My Problem with the “Obama Recession”
Yesterday, the Dow Jones ended a weeklong rally to tumble 150 points as investors faced grim economic data. Massive layoffs show no signs of slowing, and Obama’s radical and admittedly vague spending plans highlight the growing threat of debt and inflation. As Wall Street continues to decline, a few conservative commentators have taken it upon themselves to blame Obama for the meltdown. Rush Limbaugh has even dubbed our current woes the “Obama recession.” As any economist will say, however, it isn’t fair to blame Obama for something he played little part in creating. The tumble of Wall Street and the dismal economic data started well before the president took office, and the underlying causes of the financial meltdown are traceable all the way back to the Community Reinvestment Act of 1977.
Don’t get me wrong, like every conservative I was horrified when Obama revealed his plan for over $3 trillion in new government spending. The president’s new budget contains unheard of amounts of wasteful spending, and the massive tax hikes that he will be forced to levy on the American people in the face of ensuing debt may very well push the economy over the edge. But conservatives need to stop blaming Obama every time Wall Street has a down week, and the “Obama recession” tagline should be dropped. Obama did not create this recession, and he has not been in office long enough for his policies to do any permanent damage. Commentators like Rush Limbaugh and Sean Hannity need to realize that the downfall of the American economy started 18 months ago, not 18 days ago.
Perhaps the biggest indicator of America’s desperate plight was the rapid failing of banks like Washington Mutual and Lehman Brothers. American banks provide the lending capability that keeps businesses running, and when they fail or are on life support, the pulse of the credit market weakens along with every business that needs short term loans for operation. Washington Mutual failed September 26th of 2008, over a month before Obama was elected, yet Limbaugh continues to blame the president as if he had pulled the plug on WaMu himself. Obama didn’t pull the plug on WaMu and all of the other failed banks. Congress pulled the plug on them when they created a real estate bubble by mandating subprime lending over thirty years ago through the establishment of the Community Reinvestment Act of 1977.
Like most legislation, the CRA was well intentioned. Proponents said that the act would help poor families achieve homeownership by mandating that banks supply mortgages to sub-prime (or unqualified) borrowers. Unfortunately, like most government intervention in the market, the act skewed the lending process and created a housing bubble based on debt and speculation. Thirty years later, the consequences of government meddling began to surface. Housing prices began to collapse as the market reacted to an oversupply of housing, and delinquencies among sub-prime borrowers soared. Banks sustained massive losses from the foreclosures, many failed, and so began the credit crunch of 2007 that started this whole mess. Now, I’m not sure where Obama was in 1977, but I don’t think he was hanging around Congress scheming to bring down the American economy.
As much as we disagree with Obama’s fiscal and social policies, conservatives need to be careful where and when they place blame. As the last election demonstrated, American’s are sick of the irrational, ultra-partisan criticism that has plagued both the left and the right for years. That isn’t to say that conservatives should moderate their views or become centrists. American’s don’t want to see the Republican Party moderate its principles. Americans want to see proof that Republicans are willing to fairly judge the performance and long term prospects of the current president—meaning not passing judgment or blame in an unfair or opportunistic way. If Obama’s massive spending plan is to fail, America (and the world) has only to wait a few more months to find out. At that point, Republicans can join with American taxpayers in their outrage and demand change. Until then, it doesn’t make sense to risk the reputation and future of the party to criticize Obama for a crisis he didn’t create.
[...] certainly not one to criticize Krugman for narrowing the first sign of regulatory trouble to a single piece of legislation, but Krugman seems to be implying that Reagan’s deregulation forced American’s into [...]