The Obama Watch

Playing You to the Bitter End

And before he's finished he'll have Bernanke resume Carter-era inflation.

By 10.27.10

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In July 1953, after President Eisenhower had been in office for just six months, the U.S. economy tumbled into recession. He didn't barnstorm around the country talking about how President Truman had driven the economy into a ditch, and how it was such a struggle to get the economy out of the ditch. Somehow, by May 1954, just 10 months later, the economy was back in recovery mode, before Barack Obama was even born.

In April 1960, the American economy tumbled into recession again. There was no trillion dollar stimulus package producing record shattering deficits and national debt. Yet, somehow, in February 1961, just 10 months later, the economy was back in recovery mode, again before Barack Obama was even born. Spurred by the across the board Kennedy tax rate cuts, the economy boomed for a then record 106 months.

In December 1969, the U.S. economy cycled into recession once again, in President Nixon's first year in office. Somehow, by November, 1970, just 11 months later, the economy was in recovery once again, even though Barack Obama was only 9 years old.

In November 1973, the worst recession of the entire postwar era up until then began. It took 16 months for the economy to recover, starting in March 1975. Over the next four quarters, the economy came roaring back, with real economic growth of 6.2%. For 1976, the unemployment rate was 7.7%.

"The Failed Economic Policies of the Past"

In July 1981, after President Reagan had been in office just six months, the economy fell into arguably a worse recession than in 1973-75. Yet President Reagan continued to back the strong dollar monetary policies of the Federal Reserve that slew the roaring inflation of the 1970s, caused by the same monetary policy strategy that current Fed Chairman Ben Bernanke just announced last week.

In just two years, over 1979 to 1980, prices had risen by 25%. The strict monetary policy Reagan supported cut the annual inflation rate in half by 1982, and in half again by 1983, to just 3.2%. Inflation has not been heard from since.

Reagan did not adopt a trillion dollar Keynesian stimulus spending package either. In his first year, he adopted instead the much vilified Reagan budget cuts that reduced federal spending by close to 5%. Barack Obama was in college at the time, palling around with Marxist Professors as he tells us in his autobiographies, no doubt joining in the condemnation of those budget cuts.

Moreover, instead of raising tax rates as President Obama is doing, Reagan cut tax rates sharply. Instead of enacting sweeping, costly, new regulatory burdens as President Obama is doing, Reagan dramatically slashed regulatory costs on the economy.

By November 1982, despite the continued, contractionary, monetary policies that eliminated the historic inflation, the economy recovered, after 16 months of recession. In the first four quarters of recovery, the economy roared back with 7.7% real growth. After that 16 month recession, unemployment fell every year for the rest of Reagan's term, reaching 5.3% by 1989.

The economy continued to grow without interruption for a then peacetime record 92 months, shattering the previous peacetime record of 58 months by nearly three years. During this nearly eight-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy. In 1984 alone, real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the boom, increasing U.S. civilian employment by 20%.

In July 1990, the economy finally fell into recession again, probably because of the Bush/Democrat, tax-raising budget deal. Yet, even without a trillion dollar stimulus package, and even though Barack Obama was still just teaching Saul Alinsky classes for ACORN, the economy recovered only eight months later in March 1991. The unemployment rate in 1991 was 6.8%.

The stock market boomed again starting on Election Day, 1994, with a Republican Congress taking power for the first time in 40 years. The economy continued to grow without recession for 10 full years, until March 2001, just two months after President Bush II took office. Bush did not barnstorm the country telling voters that President Clinton had driven the economy into a ditch, nor did he adopt a trillion dollar stimulus spending package. Instead, he led enactment of the Bush tax cuts, what President Obama calls the failed policies of the past, and the recession ended in eight months, by November 2001, despite the detrimental economic effects of 9/11.

Despite Bush's "failed economic policies of the past," the economy continued to grow for another 73 months. After the rate cuts were all fully implemented in 2003, the economy created 7.8 million new jobs and the unemployment rate fell from over 6% to 4.4%. In response to the rate cuts, business investment spending, which had declined for nine straight quarters, reversed and increased 6.7% per quarter. That is where the jobs came from. Manufacturing output soared to its highest level in 20 years. The stock market revived, creating almost $7 trillion in new shareholder wealth. From 2003 to 2007, the S&P 500 almost doubled.

The End of Prosperity

On January 3, 2007, the day the Democrat Congressional majorities, including then Senator Barack Obama, took power, the unemployment rate was 4.6%. George Bush's "failed policies of the past" had set a record of 52 straight months of job creation, which we can only dream about now until Barack Obama, Nancy Pelosi, and Harry Reid are removed from power. GDP in the previous quarter was 3.5%, double today's most recent growth.

The deficit in the last budget adopted by Republican Congressional majorities was $161 billion for fiscal 2007. After four years of Democrat Congressional control and two years of President Obama, the deficit today is nearly 10 times as much, and Obama's own budget projects trillion dollar deficits as far as the eye can see. The Republicans did lose control of spending, with the federal budget as a percent of GDP rising from 18.2% in 2001 to 20.7% by 2008, an increase in the relative size of the federal government of one-seventh. But Obama and the Democrats saw this misfeasance and raised it several times, increasing federal spending to 25.4% of GDP today, an increase in the relative size of the federal leviathan of almost another fourth, in just the last two years.

Yet, listen to President Obama on the campaign trail, where he is propagandizing America at taxpayer expense full time rather than doing his job, and the present recession is somehow entirely different from every one of those previous recessions. Somehow America was never going to recover from this recession without President Obama and his magic pixie dust. Without him, the economy was going to continue spiraling downward until there were zero jobs remaining.

Yet, instead of recovering after 10 months, or 16 months at most, as in these previous recessions, the latest unemployment report shows that 33 months after this recession began, the economy was still losing jobs, with another overall decline of nearly 100,000 jobs. That makes 400,000 jobs lost since May, with the Bureau of Labor Statistics correcting for another 366,000 jobs lost as of March not previously recognized.

Even accepting that the recession technically ended last summer, still a record, instead of the economy booming back, as in the other recessions above, we are in another downward growth spiral. Instead of 7.7% real growth in the first four quarters of the Reagan recovery, or the similar boom in the Kennedy recovery, or even the 6.2% real growth in the first four quarters of the Ford recovery, real growth is spiraling down from 5% in last year's fourth quarter, to 3.7% in the first quarter, to 1.7% in the second quarter. And still losing jobs 33 months after the recession began is not a record President Obama can be proud of, contrary to his self-justifying, self-glorifying, campaign rhetoric.

This pitiful economic performance is the plainly foreseeable result of an economic program based on the fundamental misconception that economic growth results from more government spending, surging welfare, and record shattering deficits and national debt, which are the foundational principles of the long discredited Keynesianism at the core of Obamanomics. What President Obama is treating us to is effectively a historical reenactment of the 1970s, if not the 1930s, so we can all see first hand how those economic tragedies happened. All the more so now that Bernanke has embraced the monetary policy fallacies of the 1970s in trying to use inflation to stimulate economic recovery. The resulting declining dollar means we are all getting poorer, as everything we buy from overseas will be more expensive as a result, meaning a declining standard of living for America.

If it wasn't for President Obama and his literally New Left economic policies, the above discussion of the history of past postwar recessions shows that we should be enjoying a second year of booming economic growth by now, with steadily declining unemployment. Instead, besides more than a year of near double digit unemployment, America suffers with more citizens in poverty than in the entire previous 51 years of Census Bureau poverty records. September saw a record 100,000 additional home foreclosures, with a record number now on food stamps as well. Under Obamacare, soon we will enjoy 85 million Americans on Medicaid.

What these numbers are telling us is that it is Obama's own supporters who are suffering the most. Unemployment among African Americans has been at Depression levels for a year, with the September rate at 16.1%. Hispanics are suffering almost as much with over a year of double digit unemployment at 12.4% in September. The Obama youth are spanked the most, with teenagers suffering 26% unemployment, which has persisted for a year as well.

He Thinks You're Stupid

Print out the transcripts of President Obama's campaign appearances like I do to see just how stupid and gullible he thinks the American people are, or at least his own political base, which he is trying to rally. What exactly is he saying in context when he ascribes the recession over and over to the failed Republican policies of the past? He is saying that tax rate cuts cause recessions.

This is not even sound Keynesian economics, which would at least recognize tax rate cuts as pro-growth, as President Kennedy's Keynesian advisers did. It is not even good Marxism, as Karl Marx never said anything so inane. This intellectually dishonorable nonsense, peddled more explicitly by various George Soros-funded, Baghdad Bob-style propagandists, follows more in the tradition of Jim Jones, and the Jonestown school of economic policy.

Or take this quote from President Obama's Saturday campaign appearance in Minnesota, "Our thinking was we're going to come in, and even though the other folks caused it [the financial crisis], we're going to be part of the solution, not part of the problem. We're not going to play politics; we're not going to point fingers…." This is actually pretty sick political rhetoric, coming in the middle of a campaign speech which is all about playing politics and pointing fingers, after two years of playing politics and pointing fingers, for which he obviously expects historical acclaim as a political genius. Just four lines later, there he is pointing political fingers again, saying, "In other words, their political strategy was based on amnesia. (Laughter). Based on the premise that people would not remember that they were the folks who were responsible for the devastation to our economy."

Are Republicans responsible for Barney Frank's decision to "roll the dice some more" with federal "affordable housing" policies? Are Republicans responsible for President Clinton's subprime mortgage bubble up Fannie Mae and Freddie Mac? Are Republicans responsible for Janet Reno's discrimination lawsuits against banks that would not provide mortgages to people who could not afford them? Are Republicans responsible for ACORN's extortion of banks for billions in low income housing loans?

These, in fact, are all policies that Barack Obama supported throughout his political career, going all the way back to his own ACORN days. No one so close to the radical left front group ACORN as President Obama was should ever have been allowed anywhere near any federal office, let alone the presidency of the United States. But the next time President Obama is talking about the folks "who were responsible for the devastation to our economy," he should be looking in the mirror.

 To distract African Americans from their long-term depression-level unemployment, he and his political machine tries to tell them the Tea Party is racist. To distract Hispanics from their own Obamanomics beat-down, he sues the state of Arizona for its policy of enforcing current federal immigration laws, while explicitly prohibiting profiling.

And thinking his own political base will not notice, he has even embraced George Bush's terrorism policies. Now that he is elected, we have Obama's own surge in Afghanistan under General Petraeus. We continue to have troops in Iraq two years after Bush signed the peace treaty ending the war there. Guantanamo is still open. And the ACLU is suing to stop Predator drone assassinations in Pakistan, including against American targets.

Of course, I myself would be trying to win the War on Terrorism. But I was never deluded into supporting Obama. I would also not be sitting idly by watching Iran rapidly develop nuclear weapons and missiles, in a historical reenactment of the Nazi prewar arms buildup, after promising the easily deluded during his 2008 campaign that he would employ "tough diplomacy" to stop this developing nuclear terrorism. But that is something his supporters are going to have to live with now, or not.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.