Prospects are not looking too peachy for Democrats this election season. President Barack Obama and Democrats in Congress are getting tarred by the nation's entrenched unemployment and the cost of efforts to reverse the damage. I can understand the malaise that afflicts a nation with close to 15 million people unemployed and millions more underemployed. But the blame is being put in the wrong place. The next election should be a contest over which economic world view — laissez-faire or Keynesian — turned out to be the better one, and on that score the Democrats should win.
Deregulation got America into this mess — decades of it — the kind of laissez-faire economics enacted by the Chamber of Commerce, former Federal Reserve Chairman Alan Greenspan and Republican leaders. America barely survived life under their tie-regulators-hands approach to markets. Wall Street sucked up the wealth in this country, hollowing out our productive sectors, while bankers got drunk on risk. It was only after $17 trillion in American household wealth was wiped out in 18 months that Greenspan acknowledged how bankrupt his views were.
Yet even after this painful object lesson, Republicans in Congress stood nearly united against financial reform. "This is killing an ant with a nuclear weapon," House Republican Leader John Boehner said in his smackdown of a measure that others, including former Fed Chairman Paul Volcker, thought wasn't tough enough.
So the Great Recession was brought to you by deregulation. But thankfully we avoided economic dislocation on a scale equal to the 1930s through the Keynesian federal bailout and stimulus programs, the very initiatives that Republicans are demonizing in the run-up to the midterm elections. The Utah GOP even branded one of their own "Bailout Bob" (U.S. Sen. Robert Bennett) and denied him a fourth term because he voted for the TARP funds.
If only we could do a faux replay like in the film It's a Wonderful Life and experience in celluloid what would have happened were it not for government bailouts and stimulus. But the closest we can get is when economists use empirical data to peer into a rear view mirror. And according to them, it was only due to government action that America averted the "Great Depression 2.0."
Economists Alan Blinder, a former Fed vice chairman and a Princeton University economics professor, and Mark Zandi, chief economist at Moody's Analytics Inc., say in a new report that their number crunching points to an undeniable conclusion: The bailout of Wall Street banks, the stress tests, the Federal Reserve's purchase of mortgage-backed securities and its emergency lending, and the fiscal stimulus program, saved America's behind.
Without these government actions, Blinder and Zandi say that the GDP of the United States would be about 6.5 percent lower this year, we'd be suffering deflation, and another 8.5 million jobs would have been lost.
Talk about human misery.
Blinder and Zandi go on to write that the TARP "has been a substantial success, helping to restore stability to the financial system and to end the free fall in housing and auto markets." And on the $787 billion fiscal stimulus, the authors say that the stimulus alone will add nearly 2.7 million jobs and 2 percent to GDP in 2010.
Republicans who are using the TARP bailout (passed while George W. Bush was president) and the $787 billion stimulus program as this year's campaign betes noires, are essentially denouncing the fire hoses after the flames have been doused — flames that they and their ideological acolytes fanned.
What makes this all the more distressing for America's future is that crises are supposed to be learning opportunities. We reflect on what went wrong, how it happened and who most contributed to the disaster. But polls suggest that Americans are poised to elect politicians who stand against regulation and the stimulus.
This doesn't make sense. Voters should be rewarding the worldview that proved more successful and saved the day, otherwise the economic turmoil we barely avoided may soon be upon us again.