The Other Great Depression

By John in Oregon

I keep hearing about that other depression. The catastrophe only the government can save us from. So being of the Rocky and Bullwinkle generation, I got to wondering what it must have been like back then. I remembered the phrase return with us now to the thrilling days of yesteryear as Mr. Peabody turned the dial of the Wayback machine. POOF

I stepped out on the street filled with horses, Tin Lizzies, milk wagons and the pall of coal smoke, cough, cough. On the corner, EXTRA EXTRA, READ ALL ABOUT IT. COMMERCE SECRETARY DENOUNCES PRESIDENT, EXTRA. Having no “old money” I wondered into the library to read up from the local yellow newspapers.

It’s a few years after the war and things are dire indeed. US farm export sales crashed as European farms returned to production after WW1. The beginning of depression was extraordinarily sharp: the U.S. price level declined by over 40% in 6 months and 56% for the year. The highest decline ever in the whole history of the United States. The gross national product plunged 24 percent.

As the depression grew the President began to dismantle the huge federal bureaucracies built up during WW1. The Presidents slogan was “less government in business” as he opposed excessive governmental interference in the private sector of the economy and worked to control $25 billion of Federal debt. After taking office the President had said that government ought to “strike the shackles from industry .. We need vastly more freedom than we do regulation.”

Cities and church charities opened soup kitchens. As industrial output fell unemployment rocketed to 12%. The States passed bonus bills as the President did nothing while the unemployed wondered the streets looking for work. Any work.

The relationship with congress deteriorated as the President asked the Senate to cut spending. Congress wanted government intervention and the President said no, insisting that relief measures were a local responsibility. While the President pushed through tax and spending cuts his relationship with Congress became severely strained.

But the complete break with Congress came after a group of powerful Senators passed a bonus bill. When the President vetoed that bill in an election year, both Republicans and Democrats were enraged. As the President lost the support of Congress, the Secretary of Commerce spoke out against the President in support of the people on main street.

Then in 1923 the great depression ended when unemployment fell from the 1921 high of 11.9% to the pre 1920 levels of 3.2%. About now you are thinking I don’t remember the depression of 1920. Well neither did I, and now I know why.

The 1921 loss of half the value and price of all goods was horrendous. For comparison the loss of housing value in the last year is around 18%, lower in many areas and a bit higher in others. Even though it was worse than 1930 we don’t remember the 1920 depression because the President didn’t tinker with the economy and built the groundwork to allow quick recovery without wide spread damage.

That President? That was Warren G Harding. Harding “embraced the advice of Treasury Secretary Andrew Mellon and called for tax cuts in his first message to Congress on April 12, 1921. The highest taxes, on corporate revenues and “excess” profits, were to be cut. Personal income taxes were to be left as is, with a top rate of 8 percent of incomes above $4,000. Harding recognized the crucial importance of encouraging the investment that is essential for growth and jobs, something that FDR never did.”

Under Harding, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million, s reported 6.7 percent in 1922. Then fell again in 1923. So, just a year and a half after Harding became president, the Roaring Twenties were underway.

The Secretary of Commerce? That was Herbert Hoover who wanted government intervention in the economy “¦ which as president he was to pursue a decade later when he transformed the second Great Depression into the beginning of a disaster.

Like all good TV shows this tale requires a moral of the story:
When any politician says only Government can fix a problem ask your self? With all due respect Mr(s) Politician, is it not better to do nothing that it is to do the wrong thing?

Footnote: Harding never repaired relations with Congress which excoriated Harding with teapot dome after his death in 1923.
Apologies to Clayton Moore, Rocky, Bullwinkle, and Mr. Peabody.

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  • spam i am

    John…America has had 19 or 20 recorded recessions since our founding. THe one you picked was not a collapse of the financial system as is the one today, and ones in 1819, 1857, 1873, 1893, adn 1929. Consequently whatever Harding did or did not do might not give us much in the way of useful instruction.

    But even if we grant your point, and even if Harding’s method were a good economic model, do you really think that politically the federal government could “unshackle private industry” (Bernie Madoff excluded I suppose) and turn relief efforts over to local authorities and charities? How long would that government last in power?

    The counter lesson, the one most actual economists seem to be taking, is that we did unshackle the financial industry and now need to re-shckle it even as we bail it and ourselves out. Time will soon enough tell if this is a good course, but we are clearly on it.

    • snow

      Maybe you should go do some research of your own, looking at both sides of the issue for a change. When you come to the same conclusion on your own, learning from the mistakes and successes of others, your arguments might have some merit.

  • Wayne Brady

    I keep hearing that deregulation is the cause of the financial crisis. I know of no deregulation. When I ask, all I get is broad generalities.

    I do know that regulation was part of the problem. The regulator’s push to give loans to people who were not qualified was a terrible mistake.

    One thing I am sure of is that more government spending will do more harm than good.

  • Jerry in Oregon

    Here is some thought-provoking reading from two UCLA economists on this subject:

    http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

    In this paper, economists Cole and Ohanian lay out their reasoning for saying FDR’s New Deal prolonged the Great Depression by 7 years. They also point out the worst thing Congress could do in the event of economic catastrophe would be to enact some “ill-conceived stimulus policies.” The paper was written in 2004, and they were contemplating “what-if’s” and how we might best prevent a recurrence of the Great Depression.

    We’re circling the bowl, folks.

    Jerry in Oregon

  • Rupert in Springfield

    That’s because the de- regulation argument either tends to be made by those who don’t know or those who have something to hide (Rep. Barney Frank, Sen. Chris Dodd).

    The fact is that most economists, Robert Reich, Bill Clinton have admitted that the start of the financial crises was government meddling in the economy through Fmac and Fmae. This is why Fmac and Fmae were the first that had to be bailed out. I even warned about this on this very blog over a year before this crises hit when I related my own experience on my third house. I directly asked the loan officer then why standards had changed so much ( I am self employed and used to going through the wringer to get a mortgage ) and was told then and there and related it here how he told me government had forced them to lower the standards. I related it here, over a year before the collapse, so when people tell me it was all deregulation, I pretty much laugh.

    At this point the only poll that matters is the stock market. At this point I think we can say that the anti business tax and spend Obama approach can be given a solid F. That could turn around, but at this stage of the game, in the poll that matters, that’s where we stand.

  • Kupid

    Ya cant regulate into prosperity

  • spam i am

    It was a combination of things, including some deregulation, some failure to use regulations in place, monetory policy failure (keeping interest rates too low for too long,) development of new financial instruments like derivatives that government (both Clinton and Bush) chose not to regulate, failure of private investment self-regulation and prudence (i.e. Moody’s granting triple A status to what were essentially junk bonds,) and a herd mentality amongst the consumers that sought out the loans.

    http://www.washingtonpost.com/wp-dyn/content/story/2008/10/14/ST2008101403344.html

    But whatever the combination of causes, the result was and is a financial/banking collapse. The recession right after WW1 was not.

    BTW…as a self-employed person who re-financed, I had the same experience as Rupert in that I was allowed to make an income declaration. They also did not even bother to do an appraisal. But my mortgage broker said nothing about government “lowering standards.” Bottom line is lenders like Countrywide and Washintong Mutual bypassed Fannie and Freddie and simply re-packaged mortgages and sold them in bundles to investors based on phony bond ratings.

  • Anonymous

    dean spam,

    You should go try and get your house and 5 acres in your “well run France” .

    You wouldn’t succeed and you’d end up living in an apartment.

  • John in Oregon

    It’s easy to dismiss the 1920 depression as just another recession. So lets put on the shoes of a 1920 commodes broker. Just months ago our broker put $1,000 worth of wheat in his $5,000 warehouse. Now only a few months later the wheat is worth $440 and is stored in a warehouse worth $2,200. That’s the definition of runaway deflation the hallmark of a depression. Sellers in panic flee hard assets in search of cash.

    The moral presented here was the dichotomy of choice between government doing nothing as opposed to government doing the wrong thing.

    The counter view presented is, could the federal government “unshackle private industry” and last in power? In other threads more directly stated as *”we don’t need no stinking government.”* More eloquently stated by Obama as *”I reject the view that says our problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity.”*

    Other than an odd Libertarian Pursuit I know of no one advocating anything like no role. Although eloquently stated Obama presented the false view that those with different ideas are advocating no role for government.

    Beyond that the choice presented by Obama, between the stimulus and nothing, is a false dichotomy. There exist at least three possibilities. The Wrong thing, the Right thing and No thing. Thus the task is to place a given policy in the appropriate right or wrong category.

    I think of the medical standard as applicable here. First do no harm.

    Dean is absolutely correct in one observation. A wide range of options have been foreclosed given the quest for political power, the characterization of the “evil rich”, demonization of wall street, the blame of the markets, and the trashing of capitalism.

    Two quotes from Randall Hoven are appropriate here.

    “Given that no one involved, from the US to Iceland, Latvia or Europe generally, has been a bastion of “laissez-faire” capitalism, I think we can also dismiss blaming capitalism or free-markets for this one.”

    “I’m sorry that those words sound simplistic and like Republican “ideology” (or at least what used to be Republican ideology – before the Bailout Fairy arrived). But they have the benefit of being true. If you were to start from scratch, ignoring all ideology and going simply by the evidence of what produces prosperity, you would come to that conclusion: more freedom and less government lead to greater wealth and prosperity.”

    Dean mentioned a series of events. A more complete list would be:

    The panics of 1819, 1857, 1873, 1893, the depressions of 1920 and 1929-41, the recessions of 1937, 1953, 1957, 1960, 1974, the stag-pression of 1979-83 and the recession of 2001. Note the term panics is now obsolete.

    Of these events, five have involved Government intervention. Three, the tax and spending cuts of 1920, the Kennedy tax cuts of 1960, and the tax cuts 2003 produced good results.

    The 29-41 depression was marked by increased taxes, increased spending, trade protectionism, and government control of markets.

    The late 70s stag-pression was marked by Nixon price controls and Carter rationing then ended by tax cuts.

    Does seem to be a patter here.

    • spam i am

      John…something like 80% of the US banking industry, and who knows how much of the international banking industry, is effectively insolvent today. They simply owe more than they are worth, in some cases by an order of magnitude.

      No banks no lending. No lending no durble products can be sold. No durable products…not much economy left to argue about. Doing nothing, or “unshackling private industry,” are 2 options we can pretty much rule out. It would be like unshackling someone from a life raft and telling them to swim while holding an anvil (toxic assets).

      This is why Paulson and Bernanke, not exactly your typical socialists, asked for and got $750 billion.

      In your universe of options, you left out “arguing about how much water to use while the fire is engulfing the town.” That, in effect is what the Republicans in Congress are doing. The answer is all the water you can get into the hose until the fire is under control. We can all resume the argument about the virtues of capitalsim and socialism later.

  • Jack

    What, What about the Depression of 1893 http://eh.net/encyclopedia/article/whitten.panic.1893 and 1914. The Supposed Great Depression did not and I repeat did not have to last as long as it did. FDR & COMRADES Prolonged the supposed Great depression. And Obama and his Communists, will try to Pronglong this Recession and Possibly make it worse for more Power over the individual just like FDR. These Communists must be removed from office starting in 2 to 4 years and a reverse course must be implemented such as Reagan’s 1981 policies and or George W. Bushes policies of 2003. Get these communists out of there. WAKE up people.

    Oh and stop deadbeats from getting any more housing loans that they are not qualified for.

  • Wayne Brady

    The best solution to the current downturn is a reductions in the corporate tax rate and making the Bush tax cuts permanent. Capital would flood into the United States.

    More government spending is a drag on the economy. The cap and trade will really grind the economy to a halt.

  • Jay Bozievich

    Spam,

    The secondary crash of 1931 was a financial system collapse caused in part by government interventions from the Smoot-Hawley tariffs, to Hoover’s tight monetary policies in moving away from the gold standard, to the young federal reserves misplaced credit policies at the time. On top of that, Hoover’s and Congress’s demonizing Wall Street and the short seller that threatened restrictive regulations left the Market unsure of the how to value stocks and that uncertainty lead to a volitile market mostly in a downward direction. (Sound like today’s headlines about Obama, Frank and Dodd and the DOW?)

    Market’s hate uncertainty and that is all Obama has given them up to this point.

    A great resource for learning about the Great Depression is “The Forgotten Man”
    http://www.amazon.com/Forgotten-Man-History-Great-Depression/dp/0066211700

    The real lesson should be Calvin Coolidge and Andrew Mellon and the 1% unemployment of the mid-20’s…

    • Spam I am

      Jay…there are a lot of interpretations on what caused, and what could have prevented the slide into the GP before and after the markets crashed. Without engaging that debate here, let’s see if we can agree that whatever else it started as, it quickly became a banking/financial system crisis of the first order. Banks were closing by the hundreds and thousands, and since this was prior to the FDIC (big government) many lost their life savings, including my own grandfather. A lot of accumulated wealth went up in smoke. Not just stock market wealth.

      Sure…markets hate uncertainty. Hell…just about everyone except compulsive gamblers hate uncertainty. But wait….

      Obama is giving the markets uncertainty because that is the reality we are in. We have not had this magnitude of a financial collapse since the GP, and no one really knows (A) what should be done or (B) what we effectively CAN do. All he can do is play the odds, and that is done through analysis and math that can’t fully account for human psychology. I suppose he could stand up there and lie through his teeth and offer false assurances, but I think “the market” would catch onto that pretty darn quick don’t you?

      From what I read, about 80% of our banking system is essentially insolvent as of today (my socialist credit union appears to be in the other 20% thank goodness). Deposits are insured up to a point, but investments are not. The federal government has limited tools to work with. Interest rates are already zero. Deficits are already stratospheric. We are a fat cow that has wandered out onto very thin ice (with global warming no less,) and all Obama can try and do is walk us back to shore very gently and carefully. He wants to help us avoid panic, but he also wants us to understand this is an urgent matter. Like getting the kids out of bed and down the stairs and out the door during a house fire.

      As for “demonizing” Wall Street. I have not seen him do that other than to point to the more egregious misuse of taxpayer (borrowed from future taxpayers anyway) money. What I’ve seen so far is a calm, reasoned, adult to adult explanation of where we stand and what is being done, along with an honest moderation of expectations as to how soon and how deep the bottom might be. What I have seen from the opposition is a retreat back to first principles, which if anything is simply an avoidance of dealing with the problem.

      I don’t know what lesson you draw from Coolidge. Employment and unemployment…growth and recession…these wax and wane over the years. There has never been and probably never will be a permanent period of good growth and low unemployment. We have had 20 recorded recessions just in US History. I heard this morning that Rome had a credit crunch in around 5 AD, and Ceasar had to bring gold in to pay the troops and regain order. One could point to the Clinton 90s and say wasn’t that great…but it would provide zero help in solving the problem we have right now.

      • Jay Bozievich

        President Obama:

        “I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer. This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.”

        “I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.”

        “we will also end the tax breaks for the wealthiest 2% of Americans”

        “That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

        “This is America. We don’t disparage wealth. And we believe that success should be rewarded,” Obama said. “But what gets people upset – and rightfully so – are executives being rewarded for failure. Especially when those rewards are subsidized by US taxpayers.”

        From a quick review of the web.

        • Spam I am

          I guess we react to those words differently. To the extent the US government, meaning us, are all that stands between banks and wall street surviving to re-capitalize for another day and going under, then I agree with Obama that the executives need to be accountable to us, and that means no hanky-panky with our money. Keep in mind that most Americans are dubious about us giving them ANY money. The *only* justification for doing so is to prevent further tanking of the larger economy.

          I also agree with him on the tax breaks (and proposed tax raises, which you didn’t mention). The past 30 years have resulted in the rich getting richer, the poor getting poorer, and the middle class running harder to stay in place. Just before our recent crash, our income disparity was at its highest level since 1929. Ouch.

          There are both philosophical/ethical and practical issues intersecting in all this. On the ethical side, there is the disagreement between right and left over to what extent society (read government) ought to intervene policy-wise to lessen wealth disparity. Ethically, I come down on the “share more” side and so does Obama.

          Practically, we cannot (my opinion, shared by Paul Krugman and a few others of note) sustain a consumer driven economy if consumer spending ability continues to tank. Long story short, industrial and post-industrial economies tend to produce much more than can effectively be consumed (because productivity always increases,) so unless wages and incomes go up fast enough to keep up with all the goods and services available, there comes a crash. Even Henry Ford recognized this way back in the day. The rich can’t pull us all up by their bootstraps because they have excess capital and tend to save rather than spend. For decades we have been deepening personal debt and working longer hours to make up for declining or stagnating real wages. Unless this very fundamental fact changes, whatever else is done will only be a temporary patch on a rotting boat.

          Judge the effectiveness of Obama’s rhetoric and policies in a year or 2. Not after a month or 2. Or on a few days of a sinking stock market.

          That’s my story and I’m sticking to it until a better explanation comes along.

  • Wayne Brady

    Spam I am says the rich have been getting richer and poor have been getting poorer. I agree with the first half of that statement. The poor have not been getting poorer. They have been getting richer. Take a look at the numbers. They have more cars, TVs, and other comforts than they did 30 years ago or even 10 years ago.

    • spam i am

      Wayne…the data from the census bureau is that real dollar incomes for households at the median level and below (half of Americans) WENT DOWN from 2001-2007. The was after 6 years of economic expansion, before the current recession took hold. I don’t think the census bureau keeps data on how many cars, TVs, and other comforts people have.

      If you measure from 1980, median household income was a few thousand dollars higher in 2007, but people are working longer hours, and more members of households are working.

      These are facts you can easily look up for yourself.

  • John in Oregon

    *Jack,* hopefully I can present a more moderate view here. With access to Soviet era KGB records we do know there were operatives in the government then. But I am uncomfortable with defining FDR with a simple label. I don’t like the slurs launched at conservatives, and we shouldn’t like then any more when the Progressives are the target.

    My view of FDR is more complicated. FDR’s 1932 campaign message was much like that of Harding in 1920. He pounded Hoover for spending, tariffs, and intervention while FDR promised the Gold Standard and cutting taxes.

    FDRs start point was what Hoover left him. And he did appear to want to move away from Government control. Just fix the banks, just that one thing. Then something else popped up and FDR took control of that. Slowly he spiraled even more tighter control lurching from policy to policy. An example of power corrupting.

    The simple fact is central authority is incapable of making the millions of daily market decisions. And that was with a population of 120 million who communicated by letter and telegraph.

    *Jay,* good catch. In the mid 1920s under the additional Calvin Coolidge tax and spending cuts unemployment continued to fall to the 1% level. For contrast in the 1950s, 60s and 70s we thought 6% was low unemployment.

    Again Jay your comment about banking failure being secondary is spot on. Moreover banking failures were uniquely a United States problem.

    Lawrence Reed described Jim Powell’s findings on the depression era US unitary banking laws when he said the laws “prohibited banks from opening branches and thereby diversifying their portfolios and reducing their risks. Powell writes: “Although the United States, with its unit banking laws, had thousands of bank failures, Canada, which permitted branch banking , didn’t have a single failure …” Strangely, critics of capitalism who love to blame the market for the Depression never mention that fact.”

    A parallel to today has been raised. > *something like 80% of the US banking industry, and who knows how much of the international banking industry, is effectively insolvent today. They simply owe more than they are worth, in some cases by an order of magnitude.*

    I like to look further. Is what we think we know, just ain’t so?

    — Is lending frozen?

    In research by Alan Reynolds which was published in Forbes Reynolds said “The frantic congressional push to “do something” … has been widely defended with equally frantic claims that U.S. bank lending to business … has been shrinking fast.”

    Reynolds addressed the “[H]ysterical chatter about lending being “frozen” or “shut down””. Reynolds said *if* this “refers to anything real, it is not about banks loans…”

    Reynolds summed up “Everyone knows that U.S. banks have virtually stopped lending, deeply slashing their loans to U.S. consumers and firms. As is so often the case, however, what everyone knows is probably not true.”

    — It’s the housing bubble.

    We know it was the housing bubble. It started when housing prices fell and defaults rose.

    But this would hurt institutions that lend money to people who buy houses. “But funny thing: for the most part, the direct lenders were not the institutions that got into trouble. Savings and loans,” and commercial banks have been surviving. “Who had all the trouble? AIG and Lehman Brothers were investment firms… The most troubled banks were investment banks with global reach, not your local savings & loan.”

    Not to mention, housing prices didn’t drop that much. According to the Office of Federal Housing Enterprise Oversight quarterly index housing prices peaked in the third quarter of 2007. Went down in March 2008 with OFHEO’s housing index was down just 0.35% from the peak. And in September 2008, the index was only down 1.94%.

    Does it make sense that housing prices edge down 2%, and whole investment institutions go broke? How did a drop of a percent or two in US home prices cause whole countries in Europe to go bankrupt?

    — It started in the United States.

    Start with the second quarter of 08. The US economy *grew* 0.7% yet the economies of France, Germany, Italy and Japan all *shrank* by 0.3% to 0.9%.

    By the third quarter European economies continued to shrank. So did the US’s economy but by just -0.1%. The Euro area’s average shrinkage was twice that.

    It wasn’t until the fourth quarter 08 that the US economy was unambiguously shrinking. Only then was US and Europe contraction similar at 1.5%.

    My point here is there is a lot we know that just ain’t so. My own reaction is that Bernanke, Paulson, and Gitner are lurching from policy to policy, pulling levers of intervention to do something. Anything. And all to no productive effect.

    A medical example fits here. For years Rabies has been a death sentence. Doctors tried all sorts of radical treatments, aggressive use of drugs. Anything that might work to no avail.

    Then a team of doctors tried something truly radical. They would do nothing more than respond to each symptom as it happened. Trouble breathing, give oxygen. Fever spikes, cool the patient. Manage the symptoms and nothing more. The result, the headline *First: Rabies patient cured *

    Dean (Spam) you commented > *The past 30 years have resulted in the rich getting richer, the poor getting poorer, and the middle class running harder to stay in place. Just before our recent crash, our income disparity was at its highest level since 1929. Ouch.*

    *Dean* (Spam) you need to take care in the information sources you consult, such as this misuse of census information. As they say figures don’t lie but liars…

    For example Krugman quotes census data as 48 million with uninsured health care. All the while Krugman ignores the census bureaus caution that the number includes those between jobs, earning $50,000 to $100,000 and choosing no insurance, those eligible and refusing government programs such as SHIP and more. The same data show chronic uninsured are no more than 8 million.

    Those using Census bureau real dollar incomes are doing the same here. Ignoring issues like upward income mobility, starter jobs, and illegal aliens earning at US minimum wage in an hour what is 10 times the daily wage at home.

    But rather than arguing over the misuse of census data lets simply consult the results of a better information resource. The US Treasury Department’s latest 10-year analyses of tax returns.

    “The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans… study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005… Only one income group experienced an absolute decline in real income–the richest 1% in 1996. Those households lost 25.8% of their income.”

    The study results are shown in the table below.

    US Income Mobility
    Lowest Quintile ….. + 90.5%
    Second Quintile …. + 34.8%
    Middle Quintile ….. + 23.3%
    Fourth Quintile ….. + 16.6%
    Highest Quintile …. + 10.0%
    Top 10 Percent ….. + 2.9%
    Top 5 Percent …… – 6.8%
    Top 1 Percent …… – 25.8%
    All Groups ……….. + 24.2%

    That the poor are getting richer is not news. “Yet it’s amazing how much the populist hokum that the rich get richer and the poor get poorer continues to drive American politics and “social justice” agendas.”

    As I have said in the past the mime that the rich get richer is based on the belief that wealth is limited and the rich get rich only at the expense of the poor.

    By now its quite obvious this is Obamas world view.

    *Dean* (Spam) you ask us to > *Judge the effectiveness of Obama’s rhetoric and policies in a year or 2. Not after a month or 2. Or on a few days of a sinking stock market.*

    What is the current evidence? In addition to Obamas massive spending bill, we have his $3.6 trillion ($3,600,000.000,000) budget, and the $1 trillion ($1,000,000,000,000) tax hike.

    A tax hike that takes away the home deduction, taxes small business, raises capitol gains, and taxes charitable giving. In short a war on the investment and wealth creation sectors of our economy.

    As Dick Morris put it Obama “is the enemy of prosperity. He, literally, favors redistribution of income as being more important – and more a function of the president – than the creation of wealth.” “Obama’s theme, unfortunately, is the “The War on Prosperity,”” Morris said.

    I could take the cynical view, say nothing while Obama fails. Its not that every time Obama speaks, he sends the markets down and the stocks crashing. What is shocking is that he appears not to care one bit, as though the markets are just unimportant.

    Morris said “I think he’s [Obama] headed right over that cliff right now, I think it is going to become increasingly obvious that Obama’s economic policies are failing.”

    Nancy Pelosi believes political power takes precedence over country. I do not. I don’t want my country to fail.

    • Spam I am

      Well..if Dick Morris says so it must be true right? I mean…his expertise in these matters is what?

      Obama…as I read him…is analytical and long term. He has said that installing policies today are like turning the wheel on a very large ship. You are not going to see immediate results. So yes…on the news of the day that the economy is worse…AIG posting the largest quarter loss in history…Citi-Bank essentially bankrupt…the market is going to react in the negative. Should Obama then shift the wheel the other way? Market down…Hard to port! Market up…Hard to starboard! Eeek. Ship headed straight towards reef captain! That is not leadership. It is mere reaction.

      Short term, the stimulus will put some money in working people’s pockets over the next year or 2, and prevent state governments from going under. That plus some potholes get filled, some guardrails replaced, and so forth. If the banks that by your judgment are not really insolvent (except on their balance sheets) stabilize and the panic ends and consumer spending revives…THEN the market will start to go back up more steadily.

      Longer term, policies on the drawing boards but not yet debated or adopted may…hopefully will…result in several key improvements:

      1) An increase in the number of people with health insurance, especially those between jobs you seem to dismiss.

      2) A lowering of health care costs for everyone. We presently have the most expensive system on earth and one of the least effective. And this system is driving state budgets and private companies broke. It is also retarding wage raises which dampens consumer spending. We can’t keep sucking the life out of the economy with our bloated health care system.

      3) A shift in energy use away from fossil fuels and towards long term sustainable non-carbon fuels.

      4) A better regulation of the global financial system to prevent the next bubble disaster resulting from unregulated capital sloshing about to find the next big thing.

      5) More money in the pockets of working people who do service and retail jobs that can’t be outsourced (card check). In a demand driven economy, this is essential. And in a democracy it is also essential.

      Morris is wrong. Obama does not favor redistribution over wealth creation. He sees some additional redistribution as essential to continued wealth creation, because absent demand there is no basis for building wealth. Republicans believe every good thing starts at the top and trickles down. You might be surprised if it does not turn out that way.

      As for you Pelosi crack…its not worth responding to. I think it was Rush who said he hopes Obama fails, presumably so his side can get power back.

  • Wayne Brady

    Regarding items 1 and 2 in Spam I am’s comment above. There are other ways to get more people insured. The easiest is to remove the mandates and allow a person to buy a real insurance policy that covers only the expensive items. Nationalize health care has not worked anywhere it has been tried. Ask a Canadian or a Brit. Our health care system is the best in the world. The nationalized systems ration care and people end up dying while waiting for treatment or after being refused treatment.

    Over time, carbon based fuels will be replaced. Now is not the time. The alternatives are far too expensive. We need to drill for more oil and gas while we do the basic research to develop alternative fuels.

    Some regulation is necessary, but more often than not, politicians overdo it and make a mess of things.

    Card check will destroy small business. That is going make us all poorer.

    Redistribution is going to reduce wealth creation. If people do not benefit from their efforts they will not try as hard.

    • John in Oregon

      Wayne

      In my post above I had intended to acknowledge that you had nailed it when you said the poor are getting richer. Better late than never.

      The data backs you up 100%

      • Spam I am

        What data is that John?

      • John in Oregon

        The United States Department of the Treasury study which examined a huge sample of 96,700 income tax returns from 1996 and again from 2005. The hard data shows:

        Of the *lowest one fifth of earners* in 1996 earnings *grew* 10 years later in 2005 by an average of *90.5 percent* in inflation adjusted dollars.

        The hard data also shows:

        Of the *top one percent of earners* in 1996 earnings *fell* 10 years later in 2005 by an average of *24.2 percent* in inflation adjusted dollars.

        The detailed data is posted in the thread above.
        By the way. I do not find the fall off in earnings of the top one percent either surprising or alarming.

  • John in Oregon

    *Dean* (Spam) Dick Morris was as quoted a political analyst. But I do understand as a Clinton era Democrat he should be discounted.

    From the prospective of highly effective individuals in the economy, those who have money or business in the game, consider the thoughts of Jim Rogers and Walter Zimmerman. These two very different individuals have slightly different views. Rogers that the administration can make things better by not making things worse. Zimmerman that the administration can’t make things better but can make things a lot worse.

    *Dean* (Spam) raised a point > *So yes…on the news of the day that the economy is worse….the market is going to react in the negative. Should Obama then shift the wheel the other way? Market down…Hard to port! Market up…Hard to starboard! Eeek…*

    Obama said it more eloquently *”What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term… And, you know, the stock market is sort of like a tracking poll in politics. You know, it bobs up and down day to day.”*

    As many have observed “the stock market isn’t gyrating, or bobbing up and down. It’s dropping.” The DOW broke another bottom at $6,700.

    Obama continues *”On the other hand, what you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”*

    The *PE* ratio is not the Profit and Earnings ratio, but ignoring that.

    Since Obama said buying stocks is a good deal the market is down, a lot, but ignoring that also.

    The stock market is not how things were yesterday. Or, even today. It’s a leading indicator of exceptions of thousands of investors about how things will be in 12 to 18 months. And the expectations we see are no confidence.

    But the question is why the market is voting no confidence and is that more like the 1920 depression or the 1929-41 depression? Some possibilities are:

    *O* Raising the tax on charitable giving. Aside from the reduction of the resources of private charities, which are the most efficient and effective forms of assistance, it also increases the demands on government spending.

    *O* Raising tax on business large and small. Taxes increased to a combined Federal and State combined high of 46.2%, higher than France, China, Russia, Ireland, The United Kingdom, Brazil, India, Japan, and South Korea. In fact the highest in the world.

    *O* Raising the capital gains tax which reduces Federal revenue while at the same time penalizing those investing savings for hard times or retirement.

    *O* Squelching the stock market kills its attractiveness as an investment for savings such as retirement and 401Ks. Combined with an increase in the capital gains tax, forces investors into bonds — T bills and tax-free vehicles like municipal bonds. Which benefit the growth of federal, state and local government.

    *O* Reversing welfare reform which increases the barriers that government imposes on labor and work opportunities making it hard for the poor getting better off.

    *O* Creating false “tax cuts for 95% of Americans” by changing the federal withholding tables!

    *O* Pushing a carbon cap-and-trading scheme designed to punish oil companies, raise energy cost to slow the economy, and further tax consumers.

    *O* Increasing regulation and red tape to further strangle the free markets.

    Dan McLaughlin who reviews judicial opinions provides an example of how our government operates as a legalistic-bureaucratic system run amok. “River Street runs a donut baking operation and wanted to hire a new head donut baker/supervisor for a salary of about $40,000 a year. This is your basic business decision – hire a new baker, to grow the business. But there’s a catch: the guy they wanted to hire is a foreign national, so River Street needed the approval of the Bureau of Citizenship and Immigration Services.”

    Here is where things get complicated. BCIS demands that River Street submit proof that it can afford to hire a head baker to make donuts. After reviewing River Street’s 2001 and 2002 tax returns, BCIS tells River Street that it knows River Street’s donut business better than the company does, and they can’t afford a $40,000 a year donut baker. As McLaughlin said “I still stand in some awe of the insanity of the entire exercise. Should it really be this complicated and bureaucratic to hire a guy to bake donuts? And is this a preview of the future of the financial and health care sectors?”

    *O* Overreaching taxes on business beyond the US borders.

    This takes some explanation, and Ford Motor company is an excellent example. In Brazil Ford has built the most advanced automobile manufacturing plant in the world. Ford pays tax to Brazil and can take its profits to build another plant in, say India, but not the United States. Why? In the US, and only the US, if Ford brings the profits into this country then they are taxed again.

    Several economists have suggested a foreign profits tax holiday would help Ford and GM while not costing the Government any money.

    The Administration and Treasury Secretary Timothy Geithner have a different take on the subject. The Treasury secretary said the administration will implement rules and measures to collect taxes on US companies profits outside the US.

    Are these actions like those of 1920? No. All of the above follow the progressive pattern of making the people dependent on government that we saw from 1929-41

    Ben Sherwood has an interesting way to describe the markets. Sherwood said the vegetable seed industry is flourishing right now “sales are up double digits, Flower seed sales down as people realize you can’t eat flowers.”

    • spam i am

      The context of your Morris quote was over Obama’s economic policy, not over his politics. On economic policy I would discount him. On politics…well….he was the one predicting that Hillary had the nomination in the bag, so I would probably discount him there as well.

      How can the market NOT be dropping when blue chip corporations have stock values around $1, when 600,000 more people are laid off each month, when major bank nationalization looks like it is just around the next corner…and when government welfare checks on borrowed money are all that are preventing a total collapse of the economic system? Not exactly a buy signal here. Until the fundamentals (i.e. employment, profits) stabilize, the market is going to keep sinking.

      I don’t know that the market on any given day reflects what investors see 12 or 18 months down the road. Maybe yes…maybe no. That is certainly not the case for day traders. Some investors are long term, but most do not appear to be so. They move money around rapidly and frequently.

      Obama did not propose “raising the tax on charitable giving.” There is no tax on charitable giving to raise. He proposed capping the amount one can write off as charitable giving.

      Raising the capital gains tax DOES NOT REDUCE REVENUE. That is pure myth John. The CBO and many others have provided clear analysis on this. Even the Bush Administration fessed up on this one in their budget projections. If you cut taxes, you also cut revenues. There is no magic supply side genie…nor a tooth fairy.

      No one is “squelching” the market, and no one is “forcing” investors anywhere. The market is as free as it has ever been. If companies are profitable and paying dividends, people will buy stocks. If they aren’t they won’t. And over the past 12-18 months, starting long before Obama was elected, if you had bought stocks you would have done better with your money under your mattress or buried in the back yard.

      Who “reversed welfare reform?”

      “False tax cuts?” Explain. Or just send me your share when you get it and don’t bother to explain.

      The carbon cap and trade “scheme” (assumed pejorative) is designed to limit carbon emissions and help fund a transition to alternative, non-polluting energy. As I recall, we just had an election and both major candidates were for cap and trade.

      You want the banking and investment industries further deregulated? Oy vey.

      A donut maker wanted to hire an illegal alien? And the government made them justify that? I thought conservatives were all for that sort of thing.

      I’m all for collecting taxes on US companies overseas operations. Maybe they will think twice about out sourcing.

      Roosevelt did not “make people dependent on government” John. People were out of work, hungry, homeless, sick, and poor because of a failure of the private market system and the failure of a conservative president to lift a finger. Roosevelt was elected to help those people…he did so, and was re-elected overwhelmingly 3 times. After 20 out of 28 of the past years under Republican-Conservative management, our nation just overwhelmingly elected someone who promised to take things int eh other direction for a while. That is all that is happening. Its not comfortable, but its reality. If his approach fails to deliver in 2-4 years, your side will get a new turn at the wheel. Be patient.

    • John in Oregon

      Dean (Spam) I am surprised you didn’t raise the apparent disparity between the Census data cited by the progressive left and the Treasury data ignored by the progressive left. The two appear to be in conflict.

      Lets strip it down to the simplest form starting with two facts central to the Census data.

      1] The minimum wage in 1996 was $4.75. In 1997 the minimum wage was raised to $5.15 and remained through 2005. (US Department of Labor)

      2] In 1996 John took a starter job at McDonald’s earning the minimum wage of $4.75. AND In 2005 George took the same starter job at McDonald’s earning the inflation adjusted wage which had fallen to $4.12 equivalent to 1996.

      So Dean the Census based argument is this:

      George earned less in 2005 than John earned in 1996, therefore, John is more poor in 2005 than he was in 1996.

      Do you see the logical error in this (mis)use of the Census data?

      What is being ignored here is that in 2005 John has moved on to a better job earning a wage of $11.31. In fact one of John’s 1996 co-workers might easily now be the owner of a McDonald’s franchise and earning that $250,000 of an evil rich dude.

      • spam i am

        I don’t necessarily see any disparity. As Gus said in “My Big Fat Greek Wedding,” you are comparing chapples and choranges. Data also shows that median income for US citizens has declined over the Bush years. And it shows there are more people under the official poverty line, which by the way is well under the true poverty line.

        Your argument seems to be that since some of the people who were poor have moved up, and some of the people who were wealthy have moved down, this negates other statistics that show wealth is more concentrated in a narrow segment at the top, more people are poor, most people are working longer hours to stay in place, and the middle has dropped. Not to mention personal debt has skyrocketed, bankruptcies are up, and aggregate personal wealth has declined back to where it was 8 years ago.

        I don’t see a logical error in use of the data. I see a logical error in your using one data set to negate a different data set. Both can be true at the same time, and it is still logical to conclude that from the mid point down the US has been declining economically since the Bush election by the Supreme Court. If you don’t believe me, go take a poll of your neighbors. If you live in a middle class neighborhood, I don’t think you will find many who are better off than they were 8 years ago.

        So I guess my question is: what point are you trying to get across John? That everything is hunky dory? That some people attaining wealth negates a lot more people with declining prospects? That unemployment is not actually rising, and incomes declining? Or that all this is the fault of the guy who has been in office less than 2 months? What exactly?

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