Neither Keynesians nor supply-siders have right prescription

It’s become Republican mantra to say the Obama stimulus failed to create a single job. That’s not true, of course. In fact, when one peels away emotion and ideology and simply looks at the facts, the stimulus created or saved between 1.4 million and 3.3 million jobs. That number is from the nonpartisan Congressional Budget Office.

What the stimulus didn’t do was live up to its hype. It didn’t reduce unemployment to 8 percent, as the administration claimed it would. We now know, though, that the recession of 2008 was much deeper than was thought at the time, and Obama could use that as an excuse.

It would be an excuse much like most excuses. It wouldn’t change a thing. I’ll forgive the Republicans for claiming the stimulus did nothing and remind them the Bush tax cuts were in place at the same time and they apparently did nothing, either. The GOP’s larger point is correct. We’re still mired in a stubborn economic slump, and on Obama’s watch, it’s not getting much better, despite signs early on that it was.

I never understood the visceral near-hatred of Obama. It was yet one more ugly consequence of a noisy, non-thinking tea party movement that was taken much too seriously and given far too much credence.

I was willing to give Obama the benefit of the doubt. He did, after all, win the election and I think he deserved that much. He moved to 1600 Pennsylvania Ave. promising change. He didn’t deliver.

His economic prescriptions were neither new nor innovative. They were straight from the Keynesian playbook and have been around for decades. In the end, he turned out to be nothing new at all. He was a doctrinaire Democrat through and through, a Keynesian attached at the hip to big labor.

One could make a case that money which should have been there to reinvigorate the economy was squandered during the Bush years. Had it not have been, we at least wouldn’t have the deficit problem we have now. Bbut most economists think the unemployment problem would still be there.

Three years after Obama won an election and rode a wave of optimism to Washington, he has had his chance. It didn’t work.

It seems clear enough that the ball is moving to the court of the supply-siders. That was evident in the mid-term elections and the recent debt-ceiling fight. That’s fair enough.

I’m no economist, and you may in a couple of years be able to say I didn’t know what I was talking about, but here’s a prediction: The Chicago school prescription of lower tax rates, less government interference in markets and low interest rates (that point is moot; they can’t get any lower) may in fact be a cure for an ailing economy. But not this one.

Those of us who have lived in Mesa County for 30 years or longer should understand that intuitively.

At the root of our current economic woes is a real estate bust unlike any the country has ever seen. But it is very much like one Mesa County and other parts of western Colorado experienced in the 1980s.

Let’s assume the real estate market is at bottom now. It’s off nearly 45 percent. Prices nationwide only fell 37 percent in the Great Depression. We can’t overstate the severity of the problem.

A robust economy requires people to spend money. They won’t do it when their largest source of wealth — their homes — has lost nearly half its value. Obama couldn’t make them do it with the stimulus and the supply-siders won’t be able to do it with lower taxes and less government regulation.

Only time, and the invisible hand of the markets, will take care of the problem.

Celia Chen, an economist with Moody’s Economy.com, is a student of real estate busts. Her findings say it takes about a decade to recover from a severe drop in housing prices.

Anyone out there remember about how long it took us in western Colorado to recover from the bust of the early 1980s? Sound familiar?

Denny Herzog is the retired executive editor of The Daily Sentinel. E-mail him at .(JavaScript must be enabled to view this email address).


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