Hogwash then … hogwash now (A reprint of Vol. XX, Art. 3 on July 4th – Four years ago today)

After President Obama’s unjustified optimism at Thursday’s Rose Garden meeting, the U.S. Treasury Secretary assured New York community-developers that the economy will soon be in good shape:

“(Bloomberg): US Treasury Secretary Timothy Geithner said the American economy is showing signs of emerging from its slump and financial markets are starting to stabilize.

“‘The national economy is showing some greater signs of stability’ as consumer confidence and credit conditions improve, Mr. Geithner said on Monday at a community-development event in New York …

“The stimulus is ‘playing a critical role in restoring economic growth and strengthening our nation’s financial stability by developing and investing in local communities’, Mr. Geithner said.

That’s the kind of pabulum our administration officials are feeding to the U.S. media, but here are some of the headlined stories appearing in the Singapore Times.

– “US jobless rate hits 26-year high of 9.5%. President Barack Obama said on Thursday he was confident the US economy would recover, despite new data showing unemployment at a 26-year-high of 9.5 percent, which dampened hopes of a quick rebound.”
– “Markets stumble on US economic woes. World commodity markets were rocked last week by weak data in the US, a leading consumer of raw material, which cast doubt on the prospect of a global economic recovery. Data released last Thursday showed US job losses surged to 467,000 last month, pushing the unemployment rate to a 26-year-high of 9.5 percent.”
– “US June payrolls fell 467,000, jobless rates rise. US employers cut 467,000 jobs in June, far more than expected, while the unemployment rate rose to 9.5%, the government said on Thursday in a report that showed a labour market continuing to struggle with a deep recession.”
– “Hotel loan defaults double in the US. As many as one in five US hotel loans may default through 2010 as the recession means companies are spending less on travel and perks, according to University of California economist Kenneth Rosen. The value of hotel properties in default or foreclosure almost doubled to US $ 17.3 billion in the second quarter through June 14, from US $ 9 billion at the end of the first quarter.”
– “Consumer confidence takes surprise knock. Confidence among US consumers slipped unexpectedly in June, reflecting a weak labor market.”

Other stories in the Times were just as discouraging, but the attention-getter is a story by Paul Krugman, last year’s winner of the Nobel Prize in Economics. This highly respected professor of economics at Princeton University doesn’t gloss over the recent questionable moves by administration officials, and maybe that’s why the U.S. media overlooked his critical commentary.

“It’s back to the 1930s for the US economy – Once again, a president has pushed through job-creation policies which aren’t aggressive enough”, Professor Krugman begins.

“OK, Thursday’s jobs report settles it. We’re going to need a bigger stimulus. But does this president know that? Let’s do the math. Since the recession began, the US economy has lost 6.5 million jobs – and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace.

“Once you take into account the 100,000 plus new jobs that we need each month just to keep up with a growing population, we’re about 8.5 million jobs in the hole.

“And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone? Wait – there’s more bad news: the fiscal crisis of the states.

“Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from creating a great deal of misery, these cuts will depress the economy even further.

“So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3.5 million jobs by late next year. That’s much better than nothing, but it’s not remotely enough. And there doesn’t seem to be much else going on. Do you remember the administration’s plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.

“All of this is depressingly familiar to anyone who has studied US economic policy in the 1930s. Once again, a Democratic president has pushed through job-creation policies that will mitigate the slump but aren’t aggressive enough to produce a full recovery. Once again, much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.

“So have we failed to learn from history, and are we, therefore, doomed to repeat it? Not necessarily – but it’s up to the president and his economic team to ensure that things are different this time. President Obama and his officials need to ramp up their efforts …”

Indeed, they must ramp up their efforts. That above-mentioned Democratic president who pushed through those job-creation policies that “weren’t aggressive enough to produce a full recovery” was FDR. Those who “studied US economic policy in the 1930s”, however – really studied it, that is – will remember that it was that same Democratic president who eventually pushed through job-creating policies that dramatically changed not just this nation but the face and the very future of the planet. His three Emergency Shipbuilding Programs that ended the Great Depression, also ended the Great War, created dozens of millions of new jobs and began a half-century of unprecedented economic growth in the U.S. And it took just three “strokes of a pen”- the very same pen in the possession of our current chief executive.