How Obama Can Clean Up the Mess

I'd like everybody who possibly can to listen to 'Obama's Challenge': A Transformative Opportunity, a 38-minute interview, podcast, from NPR's Fresh Air which was broadcast on Thursday November 6.

This seems really important to me. Hopeful as well, as if maybe there's a way out of this economic mess we're in; but also important in that I'd like you to listen to it too.

And read the excerpt that's included here as well.

Robert Kuttner, author of Obama's Challenge spells out a convincing argument for both the depth of the problem and the need of a Roosevelt-like, New-Deal-like solution. I hate to summarize something as important as this, but:

• The government has to spend billions to prop up housing prices. Too many of us link our wealth to our home value. The economy can't survive a severe hit to the home owners. Roosevelt, facing something like this, established the Home Owners Loan Corporation (HOLC to buy up bad mortgages, keep people in their homes, and support home prices. If not -- listen to his very convincing explanations in the podcast, not me -- there will be hell to pay with the economic repercussions.
• The government has to spend billions to create lots of new jobs. People out of work will -- or might -- cascade into a huge problem. That's the worry. And, to prevent it, he has some brilliant answers about where to put government money to add new jobs to keep the economy afloat. His suggestions, which strike me as brilliant, don't fit into my bullet points.

"Yeah, right!" I was saying to myself, as I listened in my car. "Pipe dream." How do we pay for that?" I was muttering about deficit spending and the current administration and all, when, as I listened, I discovered that I've been wrong for a while on a very important concept. I just assume, perhaps by instinct alone, that we can't afford a New Deal solution.

And that's where this interview caught me. Consider this, which Kuttner explained to Terry Gross. Our national debt has risen lately to 40% of GNP. To support the housing prices and create the jobs Kuttner recommends, he says, it would probably have to rise to 50% of GNP, maybe even more. But -- and this opened my eyes wide -- the debt rose as high as 120% of GNP during the New Deal. And, furthermore, that led to the most prosperous two decades in U.S. history, beginning with my birth in 1948 (not that I was the cause, but I enjoy the coincidence).

I don't like being wrong. But it's exciting to be wrong on this one because for the first time in months I see a way that the president-elect can dig us out of the mess. Hooray.

Comments

[DuganS1]

"- the debt rose as high as 120% of GNP during the New Deal. And, furthermore, that led to the most prosperous two decades in U.S. history"

I don't believe such a massive increase in spending would be productive, although a smaller increase will. Regarding the Great Depression, the economy had been recovering strongly in 1933 before any of the New Deal spending measures had begun or been underway for any meaningful amount of time. Second, the huge amount of govt spending in 34-35-36 did not strengthen the economy enough to avoid the massive recession of 1937-38 which brought unemployment back up to 19%, and saw production levels fall back to 1934 levels (when the spending program really got underway). After the 37-38 recession unemployment didn't even go back under 14% until late 1940, and only because of war production.

In my opinion, one of the most productive things the govt could do to help the economy would be to significantly reduce Medicare and Medicaid spending and divert that money to more productive purposes like infrastructure, alternative energy, aid for homeowners and banks, etc. I think it would even be possible to add people to the federal health care dole and cut costs at the same time, mostly by eliminating coverage for many expensive treatments and massive cutting subsidies for pharmaceutical drugs (especially anti-depressants and E.D drugs).

[joebaggadonuts]

Ah, let's kill off the old and sick since they are a drain on the economy, right?

I hope I'm not related to you in any close sort of way, DuganS1.

[RoloTomassi]

Yup, that's the ticket; we need a FDR/Keynesian/New Deal approach to this mess, and not more deregulation folly.

And the Free Market Fundamentalists need to sit down and shut up; despite all of their fabricated successes and faith-based rhetoric, the truth is that their system ALWAYS FAILS.

[leftLibertarian]

Rolo - there has never been a 'free market' economy in the US.

[RoloTomassi]

I agree, and thank...whatever deity you choose. The point is the driving dogma behind the attempts to bring such about in other parts of the world, and yes, to some degree, here in the US.

It just simply doesn't work; strip away every real or imagined distortion, and an unregulated market system will still produce huge bubbles that will burst; they will become more frequent over time and eventually the system will fail.

No regulation, no sustainable system--and really, [just guessing by the "libertarian" in your screen name] the monetary system is besides the point. A return to the gold standard will not make free market fundamentalism work any better than the current system.