|President Obama's Weekly Address: This week, I spent some time with Americans across the country who are hurting because of our economic crisis. People closing the businesses they scrimped and saved to start. Families losing the homes that were their stake in the American Dream. Folks who have given up trying to get ahead, and given in to the stark reality of just trying to get by.
Video Photo: White House/Pete Souza |
US Economy: Economics can be confusing in these current perilous times and it's not unusual to find that economists can also be idiots. One American Nobel Laureate says if people would tolerate it, the economy would pop right back, without help from politicians. He didn't say how long it would take.
The euro can be targeted as the scapegoat in Ireland with a reality of reckless fiscal policy and cronyism juxtapositioned with a fantasy of prudent monetary policy administered by independent central bankers, despite previous careers of forelock tugging in the Department of Finance. In the United States, so-called "eminent economists" can claim that Franklin D. Roosevelt's New Deal program was a failure, which debunks the case for President Obama's stimulus program, while ignoring the fact that the Second World War, besides being a human tragedy of epic proportions, was a huge public spending endeavour, which in its aftermath, resulted in a period of almost unbroken economic growth until 1974.
The House and Senate gave final congressional approval last Friday to the $787.2 billion US stimulus plan. Not a single Republican backed the package on Friday in the House, where seven Democrats joined 176 Republicans in opposition, and 246 voted for it. The Senate voted 60-38 - - three Republicans joined with 57 Senate Democrats in support of the package; 38 Republicans voted against it. A vote of 60 was necessary to prevent opponents derailing the legislation by what is termed a filibuster.
President Obama said the package is needed to "ignite spending by businesses and consumers" and "make the investments necessary for lasting economic growth and prosperity." But he also said the legislation is "only the beginning" of what will ultimately be "a long and difficult process of turning our economy" around.
The White House says the package will create or preserve 3.5 million jobs. About a third of the plan provides tax cuts for business and individuals, including a $400 payroll-tax holiday for workers, an expanded child tax credit and more generous tax breaks for college expenses. New incentives will be provided for car purchases and first-time homebuyers, among other things.
Government spending accounts for the balance of the plan.
President Obama had warned last Monday at his first prime-time news conference, of an economic "crisis that could become a catastrophe" if Congress does not act quickly on the stimulus package.
"This is not your ordinary, run-of-the-mill recession," Obama said. "We are going through the worst economic crisis since the Great Depression."
The President said he is "absolutely confident" the nation can overcome this crisis, but he warned that the government, business, and consumers must change their ways. He also declared Republicans who oppose his massive spending plan on ideological grounds should not engage in "revisionist history," noting their party presided over a doubling of the US national debt and helped create the ailing economy he inherited.
Bloomberg News reported last Monday that the cost of US government spending could reach as much as $9.7 trillion - enough to pay off more than 90% of the nation’s home mortgages.
Already, the US Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. (FDIC) have lent or spent almost $3 trillion over the past two years and pledged another $5.7 trillion if needed. That adds up to almost two-thirds of the value of the entire gross domestic product (GDP) for the US economy last year.
The current Federal debt of $10.6 trillion, almost doubled under George W. Bush, from $5.7 trillion to $10.6 trillion. As a percentage of GDP, it grew from 57.4% to 68%, the highest since the aftermath of World War II.
From 32.6% - - its lowest in 50 years - -- during the Carter Administration, it grew to 53.1%, by the time Ronald Reagan left office in early 1989 and rose to 66.2%, under the first President Bush. Under Bill Clinton, it fell to 57.4%.
The Wall Street Journal says White House officials said the scale of the current stimulus package shouldn't be minimised. Franklin Roosevelt's New Deal never increased the deficit by more than 1.5% of the nation's gross domestic product, even during its biggest-spending year, 1934, said White House Council of Economic Advisers Chairman Christina Romer. The package headed to the White House soon represents 2.5% of GDP for two years in a row.
Prof. Bradley R. Schiller of the University of Nevada. wrote in the Journal on the President's comparisons with the Great Depression: "This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.
Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.
This was reflected in unemployment rates. The latest survey pegs US unemployment at 7.6%. That's more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can't equate 7.6% unemployment with the Great Depression."
On January 27, about 200 economists, including a half-dozen Nobel laureates, signed a letter to Congress supporting the stimulus plan known as the American Recovery and Reinvestment Act of 2009. The signatories included the 93-year old Nobel laureate Paul Samuelson.
Days later, the conservative Cato Institute, ponied up their own list of 200, including 3 Nobel laureates, to sign a full-page New York Times advertisement/letter to President Obama, in which they said: they "do not believe that more government spending is a way to improve economic performance." Instead, they said, "lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."
Edward C. Prescott, a University of Arizona economist who won a Nobel Prize for economics in 2004, for his study of business cycles and also a signatory of the Cato letter, says massive government spending likely lengthened the economic problems each time.
"You can't spend your way to prosperity,"said Prescott last week."I think, basically, if people would tolerate it, the economy would pop right back."
Prescott contends that Roosevelt made the Depression worse and refuses to count as employed those Americans who worked for the Works Progress Administration, which hired millions of the jobless and built highways, bridges and public buildings still used today.
"I don't know why Obama said all economists agree on this,"Prescott said. "They don't. If you go down to the third-tier schools, yes, but they're not the people advancing the science."
Prescott presumably wouldn't tolerate being thrown on the scrap heap himself? What should a tolerable level of unemployment be?
|June 16, 1933: Washington, DC- President Franklin D. Roosevelt affixes his signature to the Glass-Steagall Bank Reform Act--deposit insurance measure, one of the last bits of legislation put through before Congress adjourned, at the end of the famous first 100 days of the Administration. Behind the President (l-r) are: Sen. Allen Barkley; Sen. Thomas Gore; Sen. Carter Glass; Comptroller of Currency J.F.T. Connors; Sen. William G. McAdoo; Rep. Henry S. Steagall; Senator Duncan U. Fletcher; Rep. Alan Goldsborough; and Rep. Robert Luce.
In addition to deposit insurance, this second Glass-Steagall Act, separated investment banking and commercial banking, which is why Morgan Stanley and JP Morgan are two different firms.
Commercial banks were seen as having taken on too much risk in share trading, with depositors' money, up to the October 1929 Crash.
The Glass-Steagall Act was repealed by Congress in November 1999, a measure that has been termed the "Citigroup Authorization Act." Robert Rubin had pushed for repeal of the Glass-Steagall Act as Treasury Secretary. He resigned in July 1999 and was succeeded by Lawrence Summers, now President Obama's head of the National Economic Council. President Clinton called Rubin the "greatest Secretary of the Treasury since Alexander Hamilton" - - President George Washington's Treasury Secretary - - and the former Cabinet officer, who had spent 26 years at Goldman Sachs before joining the Clinton Administration, took a senior position at Citigroup.Rubin who earned $17.0 million at Citi in 2008, was not aware of the detail of $55 billion of collateralized debt obligations (CDOs) and other subprime-related securities on the group's balance sheet. "The answer is very simple," he told Fortune Magazine. "It didn't go on under my nose."
The New York Times reportedin November 2008 that in September 2007, Citigroup’s then chief executive, Chuck Prince, had learned for the first time that the bank owned about $43 billion in mortgage-related assets! On January 2, 2009, Citigroup said that Robert Rubin had resigned as a senior adviser and would not seek re-election as a board director. The Wall Street Journal says Rubin made $115 million in pay since 1999, excluding stock options. Rubin told the Journal his pay was justified and that there were higher-paying opportunities available to him. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said. Asked if he had any regrets, Rubin said: "I guess that I don't think of it quite that way," adding that "if you look back from now, there's an enormous amount that needs to be learned." - - Michael Hennigan - Finfacts Photo: © Bettmann/CORBIS
When Roosevelt took power in 1933, 1929 US GNP had halved but he was unhappy with deficit spending and in 1937, following his landslide reelection, cutbacks in New Deal programs triggered a recession and the US had a budget surplus for 9 months.
The US unemployment fell every year from 1933 until 1938.
On March 04, 1933, when Roosevelt was sworn into office, the banking system was collapsing across the country and Hitler's rise in Germany had been greatly aided by the massive hyperinflation a decade before. Even, Roosevelt's modest spending programs, were cast as the path to worst ruin.
In 1933, the great British economist John Maynard Keynes in his open letter to President Roosevelt said: "You have made yourself the Trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out."
In the Sunday Times today, Dominic Lawson says, Obama’s new deal is the same old blunder - - and adds: the "young president seems to want to take us back to some of the failed policies of the 1930s, under the mistaken impression that they were a great triumph."
The New Deal was a blunder and I suppose President Hoover was another "misunderestimated" president!
President Roosevelt had a huge mountain to climb and the New Deal kept the forces of extremism on the left and right at bay, while providing work for millions of Americans - - who did not have any social safety net. Where he failed was in not spending enough and the Second World War proved that.