Shape of Things to Come?

The Washington Times (Washington, DC), January 15, 2009 | Go to article overview

Shape of Things to Come?


Byline: Richard W. Rahn, SPECIAL TO THE WASHINGTON TIMES

April 1, 2013 - Unemployment is approaching 25 percent, inflation is close to 40 percent, major portions of the U.S. are having power brownouts, and Americans are forced to go to foreign countries for timely and quality medical care. How did the world's largest and most prosperous economy fall into such a morass in only a very few years?

Collapse of the American economy in 2013 began with several major policy mistakes by the Fed, the Bush 43 administration, and Congress in the years from 2004-08, which were compounded with even greater policy mistakes by the Obama administration, Congress and the Fed from 2009 thereafter.

The Fed had created much of the housing and commodity bubble of 2004-08 by allowing excessive monetary growth. Both the Republican and Democratic Congresses had failed, despite many warnings, to reform Fannie Mae and Freddie Mac and the Community Reinvestment Act, which led to the subprime mortgage crisis.

Both the Bush administration and Congress engaged in excessive federal spending growth, culminating in the ill thought out and counterproductive bailout TARP scheme in late 2008. And finally, even though almost everyone knew Social Security and Medicare needed fundamental reform, Congress refused to seriously deal with it.

After promises of change, the new Obama administration, the Democratic Congress and the Fed only made changes for the worse. Despite an extensive history and strong empirical evidence - some of it coming from Mr. Obama's own economists - going back to the Great Depression of the 1930s that spending stimulus programs did not work and that tax rebates and credits were ineffective (as contrasted with marginal rate cuts), Congress and the Obama administration, in early '09, embarked on a record high spending stimulus program, along with a tax credit and rebate program for low-income people, many of whom had not paid any income tax.

Before these programs went into effect, the economy began to slowly recover, in part, because of the big injection of money by the Fed in the previous months. However, unemployment continued to rise, and thus the Fed continued to keep interest rates at record lows.

At the same time, Congress passed card check to make it possible for unions to gain control without a secret ballot. Congress also passed measures to make it easier for trial lawyers to sue employers for alleged discrimination, which further discouraged employers from hiring new workers. Congress also enacted into law a national health-care scheme, which essentially socialized all medical care in the United States, and passed measures to prohibit the construction of any new coal power plants.

As the 2010 election approached, the Obama administration, faced with not meeting its employment goals, decided to embark on a massive government employment program. This program further dampened the economy as government jobs (and in many cases totally unproductive jobs) were substituted for more productive jobs in the private sector. (Note: The private sector had to be drained of money to pay for the jobs in the public sector. …

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