So Much Worse Than Carter
October 15, 2010
ACRU General Counsel Peter Ferrara wrote this column appearing October 13, 2010 on The American Spectator website.
The most important fact to take from the September unemployment report released last week is that almost three years after the recession began the economy was still losing jobs! Almost 100,000 (95,000) additional jobs were lost last month from the economy overall. That makes 400,000 jobs lost since May. Moreover, in a regular annual benchmark revision to calibrate unemployment rates for updated data, the BLS reported a further 366,000 jobs lost for March. The total number of Americans unemployed stands at almost 15 million (14.8).
In addition, the number employed part time for economic reasons rose to 9.5 million in September. The Bureau of Labor Statistics (BLS) reports, “These individuals were working part time because their hours had been cut back or because they were unable to find a full time job.”
The depression continues for African Americans with 16.1% unemployment, near that level for a year now. Hispanics suffer 12.4% unemployment, and Obamanomics is punishing teenagers the most with 26% unemployment.
The BLS reports the U6 unemployment rate, which includes the unemployed, those marginally attached to the labor force (discouraged), and those working part time for economic reasons, at 17.1%. That is the highest point over the past year, and probably since the Great Depression.
While the National Bureau of Economic Research declared the recession technically over last summer, for this poor performance to continue 33 months after the recession began indicates fundamental economic decline for America. What the numbers are telling us is that there has been no real recovery.
Sean Hannity’s Caller
Last week, a young caller to Sean Hannity’s radio program identifying herself as a liberal expressed the sentiment that still holds President Obama’s job approval in the mid-40s. She said, “President Obama has just had two years to turn the economy around. Didn’t the Republicans have 8 years to screw it up? Shouldn’t we be giving the President more time?”
President Obama himself is out there on the stump milking this sentiment for all it is worth, still blaming George Bush and the Republicans for the economy. Without this sentiment holding up what support he still has, he would have already been run out of town. Here are the metrics by which the President’s economic performance should be judged.
I have been reporting regularly in this column for a year and a half that the average recession since World War II has been 10 months, with the longest previously being 16 months. The recession began in December, 2007, 34 months ago by now. The sentiment expressed by Hannity’s caller, reflecting the views of Obama’s remaining base of political support, shows why these basic facts are so important.
Based on the long standing history and rhythms of the American economy, we should have had a booming recovery by now. Even more so, since the deeper the recession the stronger the recovery. Real economic growth in the first 4 quarters of Reagan’s recovery from the deep 1981-82 recession was a whopping 7.7%. Even the recovery under President Ford from the deep 1973-74 recession sported real economic growth of 6.2%.
But under President Obama we are already in another downward spiral, with real growth falling from 5% in the fourth quarter of 2009, to 3.7% in the first quarter of this year, to 1.7% in the second quarter.
Moreover, as the brilliant economist John Lott explained for FoxNews.com yesterday, the base unemployment rate has been stuck at least at 9.5% for 14 months now, over three full percentage points higher than the average unemployment rate during the recession. Since Obama became President, the U.S. unemployment rate has increased faster than 25 of 30 other major industrialized countries, as reported by the Economist.
As Lott summarizes, “For the last couple of years, President Obama keeps claiming that the recession was the worst economy since the Great Depression. But this is not correct. This is the worst ‘recovery’ since the Great Depression.” The extended stagnation, high unemployment, and the troubling potential for a double dip recession is starting to look more like the Depression itself now.
Stimulus Stupidity and Public Policy Malpractice
But the indictment of Obamanomics goes beyond the actual performance so far. Even worse is that the economic policies have been so illogical, so transparently doomed to failure, and so threatening to America’s future.
For almost two years now, I and others have been arguing that the throwback, retro, Keynesian economics from the 1970s, and even the 1930s, so thoroughly embraced by Obamanomics, would not work. That is transparently because the supposed stimulus from increasing government spending by a trillion dollars is offset by borrowing or taxing that trillion dollars out of the economy.
Indeed, because the government inefficiently allocates its spending based on politics, rather than efficiently as in a market, and because taxes discourage economic growth, the net result is a drag on the economy, rather than a stimulus, as the Obama experience shows once again for all the slow learners in that 45% still supporting him. This Keynesian economics failed thoroughly in the Great Depression, failed thoroughly in the 1970s, and failed just as thoroughly in Japan for the last 20 years, for just these reasons. Why it is an inevitable, illogical failure was explained for decades by such all time great economists as Friedrich Hayek, Ludwig Von Mises, and Milton Friedman.
After wasted, failed stimulus packages 1, 2, 3, and more, federal deficits over the first two years of Obamanomics now total a record smashing $2.7 trillion. As the Wall Street Journal explained yesterday:
That’s…more than the entire amount during the Reagan Administration when deficits were supposed to be ruinous. Now liberal economists tell us that deficits are the key to restoring prosperity. But all we have to show for spending nearly 25% of GDP for two years running is a growth rate of 1.7% and 9.6% unemployment.
Indeed, under CBO projections, the national debt will have doubled by 2012 in just 4 years to $11.6 trillion, and quadrupled by 2020 to $20.3 trillion. As Brian Riedl of the Heritage Foundation has observed, Obama’s budgets will run up more debt over eight years than all other Presidents in American history — from George Washington to George Bush — combined.
I have also argued in this column for almost two years now that Obama’s Rip Van Winkle approach to economics, bringing back the policies of the 1970s while doggedly ignoring everything that has happened since 1980, was going to bring back the economic results of the 1970s. Now the Federal Reserve has confirmed that. The latest word is that it has decided that bringing back inflation is the key to restoring economic growth.
For those paying attention, the Obama Administration is serving as a history lesson, sort of a historical reenactment, of exactly what went wrong in the 1970s, and the 1930s. As the Keynesian stimuli of the 1970s regularly failed, the Fed felt it had to gun the money supply further to pick up the slack. Then when inflation arose, it quickly reversed course to fight that, throwing the economy back into recession. To get out of that, the Fed felt compelled to return to reflation.
This is exactly what is going to happen now. The Fed will regenerate inflation, creating new asset and commodity bubbles in the process. When it turns to fighting the inflation, as it has long assured us it will, those bubbles will again burst, restoring recession. That is how America fell into a continuing cycle of ever worsening recession and inflation in the 1970s, which almost irredee
mably trashed our economy then, almost losing the Cold War in the process.
This is all why a growing majority of Americans has decided that President Obama has already had long enough on the economy. But if you just read the New York Times or watch NBC to get your news, then you are willfully ignorant, and manipulated.
The Buck Stops with Bush
But there is still another fallacy of President Obama’s obstinate lemmings, which the President also carefully nurtures. That is the fairy tale the President tells about the mess he inherited when he got here, and the budget deficit that was waiting for him “when he walked in the door.”
When Obama “got here” was when he was elected to the U.S. Senate in 2004, not when he was elected President in 2008. In 2006, he became part of the Democrat majorities that took control of Congress in the elections that year. As another brilliant economist, Thomas Sowell, recently explained in Investors Business Daily:
No president of the United States can create either a budget deficit or a budget surplus. All spending bills originate in the House of Representatives, and all taxes are voted into law by Congress. Democrats controlled both houses of Congress before Barack Obama became President. The deficit he inherited was created by the Congressional Democrats, including Sen. Barack Obama, who did absolutely nothing to oppose the runaway spending. He was one of the biggest spenders.
The deficit in the last budget adopted by Republican Congressional majorities was $161 billion for fiscal 2007. That is why Rep. Jeb Hensarling was right to say to President Obama that the annual deficits under the Republicans have become the monthly deficits under the Democrats.
Also, the day the Democrat Congressional majorities took office, January 3, 2007, the unemployment rate was 4.6%, less than half the rate today. George Bush’s economic policies, what Obama calls “the failed policies of the past,” had set a record of 52 straight months of job creation, a record we can only dream about today. GDP in the previous quarter was 3.5%, double today’s most recent growth.
Also on January 3, 2007, Barney Frank took over as Chairman of the House Financial Services Committee. When President Bush had proposed legislation to rein in Fannie Mae and Freddie Mac, Frank led the charge to massacre it, saying he wanted to continue throwing the dice some more on housing policy. Frank, joined by Senate Banking Committee Chairman Chris Dodd, continued to pump up the Fannie Mae and Freddie Mac bubble until it burst all over the U.S. and world economy. Sen. Barack Obama was an avid supporter of these policies as well.
The Democrats were the originators of the subprime mortgage, “affordable housing” policies since President Clinton saw them as a brilliantly innovative way to pass out free goodies. Vigorously supporting those policies all the way back to his ACORN days was community organizer Barack Obama. When he is carrying on about the mess he inherited, too bad he doesn’t have the integrity to point the finger back at himself.
The Reagan Precedent
The final fallacy nurtured so carefully by President Obama’s propagandists is that he is just on the same trajectory as President Reagan. Reagan too suffered through a bad economy in his second year, along with similarly bad poll numbers.
But in his first two years, President Reagan slew the historic inflation of the 1970s, which had seen prices soar by 25% in just two years over 1979-80. Annual inflation was cut in half by 1982 to 6.2%, and in half again by 1983, to 3.2%. Even Keynesians hold that there was no way to stop that inflationary surge without a downturn. In President Obama’s case, however, instead of slaying a historic inflation, he is creating another one.
Moreover, after the booming recovery starting in President Reagan’s third year noted above, the economy continued to boom for another 24 years, what Art Laffer and Steve Moore rightly called “the greatest period of wealth creation in the history of the planet,” and Steve Forbes correctly termed “an economic Golden Age.”
I agree with the Obama propagandists that if Obama is on this same trajectory, if this year is followed by 25 years of booming, historic prosperity, President Obama will be added to Mount Rushmore. Indeed, in that case, I will support that.
But as I have outlined elsewhere, including in my most recent major publication President Obama’s Tax Piracy, Obama has so thoroughly and assiduously followed the opposite of every one of the economic policies that President Reagan followed to create that historic prosperity. So let’s conduct a little thought experiment, following Professor Laffer. Suppose in adopting the opposite of every one of President Reagan’s economic policies, President Obama gets just the opposite results.
That would mean that instead of this second year of his presidency being Obama’s worst year, it is his best. And instead of the economy taking off next year on a historic, generation-long economic boom, it collapses into an extended double-dip downturn, with even worse consequences following.
Not for another 25 years, because in that case the policies are not going to last that long. In the case of that New Great Depression, it will be the surviving Congressional Democrats who will be desperately trying to impeach him, hoping to save the Democrat party they so happily gave away to the neo-Marxist infiltrator in 2008.
The Carter Precedent
The precedent for President Obama is not President Reagan, but President Carter. Indeed, he is not on the same trajectory as Carter, he is doing far worse. In 1978, the unemployment rate was 6.1%. Real GDP grew by 5.6%.
Moreover, in 1978 the Democrats had bigger Congressional majorities than today. They had 62 seats in the Senate, and 292 seats in the House. In the 1978 elections, the Republicans gained 3 seats in the Senate, and 15 seats in the House. Let’s compare that to President Obama’s results this November.
Of course, everyone knows what happened by the end of President Carter’s term. Can you say President Newt Gingrich?