CNN's Bash didn't note economists' argument that spending is necessary in recession
SUMMARY: In a CNN.com article, Dana Bash reported that Republicans "trying to return to their small government roots" are "opposing Obama's economic prescriptions." But Bash did not mention that several economists say increased government spending -- as opposed to a return to "small government roots" -- is the necessary "economic prescription[]" during a recession.
In an April 27 CNN.com article on President Obama's first 100 days in office, senior congressional correspondent Dana Bash reported that "the real reason for the partisan divide may be genuine philosophical differences, especially when it comes the No. 1 issue during the president's first 100 days -- the economy. Republicans working to recover from their drubbing during the last two elections said they are trying to return to their small government roots. That means opposing Obama's economic prescriptions." But Bash did not note that several economists say that increased government spending -- as opposed to a return to "small government roots" -- is the necessary "economic prescription[]" during a recession. Indeed, Bash did not quote any economists in her article.
In his December 1, 2008, New York Times column, Nobel laureate Paul Krugman stated that "right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack." In a December 1, 2008, discussion of Krugman's column on National Journal's Economy blog, Martin Regalia, U.S. Chamber of Commerce chief economist, wrote: "In these unusual times, a significant stimulus package is necessary to get the economy moving quickly and, as such, will swell the deficit in the short run. I am not overly concerned about negative effects stemming from a temporary increase in the deficit, especially in such an unusual time period." Similarly, in the same National Journal blog discussion, University of Texas economics professor James K. Galbraith wrote: "Right now and for the immediate future, the budget deficit is the only source of demand that can fuel a recovery." And Brookings Institution senior fellow Gary Burtless stated: "When there are abundant unemployed resources and the government faces very low borrowing costs, it makes sense for the government to increase its borrowing in order to put some of the idle resources to productive use."
Furthermore, in January 27 testimony before the House Budget Committee, discussing the economic recovery bill that was then pending before Congress, Congressional Budget Office director Douglas Elmendorf stated: "[I]n our estimation -- and I think the estimation of most economists -- all of the increase in government spending and all of the reduction in tax revenue provides some stimulative effect. People are put to work, receive income, spend that on something else. That puts somebody else to work."
As Media Matters for America documented, economists made a total of 33 guest appearances out of 639 guest appearances in broadcasts that included guest discussions of the stimulus on cable news channels from January 25 through February 15 during the stimulus debate.
From Bash's April 27 CNN.com article:
In the blame game over the breakdown of bipartisanship, Republicans said Democrats shut them out and never really considered GOP ideas. Democrats accused Republicans of making a political calculation to be the party of "no."
But the real reason for the partisan divide may be genuine philosophical differences, especially when it comes the No. 1 issue during the president's first 100 days -- the economy.
Republicans working to recover from their drubbing during the last two elections said they are trying to return to their small government roots. That means opposing Obama's economic prescriptions.
"We've been throwing trillions of dollars around like it was Monopoly money," McConnell said in the heat of the spending bill debate.
"A way of looking at it is we have spent more in the first 23 or 24 days of this administration, in other words, charged more, than it cost post-9/11 for the war Afghanistan, the war in Iraq and the response to Katrina already."
Yet most Democrats fundamentally believe government spending is the only way to jump-start the economy.
"We're going to have to spend some money to get out of this hole. The government's the only body that has any money," Reid said.
The reality is that bipartisanship on big, controversial issues is usually born out of necessity -- the ruling party historically reaches across the aisle only when it needs votes to prevail.
The Democrats' wide majority has meant that, for the most part, they haven't had to compromise.
It's not clear whether things will be any different over the next 100 days.
It may be that the road to recovery is paved with taxpayer's gold. I guess what I don't understand is since the market was destabalized by government intervention in the loan process (particularly private loans) by loaning money to people who couldn't afford them (even with no-intrest loans), why isn't this root of the problem being dug up and delt with? Further, I have trouble understanding how all our state, local, and personal economies can best be run by centralized decisions made in Washington. Please advise so I can boast to associates that I really understnd wherein the greatness of this plan lies. Thank you. : )
since the market was destabalized by government intervention in the loan process
You've got it backwards. The market was destablized due to the government's deregulation of the loan process.
Glad to help. My advice? Read more. I'd start with how we as a country emerged from the Great Depression.
I agree with Foghorn, Wings. You are so far behind the curve on this that we do not have the space here to enlighten you. Go look it up under "economics" in any good textbook.
Bottom-line: During a serious recession when no credit is available and no spending is occurring, all wheels of the economy will halt and turn into a depression unless something or someone starts spending.
The U.S. govt has the ability to borrow money right now and spend it. That is what the stim bill is all about. It is temporary and necessary and does not signal anything near this crap about socialism or communism.
This is an infusion to avoid having the floor completely drop out of the economy.
Yeah you are right. You DONT understand you just reflexively repeat the hivemind talking point that the government made banks loan to people that couldnt afford it. Since that is patently untrue the rest of your post is a non-sequitur. I suggest till you get at least some dim idea what you are talking about that you refrain from either bragging to or giving advise to anyone you care anything about.
My advice is plan for minority status for the next 40 years. That's what happened to republicans the last time they created a fiscal mess and the Democrats stepped up to the plate and cleaned up after them.
Oh, and Arlen Specter. Oops!
Alren Specter always was my favorite Republican! Now... How long before Snowe, Collins, McCain (thanks, Rush!) and (who knows?) maybe Lindsey Graham (?) see the light?
guys, i think maybe you're being a tad harsh on wings. i'll give him the benefit of the doubt, and assume he truly hasn't a clue.
the market wasn't "destablized" by the government, except to the extent that it was either deregulated, or the regulations weren't enforced by the FTC. this started during the reagan administration, but escalated exponentially during the bush II administration. basically, no one was watching the hen house, which then got plundered by wolves.
the government forced no one to loan money to people unable to pay it back, that was the loan originators themselves, who got their fees upfront. sub-prime loans were the major cause of the present financial debacle: loans made to high risk borrowers, with little or no due diligence (the normal loan application process) done by the originator. they did this because they knew those loans would be bundled and sold to investors. these were the "derivatives" you've probably heard about; high risk, high gain. if you know someone lending money for nothing, do let me know, i'll take a no-interest loan any day. unfortunately, most of this derivative activity is unregulated; you pays your dues, you takes your chances.
these high risk loans were mostly ARM's, with low teaser rates, or interest-only, with a balloon payment due, usually in 2-3 years. this may well be where you got the idea that people were getting "no-interest" loans from. they weren't, they just were not paying any prinicipal, all of which was due when the ARM expired. presumably, these people, who's houses would have increased in value, would then get 30 year, low fixed-rate loans, and everyone would live happily ever after. they didn't. when they couldn't refinance, they were stuck with an ARM who's interest rate may have doubled or tripled on them, making it impossible for them to keep up.
meanwhile, back at the farm, these notes were (as noted above) sold to investors, who bundled them and sold them to other investors, etc, etc, etc. the investors relied on the originator's risk assessment, not their own. as you might imagine, this put temptation out there, like caviar on a silver serving plate. to cover themselves, these investors also purchased insurance, to cover their losses in the event of defaults. guess what happened?
yup, you guessed it, 1,000's of those sub-prime loans defaulted, starting a chain reaction, that continues to this day. worse, we've only seen the initial wave or two, there's much more to come. it's going to make for a bumpy ride.
in the meantime, jobs have been lost, company's have gone bankrupt, or seen their revenues plummet, etc, etc, etc. vicious cycle. the only entity with the ability to borrow money cheaply, and then spend it, to get things moving again, is the federal government.
that's it, in brief. if you want details and specifics, go do your own research. i'm a cpa, you just don't want to know what my billable hour rate is! lol
Loan defaults were a small part of the problem. Credit swaps and other "creative" investment instruments were the real problem.
loan defaults ignited the fire. the credit swaps and derivatives were begat (if i may get biblical for a moment) by the high-risk loans being traded back and forth, they didn't just come crawling out of a cave, of their own accord.
take the high-risk loans (not all of which were sub-prime, CRA types, niceguyeddie is correct) out of the equation, and most of the rest of the "creative" securties lose their reason for being.
btw, that should have read "weren't enforced by the SEC", not FTC. it was late, i was tired. that's my story, and i'm sticking to it!
You are refereing to CRA? Nonsense. As has been stated MANY time now, only 20% of the sub-prime loans were issued by institution governed by the CRA, and those that were had a lower default rate than those that weren't. But by all means, keep making your political argument based on emails that can be debunked by snopes or MMFA as opposed to congressional testimony and actual, you know, FACTS.
Contrary to what Media Matters has been saying, the Community Reinvestment Act (CRA) WAS directly responsible for the Subprime Mortgage Crisis. Yes, it's true that only 20% of subprime mortgages were made according to the CRA. However, most of the other 80% was ALSO due indirectly to the CRA. When the banks governed by CRA started to offer low-interest loans to people who couldn't afford them, the only way the other banks could compete was to reduce THEIR interest rates as well. So the effect of the government intrusion into the mortgage market was to indirectly encourage ALL banks to make risky loans to people who couldn't afford them.
Bottom Line: Whether you like it or not, government involvement in mortgages partially LED to the problem we now find ourselves in.
Thank you, MMFA! I wish you would be forceful in pointing this out as this has been the case with the media since DAY 1 of the concept of the stim bill.
The GOP and their shiny-object media friends, have been allowed free reign to spout out garbage about deficts that will reach 80% of GDP, communism and socialism.
The entire idea behind the Stim Bill was to protect against a depression and to soften the recession.
But that context is nearly ALWAYS missing from the shouting and childish pandering from the righties.
I think you'd be hard pressed to find an economist of any standing who did not agree that spending is vital during a recession. But as Media Matters has pointed out many times in the past 6 months the MSM doesn't want to talk to economists. They want politicians to battle it out so they can get some good sound bites.
As one of the three top cable news networks, Fox being the one of false news MSNBC being of politcs of views from the right and left, what is left for CNN but controversial misinformation.
Remember how, during the campaign, McCain kept saying, "The last president to raise taxes during a recession was HERBERT HOOVER!" (Implying that Obama was like Hoover.) Well, there were three things that they kept neglecting to mention:
1) Hoover was a REPUBLICAN.
2) Hoover was, in fact, conservative and a classical (non-kensian) economist.
3) Hoover also CUT GOVERNMENT SPENDING during the 'recession' in an effort to balance the budget.
So to answer McCain's argument (and that of Obama's Republican detractors): The last president to CUT SPENDING during a recession was HERBERT HOOVER!!!
First, MMFA is being ridiculous. Bash's story was about Republicans offering an alternative to the current course. There was no journalistic need to quote Keyenesian economists critical of that approach. Which approach is more likely to work was not the subject. Interestingly, FOX would have presented an opposing view because that's their policy and with a few exceptions, MSNBC would not have presented this story without a predominantly critical perspective as a matter of policy.
cpinva and foghornleghorn: You'd do well to not act with condescension toward others assuming them ignorant. You only reveal your own. The supposed facts you base your theories on are very much in dispute. Deregulation was not the sole cause and governmental pressure to give loans to people who normally would not have qualified absolutrely was. It is only technically true that the government did not "force" banks to give risky loans. It came about through a combination of pressure by regulating authorities and social-pressure groups like ACORN and was driven by a desire to spread the wealth and opportunity to people who had not yet achieved it themselves. This was augmented in a carrot-and-stick arrangement in which Fannie and Freddy were providing a marketplace for these bad assets. Deregulation doesn't matter doodly-squat unless their is a market opportunity that the regulation might have controlled. It's a third factor in this debacle, but even those three are not alone. This situation also depended on the infusion of capital that was not driven by actual market conditions but by the manipulations of the Fed. Allen Greenspan tried to control the economy in true Keyenesian fashion through lowering interest rates. This fed the speculative market that the banks and other investors, in their deregulated environment, with pressure to qualify under unofficial racial quotas or face consequences both public and regulatory and with an easy way out with Freddie and Fannie at the center of a phony but supposedly federally guaranteed assets market to absorb their bad loans.
Though Bush and other Republican-Progressives share a part of the fault for this, their contribution to the problem has been minor compared to that of the Democrats both recently and historically in their work to establish the foundations for this disfunctional system.
The Great Depression is hardly an example any of you should point to as an illustration for your side of the argument. Roosevelts 'New Deal' was a monumental failure that prolonged the depression long beyond its duration in other countries and of course, since it took from the economy as much as it put in, it never made more than temporary progress in its stimualitive efforts. Even those who gained relief from taxpayer funded work projects most often found themselves back in the soupline after a year or two, just as broke and in an economy that was stagnant. The supposed benefits of the Rooseveltian economists that advocated more spending were just that, "supposed", i.e. theoretical with no concrete evidence to support their efficacy. You're no doubt familiar with Morgentau's quote to the effect of, 'We've spent all of this money and it's made no difference.'
Most of the revival of that theory without foundation comes from the effect of Roosevelt's version of "War-time Socialism." It's true, hiring as many as 8 million military personnel and millions more defense workers at any given moment took a huge chunk out of the unemployment problem in a nation one half the population size it is today. But that was socialism. It was socialism on a temporary, emergency basis, fully in keeping with the President's Constitutional duties. And when it was over the American people couldn't shed the vestiges and trappings of socialism fast enough. They promptly engaged in the greatest anti-leftist reaction in our history and couldn't have done more to rebuild the free-enterprise dream and economy. So the only economic success the Roosevelt Administration had was by instituting socialism, an oppressive system the American people resoundingly reacted against.
Yes, Obama is a socialist. So are most of you. He says so every time he speaks and tells you how he and the government he leads are going to work hard to make things better for you and you say so every time you write. But most of you haven't the foggiest idea what socialism is, the differences between Euro-Socialism and Marxist Socialism and American-style Progressivist-Liberalism because you don't understand what the alternative is. Most of you aren't aware that there actually is an approach under which individuals can be free and not just hope that those who rule over them are benevolent and wise, that that approach has been proven to work and work outstandingly well.
I have the advantqage of having been a thoroughly dedicated and educated Marxist who then discovered, in the Federalist Papers and other founding documents that the revolution to liberate the people had already happened and was still happening and I was on the wrong side of it, the side that wanted to substitute "wise" and benevolent managers elected by the people to rule over our lives instead of the kings and their bureaucracies that my ancestors struggled to break free of. All the Obamas of history are is men who want to be king by election insteaad of by birth. Even the "Conservatives" you rail against are mostly just more conservative versions of the same branch of socialism that was pioneered in the French Republics, established in American politics by the Progressive movement and adapted into both the Republican and Democratic parties as Liberalism.
There is more to these matters than any side of the struggle for power will reveal. Liberate yourselves by questioning your allies as rigorously as your foes.
So many lies...
It came about through a combination of pressure by regulating authorities and social-pressure groups like ACORN and was driven by a desire to spread the wealth and opportunity to people who had not yet achieved it themselves.
Lie #1.
their contribution to the problem has been minor compared to that of the Democrats both recently and historically in their work to establish the foundations for this disfunctional system.
Lie #2. The Republicans were in complete control of the government when the housing bubble was created.
Yes, Obama is a socialist. So are most of you.
Lie #3.
The rest is a hypocritical rant because you wrote:
You'd do well to not act with condescension toward others assuming them ignorant. You only reveal your own.
I say listen to your own advice.
You just proved that "You'd do well to not act with condescension toward others assuming them ignorant. You only reveal your own." Your post is monumentally wrong, revealing that you either don't know what you're talking about, you are only interested in spouting talking points without regard for their accuracy, you're willing to lie to support Republican talking points, or some combination of the three. Roosevelt did not prolong the Depression. Obama is not a socialist. Blathering idiocy is no substitute for reasoning--you should figure that out.
you'd do well to actually know what you're talking about, instead of merely spewing the already wrecked republican talking points, before attempting to tell anyone else how they should approach others.
i won't waste valuable space responding to any more of your post, foghornleghorn did a pretty decent job already.
So foghornleghorn and historygeekoo1 don't like being faced with the actual history that applies to these matters. That's understandable. But just saying "no" does not lend to the intellectual quality of the debate.
If you think President Obama is not a socialist, try defining socialism and explaining how his policies aren't socialist. If there were sunset amendments attached to his proposals it would be easier to give the argument that these are just unusual measures in response to an economic crisis. If there are I haven't heard about them, have you? He's initiating major transfers of control from the private sector to the federal. What else do think socialism is? His plans will increase the percentage of the GNP taken by the federal government significantly, (about 10% to 25%). That's short of totalitarian, but it is a big step in that direction and the financial element is only part of it.
If you think Roosevelt didn't prolong the depression or that the overwhelming majority of Americans weren't eager to get rid of his "wartime socialism" and hypersuspicious of, not just the Soviet Communists, but the American and European socialists as well ... well, you may not have been alive then and the leftwing info-sources certainly wouldn't include such embarrassing realities in your education.
Maybe you just don't know about the direct historic links between modern Liberalism and the Euro-socialist movements like Progressivism, Radicalism, Fascism and Naziism. You can say they're just lies, but they're there, part of the record and you don't have to crack a single Conservative history to find them.
Rise above just calling people liers or ignorant. My information is solid and I stand by it.
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I'd like to thank cpinva and ewl94232 for your thoughtful posts. While I suppose attributing the current economic climate to a political party will serve the purposes of some, if possible I'd like to focus on the cure. I do understand that money in motion keeps the economy moving, but many of the people I know have spent their money plus any money they could convince a creditor to lend them--it will take them awhile to pay down the debts they drown in. I work hard to maintain a cash positive position and think my associates would do well to do the same. I do not say that to be a braggart in any way, most of my associates think it preposterous, and I've been ridiculed for it before. To my mind though, debt is modern slavery and I want no part of it.
I have done some reading on the topic, and it seems the Community Reinvestment Act of 1977 has had quite an impact with regard to encouraging loans that were disproportionally left unpaid. I agree that qualified individuals should have equal opportunity to procure loans, but disagree with the idea that equality is outcome based. I don’t believe that if 50 percent of loans are issued to persons on the left side of the street equal opportunity will mean 50 percent are issued to persons on the right side of the street. Equal opportunity must stem from equal qualifications.
While I see many here ascribe to the notion that deregulation or lack of regulation precipitated our current economic climate, I'm not entirely sure what you mean. Does anyone here have source material for these assertions?
If the benefit sought is simply moving money, this begs the question: who is most apt to spend money wisely. I would guess that government spending automatically reduces spending efficacy by 20% just in bureaucratic entanglements. I am somewhat concerned that our Federal Government isn't only working to temporarily inject money into the economy, but will simultaneously develop new government entities that will endure as additional burdens to the taxpayers. Based on a population of 300 million, each person receiving $3,000.00 would bring us to about one trillion. If each person were given that amount as a ‘gift’ from our government, a family of four would have $12,000.00 extra dollars. That would be enough to pay off some personal debt or purchase a car or invest in an upcoming business. It would seem a more prudent way transfer money back into the financial system.
That is unless it is decided Americans aren’t bright enough to judiciously spend their money. If that is the case, then why not send all our money to the government to spend for our benefit? Perhaps set a maximum wage…$10,000.00 per year should be sufficient for lateral spending while we have the government house, feed, and cloth us…and attend to our medical needs. Before you scoff, know that they are in the habit of attending to these already and expanding the responsible agencies wouldn’t take much more than money.