Tonight, both my wife and a friend of mine, said that Obama was talking to me when he said:
Some of the criticisms really are with the basic idea that government should intervene at all in this moment of crisis. Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And, in fact, there are several who’ve suggested that FDR [President Roosevelt] was wrong to interfere back in the New Deal. They’re fighting battles that I thought were resolved a pretty long time ago.
Most economists almost unanimously recognize that, even if philosophically you’re — you’re wary of government intervening in the economy, when you have the kind of problem we have right now — what started on Wall Street, goes to Main Street, suddenly businesses can’t get credit, they start paring back their investment, they start laying off workers, workers start pulling back in terms of spending — that, when you have that situation, that government is an important element of introducing some additional demand into the economy.
Obama did a good job outlining Keynesian economic thought. But here’s Obama’s problem–he cannot show one time in the history of the world when this kind of spending helped the economy. Not once.
There are many causes of our current financial situation. Private investors messed up. Greenspan kept interest rates too low and made money too easy, leading to dramatic over-investment in housing. And the government policies promoted indebtedness (for example, you get a tax deduction for mortgage interest payments but not for a down payment). This led to people being too far in debt and too many financial firms also being too far in debt. Too many financial firms thought that it was nearly risk-free to be heavily leveraged (heavily in debt) and they paid the price.
So what is Obama’s solution to being heavily leveraged? Spending more money–that’s obvious. Don’t worry about tomorrow. In the long run, we are all dead–that’s that Keynes said and that appears to be Obama’s policy. Who cares about the government going further in debt? Who cares about devaluing the dollar?
Obama says, “there are several who’ve suggested that FDR [President Roosevelt] was wrong to interfere back in the New Deal. They’re fighting battles that I thought were resolved a pretty long time ago.” Those battles have been resolved and not in FDR’s favor. You can argue about many things about the Great Depression, but not this–the Great Depression only ended after the New Dealers were out of power. World War II only helped the U.S. escape the Great Depression by removing the New Dealers from power.
During the Great Depression private capital stayed on the sidelines because private investors didn’t have confidence the Federal government wouldn’t harm their investments. Today, private investment is staying on the sidelines becasue of uncerainty. Obama’s plan won’t change that uncertainty any more than Bush’s inconceived Wall Street bailout removed uncertainty.
I believe that Bush’s Wall Street bailout harmed investment because people knew that if that could hold onto their toxic assets, hopefully the feds would come along and give them a sweetheart deal. And that’s exactly what happened with the Treasury paying $80 billion too much for some stocks. This mistake will continue with the American taxpayer footing the bill for some mistakes on Wall Street.
I’m against the current stimulus for the same reason I was against Bush’s bailout and Bush’s rebate stimulus plan a year ago. This stuff doesn’t work. It has never been shown to work.
America has suffered a $5-7 trillion hit to our collective wealth with the fall in housing prices. This was necessary. Recovery won’t be easy, but so far the Bush/Obama plans haven’t help and I think they have prolonged the pain. Obama’s plan will harm us for years to come. But Obama has to win this fight because he has to prove he can win his first fight.
