of the economy.
mudbug: like Hoover before him (why didn't that spending work, either?)
Because Hoover's spending was too little too late.
mudbug: but Greece .... spent most of it's money paying the benefits of retired people (over 50), public sector union benefits, and social programs.
That's right. They were borrowing for day-to-day living expenses. That's not Keynesianism. That's not countercyclical.
mudbug: The only reason we have the interest rates we do is because of Helicopter Ben's printing press and that the dollar is the world's reserve currency.
The reason the U.S. has low interest rates is because it has a growing $15 trillion economy, and investors trust its ability to pay its bills.
mudbug: At some point we will have to actually pay market rates on our debt.
The debt is at market rates. However, once, the U.S. economy begins to grow in earnest, then rates will rise as private investment competes with government borrowing.
mudbug: Then where will we be if we only pay an average of 6% on $20T - our debt with another four years of Obama?
You may have to consider increasing marginal tax rates—but only once the economy beings to grow in earnest. Of course, reforming the health care system is essential, which, for comparable results, is costing the U.S. much more than in other developed countries.
Henry Morgenthau, Jr: We are spending more than we have ever spent before and it does not work.
He advocated increased taxes, especially on the rich. It was the Great Stimulus of WWII that finally ended the Great Depression.
Funny how no one mentions the bursting DotCom bubble, followed a year later by several aircraft getting piloted into buildings at the beginning of 43's first term.
Didn't you know that no one had it harder than 'The One'?