Obama Speech Defends Stimulus Plan
Barack Obama said, "We start 2009 in the midst of a crisis unlike any we have seen in our lifetime - a crisis that has only deepened over the last few weeks." That is to say, things are bad. And things could get worse. "If nothing is done, this recession could linger for years."
With those two points, Barack Obama is playing on one of the myths of the Great Depression. The Great Depression lasted for over a decade and was only alleviated, the narrative goes, by Franklin Roosevelt's New Deal. Amity Shlaes, in her ground breaking study of the New Deal, The Forgotten Man, suggests that high taxes and the utter randomness of New Deal programs made what would have been a serious but short lived depression into something far worse. The New Deal did nothing to address the underlying causes of the Great Depression. Only the outbreak of World War II and the growth of the military industrial economy that helped the United States win that war broke the back of the Great Depression and restored some semblance of prosperity to the United States.
Barack Obama's stimulus package represents something that could be best called New Deal 2.0. The program proposed in Obama's speech proposes lots of spending, similar to FDR's public works program, to try to jump start the economy. Obama's spending program includes the creation of "alternative energy", infrastructure building (roads and bridges), conservation projects, computerizing health care records, and upgrading schools with computer technology. This public works program is combined with monetary relief for unemployed people and others the government deems to be in need.
This is, in effect, old style, Keynesian pump priming. And yet Barack Obama, without a sense of irony, said, "...we won't get out of it by simply waiting for a better day to come, or relying on the worn-out dogmas of the past." Obama meant, of course, what he imagines free market capitalism to be and not, as he what he is doing, though it is as old and shopworn as the WPA.
Just to drive home his point in his speech, Obama laid the blame for our current problems on, "Wall Street wrongdoers" and "Wall Street executives" who "made imprudent and dangerous decisions, seeking profits with too little regard for risk, too little regulatory scrutiny, and too little accountability." Obama all but attacked "economic royalists." Very little if anything was said about liberal politicians who helped to create the liquidity crisis.
The solution is more government. "It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy - where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit."
The problem is that governments are very inefficient at picking and choosing investments. Barack Obama can swear up and down that there will be no earmarks in his stimulus bill, but under any name they are called, pet projects fostered by the politically connected will creep in. Think about a thousand bridges to nowhere and you'll understand what the infrastructure program, for example, will look like.
Ironically there is one way to get the country out of a recession that has been proven time and again. The enactment of across the board tax cuts has always proven to be a more efficient way to stimulate the economy. It worked under Reagan, who brought back prosperity in the 1980s after the Carter inspired recession. It worked with George W. Bush, who used tax cuts to boost the economy after the shocks of 9/11 and the collapse of the Internet bubble.
Sadly Barack Obama and the Democrats are ideologically incapable of grasping this fact. Tens of millions of people and hundreds of thousands of business are better positioned to solve the recession than a government bureaucracy picking and choosing spending projects that may or may not make sense.
That means that the United States is poised to spend a trillion dollars that it doesn't have on things it may or may not need. The good news is that the stimulus plan may be so large, so tempting a pile of money, that it may collapse of its own weight as politicians squabble for their slice of the stimulus pie. Batack Obama suggests that doing nothing is not an option, but doing nothing is often best if the alternative is doing something useless or even counterproductive.
Sources: Obama Stimulus Plan Speech, FT, January 7th, 2009
The Forgotten Man, Amity Shlaes, Harper Perennial, 2008
Published by Mark Whittington
Mark R. Whittington is a writer residing in Houston, Texas. He is the author of The Last Moonwalker, Children of Apollo, Dark Sanction, and Nocturne. He has written numerous articles, some for the Washington... View profile
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8 Comments
Post a CommentJoe,
You have made some factual errors.
First, Hoover was "A dedicated Progressive and Reformer" and he he denounced laissez-faire thinking. You know, much like modern Democrats.
Hoover also signed the Reconstruction Finance Corporation (RFC) in 1932 (that you allude to). The RFC's initial goal was to provide government-secured loans to financial institutions, railroads and farmers And had only minimal effect. FDR greatly expanded it as part of the "New Deal".
He raised income taxes from about 23% to 63% in 1932 and enacted a 13% tax on corporations, then later raised it to 15%.
You also charge that Hoover left office with a 25% unemployment rate, but omit the fact that it remained high, hovering around 20% for all of FDR's administration until WWII started.
Hoover's party affiliation may have been Republican, but he was all Democrat in his heart.
As for being "asleep at the switch", let's not forget that the root cause of today's economic problems, Fannie Mae
Good article, Mark. Some truth on here.
Mark, isn't it funny how everyone forgets about Hoover, President when the Great Depression started?
Here are things to remember about Hoover: Hoovervilles; 25% unemployment in '32; Smoot-Hawley; record bank failures; national debt at 40% of GDP; 65% income tax at the top end; Republican. Also, FDR inherited the public works programs from Hoover, he didn't create them.
Similar patterns, then and now: Republicans presidents asleep at the switch during financial meltdowns, then handing the reins over to Democratic presidents.
Time for the "party of responsibility" to start taking responsibility for the messes they start.
Liberals didn't "create" the liquidity crisis at all. It was a political manuever supported on both sides of the aisle for the monies advanced and loaned to them by those financial institutions for their election campaigns. Why the American people continue to believe the mass media and smoke and mirrors politicians truly amazes me. P.T. Barnum was right, "there's a sucker born every minute" and America obviously is full of them.
The bankers only make money in war, not peace. And although kept out of the media, Bush signed an accord within his last 100 days calling for troop withdrawals to being in 2011 - just prior to the next presidential election, which of course Obama must now honor. The most devastating and unconstitutional actions occur within the last 100 days of any presidency. This war has been economic and political from the outset, and I never believed the 9/11 "truthers" but their analysis is becoming more and more believeable with each and every action of Washington since then.
again brilliant analysis. i hope its wrong but know its right. God we are in for some hard years as a result of decisions being made now. looks like my pension plan is going to be destroyed.
Luke Slomka
I am reading The Forgotten Man and it is right on the mark as far as I'm concerned. Tax CUTS is the only way to go to help this economy and limit government spending. I believe one of the reasons Bush, Obama and others are stressing the point to do something now is because after the 1929 crash, Hoover did nothing, on advise that the market would fix itself, but it didn't..not fast enough. That was how Roosevelt got elected. My mother, who went through the depression as a child, who is still living, says history is repeating itself and that things are only going to get worse. Good writeup.
Brilliant analysis. I think Obama needs to tread very carefully and agree he is falling prey to shopworn advice. Change, creative enterprise, new approaches, simple but fair fixes- where are they?