Basic Econ Lessons #2 The multiple causes of this recession

“It’s all Bush’s fault, my completely inept behavior is not to blame in the least.”

I am tired of Obama claiming that he inherited this mess, that he prevented us from falling into another Great Depression, or that we can’t go back to the failed policies of the past as if it wasn’t his party instituting the failed policies that are actually to blame.  All of these lines are lies.

 

So let’s take these one at a time.

 

The first is that he inherited a bad economy. The truth is that he helped cause it.

 

Now how do I justify that?

 

Well think about the nature of what we say caused something.  For instance if someone has HIV and dies, it’s not as simple as saying they have HIV and it killed them. It’s that they have HIV, which caused AIDS, which allowed a flu virus to wreak havoc on their body, caused pneumonia which causes their lungs to fill with water stress the cardio vascular system and either die from drowning or heart failure.

 

The economy works in a similarly complex way. The Great Depression wasn’t caused by a single point.  The terms of the Treaty of Versailles weakened the international economy, caused gross inflation and many nations to default on loans, which hit at the same time as the bust in the natural boom and bust cycle of the US economy.  Now if this were the only problem the late 20’s would have seen a strong recession but little else.  Rather the US Congress in its usual stupidity considered the grossly idiotic Smoot-Hawley Tariff which would further depress the economy if implemented.  Businesses seeing that the tariff would be passed and not being idiots, prepared for worse economic times and pulled back on labor and investment.  This is what businesses do when they see bad times ahead, they cut, they save, they batten down the hatches so that they are lean enough and have enough reserves so that they can survive the bad times and still be around for the good times when they come again.  (Remember this point I’m going to come back to it).  This pullback to survive the coming bad times, combined with being at the height of an investment bubble, some bad banking policy, and the press overhyping the seriousness of the stock market, resulted in Black Tuesday.  Now the government turned a moderate recession into a bad one with just the rumor of the Smoot-Hawley Tariff…but then they did two thing that were even worse.  The first was that they actually passed the stupid tariff which further hurt trade and then the Federal Reserve, whose almost sole point during this period was to provide short term funds to get us out of emotional portions of panics and economic down turns, didn’t just not provide the funds which they were created to provide, but clamped down on funds and drastically pulled back on funds reducing the stock of money (the opposite of their intended purpose) which caused even more panic*, runs on banks, foreclosures and a whole host of other ripple effects which we call the Great Depression.  (This was then further exacerbated by FDR’s policies which turned a depression of a couple years into a decade of suffering).   (Am I simplifying here?  Yeah.  But let’s be honest you were already bored, you don’t want me going further into technicalities).

 

The point of these two examples is that there are structural problem (HIV and AIDS in the medical example; the boom and bust cycle, issues with banking structure, and the economic problems caused by Versailles in the economic one) and there are inciting incidents that cause the underlying problems to come out with a vengeance (contracting the flu or just considering the Smoot-Hawley Tariff).

 

How does all of this relate to Obama being the cause of the mess he said he inherited?

 

Well let’s deal with the structural problems in 2008. High debt (caused by both Democrats** and Republicans over spending), the government forcing banks to make bad loans via the Community Reinvestment Act, Fannie Mae and Freddie Mac (all Democrats to blame there) which caused a housing bubble, the threat of taxes being raised (Democrats to blame as they wouldn’t allow the Bush tax cuts to be permanent), energy price problems (mainly Dems to blame), corporate welfare weakening the fundamentals of businesses (most Dems, but also the GOP to blame), and over regulation getting in the way of commerce (again mostly Dems to blame).

 

But these had been issues for years so what was the inciting cause, the thing that made the bubble burst, and more importantly that prevented the usual kind of recovery we generally see in a boom and bust cycle?

 

Well we could probably find the cause by looking at how business reacts to changes in the political field.  As I said before, businesses aren’t stupid, they make long term predictions based on likely outcomes so that they can survive the coming disaster. Under this assumption you would likely see them cutting the fat in their business within a month or so of a development that bodes poorly for the economy (I say a month because it takes about that amount of time for a corporate structure to decide which investments to cut and how many employees they need to shave off the rolls).

 

So let’s take a look at the job losses in 2008.

 

Yes I know it says “Jobs Lost” and then shows the loss as negative number…which would actually mean jobs gained…but this is from Pelosi’s website when she was Speaker as I prefer to use Democratic numbers to show that even their own numbers show them to be in the wrong. I can’t help it if she and her staff are too stupid to properly set up a graph.

 

 

Now from this it is clear 2008 starts off bad but most of that initial loss you would usually see in a stagnant economy as those are the losses from seasonal jobs.   What we actually see are two major changes: one in March where we shift from just mild trimming of the fat to full on cuts, and another in August which starts off a major firing phase. So if it takes a month to respond to what happened in February and July of 2008?  Well in February Romney dropped out of the race telling businesses they were going to get stuck with center left Clinton, liberal McCain or socialist Obama…none of these good options.  And in July it became obvious to everyone that Obama had the election.  Amazing that every time that Obama went up in the polls losses grew. It’s almost as if business hearing the socialist shit he was peddling knew they were in for very long economic hardship…oh wait that’s exactly what they did.

 

Obama is the inciting incident that like the Smoot-Hawley Tariff sparked all the problems in the system to come to fruition.  These were structural problems that for the most part existed for all of his predecessors as well, but only he brought out the worst in this situation.  He didn’t inherit a mess, he created one.  He took an unstable situation and was the very thing needed to make bad, worse.  Yes others others, many others, are to blame for creating the structural problems (Bush included for being so weak willed and liberal in his attitude to the economy), but that doesn’t change the fact that Obama is the touchstone that set the whole mess aflame.  And as we’ll see it was Obama who took this bad situation and made it much, much worse.

 

 

 

 

 

 

Now I know I still have to deal with his claims that that he prevented us from falling into another Great Depression, or that we can’t go back to the failed policies of the past as if he wasn’t already instituting the failed policies that are actually to blame…but this blog is already 4 pages long and the most common complaint I get is that these blogs are too long…so I’ll deal with them in follow up blogs.

 

 

 

*Nowadays the Fed has gone to the other idiotic extremes and instead of providing limited amounts of short term funds to help get through the emotion driven lows, they’re pumping money in by the boat load which is as disastrous and idiotic as pulling back.

**And when I say Democrats I’m including RINOs who will always turn on their supposed conservative beliefs just to get their own pork projects…Ron Paul and John McCain come to mind.

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1 Comment

Filed under Budget, Capitalism, Congress, Conservative, Constitution, Economics, Election 2012, Evils of Liberalism, GOP, Government is corrupt, Government is useless, Obama, politics, Taxes, Tyranny

One response to “Basic Econ Lessons #2 The multiple causes of this recession

  1. Pingback: Obama’s pointless arguments… | The Conservative New Ager

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