The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

Liberal Fantasies vs. Economic Reality

Posted on | April 4, 2010 | 16 Comments

Since 2008, I have consistently derogated prospects for a quick economic recovery. Americans lost an estimated $7 trillion in asset value in housing bubble collapse — a loss of approximately $54,000 per U.S. home — and whatever it takes to recover from that kind of loss, it certainly won’t be quick. Furthermore, I have consistently said that the Democrats’ neo-Keynesian economic approach is doomed to failure:

The basic problem is still the same as I described it when I offered a thumbnail summary of Megan McArdle’s analysis in May 2009:

The stimulus-and-bailout policies have not addressed the fundamental problems of the economy — namely, an excess of debt and a shortage of capital to spur job creation — while the entitlement trainwreck of Social Security and Medicare looms immediately ahead. By piling on new trillion-dollar deficits, at a time when the recession will result in significant tax revenue shortfalls, the Democrats are steering the economy into a stagflation trap.

Excuse me if this seems like I’m engaging in self-congratulation, but my point is to drive home a basic point: You can’t make capitalism work without capital. And the discredited Keynesian theories on which the Obama administration and congressional Democrats are currently operating overlook the brutal economic reality of the capital shortage.

Even if Americans produce and accumulate new capital at the rate of $1 trillion a year, it would take seven year just to return to the level of asset-value they possessed before the housing meltdown hit in 2007.

Political leaders are now engaged in a lot of happy-talk about recovery, engaging in psychotherapeutic mind-games evidently based on the assumption that “consumer confidence” is merely an affective mood, unrelated to underlying economic reality. Larry Summers on CNN:

“We’ve got a long way to go,” Lawrence Summers, Director of the White House National Economic Council, said on CNN’s State of the Union. “We’ve inherited a terrible situation, the most pressing economic problems since the Great Depression in our country. It is the president’s preoccupation to put people back to work.”
While acknowledging that the economic outlook is not where the White House would like it to be, Summers pointed out that the economy is doing better now than it was this time last year in terms of job growth, exports, and availability of credit.
The trend has turned,” Summers told CNN Senior Political Correspondent Candy Crowley, “but to get back to the surface, we’ve got a long way to go and that’s what we’re fighting to do every day.”

As much as Summers tries to temper any temptation toward optimism, you see, he still insists that “the trend has turned.”  That this is a political statement, and not a sober appraisal of the economic situation, can be demonstrated in fewer than 150 words:

[U]nemployment remains at 9.7% and federal officials predict the rate will stay at similar levels through 2011.
Having expended some $800 billion on deficit “stimulus” spending, Obama finds himself facing the ugly economic reality of a market prepared to downgrade the AAA rating of U.S. bonds unless the federal government engages in serious belt-tightening.
Yet another wave of financial crisis, driven by trillions of dollars of bad commercial real estate loans, looms on the economic horizon. In 2009, there were 140 U.S. bank failures; there have already been 38 bank failures in the first three months of 2010, a pace likely to accelerate as the year continues. And the traditional liberal response to this kind of problem (i.e., more deficit spending) can only be undertaken at risk of sparking a bond-market crunch along the lines of the Greek debt crisis, except on a gargantuan scale.

Read the rest of that because, no matter what Frank Rich says, there is only one similarity between Barack Obama and Superman.

UPDATE: Speaking of super-heroes and economic reality, Glenn Reynolds whomps Henry Waxman upside the head with Hayek:

Obamacare was supposed to provide unicorns and rainbows: How can it possibly be hurting companies and killing jobs? . . .
Waxman and his colleagues in Congress can’t possibly understand the health care market well enough to fix it. But what’s more striking is that Waxman’s outraged reaction revealed that they don’t even understand their own area of responsibility — regulation — well enough to predict the effect of changes in legislation.

Instapundit: More powerful than a speeding locomotive!

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Comments

  • http://threeroundsbrisk.blogspot.com/ TmjUtah

    I’ve seen nothing in the past two years to cause me to alter my opinion that Mr. Obama scores himself a win if the system collapses.

    The vast majority of the rest of the DC parasites may be playing alongside various sides or shades of the political/self benefit divide, but Mr. Obama is Cloward/Piven writ in stone letters ten feet tall.

    So, can you give me any reason to look beyond collapse as the objective?

    Any body? Anyone?

  • http://threeroundsbrisk.blogspot.com/ TmjUtah

    I’ve seen nothing in the past two years to cause me to alter my opinion that Mr. Obama scores himself a win if the system collapses.

    The vast majority of the rest of the DC parasites may be playing alongside various sides or shades of the political/self benefit divide, but Mr. Obama is Cloward/Piven writ in stone letters ten feet tall.

    So, can you give me any reason to look beyond collapse as the objective?

    Any body? Anyone?

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    This is the basis of Liberal Economics

    Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their share. The government’s purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.

    Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government runs a deficit while it discovers the “knack” for creating the jobs that the rich are hiding.

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    This is the basis of Liberal Economics

    Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their share. The government’s purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.

    Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government runs a deficit while it discovers the “knack” for creating the jobs that the rich are hiding.

  • Pingback: The Other McCain on the Economic Reality | Political Byline

  • Adobe Walls

    By Rep. Paul Ryan
    “They began by passing the first Stimulus, a taxpayer giveaway to their favorite special interests. The price tag was $862 billion. They pushed through a second stimulus bill that cost you another $18 billion. Let’s see: since 4 million Americans have been unemployed since they passed these “stimuli,” that averages $220,000 per job lost. Think about that. Democrats can’t even put people out of work without spending near a trillion dollars!”
    From a speech Rep. Ryan gave earlier this week,sorry didn’t keep a link. The stupidity of the Social Democrats never ceases to astound.

  • Adobe Walls

    By Rep. Paul Ryan
    “They began by passing the first Stimulus, a taxpayer giveaway to their favorite special interests. The price tag was $862 billion. They pushed through a second stimulus bill that cost you another $18 billion. Let’s see: since 4 million Americans have been unemployed since they passed these “stimuli,” that averages $220,000 per job lost. Think about that. Democrats can’t even put people out of work without spending near a trillion dollars!”
    From a speech Rep. Ryan gave earlier this week,sorry didn’t keep a link. The stupidity of the Social Democrats never ceases to astound.

  • Adobe Walls

    Should Americans Bid Farewell to Exceptional Freedom? Link (I think) to Ryans speech from CL

  • Adobe Walls

    Should Americans Bid Farewell to Exceptional Freedom? Link (I think) to Ryans speech from CL

  • http://www.sixmeatbuffet.com Brian

    Everything we’ve experienced hitherto have been as a result of the subprime crisis. We have yet to face the prime crisis which is knocking on the door and the commercial real estate bubble which hasn’t dissipated into the ether.

    We have real problems and for a trillion dollars in stimulus this administration wants to claim bragging rights over hiring some Christmas mall Santas. Er, excuse me, census workers.

  • http://www.sixmeatbuffet.com Brian

    Everything we’ve experienced hitherto have been as a result of the subprime crisis. We have yet to face the prime crisis which is knocking on the door and the commercial real estate bubble which hasn’t dissipated into the ether.

    We have real problems and for a trillion dollars in stimulus this administration wants to claim bragging rights over hiring some Christmas mall Santas. Er, excuse me, census workers.

  • http://threebeerslater.blogspot.com richard mcenroe

    Someone tell Mr. Summers that the tide turns constantly when you’re circling the bowl…

  • http://threebeerslater.blogspot.com richard mcenroe

    Someone tell Mr. Summers that the tide turns constantly when you’re circling the bowl…

  • http://www.haemet.blogivists.com Roxeanne de Luca

    While acknowledging that the economic outlook is not where the White House would like it to be, Summers pointed out that the economy is doing better now than it was this time last year in terms of job growth, exports, and availability of credit.

    Rant time: I hate when seemingly intelligent people fail to understand basic statistics.

    Yes, the American economy has gained more jobs in this past month than it did at this time last year, but that’s a stupid metric to use (IMHO). If we’ve lost six million jobs in the past year and gained about 100,000 in the past month, then we are still down 5.9 million jobs from last year, which is the opposite of an improvement.

  • http://www.haemet.blogivists.com Roxeanne de Luca

    While acknowledging that the economic outlook is not where the White House would like it to be, Summers pointed out that the economy is doing better now than it was this time last year in terms of job growth, exports, and availability of credit.

    Rant time: I hate when seemingly intelligent people fail to understand basic statistics.

    Yes, the American economy has gained more jobs in this past month than it did at this time last year, but that’s a stupid metric to use (IMHO). If we’ve lost six million jobs in the past year and gained about 100,000 in the past month, then we are still down 5.9 million jobs from last year, which is the opposite of an improvement.

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