I'm not a fan of FDRs...think his expansion of the government was excessive and cost us liberties we'll never get back. Think many of his programs have caused more harm than good and were short-sighted at best. That being said, I have a tremendous amount of respect for his leadership through the Depression and WWII. His fireside chats calmed the American people, instilled confidence in the government's ability to address critical issues and laid out a vision for a better tomorrow.
In general I'm not of fan of President Obama, either, and for many of the same reasons. Expansion of government usually leads to a loss of liberty, is costly and invariably never goes away. On those points there is a commonality between FDR and BHO. Unfortunately, BHO falls far short of FDR, and even GWB, when it comes to leadership....the ability to set a vision and to get folks to do something they otherwise wouldn't have done. And this lack of leadership is a key factor of our economic problems.
Most economists agree that we won't recover from the recession until consumer demand increase enough for businesses to start hiring the unemployed. Obviously, there is some circular-logic in that statement...unemployed folks aren't in a position to go out and buy 'stuff' that will increase demand. But we've had this level of unemployment before and managed to come out of it without the massive increases in government spending we've seen over the last 2 years. (Forget that the administration told us if we passed his first stimulus plan unemployment wouldn't get over 8%.) So unemployment in and of itself isn't the dam holding back demand. And it is true that consumers are 'de-leveraging'....that is paying off outstanding debt. When that happens the amount of money left over to buy 'stuff' (hence drive demand) is lessened. But de-leveraging is absolutely the right thing for most consumers to do. From 2004-2008 we were actually spending more than our monthly income so getting our personal balance sheets cleaned up is important. But the temporary process of de-leveraging is well under way as fewer consumers are upside-down on the monthly cash-flow. De-leveraging will run it's course and Americans will once again have some money to spend.
Besides unemployment and de-leveraging there's a third component to increasing demand that we are just now starting to talk about with any seriousness - consumer confidence. In macro economics there's a critical concept called the 'velocity of money'. Basically, it measures how fast a dollar changes hands...how fast it's being 're-spent'. The velocity of money is important because it gives us a sense of both confidence and demand. The more confident consumers are the faster they will spend the dollar they just earned. The more confident businesses are the faster they will reinvest the dollar they just earned. The more confident banks are the faster they will lend the dollar they just received in deposits. And the opposite of each of these is just as true...low confidence slows the velocity of money. In fact, you may remember talk of a 'credit crisis' a few years ago with banks being accused of hoarding money. Banks weren't hoarding anything...nobody had any confidence in the economy so borrowers stopped borrowing. Money piled up at banks but not because they didn't want to lend it out, they couldn't give it away even with record low interest rates. Hence the velocity of deposits nearly shut-down.
So how do we restore consumer confidence and get the velocity of money (demand) up again? We've tried stimulus by pumping a few trillion into the economy...that didn't work. There are some Keynesians, like Paul Krugman, who insist we didn't spend enough money within a short period of time and that's why stimulus 'failed'. I don't think he's right but one thing is for sure....in today's political climate his idea will never see the light of day. Between the failure of previous stimulus plans and the current lack of bi-partisanship in DC, significant stimulus ain't gonna happen. And it is this combination of failed policy and perceived ineptness of our leaders that is killing consumer confidence - at both the macro level and the micro level. Consumers simply don't have faith that DC can 'fix' the economy. In fact, my guess is that if polled the majority of Americans would say DC has made things worse and not better since TARP passed in the fall of '08.
As many Presidents have shown in the past, leadership can drive confidence. FDR, JFK and RR all had the ability to set a vision and inspire a country. FDR told us the only thing we had to fear was fear itself. JFK challenged us to reach for the moon and we made past the stars. RR talked of a rendezvous with destiny as the shining city on the hill. If you're trying to get Americans to do exceptional things, it helps to tell them about American exceptionalism.
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