Guest Opinion: Barack Obama and the Prospects for a New 'New Deal'

It's still not too late for Americans to wake up and see through all the partisan rhetoric and Obama-media hype, and all the false promises of a new "New Deal".

BRITISH COLUMBIA (Catholic Online) - As the US presidential election approaches, it is clear that some faithful, churchgoing Catholics are still intending to vote for Barack Obama despite the fact that he is the most pro-abortion candidate ever to run for the White House. They even seem prepared to do so despite the urgent appeals of many US Bishops for Catholics to prioritize the Right to Life in the voting booth in this (as in any) election year. The simple fact is that many Catholics feel that the US economy is in such dire condition right now that fixing it must be the country's over-riding concern, and much as their grandfathers and grandmothers did during the Great Depression, they are ready to trust to the Democrats to put things right.

Many Catholic Americans still keep close to their hearts a narrative about the 1930's: an oral (and media driven) tradition that the Great Depression was caused primarily by greedy, wealthy speculators on Wall Street, and by an under regulated free market. That is supposedly what led to the Stock Market crash of 1929, and the widespread unemployment that followed. Then FDR and the Democrats stepped in as the party of "the little guy," and through his many, bold, "New Deal" Federal programs, they put America back to work and established a more just and compassionate economic order.

Now we are facing the biggest financial crisis in US history since that Great Depression, a crisis primarily due to the lack of government regulation of the financial sector (or so Sen. Obama tells us), and almost as an instinctive reaction, the US electorate has turned a hopeful eye on the Democratic candidate for president, and the media pundits have even started calling his economic plans "the new New Deal" (notice that Obama does not even have to create his own campaign slogans anymore: the fawning media has already done it for him!). In his own words, he will give us "change you can believe in," and "spread the wealth around": significant increases in government regulation of the economy, along with higher taxes on the rich and on investors, coupled with tax credits for the poor and middle class. As we shall see, this is "change" you really will have to "believe in" with something approaching religious faith, because there is precious little evidence that it will do much of anything to help -- and quite possibly will actually hurt the most -- the very poor and middle class folks whom Sen. Obama (perhaps sincerely) intends to assist. And you do not have to be a Neo-Con (this writer is not), or even a professional economist, to figure this out.

Still, the public -- and this includes many Catholics who really ought to know better -- are mesmerized by "Obamamania." Never mind that (unlike FDR), Sen. Obama has never run an economic entity or even an organizational budget in his life. He cares about the little guy and he will have good advisors. He will give us hope (via great speeches) just as FDR did, and turn things around just as FDR did. He will give us a new "New Deal" to rescue the economy again.There is one big problem with this narrative about the 1930's, and it's attempted encore performance today: it is largely a myth. It wasn't entirely true then and it certainly isn't true now.

1. The Great Depression of the 1930s was not caused primarily by an unregulated free market, or even by the Stock Market crash of 1929. Historians know that while that crash came as a shock, few people expected at the time that it would lead to a decade long depression. It was what followed the crash from, 1929-1932, that really drove the nails into the coffin: the Federal Government actually tightened the money supply at precisely the time access to credit should have been loosened, and the banks given proper support. In other words, the Great Depression would have been a much shorter, nasty recession if the Federal Government had not messed things up. Economist Milton Friedman proved this beyond a shadow of a doubt many years ago, and his research into this matter was a main reason he won the Nobel Prize for economics.

That is also why the Federal Government today has acted to give a financial boost to the banks and to loosen credit markets: because some government officials, like Paul Bernanke, learned the real lessons of the Great Depression. There will probably not be a depression now as a result (despite all the hype on CNN and other networks). There will just be a recession. And the reason for this latest crisis, once again, is not primarily that there was a lack of proper government regulation of the free market in some areas. Rather, the problem largely stems from the pressure government officials (especially in Congress) from both parties, placed on the quasi-public corporations of Freddie Mac and Fannie Mae, to keep lending money to low-income home buyers, to extend the American dream of home ownership to the lower middle class and the poor. As recently as January of 2008, Democrats in Congressional oversight of Freddie Mac and Sallie Mae were actually encouraging them to increase their lending to low-income families, despite all the warnings from economists that this practice was already out of hand.

Sen. Obama tells us that our economic problems mainly stem from Republican polices of deregulation and reckless Wall Street greed. That is no more than half of the truth. Since he does not understand the real extent or underlying causes of many of the economic problems we face, Obama simply will not be able to solve them. And economic problems, like medical health problems, don't just sit there, "unsolved." Not to heal them is to let them fester. They get worse and worse.

2. A second part of the myth is that FDR's New Deal succeeded in putting America back to work and thereby helping "the little guy." By and large, it didn't. When FDR took office in 1932, the US unemployment rate was at an all-time high of 24.9%. After six years of the New Deal "priming the pump," in 1938 unemployment still stood at 19%. The truth is that despite all the good intentions, very few of the New Deal measures actually succeeded in putting people back to work. It was only World War Two that actually reduced unemployment temporarily, by shipping a big portion of the workforce overseas. When many of the soldiers came back home, unemployment shot up again. It was not until the 1950s and the relatively free-market policies of the Eisenhower administration (aided by a lack of effective competition from war ravaged Europe) that the US finally dug itself out of its chronic unemployment hole.

This is not to condemn all the reforms ushered in by the New Deal. Some of them, such as the establishment of the Social Security system, were badly needed and remain a vital part of the nation's social insurance "safety net." But the truth is that in general, the Democrats did not fix the economy during the Great Depression. The narrative that they did so is a myth.

3. Barack Obama has no coherent "New Deal" plan for fixing the economy today either. Forget all the "bells and whistles;" let's get right to the heart of things.

First of all, the US has the second highest business tax rate in the industrialized world. These taxes hit small businesses especially hard, since they can find fewer loopholes to escape from them. Yet small businesses were still responsible for the lion's share of job creation during the last growth period of the US economy, from 2003-2007. Imagine what they could do without the albatross of taxation around their necks! The US corporate tax rates are choking productivity and job creation. Obama has no plans significantly to decrease these tax rates. In fact, he will add to the foolishness by raising capital gains taxes, which (as numerous studies have shown) actually results in no increases in government tax revenue at all (due to the reduced amount of investment in the US economy that these taxes cause). That too will hinder job creation. John McCain, however, promises substantial cuts in business tax rates. Everybody who buys anything from a business, and everyone who is employed by a US business would benefit from the economic growth, low inflation, and job creation that would result.

Second, the US Federal Government is now running nearly a $500 billion annual deficit (a figure which will rise when all the expenditures for the bail-out plan are made). Obama's fiscal plan calls for a substantial rise in Federal Government expenditures (the exact size of which is disputed), on everything from health care and college tuition to infrastructure and energy projects. His tax plans call for increased taxes on those earning over $250,000, while giving everyone else a $1,000 per year tax credit. This reshuffling of the tax burden may be fair enough, and may provide a small amount of stimulus to the economy (probably offset by the reduced investment caused by soaking the rich with new taxes), but it will do nothing to reduce the Federal deficit. In short, any way you do the math, an Obama presidency will saddle the people of the United States with an ever-larger national debt. Think about it: when the banks were going under, only the Federal Government had the resources to bail them out. Who is going to pay for the bailout when the Federal Government itself goes broke?

Have a look in the mirror for your answer: the taxpayer.

Third, Sen. Obama has no adequate plan to move the US away from energy dependence on shrinking supplies of expensive foreign oil. He will simply pour more (borrowed) Federal money into solar and wind power projects, and development of hybrid automobiles. But every energy expert knows that while those measures will help, they will not even come close to meeting the energy needs of a (hopefully) growing US economy. Don't forget: one of the reasons for the economic crisis we are in now was the contraction of the economy caused by skyrocketing energy prices, just prior to the collapse of the financial sector. As the world economy begins to recover over the next couple of years, those high prices will be returning if the US does not aggressively develop almost all of the energy sources at its disposal. That must include expansion of nuclear power, and offshore oil drilling. The Democratic party's stonewalling of expansion in these areas is based primarily on fears of their environmental impact, fears that are literally twenty years out of date. For example, offshore oilrigs are now so advanced in environmental safety features that when Hurricane Katrina hit the Gulf, not one of the 300 rigs in its path spilled any substantial amount of oil. Sen. McCain will pursue the whole menu of realistic energy options. Sen. Obama will not, and the economic cost of that failure, in the long term at least, will be nothing short of catastrophic.

This is not to condemn all of Senator Obama's domestic proposals. Finding a way to make health insurance universally accessible and portable is something that is long overdue in the United States, and Obama's health care plan, while far from flawless, will come as a relief to many Americans who cannot afford health insurance for themselves or their families right now, or who live in constant fear of losing the health insurance they already have.

It is one of the consistent features of our nation's dysfunctional, polarized two-party system that the party that usually undermines economic productivity and job creation (the Democrats) is also the party that does the most to provide the poor and underprivileged with an adequate social insurance "safety net," while the party that understands and institutes wealth creation and job growth (the Republicans) is also the party that does not do enough to fashion or maintain that "safety net." The media talks about "the prosperity of the Clinton years," conveniently forgetting that the economy was as much under the control of the Republican Congress as it was under Clinton's control throughout his entire eight-year regime. The last time the Democrats were in full control of the Congress and the presidency was during the four years of the Carter administration, and the result was crippling "stagflation." It was the Republicans under Reagan after 1980 that put the building blocks in place for the twenty years of economic boom that followed. At the same time, they largely "pulled the plug" on Food Stamps, one of the few Federal welfare programs that had actually worked!

So neither party is without blemish here.

The problem right now, however, is that productivity and job creation are collapsing, and yet we are about to elect a president who is ideologically committed to dividing up more fairly the economy's "golden eggs" ("spreading the wealth around") without providing any real cure for the sick goose that has been laying them!

The sad result of an Obama presidency, therefore, despite all its idealistic intentions, will be an economy choked by high business and capital gains taxes, ballooning Federal debt, and inadequate and increasingly expensive energy sources. American economic decline will continue, and probably accelerate. Recovery from the present recession will be needlessly slow and drawn out over many years (of course, the Democrats will blame that on what they inherited from George Bush, and not on their own policies -- but after two or three years that argument will start to lose its plausibility, even to those who are ignorant of the underlying causes of the mess we are in).

The overall result of Obama's New New Deal, therefore, will be sluggish productivity and chronic high unemployment: what used to be called "the European disease," until some of the EU countries, such as Ireland, got smart and began slashing their business tax rates. Ironically, it is "the little guy" who cannot find a job, and is ever in danger of losing any job he gets, that will suffer the most from the ongoing economic malaise: the very people the Democrats claim they want to help.

It's still not too late for Americans to wake up and see through all the partisan rhetoric and Obama-media hype, and all the false promises of a new New Deal. If we fail to do so, at this critical juncture in American history, we will end up paying for that mistake for decades to come.

****

Dr. Robert Stackpole is an Associate Professor of Theology at Redeemer Pacific College and the Director of the John Paul II Institute of Divine Mercy

---

'Help Give every Student and Teacher FREE resources for a world-class Moral Catholic Education'

Copyright 2021 - Distributed by Catholic Online