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Is Obama Failing to Wreck the Economy?

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Do I really need to provide references for all the times the Republicans and other conservatives have prophesied that Obama's economic plans would wreck the economy? I think the greater challenge would be to find a conservative who didn't make such a claim!

A quick check of the Dow Jones Industrial Average shows the DJIA has risen 27% since March.  That's not bad.  And as tax lawyer and bond broker Hale Steward points out, since their March lows, the Standard and Poor's index has risen about 40% and the NASDAQ has risen about 50%!  He points out that these would normally be indicators of a bull market, but cautions that such is not the case, that growth will be sluggish for some time to come.

But that brings us back to the question – where's the economic train wreck that the conservatives claimed would be the sure result of Obama's economic policies?  Um…it ain't there.

In every recession (or Depression) since 1900, America's economy has only recovered after significant injections of government funds…and the current recession is no different.  The best example (especially for the history-challenged) is the Great Depression.  In FDR's first hundred days, he subsidized price supports for farmers; took America off the gold standard; instituted Social Security (which pays for itself), the Civilian Conservation Corps (whose works can still be seen today), and the Tennessee Valley Authority (which continues to provide tens of thousands of jobs even today), and the Federal Deposit Insurance Corporation (which has provided banking stability for generations).

One of the most important acts FDR passed in his first hundred days was the Glass-Steagal Act, which created a firewall between investment banking and commercial banking.  FDR's reasoning was, "There must be a strict supervision of all banking and credits and investments.  There must be an end to speculation with other people's money."  Somehow the conservatives think that it's wrong to have strict supervision over those bankers who hold the life savings of millions of American citizens.  That's why they (with Clinton's support) repealed the Glass-Steagal Act in 1999, and look where it got us!  The investment firms ran wild for several years, and then their house of cards began tumbling down in a way it never did when they were regulated under Glass-Steagal.

So is the massive amount of government stimulus used to brace up America's economy going to blow up in our faces?  Possibly, but significantly increased government spending is precisely how America has recovered from EVERY recession (or Depression) since 1900.  Remember what the saying was in the '82-'83 recession and the early '90s recession?  "All we need is a good war!"  Well, there's your proof right there — gearing up for a war economy is, in all but name, a government-spending stimulus package.

So what would happen if Obama had listened to the conservatives and had not implemented the stimulus package?  Japan already knows,  they tried to recover from their recession by cutting spending to the bone, and what happened?  The Japanese call it their economic "Lost Decade".

So for the conservatives:  where's the Obama train wreck?  It ain't here!  Why is the stock market doing so much better?  Yes, unemployment is still bad,  but just as with every other recession since 1900, improvement in unemployment always follows improvement in economy by at least a year, and often two years.

But wait — I think I see something!  There is a train wreck ,  but the only 'O' I see on it has a 'G' on one side and 'P' on the other.

About Glenn Contrarian

White. Male. Raised in the deepest of the Deep South. Retired Navy. Strong Christian. Proud Liberal. Thus, Contrarian!
  • Clavos

    I wonder if Galveston Texas would be a good place for us to trade? Ah, screw that. Rick Perry won’t stand for the pretty boy of the year competition. Let’s settle in Alaska.

    You wouldn’t like it, trust me. It gets the shit knocked out of it almost every hurricane season, and it’s in Texas.

  • Irene Wagner

    Yeah, Clavos, but so is Austin.

  • Clavos

    Yeah, Irene, but Austin is only geographically in Texas, whereas Galveston is there geographically and existentially.

  • Bliffle

    Silas Kain is quite pertinent in #45:

    “Why is it that small businesses never get a break? Why does Congress continue to bail out the large corporations and succumb to the whims of the special interests?”

    Partly because small businessmen and many conservatives see all businessmen (including the Big Guys) as their compatriots. But it’s not true: the biggest enemy of small business is big business because of the extraordinary privileges accorded to big business, and because the destiny of big business must be to crush the little guys and take their goodies.

  • Doug Hunter

    Here is some additional support for Nalle’s housig crisis claim.

    1994 Article about Clinton Administration starting to pressure Fannie Mae to make more low income and minority loans (interestingly Barney Frank is fighting against it back then):

    Business Week 1994

    1999 Clinton Administration pressure results in Fannie Mae making more subprime loans:

    NY Times 1999

    Bush administration trying to reign in Subprime, Democrats (and some paid off republicans) fighting the administration and again using the old race and class issues. Has nice Barney Frank Quote:

    “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis… ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” – Barney Frank (D) (some exaggeration, huh!)

    “I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing” – Melvin Watts (D)

    NY Times 2003

    From Wikipedia:

    In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers. Thus began the involvement of the Fannie Mae and Freddie Mac with the subprime market.[109] In 1996, HUD set a goal for Fanny Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[110] From 2002 to 2006, as the U.S. subprime market grew 292% over previous years, Fannie Mae and Freddie Mac combined purchases of subprime securities rose from $38 billion to around $175 billion per year before dropping to $90 billion per year, which included $350 billion of Alt-A securities.

    Of course, the government had nothing to do with it. It was those bad evil greedy capitalists and Bush!

    Same old formula: Government interferes with marketplace causing marketplace to fail, government and it’s supporters blame failure on evil private interests leading to more government and starting the cycle anew.

  • Clavos

    Nice post, Doug.

  • Doug Hunter

    Well, Clav, there’s plenty of blame to go around. One of the things that really disgusted me when researching the roots of our current crisis was finding out that we had ample warnings and even a test run during the 1998 Asian crisis when several Subprime lenders went out of business.

    There’s a nice HUD report which you can find free online somewhere that goes to great lengths to expose the dangers of subprime lending, then talks about how Fannie and Freddie are looking forward to jumping into the market.

    HUD Subprime Report

    Certainly private interests acted greedy and stupid, but is it purely coincidental that the crises immediately followed the GSE’s getting into the market. I can understand a bit the rational of investors (if you are able to overlook the obvious details of lending 100+% to people with a history of nonpayment) that if the government’s buying them, it can’t be that bad. It added some legitimacy to something that was on a collision course with failure.

  • Doug Hunter

    “The biggest claim of liability costs in medicine I’ve ever seen is about 2%.”

    Just a quick input as I have no idea how this applies to medicine. In building, which I am familiar with (and in no small part fostered my dislike for bureaucrats and crooked pols who are drawn to real estate/construction like flys to a rotting corpse), there is much more added cost from lawsuits than just what is directly spent. For example, I never was sued but spent alot of IMO unnecessary fees for third party inspectors, engineers, architects, and other specialists reports to cover my ass. It varied greatly depending on the project but I’d estimate it cost maybe 10% extra to build for someone else due to lawsuit avoidance methods. If you were the ultimate owner of the building you’d just cut that out.

    So, in my case 0% direct lawsuit cost still resulted in 10% increased costs. I’d assume that Doctors have some similiar tradeoff to make and the lawsuits, while bad for damaged real estate, are nothing compared to maiming and killing someone.

  • Bliffle

    Doug,

    Good posts! It’s about time you put some good meaty citations up on BC. I’ll explore them later – have to go to Orvis for a new pair of pants.

  • Clavos

    Exactly, Doug. It’s a strawman to use that 2% figure, the 2% is barely the tip of the iceberg.

    Among the unnecessary costs generated by the possibility of torts are the numerous expensive tests ordered by doctors, not for good sound medical reasons, but simply to keep them covered from a legal standpoint.

    Then there’s the issue of insurance premium costs, which in some high-risk specialties such as neurosurgery, can reach $250K per year, per doc.

    Neurosurgeons can and do make it up in their fees, which adds to the overall cost to the patient (and thus to the payer, whether Medicare or Humana), but other specialties which are also high risk but which can’t charge the necessary fees, such as OB/GYNs, simply leave that specialty. In some cities, here in Miami for example, there is literally a shortage of OB/Gyns, whose ranks have shrunk to less than half what they once were.

    Primary care docs are also dwindling, in part because of insurance costs, but also because Medicare and Medicaid have cut their payments to them, and the private insurers have followed the two government programs, as they always do. All the plans put forth thus far by the Dems include provisions for further cuts in fees.

    There may come a day when we’ll have to be able to speak Hindi or Tagalog to communicate with our PCPs.

  • http://www.republicofdave.com Dave Nalle

    If Bliffle can afford to buy pants at Orvis then our economic crisis can’t be all that bad.

    Dave

  • Clavos

    I have some Orvis shirts, I know what you mean, Dave.

  • http://biggesttent.blogspot.com/ Silas Kain

    Irene, with regard to your comment about P-Town, I’ve been told from several friends who frequent it that there’s a definite shift in attitude towards gays by the general public. Some have even decided not to return for the rest of the summer. Whilst most of these “hate” crimes don’t appear in the media, there is an underlying level of discomfort and that’s just not right.

    I also heartily agree with you on the manipulation comment. I think all sides are being manipulated which frustrates me to no end. Inasmuch as I advocate for individuals looking up the information themselves, I’m practical. Not many would take the time to look at the money trail. Special interests don’t care what political affiliation a member of Congress maintains. They just shower the powerful members with contributions and other perks of office. We need term limits in Congress. We need election reform. We need less former employees of Goldman Sachs in the Treasury. The problem is that we have so many damned needs that one is perplexed as to which need to tackle first. Anyone who thinks that health care reform will be achieved this year is living in a fantasy world. So we might as well stop wasting our energies on the issue for now and work toward something achievable.

  • http://biggesttent.blogspot.com/ Silas Kain

    Don’t gay men with the most disposable cash shop at Orvis?

  • Clavos

    I don’t know, Silas. My shirts are gifts from my sister-in-law.

    She gives me a couple of ‘em every Christmas.

  • Bliffle

    I was starting to order the Orvis 14 pocket poplin pants online, when I discovered there’s a store 30 minutes away, so I rushed there to get immediate pants gratification but was disappointed by the thin stock. I wasn’t even tempted by the fly rods, either (all graphite), which is unusual. So now I’m back online ordering my pants and plotting a trip to Orvis East Coast. Maybe I better visit my cousin in NH. But that’ll have to be in October for leaf-peeping.

    I lead a hard life.

  • http://handyfilm.blogspot.com handyguy

    Ben Bernanke is more responsible for the decision to ‘print money’ than is the president. And Bernanke has fairly convincingly said he’s got it covered — that earlier this year deflation was a much more real potential peril than hyperinflation.

    He says he can wind the money machine down…that most of the ‘new money’ does not consist of paper dollars actually in circulation, but rather electronic figures on banks’ [and, backing up the banks, the Fed's] balance sheets.

    He’s a Republican, not a wild-eyed liberal, and knows a heckuva lot more than either Clavos or myself, to name two, about money policy and its consequences.

    Left/right politics gets mixed up into this argument of course — which doesn’t seem to add one tiny bit of caution or uncertainty to the doomsayers on here.

  • Irene Wagner

    Silas, I appreciate your taking the time to explain to me what you meant. Come what may economically, I’d rather live poor with a diverse set of neighbors who respect and can depend on one another, than surrounded by material comfort and isolated in my own little ideologically impenetrable enclave.

    So we might as well stop wasting our energies on the issue for now and work toward something achievable. Living comfortably and in harmony with a diverse set of neighbors would work, too, of course. Here’s hoping for that atmosphere in Provincetown, and everywhere. But first things first.

  • http://thingsalongtheway.blogspot.com/ Cindy

    Yeah, the economy must be pretty darn good! One guy managed to make it out alive with his retirement finances intact. That proves Capitalism works!

    (I may be wrong, but I think Prof. Bliffle mentioned somewhere that he’d stopped trusting the stock market with his savings. Something like that.)

    16 pockets? One could make a pack-husband with pants like that! ;-)

  • http://www.republicofdave.com Dave Nalle

    The Orvis in Manhattan is well stocked. The one here in Austin was not well stocked and soon shut down. Your best bet is ordering online. But IMO anything you can get at Orvis you can get better and cheaper from L. L. Bean.

    Dave

  • http://thingsalongtheway.blogspot.com/ Cindy

    Oh, I re-read, only 14 pockets. Darn. That might be a problem. I guess I’ll just get him a backpack to carry the ice for my martini.

  • Bliffle

    Glenn asks:

    “So how are YOUR guys going to help my oldest son and my brother get insurance that they can’t get now?”

    But Glenn, you don’t get it. Nobody wants your brother and your son to actually get insurance, because then they would get health care and that would increase the “Medical-loss ratio”, which would decrease Wall Street profits.

    You see, your brother and your son can’t afford the premiums that the insurance company would have to charge to cover costs AND tack on their Usual Markup.

    As far as the insurance industry is concerned your brother and son should just quietly go someplace and die.

    Get it?

    And, as more time goes by, more people will slip off the bottom of the desirability ladder and become … expendable.