On Wednesday, The New York Post posted an article about the current state of the American economy. The article cites claims by the media that President Obama is handing Donald Trump a ‘booming’ economy. The article then asks the question, “If the economy is so all-fired ducky, how come Americans just tossed out the party that’s claiming credit for it?”
The article explains:
The truth is that the Obama years have been among America’s worst for the economy. His eight years will go down in history as the Great Recession, even though for much, even most, of the span, we weren’t technically in a recession.
It just felt that way. And no wonder. Obama’s is the only modern presidency that failed to show a single year of growth above 3 percent, a point Trump stressed during the campaign (and that was conceded even by the website Politifact).
Plus, the Obama economy failed to prosper even though the Federal Reserve had its pedal to the metal. Its quantitative easing, $2 trillion balance-sheet expansion and zero-interest-rate policy all produced zilch.
Except for pumping up Wall Street and producing what Trump calls a “false economy.” The recent declines in the unemployment rate are due less to the uptick in employed persons than to an increasing number of persons leaving the labor force.
In a “true economy,” what people would boast about would be the number of employed persons rising faster than the size of an expanding workforce. In reality, the job participation rate is the lowest in decades, as millions are too discouraged to seek a job.
And the recent record Dow Jones average? It’s pumped up by the Federal Reserve. It’s nowhere near a record if the Dow is calculated in the most traditional measure of value. The gold value of the Dow peaked way back in 1999.
President Obama took office in the midst of the bursting housing bubble. Just for the record, the bubble was not George W. Bush’s fault. The bubble had its roots in the Community Reinvestment Act (CRA), passed by Congress in 1977. The CRA was revised in 1995 under President Clinton. The new provisions forced banks into making subprime loans to borrowers who might not be able to pay them back. The new provisions also allowed subprime mortgages to be traded with securities. Since many subprime loans were underwritten by Fannie Mae or Freddie Mac, agencies closely related to the government, the government eventually had to bail out the banks who made these loans. As the bubble formed, President Bush, and later Senator John McCain pushed legislation to curb the overenthusiastic housing market. In both cases they were stopped by Democrats who had either taken large campaign donations from Fannie Mae or Freddie Mac or had received ‘sweetheart mortgage deals’ from mortgage companies closely associated with the subprime mortgage market. (How is it that Fannie Mae or Freddie Mac can legally make campaign donations?)
Congress and two Presidents caused the housing crisis. I am sure that President Carter and President Clinton meant well when passing or amending of the CRA. However, the housing bubble is a shining example of what happens when the government attempts to interfere with the free market. How many banks would have avoided the subprime mortgage market and held the housing bubble in check if they had not been forced to issue subprime mortgages? The free market works. Government interference in the free market does not work. Hopefully President Trump will allow the principles of the free market to bring the American economy into a growth cycle. A GDP of less than 3 percent is not acceptable.