Rattling the Cage: Obama's voodoo economics

If the Obama administration wants to spend money to help the poor and middle class, it has to get that money from the taxpayers.

larry derfner 88 (photo credit: )
larry derfner 88
(photo credit: )
The cave-in of the US economy and defeat of the Republicans marks the start of a new economic era - not only for America, but for the rest of the world that's waiting to see if Barack Obama and the Democrats can come up with a new way that works.
The liberal consensus is that what's needed now is a new New Deal - a financial "stimulus," a heavy injection of government money to create jobs and get Americans earning and spending their way out of the recession. However he chooses to do it, America's poor and middle class have their hopes riding on Obama to turn the economy around, to drive the wolf away from the door, to get them back on the high road.
Sorry, but I don't see it happening, at least not for a good while. Obama, I expect, will "redistribute the wealth" by raising taxes on the rich, which is a very good thing - it will make American society less grotesquely unequal than it's been since the 1980s. But America's poor and middle class are heading into harder times yet, and I don't think Obama and the Democrats can prevent it. The best they can do, I'm afraid, is slow the hemorrhaging and spread the pain around more equitably (or at least less inequitably) until the economy gets well again, which it will. Only after the recession is over might the US be able to afford a new New Deal - a European-style social democracy - that liberals like me advocate. But before things get better, they're going to get worse - even under a new Democratic administration that has such a mandate for change.
The problem with the cure prescribed by the liberal economists and commentators - for the US government to spend hundreds of billions of dollars on infrastructure projects - is that this is the kind of thing that buckled the American economy in the first place: The liberals are saying America should spend more and more huge amounts of money that it doesn't have.
This, from what I can gather, is the very thing that's wrong with the US economy: For years, the government, the banks and the citizens all lived way, way, way beyond their means. The Bush administration slashed taxes at the same time it cranked up spending, notably on a trillion-dollar war in Iraq, and just let the deficit go on growing. The banks bought and sold "assets," notably low-interest mortgages, that were castles in the air. The citizens took on debt obligations, notably on new houses, that they could not realistically hope to pay off.
THERE'S A limit to this, and America just crashed into it. Yet now, with the government spending $700 billion to rescue the banks, with General Motors, for God's sake, waiting on a bailout to stave off imminent bankruptcy, with America already so deeply in the hole - now Obama should come in and spend a fortune on infrastructure projects? Where is the money supposed to come from? This isn't a cure, this is booze for an alcoholic.
Obama says his government will help Americans pay for health care, college tuition, mortgages and so on, and that he'll get the money by raising taxes on the richest 5 percent of the population. As for the other 95%, he says they'll get a tax reduction. I don't believe it. It's pie in the sky. To give Americans all the help Obama promises, plus all these job-creating programs the liberals are pushing on him, will require absolutely massive tax increases, and not just on the richest 5%, not by a long shot. And I don't see how middle-class Americans, as deeply in debt and worried about their livelihoods are they are, can handle higher taxes now, or how Obama or anybody else would suggest such a thing.
The only way to pay for a new New Deal in the US now is with a steep, broad tax increase, which is impossible, or by driving the country even deeper into debt, which is reckless beyond belief. Something's got to give, and it's going to be Obama's promises. The only promise he can, and should, keep is the one about taxing the rich, but that money should go to pay down some of America's runaway debt and prevent catastrophes like the bankruptcy of General Motors - not to pay for all sorts of new social programs.
NOT NOW, anyway. The idea of national health insurance has been kicking around the US for more than 50 years; this is not the time for the government to try it. Later, when America climbs out from under its debts, then yes, but only then.
I know - FDR implemented the original New Deal at the height of the Depression, and it proved to be a godsend. But in 1932, FDR took over a country that was starved for money - there had just been a major tax increase and credit was very tight. The economy needed a stimulus and the government had the money to provide it. Obama, by contrast, will be taking over a country that's already been overstimulated by heaps of money that existed on paper but not in reality - and his government will not have money to spend.
Hopefully, he will get a financial windfall over the next couple of years from a successful withdrawal from Iraq - but it won't be pure profit. A lot of Americans in defense-related industries will lose their jobs. War is a huge expense for government, but it can also be a huge stimulus to the economy, as FDR could have told today's Democrats.
On balance, though, getting out of Iraq will be great for the US economy because it will cut spending dramatically. But I think Obama ought to be very cautious about spending the savings on social programs; he may need the money soon afterward in Afghanistan or Pakistan. Or in Iraq again. Or elsewhere. One thing he will be inheriting that FDR didn't is a global war on terror.
For now, America cannot afford a new New Deal. After a couple of years in which he soaks the rich, puts out economic fires and, God willing, gets out of Iraq without it blowing up in everyone's faces, Obama should be able to start spending money on the middle class and poor like they do in Europe. But even then, it may well require raising taxes toward European levels, which the American middle class will not like and may not accept. Social democracy in America may turn out to be politically impossible.
BUT THIS is part of the basic, eternal economic reality that Obama, the liberals and all Americans are going to have to face, the one the Reagan revolution denied and that's now taking its revenge: There is no such thing as a free lunch. You want it, you pay for it. If the Obama administration wants to spend money to help the poor and middle class, it has to get that money from the taxpayers.
Republicans go on about "tax and spend" liberals, but at least taxing and spending is economically rational. Republicans used to believe in small government, in a policy of "don't tax, don't spend," which is also economically rational. But Republican policy since Reagan is "spend, but don't tax," which is economically irrational.
The Reagan revolution didn't replace liberal economics with conservative economics, it replaced it with voodoo economics. And with all due respect to Obama and my fellow liberals, when they argue for a new New Deal alongside a tax cut for 95% of Americans, they're still talking voodoo economics, only in modified, Democratic form.
It's a change of sorts, but not the one America needs, and not the one the rest of the world is waiting for.