In the post World War II era, which one is the worst? Would it be the economic team of Barack Obama or Jimmy Carter? Many pundits would understandably pick Carter. He left the nation with high unemployment as well as staggering inflation and interest rates, both of which topped 18 percent by early 1980.
Americans had to buy cars with an 18% interest rate, but at the same time there wages were worth less in real terms. The Carter presidency also saw gas rationing and shortages. The economic situation under Carter was dire, but I would argue the “worst” designation belongs to team Obama because of the long term damage they are inflicting on the economy.
At the time Carter made his mistakes, the computer age had yet to take hold and the level of economic understanding was less. Today the nation is in a deflationary cycle due to anemic GDP growth. Some economists are warning that this could be the precursor to stagflation or even hyperinflation.
Carter fired Treasury Secretary Michael Blumenthal during his 1978 “malaise” speech, and at the same time he installed Paul Volcker at the Federal Reserve. The first Obama casualty will be OMB Director Peter Orszag, 41, who be leaving on August 1st after 18 months. When memoirs of the Obama administration are written, one certain theme will be the battle between Orszag and the man who defeated him, former Treasury Secretary Larry Summers.
In 2008, Orszag was portrayed as a deficit hawk, and two years earlier he was the author of the speech then House Minority Leader Nancy Pelosi (D-CA) gave throughout the 2006 campaign. She said the election of a Democratic Congress would lead to a balanced budget and the “restoration of fiscal responsibility.” As OMB Director, Orszag has been the intellectual architect of the $862 billion stimulus, two budgets that boosted spending to World War II levels, and the $2.5 trillion ObamaCare.
Average spending for federal agencies has risen by more than 50% since 2008.
Congress will not pass a budget this year, but that is not Orszag’s fault. He will soon hit the lecture circuit and my guess is that his comments about the Bush economic program will be significantly different from his White House day. Orszag has been bad, but Larry Summers is worse. At least Orszag is now advocating budget reductions.
Summers and Christina Romer want to borrow even more money to “stimulate demand.” In the past month Summer has advocated $50 billion to hire more teachers and another $150 billion for a jobs program. Over $300 billion in stimulus funds have not been spent, but Summers does not want them used for deficit reduction. Romer was an economics professor at the University of California at Berkeley and believes economic growth is lagging because the 2009 stimulus was too small!
Former Treasury Secretary Summers does not want any spending reductions which might jeopardize this year’s election and Obama’s 2012 campaign. Nothing significant will happen before the December 1st report of the bipartisan commission to tackle the deficit.
I hope President Obama will remember the remarks he made last November 18th: “It is important though to recognize if we keep on adding to the debt, even in the midst of this recession, that at some point, people could lose confidence in the U.S. economy in a way that could actually cause a double dip recession.”