Freedom Line Blog

In this week’s Liberty Update, we highlight the falsity of the persistent claim that Barack Obama somehow prevented a great depression:

[T]he federal government’s own economic data shows that Obama actually inherited an emerging recovery.  The American economy was already rebounding before he even officially became president.  What he has done is impose policies that have resulted in the slowest decade of economic growth in recorded U.S. history.”

Yesterday’s official report on first-quarter 2016 economic performance provided same-day confirmation.  More specifically, the U.S. Commerce Department announced that gross domestic product (GDP), the basic metric by which the economy is measured and by which recessions and recoveries are defined, grew at a disturbing 0.5%.  Not only is that number alarmingly low, it amounts to the worst mark in two years.  Echoing our own commentary, The Wall Street Journal emphasizes how this places Obama’s legacy in perspective:

The reality is that the first quarter is further evidence of what has been the weakest economic expansion in the postwar era.  The 0.5% growth is subject to revision but it follows 1.4% in the fourth quarter.  Growth over the last six months has averaged about 1%, and under 2% over the last 12 months…  The American economy hasn’t grown by more than 3% since 2005 (3.3%), the longest such stretch of malaise that we can find in the Bureau of Economic Analysis tables going back to 1930.  Even the Great Depression saw a snapback to rapid growth from 1934-1936.”

The explanation for that is simple.  Obama has pursued the most hyper-regulatory, big-government, wasteful-spending economic policy in U.S. history.   That’s illustrated among other things by his horrific deficit record, which saw four consecutive deficits in excess of $1 trillion dollars, and more accumulated debt than all previous presidents combined.  Until America has a president and Congress that pursue the proven supply-side policies that result in economic prosperity (see, e.g., Ronald Reagan), this will likely remain the new normal.

Over at the Wall Street Journal, James Grant, editor of Grant’s Interest Rate Observer has a perceptive review of the new book, “White House Burning: The Founding Fathers, our National Debt, and Why it Matters to You,” by former IMF Chief Economist Simon Johnson and University of Connecticut law professor James Kwak. Two passages deserve special attention.

On the banking system, Grant writes:

Here’s an idea: Let’s try capitalism for a change.

Rather than the bureaucratic monstrosity called the Dodd-Frank Act, for instance, why not hold the bankers personally accountable for the solvency of the institutions that employ them? Until 1935, bank stockholders would get a capital call if the company in which they had invested became impaired or insolvent. It was their problem, not the government’s. In the same spirit, suggests the New York investor Paul J. Isaac, let the bankers forfeit a portion of their past compensation—say, that in excess of 10 times the average manufacturing wage—if they steer their employer on the rocks. And let them surrender not just one year’s worth but rather seven year’s worth—after all, big banks don’t go broke all at once. Proceeds would be distributed to the creditors, as in days of yore. Bankers should not only take risks. They should also bear them.

And on the endless invocation of the Great Depression as the sole object lesson in how to respond to a severe economic downturn:

Messrs. Johnson and Kwak, who draw the usual conclusions from 1929-33, fail to mention the depression of 1920-21. Yet this cyclical downturn was as instructively brief as it was ugly. Peak to trough, nominal GDP plunged by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was then inexactly measured, soared to 14% from a boomtime low of 2%. And how did the successive administrations of Woodrow Wilson and Warren G. Harding, along with the Federal Reserve, meet this national disaster? Why, they balanced the budget and raised interest rates. Yet for reasons never examined in the pages of this book, that depression promptly ended and the 1920s roared.

Grant’s theme? Responsibility, both personal and collective. That has the great virtue of being the right thing to do. It also has one even greater virtue: it works.

If America continues to be a sober nation, there will be a time a few decades from now when Paul Krugman’s economic hypochondria will be viewed with the same sneering contempt as Paul Ehrlich’s crazed claims that hundreds of millions would die from famine in the 1970s and 1980s or the fears of the rise of Japan that dominated public discourse in the late 1980s and early 1990s (the old empire’s economic lost decade intervened).

On his blog at the New York Times today, Krugman frets aloud (his muscle memory prevents him from doing otherwise) that Americans may tank the economy by attempting to pay down their unsustainable levels of debt (further proof that Keynesianism is the economist’s version of a drunken weekend in Vegas). But the big story here is buried in the complaint that undergirds his thesis:

So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.

Hang on a tick. World War II? Hasn’t Krugman spent the past two years using every inch of column space available to him to advocate that President Obama embrace aggressive neo-Rooseveltism? But now it’s the war — not the New Deal — that ended the Depression? We know that Krugman is a specialist in non-falsifiable theories (if only the stimulus had been bigger …), but if the eight years that FDR had set aside for “bold, persistent experimentation” prior to Pearl Harbor weren’t sufficient to heal the nation’s markets, maybe that was a sign that the problem was strategic and not tactical. Maybe the Sage of Hyde Park should have taken some pointers from the benighted Warren Harding.

This is all a bit shocking coming from a Nobel Laureate. After all, if Paul Krugman doesn’t speak with authority on economics … then maybe Barack Obama doesn’t speak with authority about peace.

Did you hear about the Glenn Beck vs. Ivory Tower tiff?  A California history professor blogged on the Huffington Post that America’s highest profile fan of the Founders needs to get some perspective before spouting off like he knows something.  In particular, Joseph Palermo argues that – consistent with liberal elite opinion – looking to the Founding Generation for any type of guidance is silly because…well, things are different now.  Per Palermo, “The United States Constitution is a ‘living document’ no matter how often Beck and others repeat the lie that it isn’t.”

Forgive this former collegian if Dr. Palermo’s conclusory, unsourced statement leaves a bit much to be desired.

Thankfully, Amity Shlaes came to Beck’s defense.  Since she too (along with Jonah Goldberg) was blamed for misleading millions of Americans about the “goodness” of FDR’s handling of the Great Depression, Shlaes felt the need to explain the main attraction of Beck.  He gets deep into his subjects.  Moreover, he provides a sustained conversation with his audience about an alternative set of books that won’t show up on many university reading lists, no matter how well researched they are.

Every author is glad to sell books. But the victory is far more Mr. Beck’s than any individual writer’s or publisher’s. His genius has been in his recognition that viewers do not want merely the odd, one-off book, duly pegged to news. They want a coherent vision, a competing canon that the regulated airwaves and academy have denied them. So he, Glenn Beck, is building that canon, book by book from the forgotten shelf. Since the man is a riveting entertainer, the professors are correct to be concerned. He’s not just reacting or shaping individual thoughts. He is bringing competition into the Ed Biz.

In a word, Glenn Beck gives people a choice when it comes to getting well written, well researched histories about the people and issues that matter.  If he keeps it up, maybe reading history during college will be as enlightening – and enjoyable – as it is before and after.