Is Obama Letting the Economy Tank on Purpose?

So, I have been watching the economy collapse day after day.  One would almost think the press itself wants it to keep diving.  That's obviously not the case, as we see newspapers and television stations scrabbling for more cash.  Today, the Rocky Mountain News published its last paper.  

Listening to President Obama over the past few weeks, I too was wondering if he had a stake in all of this.  When he was running for office, he had a message of hope for Americans.  He was going to solve all of our problems.  He was going to bring a new day.  We would be strong again. Granted, he has only been in office for a little over a month, but the market has fallen even further since inauguration day.  Rather than listening to the hopeful messages we got accustomed to hearing during the campaign days, we heard an Obama who has been downright scary.  Words like catastrophe, worst ever, and never recover.  What?

Since the birth of our nation, there have been between 18 to 20 recessions, depending how you count them (and depending on wikipedia's sources).  That's a lot.  Every time, America has bounced back.   We are stronger today for it.  We have learned from past mistakes.  So how is this one going to be the end to end all?  It isn't.  We just aren't used to bad ones anymore.

So why has Obama been so negative.  Simple, he wanted to get the stimulus bill passed.  Is that so wrong?  It depends on what you think will stimulate the economy.  If you think tax cuts, which has gotten us out of recessions before, then it was a bad deal.  If you think more government spending (which technically did get us out of the Great Depression, but it was spending for a war, not the New Deal), then it was smart.  However, here we are, after all that negative rhetoric, and the Dow is hovering just above 7000 points and it keeps falling day after day.  Investors are terrified.  That's not good for the economy.   They are waiting for a leader to emerge.

Then came the nearly 4 trillion dollar budget announcement this week.  Now, I'm for deficit spending in a recession.  I think it does help, but it's important where you spend all that money.  This budget is laced with Democratic Party initiatives rather than concepts that will help American's get jobs.  Higher taxes on the "rich".  Universal health care reform.  Some of the policy ideas are probably good.  Some are probably bad.  But, what you don't do when you are in a recession and America is broke...is create a bigger deficit than you need.  You wait on your drastic  reforms, because America just can't pay for it right now.  Just like we should only use credit cards sparingly, so should the government when considering deficit spending.  Not the Democrats, though.

So, why is Obama pushing this now?  Dick Morris suggests he made the economy sound even worse than it is (if you can believe that), so that the Democrats could push through their liberal agenda.  It's plausible.  The stimulus bill passed.  The Democratic Party has been licking their chops since they took control of everything to shove through their policies.  To make up for old times.  Nancy Pelosi says the people demanded it!  Really?  I think many people voted for Obama and the Democrats, because they were tired of all the corrupt Republicans and W's way of running things, more than anything.  They were tired of deficit spending!  They were tired of Iraq!  

My point is, if Obama truly is catering to his party now, not the American people, and making the economy out to be even worse, to pass through Democratic Party agendas, then it's a sad day in America.   What we need is a hopeful President with tighter controls on spending, not excessive spending.  There will be plenty of time for the Democrats to push through their agenda.  I just hope that Dick Morris is wrong and Obama is living up to his campaign promises.  We shall see.

How to Stimulate the Economy

What is happening to the American Economy? Well, it’s really the global economy, but to simplify things…let’s just keep it American. First, people borrowed more money than they could afford to pay back with their income. They financed credit with more credit. This was accomplished through credit cards, car loans and mortgages. Second, the banks went along with it. Finally, the crap hit the fan when the debt came due. Demand for everything softened, because Americans finally had tapped all their credit and couldn’t pay for anything else. There became less demand for homes, so prices fell. Then people defaulted on their mortgages…we have heard this explained a thousand times on the news and we know the outcome. We are living it.

So how do we fix it? Well, there are two models: 1. The Government spends its way out of the mess by spending money it doesn’t have…by spending OUR money. They use OUR debt to finance public projects and employing more people to build the projects. 2. The private market spends its way out of the mess. This is accomplished by massive tax cuts…basically letting businesses and individuals keep more of the money they earn.

Fans of Option 1 believe that the private market got us here. That is partly true. People got greedy and either loaned money on risky investments, or spent more than they made. Both parties in Government turned a blind eye. But is doing the same thing (Government spending more than it brings in) going to solve the problem? Don’t two wrongs make a wrong? The reason the American economy is in a tail spin is very simple…no one is buying anything. People are scared so they have cut back on spending. In part, this is irreversible, because we spent more than we could in the past. So, no matter what happens, Americans will spend less, because there is less credit.

Well, if the problem is less spending then the solution needs to be getting Americans to spend more (since we are anywhere from 2/3rds to 3/4ths of the economy, depending on the economist). The theory is, if Government spends more, it creates more jobs allowing people to spend more, because they have their new government job. But, what if instead we gave everyone that currently had a job a lot more of your money back by cutting taxes? What if we cut business taxes drastically for a period of time then gradually increased them? Businesses would have a lot more money and so would consumers. Consumers would buy more, because they have so much excess money to spend. This creates more jobs, so businesses can keep up with demand. Businesses have more money to keep current employees, make investments, and hire new help. More people have jobs, so they can keep spending money. Say goodbye to the recession.

So what happens when the tax cuts are gone and taxes increase? Well it must be increased gradually and if done gradually over time, the consumers will keep spending, because they have jobs, and businesses will keep hiring and not firing because they have consumers. Remember, the Government’s spending plan ends too. Eventually they will spend all of their money building the roads and improving the schools. What happens then? Well the roads are built and the schools are fixed…so time for layoffs? Allowing Americans to spend their own money will increase demand faster than the Government can implement its programs and by giving everyone 13 more dollars a week. Tax cuts are more drastic and immediate. People see the effects quicker and react quicker. Do our roads need to be fixed? Of course, but that can be dealt with at another time. Right now, we need to simulate the economy and fast. The Democrats can deal with education, infrastructure, and their other pet projects at a more appropriate time.