Obama Would Do Well to Study His New Deal History
“Those who presided over the last eight years … that brought us to the point where we inherit trillions of dollars of deficit, an economy thats collapsing more rapidly than at any time in the last 50 years, dont seem to me in a strong position to lecture about the lessons of history. So lectured President Barack Obamas economic point man, Larry Summers, Sunday on ABC.
[IMGCAP(1)]Summers self-serving recast of history reflects the Democrats political narrative du jour, whereby they avoid any blame for the countrys current economic crisis and justify the biggest spending bill likely to pass Congress in its 220-year history.
The narrative goes like this: President George W. Bushs tax cuts caused the economic mess. It is the biggest economic crisis to hit the country since the Great Depression and demands extraordinary action. The big-spending policies of the New Deal saved the nation from economic catastrophe, and those same policies can do it again today.
But just saying something is true doesnt make it so. Yes, the Bush administration should shoulder some blame for the current state of the economy. Out-of-control spending added to the countrys economic woes.
But Bushs tax policies werent the root cause of this economic crisis. The real villain in this classic tale of a government good intention gone awry was the Democratic social engineering policies of the mid-1990s.
It was pressure put on financial institutions by the Clinton administration to approve mortgages for unqualified borrowers that ended up causing the collapse of the housing market and led to a total meltdown in the financial sector. Then, in 2003, when Bush attempted to rein in the risky financial practices of Fannie Mae and Freddie Mac at the heart of the problem, it was Democrats such as Rep. Barney Frank (Mass.) and Sen. Chris Dodd (Conn.) who blocked measures that might have prevented last falls economic meltdown.
The second part of the Democratic narrative is also at odds with historical fact. Contrary to what Democrats would have people believe, this is not the only major economic crisis this country has faced since the Great Depression. Jimmy Carter left Ronald Reagan a deep recession with skyrocketing home mortgage interest rates, 10 percent unemployment and double-digit inflation.
Unlike Franklin D. Roosevelts New Deal, Reagans economic recovery program focused on tax cuts, which brought the country quickly out of recession and set the foundation for almost two decades of economic growth. Erasing that little bit of history, however, is essential to preserve the last part of their narrative that only a new New Deal-like package can solve the nations economic woes.
Obama and his team might be well advised to listen to what FDRs Treasury secretary, Henry Morgenthau Jr., said about the New Deal in May 1939: [A]fter eight years of this administration we have just as much unemployment as when we started. … And an enormous debt to boot.
He also said, We are spending more [money] than we have ever spent and it does not work.
Like so many of his fellow party members, Obama is mired in antiquated political myth, embracing Keynesian economics with the passion of a true believer that even an admission of failure by one of the New Deals chief architects cant shake.
As a result, Washingtons focus of the past two weeks has been almost entirely on which version of the Democrats New Deal stimulus bills would prevail. The truth is, philosophically, there really isnt much difference between the House and Senate bills.
Whats gone largely missing in the coverage has been the fact that House Republicans offered an alternative, which the presidents own economic model shows does a better job meeting his own standards: timely, targeted and temporary. While Obama says his bill would create or save 3 million to 4 million jobs, the very same model he uses to make this claim shows the Republican alternative creates twice as many jobs (6.2 million) at almost half the cost ($475 billion).
The GOP bill is also much more in tune with what a majority of Americans want. While Obamas job approval remains high, a CBS/New York Times poll found support for his stimulus has slipped significantly, especially with independents, going from 63 percent in favor in January to 51 percent today.
But more troubling for Obama and his party was the finding that Americans said they preferred business tax cuts over increased government spending to get the country out of recession by an almost a 3-1 margin, 59 percent to 22 percent.
As CBS said in its news release, There is evidence Americans might accept some of what the Republicans in Congress are proposing. I would venture that Americans would do more than accept some of the Republican stimulus plan lower taxes, tax credits for home buyers and a safety net for the unemployed if Obama actually put partisanship aside and gave them the chance.
Writer and editor Norman Cousins said, History is a vast early warning system. Obama ought to take the right lesson from history and lead by rejecting the policies of the New Deal and embracing ideas that work, whatever the source.
David Winston is president of the Winston Group, a Republican polling firm.