February 16, 2012

Can Obama Match Roosevelt's Impact? (Updated)

Like Franklin Roosevelt, President Obama presides over a nation in a crisis which is profound and lasting, and where progress is slow.

But the weakness is deeper rooted, more substantial than many people realize. It won't be enough to have a housing bottom (especially where prices remain too high for new families to afford). It won't help to rely on exports as Europe begins to stagnate and China remains locked in destructive mercantilism with systematic trade barriers.

There is more here than only the housing bubble and its collapse.

Like the Great Depression, this collapse was also proceeded by a zooming economy (the roaring 20s and the roaring 90s) with automation, innovation, productivity and tax breaks that helped to create great wealth.

When there is so much wealth unspent that must be invested, a special problem arises.

Since high earners cannot spend all their income and must invest much of it, and when good investments are saturated in an economy, then speculative investments (such as dot com stocks, soaring housing, mortgage-backed securities) follow.

As wealth builds to extraordinary levels, speculation blows into bubbles.

We've have the stock bubble of 1998-2000, the great housing bubble of 1999-2007, the oil price bubble of 2008, and the US Treasury bond bubble of 2009 to the present.

Great wealth with nowhere to go that is productive.

History shows large bubbles and their collapses are devastating and the recoveries are always slow and prolonged (due to debts after asset prices collapse).

As before, many cannot pay what they owe (mostly mortgages), or can pay only by spending little on anything else.

Spending is reduced while productivity still rises, so many jobs are lost, and even a stimulus-aided recovery is slow under the weight of the debts.

These are the well-known effects of bubble collapses in developed economies.
No other result is possible without overwhelming intervention. Without at least a significant intervention (as we have had), a great spiral downward ensues until government does something big enough, and long enough.

How long, how big? Consider: even after Roosevelt's large programs and some good economic growth through the mid 30s that seemed to show light at the end of the tunnel, trying to reduce the federal deficit in 1937 immediately caused a sharp economic relapse.

What finally ended this underlying weakness? We do know that total war mobilization and World War was big enough to free an economy from this kind of lasting weak state.

But something less than total mobilization, and more targeted than we've done so far, could bring us out of this malaise in a lasting way (click here for a specific method of broad debt reduction).

Most Americans don't understand this situation, or the exact effects of the overhang of heavy mortgage debt. Heavy debt seems normal, as it has been around for a decade, and longer for many.

It just doesn't occur to people that a mid-range family income cannot really support $200,000 or more of mortgage debt (while also saving for college and retirement adequately). We are accustomed to many people paying 30%, 35%, and more of their income into a mortgage. We've lost perspective.

We are slogging more slowly than Americans believe we should, and many have no understanding of why and what to do, so they must fall back on simple concepts from talk show hosts and blame the current President.


President Roosevelt had two advantages that make President Obama seem weak in comparison.

One primary advantage, as I've explained before in posts on the Great Depression, is that Roosevelt took office many years into the collapse. By 1933, the damage was profound, and no one could pretend it was only about a lack of confidence or not enough freedom for enterprise, or any other partisan guessing.

Instead, it was obvious in 1933 that the economic collapse was something overwhelming, and that it had nothing at all to do with regulation, taxes, freedom, or any of the assertions we hear so often today. 1929-1932 had modest taxes, little regulation. Since then, high growth periods like the 1950s, 60s, and 90s had higher taxes, heavy regulation, welfare, you-name-it. All of those reasons, those talking points, are simply false by evidence of the history of economic growth.

In 2009, as Obama took office, our downturn had not yet progressed to 1933 or 1932 levels, though by the end of 2008 the spiral down was rapidly accelerating.  But we responded with stimulus in a way that did not happen in 1930 or 1931....

Our new depression has been held at bay while some of its force was spent and its downward momentum broken, for now.  But this depression, like the previous Great Depression, is global, and global effects may yet visit us again.

As we've kept the wolves at bay, not all people have become aware that we were are in a deeper economic crisis.

Many can be told that this glacial recovery is simply Obama's fault. Romney is working hard to establish just this 1984-style, up-is-down 'fact.' (and more, e.g.: Obama wants to "weaken our defense," etc.)

Roosevelt had a profound advantage, coming into the crisis late, after denial was impossible.

But....there is another advantage Roosevelt had, one needed now.

We think Obama is a great speaker, and he is in some ways, so we conclude he has communication down. He's able to communicate, we think.


Roosevelt communicated more clearly, in the face of crisis, because Roosevelt used powerful terms and plain language and called a spade a spade in stark terms that could not be ignored or easily mislabeled. Roosevelt used effective language:

President Obama must realize that most care little about about Race; and we actually want Change. But these constructs are abstractions (!) -- they are not the real center of feeling for most of the nation.

We care about what is the real beating heart of our people -- our relations with each other, and Government is a part, an outer band, of our relation with each other.

This is the real center of the political debate, and the great question of our time.

Are we a people, or are we only a loose alliance?

This question shows underlies most of our debates -- pick a debate, and you are looking at an instance.

Will Obama take FDR's example?

He could.

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