Obama also misreads the lessons of recent history. “If you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of,” he told reporters. “We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough and, as a consequence, they suffered what was called the lost decade, where essentially, for the entire ’90s, they did not see any significant economic growth.”
Again -- true enough. But the lesson is that, in the 1990s, Japan did just what Obama is proposing. It launched a series of massive public works projects, costing hundreds of billions of dollars (sound familiar?). Government spending jumped from 31.6 percent of the nation’s GDP in 1991 to nearly 38 percent today. Yet the Japanese econ¬omy grew at an annual rate of only 0.6 percent between 1992 and 2007. That may not be the road the United States ought to travel.
Finally, Obama waded into the area that really caused today’s problems: the collapse of the housing market. “Now, you know, the federal government doesn’t have complete control over that,” the president admitted humbly. “But if our plan is effective, working with the Federal Reserve Bank, working with the FDIC, I think what we can do is stem the rate of foreclosure and we can start stabilizing housing values over time.”
This would be little more than throwing good money after bad. It was federal interference in the housing market (through tax credits and Government Sponsored Enterprises, including Fannie Mae) that helped create the housing bubble, driving prices beyond what the market could bear.
The sad fact is that those who bought homes in 2007 and 2008 at the top of the market will have to wait years before their homes will be worth more than they paid. This is what happens in free markets -- ask anyone who bought a tech stock in late 1999. If Washington couldn’t prop up the price of Qualcomm stock a decade ago, it won’t be able to prop up the value of housing stock today.
The Newsweek article points out that “the savings rate dropped from 7.6 percent in 1992 to less than zero in 2005,” a consumer spending spree fueled by soaring housing values and cheap imports from China.
These days, Americans are saving again, thus proving that every bit of economic bad news also brings economic good news. Our nation’s trade deficit hit a six-year low last month, with 2008 marking the second consecutive year our trade deficit has declined.
Let’s forget socialism and maybe give capitalism a try before we declare it dead.