Tonight is Barack Obama's first State of the Union speech. Woo-hoo. Here are a few thoughts to prepare you for it.
If the Obama administration has its way, the “Great Recession” of our own time, like the Great Depression of three quarters of century ago, will be fondly and forever enshrouded in the clouds of politically inspired myth. The administration wants everyone to believe the myth of the averted depression, which is like the jobs saved part of its risible “jobs created or saved” metric, only larger and more breathtaking.
Even though things are bad today, President Obama and key members of his economic team repeatedly suggest that we should be thankful they are not a hundred times worse. No doubt we will hear this again tonight, when the president gives his state-of-the-union address. We will hear how the administration has performed a Herculean feat in pulling the country out of the downward spiral into another great depression.
It is difficult to disprove a negative supposition (e.g. things are bad today, but think how more terrible they might be if the president hadn't done this or that). There are, however, good reasons for doubting the notion that the Obama administration deserves credit for averting a second great depression.
First, it is simply a fact that most of the critical steps that were taken to stabilize the financial system predated the Obama presidency. That includes the passage of the Troubled Asset Relief Program (TARP) and government-encouraged consolidation within the financial sector that eliminated free-standing investment banks. These events happened during Mr. Bush's term of office. For better or worse, Mr. Obama thought well enough of the Bush administration's handling of the crisis to retain Ben Bernanke as chairman of the Federal Reserve and to move Tim Geithner, who had been in the thick of Bush's crisis management team as head of the New York Fed, to the position of Treasury Secretary.
Second, no one — not even such left-leaning economists as Paul Krugman or Joseph Stiglitz — is hailing the administration's $787 billion stimulus package as a landmark success. It was sold on the basis of being a desperately needed emergency measure that would keep unemployment from rising above 8 percent. That was a line in the sand that did not hold. Instead, unemployment moved to 10 percent, where it remains today.
Third, and finally, it is difficult to believe that this administration could have stumbled across a cure to the dread disease of another great depression when its diagnosis of various elements leading to the financial meltdown of 2008 is so clearly faulty. It critically overlooks government's role in causing the crisis. As Roger Parloff wrote in Fortune magazine last January, “The fact that lenders were hawking outlandishly risky mortgages to people who were terrible credit risks was, in fact, no secret: It was bipartisan national policy.”
This is a president — we will hear tonight — who is not afraid to “stand up to” the lobbyists and special interests. Yeah, yeah. Just don't look for this president to mention that he himself has been one of the leading recipients of Fannie Mae and Freddie Mac campaign contributions. Don't look for him to talk about his close ties to Franklin Raines, the former CEO of Fannie Mae who pulled down tens of millions of dollars in compensation and bonuses before being ousted in a $6.3 billion accounting scandal, and who went to become one of Mr. Obama's top advisers in the presidential race. Don't expect him to talk a whole lot about how, as a U.S. senator, he teamed up with Barney Frank in successfully opposing Bush reforms to clean up the two government-sponsored entities.
And he probably won't bother to spend much time either on matters of current concern in this same area, such as why the government decided recently to cover an unlimited amount of losses at the mortgage-finance giants, or why the government has seen fit to give its blessing to multi-million pay packages for the CEOs of Fannie and Freddie. Funny that this should happen even as the president was going around the country screaming bloody murder about the big bonuses about to be handed out to “fat cat” bankers in the private sector.
In following policies that can only lead to increased taxes, excessive borrowing, or both, and to greater uncertainties for anyone owning or running a business, the Obama administration may prevent a cyclical recovery and turn a bad recession into something considerably worse. That happened under two earlier presidents, Herbert Hoover and Franklin Roosevelt. Both of those men believed in the cure-all properties of big government and interventionist policies. In calling for so much public sector spending and “investment,” they killed off any real investment — meaning private-sector investment — and they created the Great Depression. It could very well happen again.
Is there any way out of the mess we are in today? I like to think so. A reader put it very nicely in responding to an earlier article of mine. As he wrote, “Mr. Obama has created or saved millions of Republicans.” If so, maybe he does deserve some credit for putting us on the road to recovery.
[SEIU International Executive Vice President] Eliseo Medino is an Obama supporter and advisor:
In 2008, Eliseo Medina joined Barack Obama’s National Latino Advisory Council, where he worked with DSA linked future Labor Secretary Hilda Solis, Luis Gutierrez and the co-sponsor of Gutierrez’s immigration bill, the radical New York Congresswoman, Nydia Velasquez. Luis Gutierrez is regarded in Chicago as one of Barack Obama’s biggest supporters. Eliseo Medina and Barack Obama , both have ties to Chicago Democratic Socialists of America, so it is not suprizing that Luis Gutierrez also has “connections”.
Medina told supporters [at the “progressive” America’s Future Now! conference in Washington, DC on June 2, 2009]:
“Speaking of Latino voters, Medina said “when they voted in November, they voted overwhelmingly for progressive candidates. Barack Obama got two out of every three voters that showed up. So I think there’s two things that matter for the progressive community. Number one, if we are to expand this electorate to win, the progressive community needs to solidly be on the side of immigrants, that we’ll expand and solidify the progressive coalition for the future… When you are in the middle of a fight for your life you will remember who was there with you. And immigrants count on progressives to be able to do that. Number two. We reform the immigration laws, it puts 12 million people on the path to citizenship and eventually voters. Can you imagine if we have, even the same ratio, two out of three? If we have eight million new voters who care about …… and will be voting. We will be creating a governing coalition for the long term, not just for an election cycle.”