While he was in China, Barack Obama made a bizarre declaration that the US government must reduce its budget deficits in order to avoid “a double-dip recession.” The remark was alarming because it suggests the president may not fully understand the country’s economic predicament. Deficit spending is a cure for our troubles, not the cause. If Obama follows through and actually reduces the red ink, the Great Recession could be born again with new fury.
In an interview with Fox News, the president said: “It is important to recognize if we keep on adding to the deficit, even in the midst of this recovery, that at some point people could lose confidence in the US economy in a double-dip recession.” Maybe he didn’t mean it. Or was merely nodding to Chinese leaders, our leading creditor, who had scolded him for profligate spending.
Still, his backward logic gave me a chill. If Obama acts on it, he will be walking in the footsteps of Herbert Hoover, not Franklin Roosevelt, and I fear his presidency could be doomed as a result. I know that sounds too strong and brutally unfair, given the president’s energetic vision for the country and his early efforts to stimulate economic recovery. But history is often unfair to leaders who do not get their priorities straight and fail to deliver what they promise.
Hoover was the Republican president from 1929 to 1933 and faced a far more dramatic unwinding of the economy after the 1929 stock market crash. In popular memory, he was blamed, somewhat unfairly, for causing the Great Depression. People came to loathe him personally for the repeated pep talks–“Prosperity is just around the corner”–and Democrats ran against “Hoover” for many years after.
Barack Obama is a towering political talent by comparison, but also has troubling similarities. In an age of limited government, Hoover preached “volunteerism” and worked earnestly to persuade business to cooperate with labor and “do the right thing.” Obama’s softball approach to the financial crisis reveals a similar reluctance to use government’s powers to compel results. Instead of directing bailed-out banks to lend more aggressively, Obama asked them nicely. The bankers blew him off. His economic stimulus was a good start, yet clearly insufficient.
If Herbert Hoover was guilty of anything, it was ambivalence and confusion of purpose. Hoover was a very intelligent technocrat who sincerely tried various sound measures to relieve the general suffering. But Hoover never found the will to follow through decisively. He was pulled in an opposite direction by failed market orthodoxy that was still influential. To his subsequent regret, Hoover heeded the steely advice of Treasury Secretary Andrew Mellon: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” In other words, let nature takes its course. Clear away the wreckage and capitalism will heal itself.
In the era of big government, Obama is a far more activist president, but he has followed a less brutal version of the same conservative thinking. Pour billions first into restoring the financial system, then it can revive the real economy. That approach was backwards, as nervous members of Congress are beginning to grasp.
Like Hoover, Obama is pulled between opposing imperatives. Deficit hawks demand he get control over the budget deficits to restore confidence among investors (those Chinese creditors who buy our Treasury bonds). Bleeding-heart politicians, on the other hand, want him to focus on rescuing the folks (who need jobs and foreclosure relief and can renew consumer demand for businesses). Obama would like to do both, but hesitates to choose decisively.