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Obama's Debt-Bubble Economy
By: Mr. Curmudgeon
mrcurmudgeon@inthepublicsquare.com
Like the father of the New Deal, Obama is crafting an economic plan that is heavy on government expenditures and includes billions of dollars for make-work infrastructure projects and for financial bailouts of the nation's banking sector, giving the federal government unprecedented control of the daily operations of this country. With a U.S. Congress controlled by Democrats, and with little criticism from a sycophantic mainstream media and an incoherent Republican Party, Barack Hussein Obama promises to pick up where FDR left off. So Americans need to ask, just how effective was the New Deal?
Like the Italian dictator Benito Mussolini, FDR believed the severe drop in prices of goods and services (a deflationary cycle) resulted from too much competition. If government regulatory boards curtailed business competitiveness, prices and wages would rise, stabilizing the economy and eventually ending the Great Depression. By late 1941, as Japan’s Imperial Navy attacked the U.S. Pacific fleet anchored at Perl Harbor, the U.S. unemployment rate hovered at the staggering level of 14.6%. This was an improvement over 1938’s 19% unemployment rate that resulted three years after FDR signed the Social Security Act into law.
Economics professors Harold Cole (University of Pennsylvania) and Lee Ohanian (University of California at Los Angeles) released a study that shatters the conventional wisdom that says the New Deal pulled America out of the worst economic downturn in history. Writing in the Wall Street Journal, the professors said:
…the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
In today’s dollars, FDR’s 1933-1939 New Deal cost the nation an estimated $500 billion. According to CNN, Obama’s New Deal II will cost the nation $3.5 trillion, with a budget deficit estimated to run $1.7 trillion -- and this is for his fiscal year 2010 budget alone. Obama promises to halve the 2010 deficit by the end of his first term through tax increases on families earning more than $250,000. However, he failed to address who will pay for the following multi-trillion dollar budget deficits
Professors Cole and Ohanian's conclusion is frightening in light of President Obama's plan to reorganize America's economy on the FDR model:
The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes. Ironically, our work shows that the recovery would have been very rapid had the government not intervened.
In a recent statement to reporters from the Oval Office, the President said:
We are laying the foundation for what I am calling a post-bubble economic growth model. The days when we are going to be able to grow this economy on just an over-heated housing market – or people spending or maxing out on their credit cards – those days are over.
The President's remarks represented a rare non-vegetarian moment of clarity. Unfortunately, for the country and the economy, he undermines his own words by proposing a federal budget that maxes-out the nation's credit card in an attempt to re-inflate the unsustainable pre-bubble economy he claims to distain. With trillions of dollars in budget deficits projected for his first term alone, Obama's national debt bubble will balloon to unsustainable levels unprecedented in our nations' history. If, as the President says, debt is a shaky foundation on which to build a vibrant economy, how will saddling generations of taxpayers with trillions of dollars in government debt do anything other than delay economic recovery -- or, like FDR's New Deal, hasten a prolonged depression?
--Mr. Curmudgeon
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