If At First You Don't Succeed

Hey, remember TARP (the acronym for the Troubled Asset Recovery Program)? That was way back in 2008. At the time, lawmakers told us that if we didn't bail out the banks to the tune of $800 billion dollars we wouldn't be able to withdrawal any money from our ATMs the next day. The "Troubled Assets", they were referring to were all of the homes that were "underwater" at the time (i.e. those homes that were worth less than what was owed on them). We were told that banks would buy back those "Troubled Assets" and restructure all those bad loans. It was a truly bipartisan effort; indeed, both parties enthusiastically endorsed the plan, from President Bush to Barack Obama, from Hank Paulson to Tim Geithner, all were in agreement that we needed to bail out the banks for fear of slipping into a deep depression.

Well, how did that turn out? Banks received TARP money and proceeded to shore up their own balance sheets but neglected to buy up any of the "troubled assets". Now its four years later and we have over 11 million U.S. homeowners "underwater". In fact, it's been estimated that 1/3 of all U.S. mortgagees owe more on their homes than what they are worth.

Giving U.S. banks all that money, without any conditions was just insane. It's like giving a crack head money and telling them to "do the right thing" like pay the rent, buy diapers and food for the fridge. Guess what the crack head is gonna do? You guessed it, buy more crack! Yet, that's exactly what we did with U.S. banks and TARP. Instead of giving them more money, we needed to send the banks to rehab. Just imagine, if instead of giving money to the banks we had given the money directly to all U.S. home owners who were "underwater" at the time. I bet we would be out of this housing mess and well on our way to a recovery by now. $800 billion was spent on TARP and then another $831 billion was spent in 2009 intended to "stimulate" the hiring of public sector work forces (I guess those "shovel ready" jobs weren't so "shovel ready" after all). How about Cash for Clunkers or those Recover Summers? Now, the Paul Krugmans of the world are saying, we just didn't spend enough money and what we really need, is more "Stimulus". As Margaret Thatcher once said, "Socialism is awesome until you run out of other people's money".

Mr. Obama thinks that we just need more "investment" - in energy, education and such. For about 40 years before 2008, spending as a percentage of GDP was around 20%. In 2009, it rose to 25%, and has remained at 24% of GDP. What exactly have we gotten in return? Nada, zero, zilch! What we have, is a $16 trillion dollar deficit ($5 trillion of which was spent during the Obama administration - more than any other president, EVER!). We're stuck at 8.3% unemployment. In fact, we've had over 41 straight months in which unemployment has been over 8%. No incumbent president since FDR has ever been reelected when unemployment was over 8%. Good luck with that Mr. Obama.

Yeah, Barack Obama inherited a horrible economy back in 2008 - and then he made it far worse.... instead of pulling back from the policies that got us there, he doubled down. He said forget that we wasted all that money on government; I'm going to spend more. Let's borrow $800 billion more to "stimulate" the economy. The only thing it "stimulated" was more debt. Never before has the choice been so clear, the difference so dramatic. Things will never get better under Mr. Obama because he just doesn't understand what made America so great.

In the 1960's, the great economist Milton Freidman famously explained that "there's no such thing as a free lunch". If the government spends a dollar, that dollar has to come from producers and workers in the private economy. There's no magic "multiplier effect" that goes from Peter to pay Paul. In fact, he went on to explain: "Higher taxes never reduce the deficit. Governments spend whatever they take in and then whatever they can get away with" (just like the crack head). As obvious as this seems, Mr. Obama's policies may be the most expensive failed experiment in Keynesian "free-lunch" economics in American history. Big government isn't the solution, it's the problem.