The Obamessiah's Economic Madness

I've got a series of stories that I'm bundling into a big post about the economic insanity that the Obamessiah is pushing, but it won't be ready for posting until next week.  Until then, here's something to tide you over.

First, it's important to understand that since the 1930s, this country has gone through a number of recessions.  They usually last from 12-24 months (just take a quick look at a bunch of opinions in a Google search here).  If, as some economists say, this recession began at the end of 2007, that puts us about 12 months into the current recession right now.  Do the math - we're halfway through it already.

And yet, here's what the Obamessiah is telling us:

President-elect Barack Obama said Thursday the recession could "linger for years" unless Congress pumps unprecedented sums from Washington into the economy, making his highest-profile case yet on an issue certain to define and dominate his early presidency.

"I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible," Obama said in a speech set to be delivered at George Mason University in Fairfax, Va., outside Washington. Excerpts from his prepared text were released in advance by his transition team.

It was the fourth day in a row that Obama has made a pitch for a huge infusion of taxpayer dollars to revive the sinking economy he will inherit from President George W. Bush.

Hmmm...

So, history shows that recessions are 12-24 months, but Obama is saying this particular one will last well beyond that.  Why is that?  First of all, isn't that warning essentially an admission that what he's going to do won't work?  And, isn't it also an admission that he knows it won't work?  More importantly, when was the last time a recession stretched out into several years?  Bingo - the Great Depression.  Let's look at that real quick.

FDR wasn't quite the hero people think he was, but if you're a regular reader of this blog, you know that already.  Read:

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

The conclusions of this study are critical to understand:

Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.

"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"

…"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

The facts are clear: if Obama gets his way with this stimulus package, he will transform this recession into another Great Depression.

I said this with the $700 billion bailout, and I'll say it again: people want Congress to do something, but the correct answer is NOT to do the wrong thing.  Here are three things that would trigger the economy to come roaring back:
1. suspend capital gains tax, even temporarily (like 1-2 years)
2. cut marginal tax rates across the board for everyone (this is entirely different than his false tax 'cuts')
3. cut corporate tax rates across the board

Those three things have been proven time and time again to spur economic growth, and they will work again.  If we want government to do something, these are the things they should do.  Obama's plan is a roadmap to financial ruin.  One last thing that Obama said:

"A bad situation could become dramatically worse," Obama said, painting a dire picture - including double-digit unemployment and $1 trillion in lost economic activity - that recalled the days of the Great Depression in the 1930s.

Yeah, there's a reason for that.

There's my two cents.