Bursting Obama’s Housing Bubble

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Touting the “Great Compression,” Krugman’s book credits the tax and spend politics of FDR and later administrations for the great economic boom of the 1950s. He cites that the end of the boom coincided with the emergence of the conservative movement, but he uses few facts to bolster his arguments. Instead, Krugman uses racial demagoguery and class warfare rhetoric to make his points.

According to Krugman, the Great Compression was responsible for the destruction of the rich and the upper class, forcing them out of wealth and political power, while transferring both to the emerging middle class of the post-war years. This destruction of the rich was not a fluke, but a feature. Krugman’s tome incessantly cites this as economic gospel, and only reluctantly admits that the emerging American manufacturing sector after World War II and the demand for goods in war-torn countries in Europe and Asia, may have played a part in demand for blue-collar workers at home.

Krugman’s book makes no mention of economic life under FDR, which became progressively worse the longer he was president. His tax programs did nothing to bolster the economy, a situation that didn’t right itself until after World War II.

This economic dogma is inherent in much of the economic policy of the past year, such as the now failed stimulus and mortgage programs. Efforts are made to artificially increase demand, public-sector employment, and to recreate credit and housing bubbles instead of letting the market take its course and reset on its own. What this has resulted in is an ever-growing government and a shrinking private sector, as businesses stop investing and stop hiring under the threat of new fees and taxes. Without new businesses and employees to pay new taxes, the growing government runs up more debt on less incoming tax revenue, which worsens the economy. Things progressively degenerate, with sectors like the housing market never hitting bottom due to government interference.

This has to come as a shock to Krugman, who wrote “Conscience of a Liberal” in 2007, but updated it with a prologue in 2008 reflecting on the election of President Barack Obama. Citing this historic victory, Krugman said that American was in fact center-left, not center-right, and that Obama’s election would hail a “new New Deal,” including major health care reform along with a new Great Compression to further spur America into a new economic golden age.

A year later, the opposite happened. This would seem to be the inevitable result of a very profligate government, but this is lost on Obama. It’s also lost on Krugman, who readily admits in “Conscience of a Liberal” that a new Great Compression may not necessarily work.

“Now, maybe the dire predictions would come true if we tried to replicate the Great Compression today,” Krugman wrote. “But the fact is that none of the bad consequences one might have expected from a drastic equalization of incomes actually materialized after World War II.”

Those predictions were true prior to the post-war economic boom, and were only squelched with actual historic, core growth. They are also true today, and worth heeding, as Obama continues to ramp up spending in search of economic heaven.

B.J. Bethel is a journalist in the Midwest. He regularly writes about politics, film and sports

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  • Gamaliel Isaac

    The new deal programs were over after World War II. That's one reason the economy recovered.

    • Johnb

      At least with the new deal they built some roads and dams. Infrastructure improvements.
      Not much but at least something. Obama has nothing to show for our trillion dollar investment. No roads (lots of signs though) no improved National power distribution system. Nothing except some subsidized green projects that will continue needing subsidizing.

  • The_Inquisitor

    Krugman has it backwards. It isn't equalization of income which spurs economic prosperity; it's non-equalization of income which spurs economic growth.

    Those who are successful in the market get the big incomes. They then invest that wealth which means that they direct and control the productive process into the future.

    Now who would you rather have in control of the nation's production? Obama? A nincompoop like Krugman? Or a proven successful entrepreneur?

  • JasonPappas

    It is politically difficult to say that truth–the housing market has to fall if sound lending policies are to prevail. I fault Obama for subsidizing housing prices and home ownership. Sad to say, I don't think the Republicans would do any better.

    Our culture of self-sufficiency and self-responsibility is at a historic low. We need a culture war but not the kind that we see in pop-books like Bill O'Reilly's. It should be focused on the virtues of hard-work, earning one’s keep, and respecting the property rights of others. That means we don’t always get what we want … only what is rightfully ours, i.e. what we’ve earned.

    It isn’t economic knowledge that we need to spread … it is ethics. We all know it is wrong to ask to be given another people’s property. We must chart a path to establish a rights-respecting regime where bailouts, subsidies, and government management are ultimately eliminated. If we don’t make this an ethical issue, we will lose.

    • Sprinklerman

      The problem is that there are far too many who do not go to church. When Obama said that "when we spread the wealth around it good for everybody"; not it is not, it's a sin. Sharing the wealth means that someone is committing a mortal sin. "Thou shalt not covet thy neighbors house or anything in it."

      Anyone who would accept government handouts commits a mortal sin. Anyone who in the government promotes a share the wealth policy is committing a mortal sin.

      The problem is that there are far too many children who are now parents who have never been in church and do not understand what the ten commandments mean or how they should guide their everyday life. Their children are suffering the same ignorance and the same fate.

      Go to church this Sunday and take your kids!

  • http://www.intellectualconservative.com Steven Laib

    Government doesn't want to admit that the market is better off without their intervention. If it did, it would lose power and the ability to horsetrade with big businesses.

    • Dennis X

      Since the end of tax incentives the housing market for the sale of previously owned homes has gone dowm 27%.

  • TaterSalad

    He is still blaming Bush #43: