If last week in Washington were the World Poker Tour, it would have been said that Barack Obama was “all in.” That is, the president has pushed all of his (political) chips to the middle of the table with a bet that the single biggest government expenditure in the history of the human race would “jump start the economy.”
Never have the stakes been higher – ever. The bet was not only unprecedented; it was made with borrowed money. In one spectacular move (within 30 days of the inauguration), the president has expanded the federal government budget by more than 25 percent.
The president claimed that only the federal government can act to save the economy from “catastrophe.” The ideology behind the bet is that suddenly jumping the federal government share of GDP from 21 percent to over 30 percent by subsidizing states with profligate spending deficits in their own budgets, increasing welfare and food stamp spending, remodeling and expanding government offices, and expanding hundreds of government programs to fill those offices would “jump start” the economy and provide jobs.
The authors of the legislation believe government is “the economy” – or, at least, the paramount institution that should guide and stimulate all Americans and what’s left of the “private sector.” Or, as Michelle Obama urged college students in the campaign, the real opportunity for a job is in government service.
Republicans in the House called Obama’s bet and went “all in” too. They said that the economy would not improve unless and until the government got out of the way by removing impediments to work, saving, investment and production. In other words, cut regulation and lower taxes across the board. The born again House Reaganauts (having squandered their heritage while in the majority) found their voice again to proclaim that “government isn’t the answer, government is the problem.”
Three Republican senators (Spector, Snowe and Collins) gave Obama the votes needed to enact the recovery legislation. Now the question is: Will it work ?
Both sides debated examples from history to bolster their arguments – thereby confusing many public-school educated Americans.
Take the constant references to the Great Depression. Massive federal government spending “primed the pump” and saved the country in the 1930s. No, massive federal government spending paralyzed private investment, and the unemployment rate in the 1930s never dropped below 17 percent until World War II put the unemployed in uniform and shipped them overseas. Well, OK, but unemployment remained high in the ’30s because FDR didn’t spend enough.
Even more confusing was reference to Japan’s “Lost Decade.” The real estate bubble burst for Japan in the late 1980s, and massive government infrastructure spending set the stage for the comeback of the Japanese economy in this decade. No, massive Japanese government spending produced hundreds of “bridges to nowhere,” drove up the public debt to the highest level of any developed country and inhibited job growth to this day.
Gosh – history can be so exhausting – and soooo yesterday.
Complicating Obama’s recovery bet today is the ongoing unraveling of America’s big banks.
According to Rep. Paul Kanjorski, D-Pa., on Sept. 18, 2008, the Federal Reserve reported that “someone” had withdrawn $550 billion from money fund accounts in American banks in two hours. The Fed feared that the entire American economy could collapse within days. Treasury Secretary Paulson went to President Bush who freely acknowledged later that he had “abandoned free market principles to save the free market” by proposing a massive government bailout of the big banks.
Approximately $350 billion went to banks – no one will say exactly which banks or what they did with the money. Worse yet, the bad debt in American banks could total $4 trillion, but no one knows exactly. Even Worse, the bad debt in derivatives (side bets) could total $79 trillion.
Obama now also faces a failure of Bush’s TARP program, a meltdown in the big banks and the prospect of more multi-trillion dollar big bank bailouts. The alternative is to think the unthinkable: Let the big banks go into bankruptcy, set a market price for the bad debt and let those banks that are not part of the subprime loan or derivatives scandal survive to become the next group of “big banks.”
And, on top of it all, foreclosure is still lurking as a threat to many American homeowners. When (and with what) will they be “bailed out”?
So, Obama’s “all in” bet isn’t just about one massive government spending bill – it is just the first in a series of massive government spending bills – all based on borrowed money, all based on the idea that America will be a better place for everyone when the federal government is the dominant institution.
The other “all in” bet clings to the Constitution and the free market, asserting that massive spending funded by public debt will create a depression out of this recession.
Deal the river card. History (and America) in the balance.
