Editor’s Note: This is the first of a three part series debunking the economic myths of the 2012 Obama campaign.
“Whenever the people are well-informed, they can be trusted with their own government; whenever things get so far wrong as to attract their notice, they may be relied on to set them right.” – Thomas Jefferson, 1789
Jefferson said that during the infancy of this country’s constitutional republic. Over years of being involved in my local communities and working in journalism, I’ve come to learn that the real battle in politics is not necessarily between liberals and conservatives, Democrats and Republicans, or even big government progressives and small government libertarians. When you weed through all the parties and ideologies of some voters, what it really boils down to with most voters is the informed and the uninformed. Or in the case of the 2012 presidential race – the misinformed. Jefferson’s words still ring true over 200 years later, perhaps now more than ever.
What so many people fail to realize is how economic freedom and prosperity go hand in hand with civil liberties. No one can ever truly have independence or liberty if we are not economically free. A new report shows that American economic freedom, which has been on the decline since 2000, is steadily plummeting. The U.S. is losing its previous status as one of the freest economies in the world at an incredibly rapid rate. This is problematic for America’s future, as economic freedom is associated with GDP growth and standard of living.
As Ben Powell of the Independent Institute writes, “Economists James Gwartney, Robert Lawson, and Joshua Hall publish an economic freedom of the world report annually. Their latest report, released this week, shows that the United States, which was ranked the second freest economy in 2000, now ranks 18th. Economic freedom increased from 1980 to 2000 in the United States while it was generally ranked behind Hong Kong and Singapore as the third freest economy in the world. Today it ranks behind European welfare states like Finland and Denmark, and places traditionally more hostile to economic freedom like Qatar. The declines in freedom have occurred because the federal government has grown larger and more intrusive.”
On the heels of this new report, it’s time that we clarify and debunk the economic myths that the 2012 Obama campaign is using to misinform the public and win re-election, starting with the biggest two:
1. “(Voting for Romney-Ryan) is to go back to the very same policies that got us into this mess in the first place.” – 10/9/12
Patently false. If anything, the Obama administration has only continued the same big government, reckless spending policies of the Bush administration. As my colleague on PolicyMic, Gary Patterson, Jr. rightfully identified, “In reality, the housing collapse was the driving factor in causing the recession, and both parties played significant roles in creating that mess. Upon closer review, Obama is the one doubling down on the failed policies of the past.”
It’s time that someone explained where the true roots of the 2008 recession lie: in the subprime housing crisis. Excessively loose credit terms spurred the granting of housing developments and home loans that, to be perfectly blunt, should never have been granted by Fannie Mae and Freddie Mac. The result was a liquidity crisis that halted economic activity across the board. When banks can’t lend, economic activity simply grinds to a halt. And that is precisely what happened just before the election of 2008.
Now according to the revisionist history of the progressive elites in Washington, academia, and the mainstream media, the current economic problems were caused by the market which “only government can rescue us from.” What was lacking in the housing market, they claim, was government regulation of the market’s “greed.” That makes for great drama, but it turns the facts upside down.
It was precisely government intervention which turned a thriving industry into a swamp. As economist Mark Zandi once said: “Lending money to American homebuyers had been one of the least risky and most profitable businesses a bank could engage in for nearly a century.” Before the government intervened, that is.
The Community Reinvestment Act of 1977 directed federal regulatory agencies to “encourage” banks and other lending institutions “to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.” That sounds pretty innocent and, in fact, had little effect for more than a decade. However, its premise was that bureaucrats and politicians know where loans should go, better than people who have been in the business of making loans for years.
The real potential of that premise became apparent in the 1990s, when the Department of Housing and Urban Development (HUD) imposed a requirement that mortgage lenders demonstrate with hard data that they were meeting their responsibilities under the Community Reinvestment Act. What HUD wanted were numbers that looked good; showing that mortgage loans were being made to low-income people on a scale that HUD expected, even if this required “innovative or flexible” mortgage eligibility standards. In other words, quotas were imposed, and if some people didn’t meet the standards, then the standards “need to be changed.”
Both HUD and the Department of Justice began bringing lawsuits against mortgage bankers when a higher percentage of minority applicants than white applicants were turned down for mortgage loans. In fact, a substantial majority of both black and white mortgage loan applicants had their loans approved, but a statistical difference was enough to get a bank sued.
Under growing pressures from both the Clinton administration and the Bush administration, banks began to lower their lending standards. Those who warned of the dangers had their warnings dismissed. Now, apparently, we need more politicians intervening in more industries, if you believe the progressive elites. But make no mistake; it was government intervention that caused the subprime housing crisis, which then triggered the recession.
2. “Over the last four years, the deficit has gone up, but 90% of that is as a consequence of two wars that weren’t paid for, as a consequence of tax cuts that weren’t paid for, a prescription drug plan that was not paid for, and then the worst economic crisis since the Great Depression. Now we took some emergency actions, but that accounts for about 10% of this increase in the deficit, and we have actually seen the federal government grow at a slower pace than at any time since Dwight Eisenhower, in fact, substantially lower than the federal government grew under either Ronald Reagan or George Bush.” – 9/23/12
Coming into office with a budget surplus left from President Bill Clinton and the Newt Gingrich-led GOP Congress, one of the first bills President George W. Bush signed was the Economic Growth and Tax Relief Reconciliation Act of 2001— a sweeping piece of legislation that cut tax rates across the board.
In the following years, the Republicans in the White House and Congress did not adjust spending levels to comply with the new revenues. Quite the opposite, after two wars, along with unfunded entitlements like No Child Left Behind and Medicare Part D, big government regulation bills like the USA PATRIOT Act and the Clear Skies Act, combined with the bailouts of the auto companies and Wall Street banks saw Bush expand public spending by 83% throughout his administration and add $4.9 trillion to the federal debt.
These unfunded big government initiatives allowed the Democrats to sweep power in Congress and the White House in 2006 and 2008. But the Democrats followed suite only to double down on spending and government expansion.
In addition to inheriting the two wars that were started during the Bush administration as well as completing the bailouts, Obama and the Democratic Congress passed even more big spending legislation, like the Stimulus and the Omnibus, along with big government regulation bills like the Dodd-Frank Act and the Affordable Care Act, and billions in subsidies for green energy companies like Solyndra and Ener1, and products like the Chevy Volt and Fisker Karma.
Obama has now surpassed more debt than Bush in less than half the time, raising the federal debt to an astronomical $16 trillion. By the end of the Obama administration’s term, the U.S. Treasury projects that another $6.2 trillion in debt will be added.
As Patterson describes, “In his claim, Obama had the 10% part right. However, that 10% was more properly attributed to his predecessor’s role in creating the deficits from 2009-2012. The remainder is attributable to Obama’s policies (~40%), the recession (~40%), and other (~10%). Similarly, the president’s claim that federal government grew at a slower pace than at any time since the Eisenhower administration has been widely debunked. The Washington Post, Associated Press, and Factcheck.org all agreed the statement is patently false.”