May 29, 2014

When doing nothing is better than doing what we did

Investors Business Daily  Bank Bailouts, Stimulus Didn't Save Us from Second Great Depression

What is highly inconvenient for the left apologists for the Obama blitzkrieg of government programs and debt in 2009 and 2010 is that at the start of his presidency, he did lay out a counterfactual of what would have happened without the deluge of federal spending and debt.

Here's the punch line. According to the White House's own calculations, the economy would have been better off today if the government had done nothing instead of spending and borrowing $6 trillion.

The unemployment rate without the stimulus was expected to be 5% today. Instead it is 6.3% and in reality closer to 10%.

Another way to put this is that if the labor force had not declined and we had the 5% unemployment rate Obama says we would have had without the stimulus, there would be 5 million more Americans working today.
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Here is another counterfactual to ponder: How much faster would the economy be growing today if we didn't have the carrying cost of $6 trillion in debt to contend with?

U.S. GDP was supposed to grow at over 2% each year under the do-nothing scenario. In reality, 2% has been the anemic recovery pace. Why does this matter? Because with even an average recovery we would have $1.3 trillion more GDP today. And under a supply-side, Reagan-style recovery, we would have $2 trillion more of GDP and collective income.

The real story of the financial crisis of 2008 was a massive real estate bubble facilitated by easy money from the Fed, government policies through federal entities like Fannie Mae and Freddie Mac that underwrite risky mortgage loans with near 100% loan guarantees, a Congress and White House that, as Rep. Barney Frank once famously put it, "rolled the dice" on the housing market, and private banks, investors and home owners who got caught up in a speculation frenzy. Then we asked the conspirators like Frank and Sen. Chris Dodd to fix it.

Now we're repeating the same inane pre-recession mistakes, with government again guaranteeing 90% of new mortgages, financed with easy money and many low down payment loans.

Here we go again. The problem is that when we let the left write the history books, we never seem to learn from our mistakes.
Posted by Jill Fallon at May 29, 2014 8:55 AM | Permalink