Three pervasive lies about the economy

So, ladies and gentlemen, I’m going to repeat the same thing everyone else has been repeating for the past umpteen years: the media is lying to you, and you’re being sold something that isn’t only a lie, but is killing the economy. The bad news? Nobody knows what the heck that means. It’s almost as empty a statement as “all politicians are liars:” Everybody says it because it makes them fit in with the cool guys, not because they actually know what politicians are lying about.

As such, I’d like to tackle this issue from the viewpoints of an average American citizen in 2008, calling to light the various misunderstandings with which this current administration has had to deal.
Before I start, though, it should be mentioned that anyone who’s only expecting a purely Democrat-directed grilling is in for a surprise, mostly because the problems we’re dealing with today are so heavily ingrained in both parties that it’s completely impossible to escape by using traditional partisan politics, even though the media and common consensus would have you believe it’s Bush’s fault, and the blogs would have you believe it’s Clinton’s.

Oh, and by the way, I’ve placed stars next to economic concepts that you can easily find in Wikipedia, just in case any readers aren’t familiar with the concepts and would like more information. All the other information will be used from respectable sources, so feel free to dig around in the links. That being said, allow me to tell you why the economy is Bush’s fault, why it isn’t, and why Americans are generally wrong.
Misunderstanding #1: Our unemployment levels are out of control

The first gigantic lie regarding our economy is that right now—in September of 2008—we have more unemployed people than ever before, and there are hordes of people roaming the streets incapable of finding jobs.

This is total garbage.

Actually, we averaged about a 6% unemployment rate in September according to the Department of Labor Statistics, which is better than we had through half of the 90’s when the media was reporting a “good time” (1). Furthermore, at one point in 2007 our unemployment rates were at a cozy 4.5%, almost at the lowest level we had ever achieved through the 90’s, which is very near something known in the world of economics known as “full employment*”. Read that again in case it didn’t soak in.

Kinda makes you wonder why you keep hearing—at all media stations and at certain conventions which need not be named—that we have to fix the unemployment problem. To bring more light to this picture, the reader should know that most mainstream economists understand that a certain level of unemployment is healthy, and because of this they believe in what’s known as the NAIRU* (Non Accelerating Inflation Rate of Unemployment). The NAIRU basically tells us how much unemployment we need to maintain a stable economy, because when employment levels fall below the NAIRU:

1)workers become less accessible, which results in
2)demand for higher wages as a result of competition for workers, which results in
3)less profits for companies and thus inflation.

This doesn’t mean that the unemployment rate is the sole factor for inflation, but rather that a correlation exists between the two, and the government is well aware of this. And not to say that our unemployment levels are within range of the NAIRU, but this is an interesting point: “too little unemployment” is unhealthy for all of us. So when certain parties claim to want to “fix” the unemployment problem, they can’t possibly mean anything as drastic as what they’re proposing, because if they did they’d be in danger of causing inflation, which they darn well know would bite them in the butt. And plus, if one were to look up the levels of unemployment since 1960, they’d find out that 6% unemployment is a pretty good historical level for our nation.

Even more interesting in light of the NAIRU is that according to the Humphrey Hawkins Full Employment and Balanced Growth Act, the government is required to maintain no more than a specific unemployment level at specified dates according to a specified schedule, and they achieve this through control of our monetary policy through the Federal Reserve, tightening available credit when the economy is rapidly expanding, and freeing credit when the GDP is stagnating or declining, as we’re seeing this year (2). This creates a ceiling for unemployment levels in addition to the basement provided by the NAIRU.

Also through this act, if private enterprises are incapable of providing jobs for the US population after government insertion of funds into the economy, the government is required to create a temporary pool of jobs to maintain social order. And to the chagrin of true conservatives, the government has been allowed to control where we stimulate our economy with public funds for a long time (see: possible car industry bailouts), and both parties are required to relieve unemployment if it gets too bad BY LAW.

Now, you may or may not have heard about certain economists who argue that the numbers used by the Bureau of Labor Statistics are completely false, and that certain elements are purposely left out of the equation ever since the years of the Clinton administration (such as the “discouraged” unemployed, people who haven’t been able to find a job in over a specified period of time). But even looking at these “shadow statistics” by rogue economists, you can see that the Bush and Clinton years have striking similarities, even if both of their unemployment figures have been purposely distorted (3). If these “shadow statistics” speak the truth, then unemployment is underreported by about 8% across the board through both administrations, making the lies about higher unemployment during the Bush years still false (3). Either way you look at it—with either the government lying to you, the media lying to you, or both—you’re still getting conned.

This isn’t to say that the economy is fine right now, or that employing an extra two percent of the population (somewhere around six million people) isn’t a great goal, but my point is that Bush has been doing just fine in terms of unemployment rates in comparison with the recent times in American history when people weren’t complaining that someone ruined the economy.
Misunderstanding #2: The Republicans and Democrats adhere to conservative and liberal economic policies, respectively

Since we’re already discussing the provisions of the Full Employment Act, the reader should probably be informed that the Chairman of the Federal Reserve must follow the economic plans of the President because of it, but that from 1987-2006 we’ve had the same guy as the Chairman of the Federal Reserve. That might not seem that important, if it wasn’t for something historically known as Keynesian economic theory*.

Keynesian theory—in the shortest and crudest explanation—is an idea that arose during the Great Depression: that active government policy can be effective in managing a capitalist economy, and that unbalanced budgets could be a good thing if applied in a countercyclical manner. This means that during a period of economic expansion, the government should raise taxes and run a budget surplus, and during a downturn the government should spend itself into a deficit, thus injecting the market with money and providing capital to buyers, which in turn stimulates the economy. This is done to control inflation and to moderate fluctuations in the economy that could cause depressions.

Now, the desired result of injecting money into the economy is known as “the multiplier effect*,” and is theoretically similar to Reaganomics in that it supposes that a modest outlay of capital (in Reagan’s case, a tax break) could stimulate the economy by encouraging both consumption and additional hiring. Of course, when Reagan proposed we stimulate the economy the same way through “trickle-down economics” (except allow the market to determine where to naturally guide the money instead of the government), he was made fun of by the media, even though the Left generally agrees with Keynesian theory or variations of it, and even though Reagan was able to claim the longest period of peacetime economic growth in our nation’s history at the time(4). Following suit, the same media shaming went to Bush when he promised to give Americans their $300 check during his first election, almost as if the Left had never heard of such a kooky idea.

This is where things get funny, because Keynesian theory has been historically embraced and promoted by the worldwide Left and US Democrats, with notable authors and modern muckrakers such as Greg Palast declaring that forced abandonment of the theory was heavily responsible for the collapse of many South American economies during the 1980’s, as can be explained in Palast’s “The Best Democracy Money Can Buy”(5). But to be completely fair, Republicans have embraced the theory as well, with most major Republican candidates refusing to return to classical conservative monetary theory due to reasons of political correctness (explained later in this essay).

The very existence of the Federal Reserve* and the lack of mention it receives during campaign time is a testament to this, as the Federal Reserve is modern Keynesian theory in practice, and we’ve had Alan Greenspan piloting the organization since Reagan was in diapers (joke). Something collapses and—wham!—80 billion dollar cash infusion, all courtesy of the frugal American, whose life-savings almost immediately decrease in value. Not a whole lot had changed for about 20 years.

But this isn’t what this section is about. At this point, you should probably be scratching your head about Bush’s spending and the media shame festival which ensued, mostly because history followed the Keynesian economic plan that the Left embraced: the 90’s had an economic boom and thus a purposeful budget surplus as called for in Keynes’ playbook, and during the economic upsets of the first and second Bush family presidencies we spent ourselves into deficits just like Keynes said we should. This, even if it could be argued that Bush isn’t really a Keynesian.

This is a complete windfall for the Democrats, with the Left being able to celebrate the “fiscal conservatism” of the Clinton years and at the same time bash both Bushes for not only having a rough time with upset economies, but being “dumb enough” to spend into a deficit during that time, even though the theories that the majority of liberals support run concurrently with the way things have turned out. Turns out that the mainstream Left either has no clue about the economic theories their candidates embrace, or they’re sinister enough to allow others to believe the deficit is a result of complete recklessness. This is absolute misrepresentation regardless of which outcome is predominant, and the American public should be made aware of it.
Misunderstanding #3: The Sub-prime crisis was caused by “market failure”
And have you ever heard of the Community Reinvestment Act (CRA)? Well, you should have, because it’s almost completely responsible for the current sub-prime crisis. And as much as pundits would enjoy pointing fingers, the truth is that both parties supported this legislation, and both parties continue to support it.

Basically, the CRA was designed to target banking institutions and force them to do business with the “underserved” portions of the community, also known as “people who aren’t financially ready to buy homes.” The legislation started in 1977 as an extension to the Great Society programs of yesteryear, and was designed to create more affordable housing for minorities at the protest of all mainstream banking institutions (6). After Clinton came to power, he decided to expand the power of the legislation, which caused a boom in the sub-prime industry and increased the number of loans for low to moderate income households under the CRA program by 80% in less than a five-year period (7).

But here’s the funny part about the whole thing: you know who the first bank to do business with the new CRA program was? Bear Stearns (8). Unfortunately, even though the government recently gave Stearns a cash injection after crashing and warned the other banks to clean up ship, the damage was already too far gone: a few people had gotten rich and hundreds of billions of investors’ dollars were placed at risk (9)(10). And yes, that means retirement funds, for those of you who care about the elderly as much as minorities.

So how exactly did this happen? A law firm devoted to fair lending compliance known as Traiger and Hinckley has released a report suggesting that CRA banks (also known as banks who were forced to do CRA loans) were a “welcome anomaly in the sub-prime crisis,” and that they were less likely to purchase risky loans while at the same time more likely to retain loans in their portfolios instead of selling them on the secondary market (11). Even though this research claims that “in the 15 metropolitan areas analyzed, the CRA bank market share of all loan originations was less than 25 percent,” 25 percent is a pretty large chunk of any market that crashes, especially when that market is the housing industry, one of the largest industries in the US (11).

Also worth noting is that even though Traiger and Hinckley say that CRA banks were less likely to engage in risky “high cost” loans than other organizations, they were still rapidly expanding the number of sub-prime loans in comparison with prime loans, with sub-prime CRA loans tanking a whopping 2.3% of the time according to the Federal Reserve in 1999(11)(20). Keep in mind that this was before the sub-prime crisis. To put this in perspective, the World Socialist Web Site (cough, cough) recently posted an article detailing how Detroit—one of the nation’s biggest CRA recipients—had the highest rate of foreclosure, at almost 5% of all households in the city, and Michigan itself had the honorable title of third worst foreclosure state in the nation with only a 2% foreclosure rating (11)(17).

Now, most people know that it’s generally a bad idea to use data from any Left-wing organizations that are trying to scare you into thinking Stalin should come back from the dead and be emperor, but I’m using this bad info to prove a point: nightmarishly bad is less than 5%. According to the US News and World Report, the worst states involving foreclosure are Nevada, California, and Arizona, with Nevada being the absolute worst and having 1 in 91 homes turn into a foreclosure. Realtytrac (a foreclosure company) says the US foreclosure average is around 1% , making CRA loans 130% worse than everything else according to the Federal Reserve, and placing all CRA loans in a status of “worse than all the other spots for foreclosures in America” (18)(20). Yeah.

Of course, when the Federal Reserve stated this, they mentioned it as “only 2.3%,” which seems like a little bit until you consider the actual market these numbers exists within. And the media? Not a peep. Usually they go bananas when they’re able to report any sort of horrible thing increasing by even a “measly”100%, but as it turns out, welfare programs always get the silent treatment. But anyway, the bottom line is that if CRA lenders are so darn safe, how does one explain the crashes of both Bear Stearns AND Countrywide? How do you explain WAMU pumping 75 billion dollars into their CRA program back in the 90’s and then going kaput (19)?

So anyway, Clinton basically starts a slow roast of our major banking institutions, making safe lending practices illegal, and then passes the torch to Bush. What does Bush do with this game of economic hot potato? Nothing. And then right after doing nothing to change this, he touts the increased minority home-ownership as part of his “ownership society” plan, which would be great if it wasn’t for the fact that ownership in American society is predicated with responsible lending from stable institutions, the basis of which was eliminated by the CRA. After that, he went on to Clintonesquely increase spending on minority businesses, even though this meant focusing on a redistribution of wealth instead of rewarding good business practices, which is the textbook definition of Left Wing* (12). To quote a certain internet blogger, this means we’re all multicult liberals now. Economics and moral principles be damned.

Speaking of multicult liberals, it should be mentioned that a certain Barack Obama has been in direct support of the CRA through an organization embarrassingly known as ACORN (Association of Community Organizations for Reform Now), which fought for the “right” of citizens to get into homes under threat of lawsuit (13). Also opposed by ACORN? Welfare reform, including the offensive portions about having to prove that you’re looking for a job while on the dole, and the other part about not allowing people to remain on welfare forever (13). And to make things seem even more ridiculous, Barack’s position has not changed despite the fact that the Black community is suffering the most amount of foreclosures, mostly because he believes that the problem still lies with racism and not with financial policies that blatantly ruin financial systems (14).

Oh, and just for fun, according to Bill Isaac, former chairman of the Federal Deposit Insurance Commission (FDIC), the fund that’s supposed to insure your money in the bank doesn’t actually exist because the government already spent it (16). When all these banks crash, the only way we can get the money back is by either borrowing from China or raising taxes. So if you think about it, if the money isn’t actually there, we’re either going to pay for a bailout or we’re going to lose our money (the same thing!). Comforting, eh?

But as fun as blaming the Democrats can be, it should be noted that Republicans have strongly stated in their platform that one of their major goals is the fight against housing discrimination, as if to let the American people know that there’s absolutely nobody we can turn to who understands how this mess started, or what we need to do to get out of it (15). It’s as if the whole world’s gone kumbaya crazy.

So in light of these misconceptions, what’s the best lesson you can learn? Don’t trust the media. If you hear about something in the news, don’t buy the story: RESEARCH IT. Even Wikipedia can get you links to reputable resources, and if you and all your friends don’t take the time to independently study the world (ESPECIALLY IF YOU’RE CONSERVATIVE), your world will collapse around you because you won’t know what’s going on. And you will have nobody to blame but yourself.

My personal opinion is that everyone should find a couple of sites that interest them, and then they should NEVER take the site’s word for granted, researching everything mentioned on it. And go to any site. If it’s the Daily Kos or American Renaissance, it doesn’t matter because you’ll be backing their info up. Just make sure it interests you and then do thinking for yourself.

Get to work.
Resources:
1) Bureau of Labor Statistics: unemployment calculator (hint: check “Unemployment Rate: Civilian labor force”)
http://data.bls.gov/cgi-bin/surveymost?ln
2) Education Resources Information Center: Full Employment and Balanced Growth Act
http://eric.ed.gov/ERICDocs/data/ericdocs2sql/content_storage_01/0000019b/80/3b/58/b6.pdf
3) Shadow Statistics: unemployment and inflation data
http://www.shadowstats.com/alternate_data
4) Tax cuts, Reagan, and economic growth
http://taxesandgrowth.ncpa.org/news/do-taxes-affect-economic-growth
5) Greg Palast talks about Argentina
http://www.gregpalast.com/world-bank-secret-documents-consumes-argentinaalex-jones-interviews-reporter-greg-palast/
6) White House press briefing regarding CRA legislation
http://clinton6.nara.gov/1993/12/1993-12-08-briefing-by-bentsen-and-rubin.text.html
7) US Treasury Report: the impact of CRA loans (p.22)
http://www.treas.gov/press/releases/docs/crareport.pdf
8) Bear Stearns kicks off CRA lending
http://www.wachovia.com/inside/page/textonly/0,,134_307%5E306,00.html
9) US Treasury Report in 2000: CRA lending size
http://www.treas.gov/press/releases/ls564.htm
10) Securities take a major hit as a result of the subprime meltdown
http://articles.moneycentral.msn.com/Investing/Morningstar/SubprimeMessSeepsIntoMutualFunds.aspx
11) Traiger and Hinckley’s report on the benefits of CRA lending
http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
12) Bush and minority entrepreneurs
http://www.whitehouse.gov/news/releases/2004/07/20040723-5.html
13) Obama and ACORN
http://article.nationalreview.com/?q=NDZiMjkwMDczZWI5ODdjOWYxZTIzZGIyNzEyMjE0ODI=
14) Blacks suffer most from foreclosures
http://www.reuters.com/article/domesticNews/idUSN1931892620070320
15) Party platforms regarding housing
http://realtytimes.com/rtpages/20080908_washingtonreport.htm
16) Ex-FDIC Chairman spills the beans
http://seekingalpha.com/article/95129-fdic-insurance-fund-it-doesn-t-actually-exist
17) World Socialist Web Site: Detroit worst in nation
http://www.wsws.org/articles/2008/feb2008/home-f20.shtml
18) MSN Money: foreclosure crisis affects only 1%
http://articles.moneycentral.msn.com/Banking/HomeFinancing/ForeclosureCrisisIsOverblown.aspx
19) Business Wire: WAMU and the CRA
http://findarticles.com/p/articles/mi_m0EIN/is_1997_April_10/ai_19291037/pg_2
20) The Federal Reserve: “only 2.3%”
http://www.federalreserve.gov/boarddocs/speeches/1999/19990616.htm
21) US News and World Report: worst 10 states
http://www.usnews.com/blogs/the-home-front/2008/09/24/the-top-10-foreclosure-states-as-of-august.html

This entry was posted on 2. January 2009 at 20:39 and is filed under politics, cultural/racial, economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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