By Mike Whitney
This is Barack Obama’s economy now. George Bush can no longer be blamed. And if the economy dips back into recession–as it most certainly will–then that will be Obama’s fault, too. Because it’s Obama’s fiscal policies that are driving the economy back into the ditch. This is no small matter, because Obama’s failure will likely result in political change that will deliver the White House to the GOP in 2012. Then the deficit hawks will control both houses of congress and the White House, and they will slash spending and push the economy into another Great Depression. This is not speculation. This WILL happen. Obama has made sure it will happen by shrugging off the warnings of every competent economist in the country, all of whom have said repeatedly that we needed more stimulus to lower employment, to reduce the output gap, to increase GDP, and to put the economy back on track.
Now–according to the Bureau of Labor Statistics (BLS)–the economy is producing no new jobs. Obama’s policies are producing ZERO JOBS. Let that sink in for a while.
At the same time, GDP is sputtering below one-half percent for the first 6 months of 2011 and the output gap has reset at a level that will cost the country 5 trillion dollars in lost production in the next 4 years.
Is it any wonder why consumer confidence is in the dumps and everyone is so pessimistic about the future? It’s because there is no future, Obama has made sure of that.
The economy is dead. That’s what it means when there’s no growth and no new jobs. How would you describe it?
Obama had the economy going in the right direction. When he took office he already had his economics team in place and they quickly implemented his $787 billion fiscal stimulus plan just a month after he was inaugurated. The country was losing 750,000 per month, the stock market was plunging, and GDP was deep in in the red. Exports, retail sales, manufacturing and consumer spending were all falling faster then they had during the Great Depression. But the stimulus turned things around, and in just 6 months, the hemorrhaging of jobs slowed to a trickle and the economy returned to positive growth. By the 4th Quarter of 2009, GDP had climbed to a healthy 5.0 percent while unemployment slowly began to retreat from it’s peak of 10.1 percent earlier in the year.
What seemed like a miracle was nothing more than basic economics; Keynesian economics. Not Voodoo economics, not supply side economics, not make-it-up-as-you-go faith-based Republican economics, but Keynesian economics, which is to say, economics that is grounded in observable phenomena, facts, science; y’know, reality-based economics.
When consumers are unable to spend because of the losses they sustained when the housing bubble burst, ($8 trillion in losses) then the government must provide sufficient resources to keep the economy running, otherwise activity will slow, businesses will trim costs and lay off workers, government revenues will shrink, the deficits will rise, and the economy will go into a long-term funk.
Simple, right? If there’s no demand, the economy nosedives.
And, that’s what was happening when Bush left office. The economy was tanking. But, Obama applied the right ideas, and the economy responded. In other words, ideas count. If you apply stupid ideas–like the GOP deficit hawks–then you will get bad results. This seems so obvious that it hardly seems worth repeating repeating. But, we have to repeat it, because we’re dealing with people who insist that stupid ideas are smart ideas, and, regrettably, there’s a difference. And the difference is quite excruciating for the people who end up being victims of these flawed ideas.
So, even though Obama could see the results of the fiscal stimulus, and even though he could see that GDP had risen to the 3 percent range for the entire time the stimulus was feeding into the economy, he decided to do a 180 and start preaching the ideology of his rivals, the gospel of austerity.
Is this a fair account of what happened?
It’s not that Obama merely brushed off the considered advice of liberal economists like Joseph Stiglitz, Robert Reich, Paul Krugman, Mark Thoma, Dean Baker etc etc etc. But he also ignored the main players in his former economics team; Lawrence Summers, Christina Romer, Peter Orzag, all of whom strongly recommended more stimulus (to avoid another downturn) in editorials in leading US newspapers.
But Obama knew better than all of them, after all he was a community organiser, right? Besides he had other things in mind, like hammering out a structural adjustment plan (the “debt ceiling” agreement) that would constrain public spending forever making it impossible for the government to increase deficits even in an economic emergency. In other words, Obama was fulfilling the right wing “wish list” to strangle big government and to ensure that entitlement spending faces savage cuts in the future.
That was the game-plan, right?
So, now the economy is headed back into the toilet; manufacturing is sputtering, consumer spending is off, business investment is falling, GDP is barely positive, housing remains in a historic swoon, unemployment is stuck at 9.1 percent, the 10-year Treasury is signalling “deflation”, 47 million Americans are on food stamps, and there are NO NEW JOBS. And–Oh yeah–Obama is still jabbering about “cutting the deficits”.
Does that sound about right?
Obama can’t fix the problems the country faces because he’s owned by Big Business and Wall Street. Everyone knows that. But to continue to pretend that the Democratic Party is a viable alternative to the GOP, is beyond misguided; it’s delusional. The policies that are presently in place–and which are largely supported by the Dems in Congress–are destroying the economy, the country’s reputation, and our children’s future.
There’s got to be another way.