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Obama's Mistake in Reasoning

by Artur P. Schmidt Saturday, Mar. 14, 2009 at 10:04 AM
mbatko@lycos.com

The accumulation of capital in fewer and fewer hands first made possible the worldwide economic crisis. For Obama's economic policy to be successful, he must reverse the assets disparity and force the 10% with two-thirds of the assets to solidarity through higher taxes.

OBAMA’S MISTAKE IN REASONING

By Artur P. Schmidt

The problems will not be solved with the economic program. A reversal of the assets disparity is necessary

[This article published 2/27/2009 on the German-English cyber journal Telepolis is translated from the German on the World Wide Web, http://www.heise.de/tp/r4/artikel/29/29816/1.html.]




The address of the US president on Tuesday on the State of the Union was brilliant. He knows how to celebrate great scenes and captivate his hearers with his rhetoric. However with all the magical quality that issues from him, he lacks a long-term orientation in thinking concerning economic questions. Even if the current economic program can provide a short- to medium term push, it cannot solve any of the problems that led to the worldwide economic crisis.

It is too easy to make Wall Street the sole culprit of the current crisis. The Federal Reserve that increased the money supply more than the growth of the gross domestic product for 13 years has the chief responsibility. The Federal Reserve acted very carelessly when it lowered interests to ease crises triggering one bubble after another. The American Congress that supplied the unregulated monopolies Fannie Mae and Freddie Mac with state guarantees helped transform the whole US economy into a giant Ponzi scheme. That bankers radically exploited this system to their advantage is obviously not acceptable. However the culprits of the crisis sat in the central banks and governments of this world.

CLINTON’S GREAT MISTAKE

Bill Clinton and Al Gore made one of the most catastrophic wrong decisions in 1999 when they repealed the “Glass-Steagall Act” that separated investment banks and commercial banks. With that, the immense leverage of the financial products of the last years and the bubble in the American house market were first made possible. To keep pace with the international competition, investment banks had to take ever-greater risks, which ultimately led to their complete collapse in the fall of 2008.

That Obama has not curbed Federal Reserve head Bernanke with his escalating money-printing machine will turn out to be a fatal mistake since the whole US middle class will be quasi expropriated at the end with an inflationary policy.

Obama’s diagnosis lacks the insight that the credit crunch did not improve through the past policy. Then he would not have agreed to a bailout of banks but would have given the money directly to the businesses. Only through that kind of credit airlift can the collapse of the real economy be prevented. If there are sufficient credits for the economy, the interests could also be raised. If something is lacking to the US, it is a higher savings rate. This could not be realized through lower interests and gifts of tax funds to banks since false incentives and signs were set here.

EXOGENOUS DOWNSWING FACTORS

Under economic aspects, reducing the current budget deficit of 10% of the gross domestic product to 3% by the year 2005 makes sense. However this is only true in a phase of a booming economy, not in phases of recession. In America, contracting debts booms, not the economy. Through the inflationary policy, the rest of the world now jointly finances this.

According to Bernanke’s prediction, government bonds will be soon purchased to keep the interest level low. But why are 10-year and 30-year interests on government bonds going up? Shouldn’t the market tolerate Bernanke’s simple-minded reasoning? Obama would do well to recognize that the two essential forces accelerating the economic downswing in the US are exogenous factors. Firstly, the demographic factor indicates a clear growth weakness of the US economy will occur in the next two decades through the retirement of the baby boomer generation. Secondly, foreign investors will be less and less ready to lend the US money at low interests if Helicopter Bernanke has his way.

ERHARD’S LEGACY: REAL WAGES MUST INCREASE!

Who can provide the money needed for America’s restructuring? This money can only come from those who robbed the lower- and middle-class for decades, the American upper class. When the assets disparity in a country becomes as great as in the US, the economic lever must be applied for further redistribution upwards.

The Great Depression of the 1930s also had its starting point in an incredible transfer of assets to a minority. Surveys of the last years [1] show that 300,000 Americans together gained as much income as 150 million Americans from the lower income strata. Per person, the top group of earners receives 440-times the salary of an average person of the lower income class. These numbers have nearly doubled since 1980.

It has nothing to do with socialism when the money stolen from the middle class by the elites is collected again through higher taxes. The alleged economic hostility of such a measure can be immediately refuted since it was the accumulation of capital in fewer and fewer hands that first made possible the worldwide economic crisis. If Obama wants to successfully fight what may be the greatest depression in economic history, he must start here. The key for the success of his economic policy will lie in raising the real wages of lower income groups and the middle class.

In the US, every second job offers a salary adequate for maintaining a family household. The consequences are two- or three jobs with often-considerable social repercussions for single mothers, fathers and their children. There was no place in neoliberalism for Ludwig Erhard’s admonition that a social market economy can only be fulfilled when “genuine real wage increases” are possible.

REVERSING THE ASSETS DISPARITY

For Obama’s economic policy to be successful, he must reverse the assets disparity and force the 10% of the US population who control two-thirds of the assets to solidarity through higher taxes. If Roosevelt had started here in the 1930s, his New Deal would have been much more successful.

Obama may have the chance to show the world that America has finally overcome racial separation through his presidency and the income separation that led to one of the most unjust economies the world has ever seen. It is a disgrace for the US that 1/5 of the population, 60 million Americans, live below the poverty line while the rich have celebrated lavish parties for decades. Since Milton Friedman, top managers have hammered out the doctrine: “Economy is done in the economy” without giving much regard for solidarity, equality and justice. “Yes we can” should mean that Obama breaks through this doctrine and recognizes the true causes of the current crisis and doesn’t only “treat” symptoms.

NOTES

1) http://www.nytimes.com/2007/03/29/business/29tax.html

Telepolis Artikel-URL: http://www.heise.de/tp/r4/artikel/29/29816/1.html

LINKS

Wikipedia article on Franklin Delano Roosevelt and his first and second New Deal:

http://en.wikipedia.org/wiki/Franklin_Delano_Roosevelt





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