I have also stated my ongoing concern about the pronouncements from the Obama administration regarding our economy, and the fact that the same ship of fools that got us into this mess are hard at work now within the Obama White House. In last few days, some additional analysis of some of the President's recent comments on our economic travails. Referring back to a speech the President gave in April 2009, economist Steve Keen points out an obvious fact. First here's the speech, with the section in question:
Of course, there are some who argue that the government should stand back and simply let these banks fail – especially since in many cases it was their bad decisions that helped create the crisis in the first place. But whether we like it or not, history has repeatedly shown that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months – years of low growth, low job creation, and low investment that cost those nations far more than a course of bold, upfront action. And although there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – "where's our bailout?," they ask – the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.In these words, President Obama spells out the strategy of bailing out the financial institutions that got us into this mess, rather than directly giving money to individual Americans. Read it carefully. Can you spot the problem with this strategy?
Steve Keen makes this statement of the obvious, once you discover the fly in the ointment:
This argument comes straight out of the neoclassical economics textbook. Fortunately, due to the clear manner in which Obama enunciates it, the flaw in this textbook argument is vividly apparent in his speech. This “multiplier effect” will only work if American families and businesses are willing to take on yet more debt: “a dollar of capital in a bank can actually result in eight or ten dollars of loans”. So the only way the roughly US$1 trillion of money that the Federal Reserve has injected into the banks will result in additional spending is if American families and businesses take out another US$8-10 trillion in loans. What are the odds that this will happen, when they already owe more than they have ever owed in the history of America? …Our President, who I voted for and campaigned for in the 2008 election, presents me with a gift I must refuse: more debt. He states that for all of this to succeed, we all must go into debt yet more! Be it a business or an individual, the only way for this economic stimulus to work as planned is if, for every dollar given to a lending institution, we all borrow ten times as much!
I, for one, must just say "NO" to this idea. Not only is it a bad financial idea, it is also bad for our democracy. Keen argues, and I think convincingly, that money given to consumers would have a far more positive effect on the economy than the Bernanke/Geithner/Summers plan for us all to go directly to debtor hell. I argue, further, that, in addition to the economic travail produced by more and more and more debt, that our democracy will falter yet further, that Americans will feel more and more inslaved - and more and more powerless - if they mount up more and more debt, which appears to be the plan, in the President's own words.
This is a very bad idea. These people are playing with fire. We've seen recently that a certain segment of the American population already feels that our socialist, communist, Marxist, Kenyan undocumented worker president (their fears, not mine) will do from the inside what Osama bin Laden tried from the outside on 9/11. They already carry signs suggesting that the next time they show up that they may do something with all those guns they own.
Now the economic idiots, who are apparently very bright folks, think we should take on more debt? This is a very bad idea. Debt slavery will only add more fuel to this fire. It will produce the mentality of slaves among those who take on more debt. And slaves will, at some point rise up and throw off their chains.
This is exactly what we don't need. I will give President Obama the benefit of the doubt on this; however, perhaps he's thinking too much like the other wealthy white guys he's surrounded himself with. Perhaps the President needs a refresher course on what it's like in the neighborhood his Chicago house is in. You can be sure that most of those folks are already feeling that things have not gone well economically. The more that the average American senses that his or her government is operating for the advantage of a select few rather than the people at large, the greater the threat that those left out will find less peaceful means to resolve their grievances.
And that is something to avoid at all costs.