July 12, 2009

By Steven Spuiell

President Obama has an op-ed in the Washington Post today defending the stimulus package. Let’s take a look under the hood:

Nearly six months ago, my administration took office amid the most severe economic downturn since the Great Depression. At the time, we were losing, on average, 700,000 jobs a month. And many feared that our financial system was on the verge of collapse.

Wait a minute. At a press conference a few weeks ago, when confronted with the disparity between his administration’s projected unemployment figures under the stimulus (8 percent) and the real unemployment figures (9.7 percent), Obama said, “Keep in mind the stimulus package was the first thing we did . . . If you recall, it was only significantly later that we suddenly get a report that the economy had tanked.”

So Obama took office amid the most severe downturn since the Great Depression, at a time when the country was hemorrhaging jobs and the financial system was on the brink of collapse. He said as much a week before signing the stimulus into law. But don’t blame him for overselling the impact the stimulus would have — his administration was totally blindsided by a sudden report that the economy had tanked!

The swift and aggressive action we took in those first few months has helped pull our financial system and our economy back from the brink. We took steps to restart lending to families and businesses, stabilize our major financial institutions, and help homeowners stay in their homes and pay their mortgages.

Let’s examine that phrase, “swift and aggressive action.” For Treasury Secretary, Obama rammed a tax cheat through the confirmation process by claiming he was the only man who could do the job. Secretary Geithner then proceeded to unveil a plan to save the banking system that inspired so little confidence, the Dow fell 300 points upon its announcement. Geithner’s Public-Private Investment Partnership to buy troubled assets from banks has failed to launch, primarily because the Financial Accounting Standards Board loosened mark-to-market accounting rules, thus enabling banks to avoid write-downs on their toxic mortgage-backed securities. Now that banks can hold those assets without booking losses, they have little incentive to sell them at a discount to the P-PIP. With P-PIP looking increasingly like a dud, the adminitration’s only real plan to deal with crippled banks is to cross its fingers and hope the economy grows fast enough to enable them to recover on their own.

Nor has Obama’s Making Home Affordable plan been any great success, as Joe Nocera explained in Friday’s NYT (best summed up by the phrase “drop in the bucket”). As NRO’s editors pointed out when the plan was announced, “The relatively small group of in-deep but creditworthy homeowners who could be helped by Obama’s plan already are positioned to refinance at better rates, or to move from variable-rate loans to low-drama fixed-rate mortgages, without a $475 billion government intervention.” That’s $75 billion for the program and $400 billion to shore up Fannie and Freddie, the real beneficiaries of the deal.

On the other hand, Obama did move swiftly and aggressively to sign the Lilly Ledbetter act, exposing companies to spurious equal-pay lawsuits; to roll back Clinton-era welfare reforms; to use TARP funds to shield the UAW from the full fallout of the GM and Chrysler bankruptcies, and so on. Maybe that’s what he meant.

We also passed the most sweeping economic recovery plan in our nation’s history.

True, if by “sweeping” you mean “costly.”

The American Recovery and Reinvestment Act was not expected to restore the economy to full health on its own but to provide the boost necessary to stop the free fall.

This is just a terrible metaphor. Can we decide whether the economy a sick patient or a free-falling object? And how does one give a free-falling object a “boost”?

So far, it has done that. It was, from the start, a two-year program, and it will steadily save and create jobs as it ramps up over this summer and fall. We must let it work the way it’s supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity.

As Keith Hennessey and Ed Morrissey point out, it’s important to note the language change here, both the sudden shift from present to future tense (it “has” worked vs. it “will” save and create jobs), and in the abandonment of the “3.5 million jobs” figure that the administration was throwing around when it was selling the stimulus.

Now is the time to build a firmer, stronger foundation for growth that not only will withstand future economic storms but that helps us thrive and compete in a global economy. To build that foundation, we must lower the health-care costs that are driving us into debt, create the jobs of the future within our borders, give our workers the skills and training they need to compete for those jobs, and make the tough choices necessary to bring down our deficit in the long run.

Already, we’re making progress on health-care reform that controls costs while ensuring choice and quality, as well as energy legislation that will make clean energy the profitable kind of energy, leading to whole new industries and jobs that cannot be outsourced.

Suffice it to say, the road back to prosperity does not pass through nationalized health care and energy sectors.

And this week, I’ll be talking about how we give our workers the skills they need to compete for these jobs of the future. In an economy where jobs requiring at least an associate’s degree are projected to grow twice as fast as jobs requiring no college experience, it’s never been more essential to continue education and training after high school. That’s why we’ve set a goal of leading the world in college degrees by 2020. Part of this goal will be met by helping Americans better afford a college education. But part of it will also be strengthening our network of community colleges.

A new initiative to strengthen community colleges . . . that sounds familiar — where have I heard it before? The community-college initiative is the classic punt on education reform, based on the incorrect assumption that increasing college enrollment will automatically yield a better-educated work force, i.e. that there is no distinction “between attending school and becoming capable or skilful.” Furthermore, there is no good evidence that more spending on education yields better educational outcomes.

I suppose we should be glad that, by urging patience with the stimulus and trying to change the subject to education, the president appears to be taking the idea of a second stimulus off the table, at least for now. But that would concede too much ground. We should not allow Obama to take credit pre-emptively for any future recovery when there is such a strong case to be made that his policies created a level of uncertainty that prevented the recovery from starting sooner. More importantly, we should dispute the notion that the absence of a recovery means the stimulus wasn’t big enough. Even if we accept the notion that Keynesian stimulus can spur economic growth (it can’t), any stimulus we’re going to get out of Congress is going to be too overloaded with welfare spending and pork-barrel waste to have anything but a negative effect. That’s the hard fact of the matter, which the president’s op-ed is a lame attempt to obfuscate.

Read at: http://corner.nationalreview.com/post/?q=YzEwOWNiMWY4ZDMyOGIzMDQxNDI5YzdlNmFmZTUwMDg=

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