Yesterday the Washington Post described a failed meeting of the economic and political minds that occurred last year at the White House. Barack Obama brought in seven of the world’s top economists to get their advice on how to fix the ailing economy.
“I’m not asking you to consider the political feasibility of things,” he told them in the previously unreported meeting.
Never mind that it was rather late, even a year ago, to start bringing in the big guns to talk about fixing the economy. It wouldn't have mattered if the president brought them in on day one, the result would have been the same. They advised him to introduce a big plan to forgive part of the mortgage debt owed by millions of homeowners who are underwater on their properties. He ignored them.
It had long been thought that when property values declined in value, homeowners would spend less because they would feel less wealthy.
But Mian and Sufi’s research showed something more specific and powerful at work: People who owed huge debts when their home values declined cut back dramatically on buying cars, appliances, furniture and groceries. The more they owed, the less they spent. People with little debt hardly slowed spending at all.
There are lots of reasons to object to mortgage debt forgiveness, not the least of which is how unfair it would be to all of those homeowners who by scrimping and saving and sacrifice didn't go in over their heads and didn't need to be bailed out. I don't think that would be a persuasive argument to Obama who seems routinely to favor one citizen over another as a matter of course. It's good politics to have people owe you.
At a more basic level, officials simply did not believe that a big program of debt forgiveness was a smart investment, costing hundreds of billions of dollars — money that it preferred to spend on a massive economic stimulus package that could much more quickly lift the economy. The administration also announced a more modest program designed to avert foreclosures by reducing mortgage payments but not the total debt balance.
How quaint that officials worried about hundreds of billions of dollars in debt forgiveness. Better to go with a massive Keynesian stimus. And we can all see how that worked!
In late 2009, the economy started to grow at a pace of 4 percent per year — fast enough that employment would have returned to normal by just about now. But in 2010, growth sputtered to 2 percent. The administration responded with more stimulus. But the pattern repeated itself in 2011 and this year.
I don't recall any 4 percent growth, but if the Washington Post says so, why it must be gospel. Maybe we got it for about a week and a half in September of 2009, spurred by a massive rally in Washington DC. Since then the economy as crawled but the stimulus spending has been phenomenal. Five trillion dollars in deficits in four short years, with $5 trillion more anticipated in the next four.
The administration never saw the mortgage debt overhang as the big drag on the economy, and they still don't. Why would they, when their alternative theory tells them to spend, spend, spend. Unlike George Bush whose half a trillion dollar defict was unpatriotic, the Obama administration will happily spend us into bankruptcy in the interests fairness — everybody gets a fair shot at poverty. It's all very disappointing but the housing debt is not to blame, they say.
Obama’s advisers believe the ultimate pace of recovery is understandable, if disappointing, given the financial crisis and the collapse in housing prices, as well as surprises such as a drought this year, the European debt crisis, rising oil prices and the trade-disrupting Japanese earthquake.
It's the drought, the earthquake, the hurricane, Europe. they've get plenty of excuses. They also have a crisis which we can be sure won't go to waste.