By Donald Devine - Conservative Battleline
Were on the road to recovery" President Barack Obama told a sympathetic union audience following last months government report on jobs: Dont let anybody tell you otherwise. A few days later Fed Chairman Ben Bernanke went further insisting the recession was technically" over. Unfortunately the facts in that same report prove otherwise.
One knows he is in trouble when his own study shows the country lost an additional 216000 jobs and the president can only reply that for the second straight month we lost fewer jobs than the month before " and that the trajectory is in the right direction." He neglected to note its 9.7 percent unemployment rate was the highest in 26 years.
Over 7.4 million Americans had lost their jobs since the 2007 recession began. Even Bernanke conceded employment will not recover soon. Actually it is worse than that. The average employee now works and gets paid for only 33 hours per week and the unemployment rate including those who have been discouraged from even looking for work is an incredible 16.8 percent doubling the unemployment level the stimulus was supposed to avoid in the first place and approaching Great Depression era levels of 25 percent.
What is the president thinking about? Why all of the jobs he created with the massive $780 billion Treasury stimulus bill. The White House claims one million jobs were created or saved" so far. Are they not already included in the statistics? Well only $300 billion has been spent. To the president that proves when the bureaucrats get around to spending the additional $480 billion that will produce recovery. In total the president promised 3 million new or saved" jobs. But even if all of the jobs promised from the stimulus were new that would still mean less than half of the seven million who lost jobs would be back at work. More important these are temporary government jobs. What happens when the funds run out? President Obama responds that he will create new jobs green jobs using his czars to develop them as with his announcement at the union rally he was upgrading his auto czar to manufacturing czar (filling it with a former union consultant) with a mandate to craft the policies that will create the next generation of great manufacturing jobs."
It is heartwarming that someone still has faith in government expertise to create jobs and indeed to solve all problems. Not many people do. A very recent Gallop/USA Today poll found 57 of adults say the stimulus package is having no impact on the economy or making it worse. Even more 60 doubt that the stimulus plan will help the economy in the years ahead and only 18 say it has done anything to help improve their personal situation." A study available here of the economic data by John Cogan John Taylor and Volker Wieland demonstrates the people are correct. Neither the Bush 2008 nor the Obama 2009 stimulus increased personal consumption or growth.
Everyone agrees it was bad loans principally from semi-public Fannie Mae and Freddie Mac that caused the economic mess in the first place. So Congress responded by shifting mortgages to the Federal Housing Administration to manage them better solely under government supervision. So FHAs share of mortgages increased from 2.7 percent in 2006 to 22 percent this year. What is the result of more government crafting?" FHA has just informed Congress it will not be able to meet its required reserves and may need a bailout in addition to perhaps $1.5 trillion bad mortgage debt still at Fannie and Freddie. No one knows how much more bad mortgage debt hides in private hands.
Well at least the Securities and Exchange Commission was keeping the private sector honest? Well the largest fraud of all time involved a Bernard Madoff who federal officials estimate stole $65 billion from clients by running a straightforward Ponzi fraud that simply deposited funds in an account and then paid enough out of it to keep the investors" quiet. It was not rocket science and it took place right before the SECs eyes. Madoff himself told the inspector general who reviewed the matter afterwards he was astounded" the government regulators could not discover he was not even making trades but was hoarding the funds. Did he just slip by? No the SEC opened five inquiries over the past 16 years into his account missing this uncomplicated fact in each. Alerted by a prominent investor in 2003 the SEC even opened two probes in Washington and in New York and both ended with no action. As the IG noted a simple phone call to Madoffs depository would have shown he was not even trading. The SEC learned of Madoffs fraud only after he confessed.
The SEC excuse reported in the Washington Post was that its agency doesnt have the resources necessary to oversee the exploding number of financial firms." It is the classic government defense. We failed so give us more money. But the bureaucrats were informed at least six times by credible sources that Madoff was involved in criminal activity including one that specifically said it probably was a Ponzi scheme. The SEC had five different bites at the apple by a half dozen different investigative teams to get him and they all failed miserably. Congress is considering giving SEC more power and resources. But it was not a matter of resources. The SEC had the authority and the people but its bureaucrats would not even make a phone call.
Bernankes Federal Reserve is no more efficient than the Treasury SEC or FHA. Re-appointing Bernanke made him the presidents man. How has he done? After interviewing many economists The Wall Street Journals David Wessel concluded the experts believe Bernankes actions did help avert a worse crisis. But they differed greatly on which of his actions did so. In other words they did not have a clue. Even conceding some improvement in the economy although even the White House report admitted it is very limited - why did the recovery start in France and Germany? Both nations actually ignored Federal Reserve pressure to use massive bailouts and liquidity to stimulate their economies and they led the way. It was a mere 0.3 percent gain but unlike the U.S. which threw trillions of dollars at the problem the results were actually positive. Whether it lasts is another matter.
The real problem as even Bernanke acknowledged in another statement is drawing down the enormous liquidity created and supported by Treasury bonds. While exuding confidence that the Fed can drain the inflationary swamp few even of the most optimistic are assured since the Fed keeps sending signals that it will not increase interest rates. Any attempt to restrain credit will endanger the fragile recovery so the political pressure not to do is enormous. Rather than restraining spending to ease the pressure President Obama has plans for health energy and education that will vastly expand it. The Fed can handle private central bank functions but the economic planning dreams of the central bankers are just that dreams. No one knows how to do this and even if they did making unpopular but necessary decisions in a democratic government would frustrate them.
What would a free marketer do? The problem is that government has become so involved in the economy today it is almost impossible to separate it from the free institutions of society. Even a private central bank (i.e. a dominant player but without monopoly support from the government) could properly ease or tighten credit even theoretically up to what the Fed actually did. The Bank of England was once basically of this nature. Yet a private bank would almost certainly have not gone near as far as the Fed since it would have been extremely risky. Even the Fed sought the security of backing from government bonds. The almost trillion dollar stimulus" the later bailouts coercing the banks that did not want to participate and the explicit guarantee of too big to fail" were clearly not private functions however and there is no evidence these helped at all especially for the long term. The public certainly does not think so.
All this of course is purely theoretical since the Fed does exist with a government monopoly and backing. Given todays mess someone must act as a private central bank would in a crisis and the Fed is the only alternative. Some credit intervention can be justified but the fact the Fed has a monopoly and unhindered access to the Treasury forces reckless expansion of credit topped by extraordinary spending that significantly inhibits growth as Europe and Japan have learned or leads to massive inflation or to both i.e. stagflation as the U.S. demonstrated under Jimmy Carter. Rep. Ron Paul is on the right track here remove the Fed monopoly cut liquidity and spending and slowly separate the bank from the government functions.
Unfortunately there are consequences for improvident actions and the U.S. will pay one way or another. Everything President Obama has proposed would only make things worse. At 21 months duration his recession is already the longest since World War II. It will be extremely difficult to escape unharmed as even Bernanke conceded. But it goes deeper. As lawyer Harvey Silverglate argues in Three Felonies a Day existing regulations are so numerous obscure and conflicting it is impossible for a businessman to act without violating a law or regulatory dictate. With everyone afraid to act the economy has become chaos.
Almost no one has noted that the ownership society" once so giddily proclaimed as the future guarantee of majority support for capitalism is gone. The Investment Company Institute has announced that its latest survey finds that the share of U.S. households that own stocks has fallen from 53 percent in 2000 to 45 percent in 2008. Although the public remains skeptical if Mr. Obama continues along his present course his fettering of the market may become so excessive people may in fact turn to socialism as the only remaining choice. Or perhaps they will wake up before it is too late.
Donald Devine the editor of Conservative Battleline Online was the director of the U.S. Office of Personnel Management from 1981 to 1985 and is the director of the Federalist Leadership Center at Bellevue University.
