The recession is over. Yesterday’s report from the Commerce Dept. confirmed that the economy expanded in the third quarter by 3.5 percent, better than most economists estimates. GDP had contracted in the four previous quarters in the longest and deepest recession since the Great Depression. Massive government stimulus, cash for clunkers, and inventory restocking accounted for most of the surge in economic activity. Consumer spending grew at 2.36 percent while consumer credit continued to contract at a near-record pace of 4.5 percent. Unemployment swelled to 9.8 percent, "with nearly nearly 26 million workers—17 percent of the workforce — unemployed or underemployed," according to economist Mark Zandi. The economy remains extremely weak and is expected to lapse back into recession if the Obama administration fails to provide a second-round of stimulus.
But President Barack Obama hasn’t requested more stimulus and recent polls indicate that a majority of people are against more deficit spending. The administration has done a poor job of explaining the advantages of reducing the output-gap or–for that matter–the overall objectives of Obama’s economic recovery plan. Many people heap the bank bailouts (TARP) with the fiscal stimulus. This is a mistake that’s easy to make. But the point needs to be clarified so more people don’t needlessly suffer. It’s up to Obama to articulate the differences in policy so the country can muddle through the tough days ahead. The problem is, Obama is afraid to use his skills as a communicator, because he thinks his message will offend financial industry constituents who wield tremendous power at the White House and on Capital Hill. The bankers and brokerage mandarins are more than happy with the present arrangement, which means that the conveyor-belt connecting the US Treasury to Wall Street will continue to operate at full-throttle diverting ungodly sums of money to broken banks and financial institutions rather than for unemployment benefits, work programs, and state aid.
Obama supporters who think that the president is right to treat the banks with kid gloves, should consider how Franklin Roosevelt dealt with the same situation 70 years ago. His first Inaugural Address, March 4, 1933, sums it up pretty well:
"Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men….Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish." (Source: Franklin D. Roosevelt, Inaugural Address, March 4, 1933)
Or, this from FDR:
“Appraising the situation in the bitter dawn of a cold morning after, what do we find? We find two-thirds of American industry concentrated in a few hundred corporations…We find more than half of the savings of the country invested in corporate stocks and bonds, and made the sport of the American stock market. We find fewer than three dozen private banking houses, and stock-selling adjuncts of commercial banks, directing the flow of American capital. In other words, we find concentrated economic power in a few hands…We find a great part of our working population with no chance of earning a living except by grace of this concentrated industrial machine; and we find that millions and millions of Americans are out of work, throwing upon the already burdened Government the necessity of relief…We find the Republican leaders proposing no solution except more debts, more conferences under the same bewildered leadership, more Government money in business but no Government attempt to wrestle with basic problems…I believe that our industrial and economic system is made for individual men and women, and not individual men and women for the benefit of the system.” (Thanks to counterpunch contributor Pam Martens for FDR quote)
Clearly, FDR understood type of people he was dealing with.
Obama needs to stop pussyfooting and toughen-up. This isn’t the time for grandiloquent oratory or Utopian claptrap. People have lost their jobs, their homes, their savings. The shelters are bulging, the food banks are maxed out, and the unemployment lines are stretched from one coast to the other. Here’s a clip from the New York Times making the case for more stimulus:
"The economy is going to need more government support, or it is bound to be very weak for a very long time — and vulnerable to a relapse into recession. Unemployment is expected to worsen well into next year, exceeding 10 percent. Foreclosures are expected to rise, which will push home values down further. Hundreds of small and midsize banks are likely to fail in coming years. State and local governments face budget shortfalls in 2010 that are as bad or worse than this year’s.
Yet Washington is not providing a coherent plan for effective stimulus. The Senate has been hamstrung for nearly a month over the most basic relief-and-recovery boost: an extension of unemployment benefits. … Lawmakers in both parties fret that large budget deficits preclude more stimulus, lest the burden of debt outweigh the benefit of deficit spending. … Deficits are a serious issue, but the immediate need for stimulus trumps the longer-term need for deficit reduction. A self-reinforcing stretch of economic weakness would be far costlier than additional stimulus." ("The Case for more Stimulus", New York Times editorial)
Sure, the public is worried about the ballooning deficits; they should be. But that shouldn’t stop Obama from doing the right thing and making the case for another round of stimulus. His job is to strengthen demand and put the country back to work. The rest is just politics.
MIKE WHITNEY lives in Washington state. He can be reached at firstname.lastname@example.org