The Real Catastrophe

In campaigning to shore up dwindling support for what the Wall Street Journal has called Congress' "self-stimulus" package, Pres. Obama has repeatedly referred to the U.S. economy as a "catastrophe." Perhaps no president since the Roosevelts has used his office as a bully pulpit more effectively to drum up support for his policies. Despite this effort, polls show that about two-thirds of Americans disapprove of the direction in which the President is leading the country--about the same percentage as when George W. Bush was president.


With the campaign long over, Pres. Obama continued to stump for the recently passed Recovery and Reinvestment Act. Or more precisely, The Democrat Retrenchment and Renewal Act. Many economists believe this bill will do very little to stimulate the economy in 2009 or 2010. What it does, however, is provide givebacks to the special interest groups that supported candidate Obama in his historic run to the White House. The teachers unions. The service workers union. The public sector workers union. The list goes on.



Presumably the bill will strengthen the unions, replenish their coffers, and allow them to generously fund Democrat candidates in the 2010 elections. So the intended or unintended consequence of this bill isn't to stimulate the economy over the next two years; it's to ensure a continued Democrat stranglehold on Congress. So much for post-partisanship.


But to shore up wavering support for his bill, the President has spread a message of economic fear, likening the current economy to the Great Depression. A Dec. 3, 2008 post on this page showed how the two events were dissimilar. If there were continued doubts about that, here is where the President's message of fear is incorrect:

• Pres. Obama claims that the U.S. needs his bill to replace the 3 million jobs lost last year. But that is still only 2% of the U.S. labor market. His comparison with the Great Depression rings hollow because in 1932 job loss was over 7% of the job market. 3 million jobs lost is a tragedy but comparing it to the Great Depression is disingenuous.


• The Congressional Budget Office is forecasting a decline in the Gross Domestic Product of some 2%. That's on par with 1982's recession, which we managed to live through without a trillion dollar special interest group giveaway. But it's not even in the same ballpark with 1930's 9% drop in GDP.


• The President is correct in believing that the auto sector is a key part of the U.S. economy. Today he announces creation of a special "task force" to figure out how to jump start the car business, which last year saw production drop by 25%. Again, this shouldn't be minimized. However, in 1932 auto production shriveled by 90%. Think about the order of magnitude. It's not even close.


• For the last three months we've focused on the troubles in the banking sector, with a handful of national bank brands vanishing from the financial landscape. But this pales in comparison to the 10,000 bank failures in 1933.

Economist Bradley Schiller has done a good job exploding Pres. Obama's message of fear and doubt. The President's the-sky-is-falling comparison to the Depression is inaccurate. But it is also dangerous. It is a significant factor in the decline in consumer confidence. It is keeping consumers out of auto stores they think might not be there next month. It's hemorrhaging money from investment funds that in better times would be used for private sector investment. And worst of all, it's creating doubt and fear in Americans in their ability to rebuild this economy.

When Americans doubt themselves, they look to Uncle Sam to save them, which is the endgame for Pres. Obama and the Democrats. That's the real catastrophe.

Just thought you might like to know.