Falling Into Economic Illiteracy

During the fall of 2008, a video made its way around the Internet. Some children of Hollywood producers and Democratic activists were put into a small choir, complete with a leader who directed them to sing about how "Obama's gonna save us." The children sang praises like the choirs of Chinese children four decades earlier who had sung praises to Mao, the Great Leader who was portrayed as the very Sun.

The camera panned on the parents who listened with enraptured hearts, and the expressions on their face were of unalloyed joy. The Very Messiah was here, and he was going to spread freedom, happiness, and plenty. All it would take would be a vast expansion of the State and Obama was the One to do it.

Paul Krugman was not in the audience, but he might as well have been, given the tone of his columns that fall. Indeed, even those who decided upon the Nobel Prize were caught up in the Messiah Fever and awarded its highest honor to Obama's Prophet Krugman.

Two years later, there are no choirs singing praise to the Holy One of Chicago, and the economy is in much worse shape than we could have imagined, and all signs on the horizon are bad. What could Obama have done? Paul Krugman knows, and he shares his Prophetic Vision (Oh, lucky us!) in his column today.

Obama, Krugman writes, did not do enough. He did not spend enough, nor regulate enough, or spread Joy and Peace and Happiness. He should have immediately imposed the very medical system that Canadians would like to change. According to Krugman's fellow NY Times columnist, Frank Rich, Obama apparently did not arrest enough people, either, nor throw enough people into prison, to join with the other two-million plus that already are spending time in government cages.

Yes, the state has neither been a great enough Sugar Daddy, nor has the state killed enough people overseas, nor has it been harsh enough to people who don't meet the approval of the editorial board of the "Newspaper of Record." The same newspaper that decries the state of imprisonment in this country claims that our Real Problem is that we don't have enough people in prison. It has come to that. The children sang of Obama "spreading freedom," but apparently (at least at the NY Times) spreading "freedom" means more incarceration of people who don't meet the newspaper's definition of being politically correct.

So, what does Krugman claim is the reason that unemployment is higher than it was when Obama took office? The government did not pretend that it is wallowing in riches and money, and while it boosted spending and debt, it engaged in Krugman's definition of "austerity."

A few commentators will point out, with much more justice, that Mr. Obama never made a full-throated case for progressive policies, that he consistently stepped on his own message, that he was so worried about making bankers nervous that he ended up ceding populist anger to the right.

But the truth is that if the economic situation were better — if unemployment had fallen substantially over the past year — we wouldn’t be having this discussion. We would, instead, be talking about modest Democratic losses, no more than is usual in midterm elections.

The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.

Krugman, it seems, was the Keeper of the Secret, and he gives us the Answer For Which We Have Waited:

When Mr. Obama took office, he inherited an economy in dire straits — more dire, it seems, than he or his top economic advisers realized. They knew that America was in the midst of a severe financial crisis. But they don’t seem to have taken on board the lesson of history, which is that major financial crises are normally followed by a protracted period of very high unemployment.

If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.

But economies that have experienced a severe financial crisis generally don’t heal quickly. From the Panic of 1893, to the Swedish crisis of 1992, to Japan’s lost decade, financial crises have consistently been followed by long periods of economic distress. And that has been true even when, as in the case of Sweden, the government moved quickly and decisively to fix the banking system.

To avoid this fate, America needed a much stronger program than what it actually got — a modest rise in federal spending that was barely enough to offset cutbacks at the state and local level. This isn’t 20-20 hindsight: the inadequacy of the stimulus was obvious from the beginning.

One wonders at the ingratitude of Krugman's words. After all, has not the Obama administration done everything in its power to undermine entrepreneurs all the while giving lip service to them? Oh, the administration has found clever ways to offer low interest rates to those firms who Follow In The Way Of Obama instead of doing real entrepreneurship.

Instead of insightful people finding ways to put resources to use that will enable real economic growth to occur, the Obama administration is dunning taxpayers to continue to finance and to expand the Ethanol fraud. Favored firms from those on Wall Street to GM to the producers of "clean energy," the vast subsidy machine rolls on, pushing us further into depression. Yes, 15 percent Ethanol in our gas tanks "is gonna save us." (Given the performance of this administration, I think that the Ethanol would do better as cheap whiskey, which at least would permit us to better drown our sorrows.)

The fundamental issue here is that not one person in this administration, nor its acolytes like Krugman, has a clue as to what makes an economy grow. They really believe that it is little more than a perpetual motion machine, a mixture of homogeneous stuff into which one throws money to make everything work magically.

So, today, instead of singing praises to His Messiah, Paul Krugman is left to rage that Obama didn't listen to him and borrow, print, and spend even more money, further empower labor unions, jack up the minimum wage to a zillion dollars an hour, or give all government employees a big raise. Thus, we see that those most honored in academic economics really have no idea what economics is, a discipline that is based upon the simple Law of Scarcity.

No, Obama refused to pretend that the Law of Scarcity did not exist. And why not? Two years ago, he was the Chosen One, the Holy One of Chicago, the One Who Would Save Us.