Maggie's Farm

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.

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.

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.